Annual Financial Report

RNS Number : 6276S

AVI Japan Opportunity Trust PLC

18 March 2021

 

AVI JAPAN OPPORTUNITY TRUST

ANNUAL REPORT 2020

LEI: 894500IJ5QQD7FPT3J73

The Directors present the audited Annual Report for the year ended 31 December 2020.

Copies of the Annual Report can be obtained from the Company's website ("AJOT" or the "Company") www.ajot.co.uk or by contacting the Company Secretary by telephone on 01392 477500.

AVI Japan Opportunity Trust plc ("AJOT" or "the Company") invests in a focussed portfolio of quality small and mid-cap listed companies in Japan that have a large portion of their market capitalisation in cash or realisable assets.

Portfolio Statistics as at 31 December 2020

	As at 31 December 2020	As at 31 December 2019
NAV*	-1.4%	14.3%
Net cash/Market Cap	46.1%	45.1%
Portfolio Discount	-41.9%	-36.1%
Benchmark†	3.2%	7.9%
EV/ FCF Yield	18.1%	14.3%
Portfolio Yield	2.1%	2.0%
Share Price*	-1.1%	14.3%
Net Financial Value/Market Cap	82.1%	81.0%
ROE ex non-core financial assets	21.3%	18.0%
FCF Yield	5.3%	5.8%
EV/ EBIT	4.3x	3.8x
ROE	7.9%	7.5%

Performance Summary

Net asset value per share at 31 December 2020	108.90p
Share price at 31 December 2020	111.25p
Premium as at 31 December 2020
(difference between share price and net asset value)	2.2%

 ^{*For all Alternative Performance Measures, please refer to the definitions in the Glossary below.
†MSCI Japan Small Cap Total Return Index (£ adjusted total return)}

Overview

Company Objective & Strategy

AJOT aims to provide Shareholders with total returns in excess of the MSCI Japan Small Cap Total Return Index in GBP ("MSCI Japan Small Cap Total Return"), through the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by Asset Value Investors Limited as undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or other realisable assets.

AVI seeks to unlock this value through proactive engagement with management and taking advantage of the increased focus on corporate governance, balance sheet efficiency, and returns to shareholders in Japan.

The companies in the portfolio are selected for their high quality, whether having strong prospects for profit growth or economically resilient earnings. By investing in companies whose corporate value should grow overtime, AVI can be patient in its engagement.

Benchmark

The MSCI Japan Small Cap Total Return Index.

Capital Structure

As at 31 December 2020, the Company's issued share capital comprised 117,489,742 Ordinary Shares of 1p each and as at 15 March2021 it comprised 131,430,702Ordinary Shares. No shares were held in Treasury.

Annual General Meeting

The Board currently intends to hold the Company's Annual General Meeting ("AGM") at 10.30 am on Wednesday 28 April 2021 at the offices of Asset Value Investors Limited, 25 Bury Street, London, SW1Y 6AL. This may change at short notice due restrictions relating to the COVID-19 pandemic and Shareholders are advised to monitor RIS and the Company's website for changes. Shareholders are currently advised not to attend in person but to submit their vote ahead of the meeting or appoint the Chairman as proxy. Shareholders will be able to submit questions to the Board and AVI ahead of the AGM and answers to these, as well as AVI's presentation, will be made available on the Company's website. Please refer to the Notice of AGM for further information and the resolutions which will be proposed at this meeting.

Investment Manager

The Company has appointed Asset Value Investors Limited ("AVI" or the "Investment Manager") as its Alternative Investment Fund Manager.

Financial Conduct Authority ("FCA") regulation of 'non-mainstream pooled investments' and MiFID II 'complex instruments'

The Company currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers in the UK 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. The shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an authorised investment trust.

The Company's ordinary shares are not classified as 'complex instruments' under the FCA's revised appropriateness criteria adopted in the implementation of MiFID II.

The Association of Investment Companies ("The AIC")

The Company is a member of The AIC.

Website

The Company's website, which can be found at www.ajot.co.uk, includes useful information on the Company, such as price performance, news, monthly and quarterly reports as well as previous annual and half year reports.

Chairman's Statement

Overview of the Year

2020 was for everyone a year of many unexpected challenges, opportunities and results. COVID-19 and the resulting global lockdowns altered daily lives, severely disrupted economic activity, and took many lives. We are unlikely to know for many years the longer-term impact that this modern-day pandemic is going to have on the world. AJOT has endured everything 2020 has thrown at it and enters 2021 in a better position now than at any stage since its inception in 2018, as explained below.

During the year, equities worldwide were of course highly volatile. The Spring saw sharp and fast, but brief, declines in all major global stock markets, followed by a similarly fast paced recovery. As is often the case, recoveries in stocks precede recoveries in economies, with varying time lags and trajectories. During this period a whole alphabet soup of possible recovery paths were put forward. As we head into 2021, with multiple vaccine rollouts underway, the most favoured V-shaped recovery for Japan appears in the offing with stronger synchronised global growth expected. This will undoubtedly benefit AJOT's holdings.

In addition to the macroeconomic factors, 2020 was a significant year for corporate governance activity in Japan. Prime Minister Abe's administration, the longest in the post-war period, came to an end but was swiftly and smoothly replaced by new PM and Abe protégé Suga, who has pledged to continue with and accelerate the reforms begun under "Abenomics". Against this favourable backdrop, it was perhaps to be expected that global investors have once again turned their focus to Japan after a decades-long absence, most notably in the form of accelerating activity by foreign private equity players.

At the individual company level, AJOT has now been joined by a steady stream of investors from around the world identifying and attempting to unlock often extreme value in Japan. While at launch back in 2018 we were in a small minority focussing on this opportunity, we now have many like-minded investors joining us, most notably Warren Buffett buying a portfolio of trading companies in the second quarter of 2020. The year also saw, in the form of Nitori Holdings and Colowide's respective bids for Shimachu and Ootoya Holdings, significant domestic hostile takeover activity that was unimaginable just a few years ago. And crucially, there was no regulatory or societal backlash; M&A has quietly become a legitimate and acceptable corporate strategy. Like the rest of the world, the pandemic and the consequent restrictions in travel have encouraged Japanese company managements to look inward, declutter cross-shareholdings and look for opportunities closer to home. This "Corporate Staycation" trend is set to continue and represents a very positive development and opportunity for our investee companies.

During the year, your investment manager, AVI, led two public campaigns at Fujitec and at Teikoku Sen-i, that were instrumental in those two stocks recording very strong performances during the period. Moreover, despite travel restrictions, AVI continued to hold regular discussions with investee companies, aided by significant additions to their investment team, including a senior team member based in Tokyo.

Performance and Dividend

As is sometimes the case however, the market did not reflect these improvements, overshadowed as they were by global events. So far, commensurate NAV returns remain elusive. We do not expect such a dynamic to last indefinitely, and as such have more conviction now, than at any time since inception, on the prospect of future returns for your Company. During the year, your Company achieved a net asset value ("NAV") per share total return of -1.4% in GBP. This compares to a return for the MSCI Japan Small Cap Return Index of +3.2% (also in GBP).

Your Company's largest holding, Fujitec at 8.1% at year end, was the largest contributor to returns, adding +340bps, and highlighting the power of constructive engagement. SK Kaken, 6.0% of NAV at year end, was the largest detractor (-220bps). A detailed commentary on your Company's performance by AVI follows on the pages below.

On 15 March 2021 (the last practicable day prior to publication of this document) the NAV per share was 108.06p, a discount of 0.29 per cent. to the closing share price of 107.75p.

The Company paid a dividend of 0.65p to Shareholders in October 2020. The Board proposes a dividend of 0.65p per share for the year ending 31 December 2020.

Investment Strategy

As you will recall, AJOT's raison d'etre is that Japanese corporate culture and governance is undergoing a revolution. For decades corporate Japan operated with little regard for shareholders, balance sheet efficiency or returns on equity. Extreme value was built up year after year on company balance sheets; yet the owners - that is, shareholders - were never able to access it. Under the Abe administration this started to change. The process is slower than some may like, but the direction of travel - as backed by politicians and regulatory bodies, and cajoled forward by increasingly vocal shareholders - is undeniable.

Your Company is set to benefit from the continuation of this trend, with significant ownership stakes in a concentrated portfolio of heavily over-capitalised and extremely undervalued companies. AVI will continue to engage actively with management and other shareholders to unlock this value.

Share Premium and Issuance

As at 31 December 2020, your Company's shares were trading at a premium of 2.2% to NAV per share. The Board monitors this premium carefully and manages it by periodically issuing shares. During 2020, we utilised the Company's authorised block listing facility to increase our shares in issue by 3,550,000. As at 31 December 2020, 117,489,742 shares were in issue, a pleasing increase from the 80,000,000 at AJOT's launch. Since the year end, the Company issued further shares through a placing and the blocklisting facility as detailed below and as at 15 March 2021, the Company had 131,430,702 shares in issue.

Debt Structure and Gearing

As described in the Prospectus, the Board supports the use of gearing to enhance portfolio performance. In March 2020 the Company increased its total debt facility from ¥2.93 billion, to ¥4.33 billion, an increase equivalent to approximately £10 million. The debt facility was renewed on 17 February 2021 and will mature on 16 February 2022. The gearing has been provided at an interest rate of LIBOR plus 0.95%

As at 31 December 2020, ¥2.2 billion (£15 million) of the facility had been drawn, and gearing was 6.8%, slightly below the targeted 10-15% range.

Outlook

Looking forward, like every other government, fulfilling the previously announced ESG obligations will remain a priority for the Suga administration. In last year's statement, we explored Japan's unique and historically well-established approach to the environment and sustainability of commerce. With a further, though somewhat modest goal of carbon neutrality by 2050, productivity improvements will be a tentpole policy of the coming decade. Central to this aim is the establishment of a Digitalisation Agency, to promote computerisation in all of its forms. In spite of its reputation for technological prowess, large parts of Japanese society still operate in the analogue era. Fax machines are still in widespread use, while pandemic-induced remote working revealed Japan's corporate Achilles heel in the anachronistic need for all documents - invoices, receipts, contracts - to be physically sanctioned with the application of a corporate seal, or hanko, a practice dating back five centuries to the time of the shoguns. Nationwide, digital reform will leave no industry untouched, creating a new class of Japan's own tech winners, some of which are discussed in the Investment Managers report below.

With the benefit of hindsight, 2020 was full of encouraging signs: the resilience of your holdings' business models during the pandemic; AVI's enhanced engagement efforts; continued evidence of changing corporate governance norms; and investor interest from both private and public equity institutions. All of these add to the mounting evidence in favour of owning a concentrated portfolio of lowly valued Japanese equities likely to benefit from the corporate governance revolution.

ESG Leadership

As you are aware, AJOT's investment objective is heavily focussed on improvements in G, the governance of the underlying investments in Japanese companies made on your behalf by AVI. The broader ESG approach is detailed in the Annual Report. However, there is no doubt that factors represented by these three letters will be playing an increasingly crucial role in all decision making, whether operational or investment, for corporates and individuals alike. In terms of corporate governance, your Company has adopted the very highest standards from the start, with measures in place to prevent value destruction caused by wide discounts to NAV, and directly aligning the interests of the Investment Manager with Shareholders, among other approaches.

Going forward, we will be turning our attention to the E and S issues, ensuring that your Company remains at the vanguard of putting these criteria at the core of what we do. AJOT, like every other investment trust with no premises and no employees, can have a limited direct effect on E and S issues. However your Board believes that you as Shareholders, our most important stakeholders, expect more from us as Directors. We therefore intend to take an increasingly proactive approach, and encourage our stakeholders to focus on their own mitigation strategies. We will start by asking all of AJOT's counterparties - the investment manager, broker, administrator, legal team, accountants and auditors, as well as major Shareholders and others, two questions:

(1) What ESG policies are implemented within your organisation?; and

(2) What ESG policies do you expect your stakeholders to follow?

The responses are likely to range from the very straightforward, "We recycle paper in the office" or "We buy electricity from renewable sources", to the more nuanced; "We use carbon offsets to mitigate business air travel made on behalf of our clients", which might lead us to ask "How do you calculate the most efficient offset program?" We might ask our Shareholders what additional cost they would be willing to incur to ensure AJOT's stakeholders adopt improved ESG measures, if indeed there are additional costs?  The information collected will form the basis of a full understanding of these priorities within the investment trust community. Although participation will be entirely voluntary, we anticipate a high level of engagement. Your Board will review the results, share them with the respondents and with refinements over time, develop them into a comprehensive Investment Trust ESG Policy. We are very excited to be launching this initiative and hope to have the first set of responses to share with you in the next Interim Report in six months' time.

Closing Remarks

Thank you for your continued support as Shareholders. I would also like to thank the other stakeholders in the Company: first and foremost, your Investment Manager AVI, N+1 Singer as broker, as well as Link our Administrator, who have all dealt with the unexpected issues of 2020 in their stride. If you have any queries, please do not hesitate to contact me personally ( [e-mail] ), or alternatively speak to our broker N+1 Singer to arrange a meeting.

Norman Crighton

Chairman

17 March 2021

Investment Manager's Report

2020 was a most remarkable year. You are perhaps tired of hearing that, but there is simply no other way to put it. It will likely stand out in our collective memory for quite some time, whatever else future years may bring.

To recap the year for investors, the outbreak and spread of COVID-19 around the world in the first quarter of 2020 induced a short, savage bear market, erasing fully one-quarter of global equity values in a matter of just four weeks. I can say, without hyperbole, that the sell-off was breath-taking for its pace and severity.

Following the lows in March, markets began a rapid recovery as investors realised that monetary and fiscal support - policy tools honed during the previous financial crisis - would underwrite the worst of the economic and financial damage. At the time of writing, the MSCI ACWI Total Return Index, a proxy for global stock markets, has risen +44% from the March lows (in GBP), and returned +13% for 2020 as a whole: a remarkable achievement given the high wall of worry that markets needed to climb, and a testament to the near-insuperable optimism of humanity.

It has been no less an extraordinary year in Japan than elsewhere in the world. While the outbreak of, and fallout from, COVID-19 was managed better than in many other countries, the Bank of Japan's latest estimates nonetheless show a -6% contraction in GDP for 2020, highlighting the extent of the damage wrought by the pandemic. Against this difficult backdrop, the TOPIX Composite increased +9.5% for the year, the MSCI Japan Small Cap +3.2%, and your Company's NAV returned -1.4% (all figures total returns, in GBP).

These headline returns mask important trends: growth companies - in particular, technology or technology-enabled stocks - have delivered the most impressive performance as they have been natural beneficiaries of lockdowns. Cyclical, economically exposed stocks, on the other hand, have suffered and await a resumption of physical economic activity to return to full profitability. This dichotomy can be seen in the MSCI Japan Small Cap Growth Index, which returned +10.9% in 2020, against a return of -4.6% for the MSCI Japan Small Cap Value Index.

The environment in which your portfolio companies operate is exhibiting signs of a V-shaped recovery, which bodes well for a strong recovery in corporate cash flows and profits. To date, the companies in your portfolio have not relied on government furlough schemes nor raised additional debt or equity capital to fund operations, highlighting the resilience of their business models. Despite the demonstrated resilience and promising earnings profile of the portfolio, the stock market reaction has been, and remains, disappointing. The result of this is that the portfolio has gotten cheaper over the year and presents new opportunities. Although this experience has been frustrating, cheap valuations coupled with strong fundamentals lay the foundation, in our view, for strong future returns.

Corporate activity in Japan remains replete with potential, and since the Japanese economy exited lockdown, we have seen the return of animal spirits to capital markets. Buybacks and takeover activity returned to normal levels in the second half of the year, and foreign inflows turned positive in November and December. These inflows have been largely focused on large- and mid-cap names, but we believe that investor interest will in time turn to the small-cap segment of the market to which your portfolio has a significant exposure.

Large overseas private equity firms are showing significant interest in Japan, including well-known houses such as Carlyle, KKR, CVC and Blackstone. Many of these companies are raising large Asia- or Japan-focused funds, which will bring capital into Japanese markets searching for attractive deals. In a sign of the changing times, hostile takeover bids are no longer regarded as anathema, or the preserve of aggressive foreign firms.

The enhanced level of corporate activity and foreign interest in Japan, together with the supportive backdrop for corporate reform provided by the Suga administration, are very promising and the potential for the unlocking of shareholder value is increasingly compelling.

Overall, despite this year's somewhat disappointing NAV performance, we remain convinced that the portfolio's fundamentals are as sound as ever, and the valuations as compelling as they have ever been. Furthermore, the backdrop of corporate activity and supportive governmental policy provides a powerful catalyst for unlocking shareholder value. We comment further on an individual stock basis in the contributors and detractors section below, but we believe that your Company's portfolio is attractively positioned to benefit from all of the above, and the probability of strong returns from here is as good as it has been at any point since AJOT launched over two years ago.

Contributors

Fujitec

Contribution to total return	+3.4%
Weight in AJOT net assets	8.1%
EV/EBIT	12.3x
NFV/Market Cap	37.5%

Fujitec was the largest contributor to AJOT's returns over the period, adding 340bps, after its share price appreciated by +29%. This was driven almost exclusively by an expansion of the EV/EBIT multiple from 8.4x to 12.3x, on what we think is at least in part attributable to our public work highlighting the undervaluation of Fujitec.

Founded in 1948, Fujitec manufactures, installs and maintains elevators and escalators ("E&E"). While it has a global presence, 90% of profits derive from Asia where it is well established, and over half of profits relate to sticky after-sales services.

At the beginning of May we launched a detailed public campaign¹ highlighting a multitude of issues at Fujitec, outlining how our suggestions could lead to improved margins and a higher valuation. We recommended to the board that they undergo a comprehensive strategic review, evaluate outsourced manufacturing, set out a transparent capital policy and adopt a three-committee style board structure. Our research for the presentation took around two months, and during that time we spoke to twelve experts within the field, including ex-Fujitec employees, peers, customers and suppliers.

Since we released the presentation, we met/had calls with management on eleven separate occasions. Pleasingly, less than seven months later, Fujitec publicly responded to our presentation with a new strategic direction for the company. Whilst we would have liked to have seen an explicit capital policy and a share buyback program, we were happy to see that the company will install a compensation and nomination committee, discontinue their anti-takeover measure when it expires in 2022, streamline their manufacturing process with a targeted operating margin of more than 10% (the highest since 1998) and focus on the more lucrative after-service business.

These were in line with many of the key points we outlined in our presentation and we applaud management for actioning not only ours, but other shareholders' views. We now plan to continue pushing for a rigorous capital policy, in particular a share buyback program, and will hold management accountable to their 10% margin target.

The share price reaction since the announcement has been lacklustre, +2.1% vs +1.2% for the MSCI Japan Small Cap. We think that the market is misunderstanding the substantial operational improvement measures and is too focused on short term initiatives such as a share buyback program.

Fujitec trades on a 12.3x EV/EBIT, which is undemanding considering that earnings have been temporarily impacted by coronavirus disruption and that peers trade on an average multiple of 24x. Despite the strong share price performance this year, we are optimistic about Fujitec's future performance, which is why Fujitec ended the period as the portfolio's largest position.

¹ The presentation can be found on www.takingfujitectothenextlevel.com

Pasona Group

Contribution to total return	+2.0%
Weight in AJOT net assets	6.3%
EV/EBIT	<0.0
NFV/Market Cap	284%

Pasona is one of Japan's largest recruitment and outsourcing companies, with a 50% stake in Benefit One. Pasona added +199bps to returns over the period, making it your Company's 2nd largest contributor, with its share price appreciating by +32%, buoyed by a +37% increase in Benefit One's share price and a record-high quarterly profit.

Our interest in Pasona stems from its stake in Benefit One, which, remarkably, accounts for 287% of Pasona's market cap and implies a large negative value for Pasona's core operating businesses (-¥161 billion to be exact). Such a large negative value could be justified for a loss-making business, but Pasona's businesses excluding Benefit One reported an operating profit of ¥7.3 billion over the past 12 months.

Pasona is not without its imperfections. It is controlled by the 68-year-old Yasuyuki Nambu, who has proved resistant to shareholder pressure. He has expanded the business into some questionable areas, and to encourage rural living, converted part of Pasona's prime Tokyo headquarters into a farm - with livestock. While Mr Nambu has publicly stated that he will focus more on profits, as he is in control, the timing to cutting costs and increasing margins is firmly at his discretion. However, this is all well known and is why we are able to purchase a stake in Pasona at a 76% discount to its underlying value. What is more important is whether we can achieve an attractive risk-adjusted return considering these faults.

Pasona's most recent quarterly results showed green shoots of an improving cost structure, with corporate overhead costs falling 15% and its non-Benefit One businesses recording a 6.6% operating margin (the highest quarterly margin in Pasona's history). While part of the strong quarterly performance was due to temporary contracts to assist the Government in various coronavirus-related work, the higher margin continues a trend of improving profitability since 2017.

The most accretive outcome for our investment in Pasona is the spin out of its stake in Benefit One to shareholders (tax-free). Illustratively, and we do not believe it will take decades to realise Pasona's upside, even without an improvement in the value of Pasona's businesses, we can wait 15 years to realise the value of Benefit One and return a respectable 10% annualised return. More optimistically, if we assume Pasona's stake in Benefit One and its unlisted assets appreciate by 5% per year, we can wait 30 years (by which time Mr Nambu will be 98 years old and unlikely to be running the company) and achieve an annualised return of 10%.

Pasona's valuation is at such an extreme that a slight change in the market's perception could see a dramatic upward shift in the share price: returning to the 67% discount at which it started 2020, would result in a 35% gain. The staggering upside potential coupled with signs of improving margins leaves us optimistic about Pasona's future.

SoftBank Group

Contribution to total return	+2.0%
Weight in AJOT net assets	4.6%
EV/EBIT	<0.0
NFV/Market Cap	118%

SoftBank Group ("SoftBank") was the third-largest contributor to returns over the period, adding 198bps. We initiated a position in SoftBank in February 2020, whose key assets include stakes in Alibaba, SoftBank Corp (a Japanese telecommunications company), the Vision Fund, Arm Holdings, and T-Mobile US. During our short ownership we have made an impressive return on investment of +44% and an IRR of +58%, in yen.

SoftBank is a well-known name, which has been plagued by negative headlines surrounding the Vision Fund and the tumultuous investment in WeWork. We felt that the publicity of these issues belied the fact that SoftBank's investment in the Vision Fund was simply not very material in terms of its economic impact, being far outweighed by the value of the stakes in Alibaba (65% of NAV) and, to a lesser extent, its telecoms holdings: Japan-listed SoftBank Corp (10%) and US-listed T-Mobile (5%); and had created an opportunity to acquire a stake in SoftBank at a remarkably wide discount to its underlying value.

Having acquired our initial position at what we believed was a wide discount to NAV (48%), the discount then widened to as much as 76% over the COVID-19-inspired market sell off, and we increased our position by nearly 40% at an average 64% discount and at prices 28% lower than when we first made our purchase.

A combination of pressure from shareholders (we wrote to the company outlining our recommended course of action) and the weak share price, led Masayoshi Son, SoftBank's CEO and founder, to announce unambiguously shareholder friendly measures. In March SoftBank announced a ¥500 billion buyback (an estimated 6% of market cap at the time of the announcement) followed by a thumping commitment to sell JPY4.3 trillion of assets and buy back a further ¥2.0 trillion of shares (26% of market cap) in addition to reducing debt. Since then, SoftBank has announced the appointment of new independent directors to its board and has improved transparency around the Vision Fund. This was welcome news for investors and, from the nadir in March, the share price has bounced back by +200%, and ended the period +40% above the pre-COVID price at which we initially purchased shares.

SoftBank has been an excellent investment for your Company. However, we believe that despite the strong gains, SoftBank still represents good value, a claim which we buttress with two observations. Firstly, the average discount of 40-50% that the market has applied to SoftBank in the past is no longer appropriate, given that it has shown itself willing to reduce leverage, improve capital allocation and tentatively embrace higher standards of corporate governance. Therefore, we believe there is further upside to the 41% discount at which SoftBank ended the period. Secondly, ongoing share buybacks generate risk-free, immediate, and certain NAV accretion for remaining shareholders. However, we are cognisant that a narrower discount reduces upside potential and towards the end of the year we reduced the position by -30%, bringing SoftBank's weight in the portfolio down to a more modest 4.6%.

Teikoku Sen-i

Contribution to total return	+1.3%
Weight in AJOT net assets	5.2%
EV/EBIT	5.3x
NFV/Market Cap	58.4%

Teikoku Sen-i ("Teikoku")'s share price held up well over the period, increasing by +2.7% vs the MSCI Japan Small Cap return of +1.5%. The contribution to returns for your Company was bolstered as we reduced the position by 27% at an average price 8% above where it ended. Resulting in a total contribution to returns of 132bps.

Teikoku is a manufacturer and distributor of disaster prevention equipment in Japan. Its equipment ranges from emergency hoses to state-of-the-art rescue vehicles. Geographically speaking, Japan is precariously placed, and each year suffers from typhoons, earthquakes, and flooding. The Government of Japan is devoting significant resources to disaster prevention infrastructure as have private companies (particularly nuclear power operators).

Over the past two decades Teikoku has expanded its product lines to meet demand and this year announced a plan to invest ¥4.2 billion (c.£30 million) building a new factory dedicated to the production of rescue vehicles. This is a fantastic development for two reasons. 1) The current factory is split between fire hoses and rescue vehicles. By moving the production of vehicles to a new factory, Teikoku should be able to increase capacity of both fire hoses and vehicles. Moreover, we expect that dedicated factories and more automation should lead to cost savings. 2) Investing low yielding cash, which is heavily discounted by investors, is hugely accretive. ¥4.2 billion is not an insignificant investment and accounts for 20% of Teikoku's cash. A return on capital of 10% (reasonable assumption considering that Teikoku achieves a return on assets excluding cash and investment securities of 15%) could contribute ¥400 million to profits, or an 8% increase.

The second point is most encouraging, considering that in January we launched a public campaign titled "Transforming Teikoku"², highlighting Teikoku's inefficient capital allocation. We argued that with 70% of balance sheet assets held in cash and investment securities, Teikoku was harming corporate value, and this was the reason for its low market valuation. By adopting a balance sheet allocation in line with the average Japanese company, Teikoku could increase its ROE from a mediocre 7% to 20% - and with it the potential for a 120% share price increase.

We submitted two shareholder proposals for an increased dividend equivalent to a 50% payout ratio and a buyback for 3% of outstanding shares. Given the percentage of allegiant shareholders who have conflicting business relationships, it was not our expectation to win either proposal, but to draw attention to Teikoku's balance sheet mismanagement.

Encouragingly, despite the presence of allegiant shareholders, our proposal was supported by 25% of shareholders, with strong backing from Japanese institutions, and while hard to say, might have been a contributing factor in management's decision to utilise cash for capital expenditure.

While Teikoku has taken a positive step by investing cash into a new production facility, there is more that can be done, and we will continue to engage with management on Teikoku's capital efficiency. In the meantime, we hope to benefit from increased disaster prevention expenditure in Japan and from an improvement in Teikoku's modest 5.3x EV/EBIT valuation, as the quality of the business gets better reflected in the share price.

² The presentation can be found on www.transformingteikoku.com

Aichi

Contribution to total return	+1.1%
Weight in AJOT net assets	2.9%
EV/EBIT	2.6x
NFV/Market Cap	50.0%

Aichi is a relatively new position for your Company, entering the portfolio in November 2019. This was a fortuitously timed purchase, as over 2020 Aichi's share price increased by +27%, resulting in a +36% gain on our position and a 107bps contribution to performance.

Aichi is a mature, cash cow business, selling two types of arial platforms: truck-mounted and standalone, used to repair bridges, install and upkeep telephone and electric wires, and maintain overhead train cables. It has a 30% market share in Japan and is the leader for its product categories. Its strong market positioning allows the business to generate an operating margin and return on invested capital in excess of 10%.

Our investment in Aichi was premised on its stable business, compelling valuation (3.2x EV/EBIT at the end of 2019) and it being a listed subsidiary of Toyota Industries. Listed subsidiaries and their controlling parents are coming under increasing pressure to ensure the protection of minority shareholders. Which we believe was part of the motivation for Aichi's unexpected announcement in March that it was going to pay out 50% of profits over the next three years (vs 33% average over the past three) and buy back up to 5.2% of its shares over the next three years (only the 2nd buyback in Aichi's history). Alongside these announcements Aichi have started to produce quarterly results in English - helpful for foreign investors.

With the more shareholder friendly outlook it was of little surprise therefore, that Aichi's valuation improved over the year from 3.2x to 6.4x driving its strong share price performance. We still believe Aichi is a buy-out candidate by Toyota Industries but given the improving shareholder returns and stable business, we can afford to be patient.

Detractors

SK Kaken

Contribution to total return	-2.2%
Weight in AJOT net assets	6.0%
EV/EBIT	1.2x
NFV/Market Cap	88.4%

SK Kaken was the largest detractor over the period falling -21% and detracting 220bps from returns. SK Kaken's detraction was outsized due to its weighting in the portfolio, being on average our third largest position with a 7.0% weight. The share price of SK Kaken fell less than the market during the February sell-off, but disappointingly did not recover in the latter half of the year.

SK Kaken's share price suffered from continued selling pressure from a large foreign institution which experienced heavy redemptions, coronavirus-related profit weakness (-33% for the first six months of the year), and a falling EV/EBIT multiple from 5.2x to 1.2x. Remarkably, for a company of SK Kaken's size (£750 million market cap), net cash accounts for 88% of the market cap.

Headquartered in Osaka and listed on the JASDAQ with poor liquidity, SK Kaken flies under the radar of many investors. Its share price suffers from a prohibitively large minimum trading size of £27,500, preventing any retail investors from buying shares. This is quite easily rectified through a share split, something we have communicated to management.

Whilst on the surface SK Kaken's paints business might seem cyclical and low quality, our analysis shows that this is not the case. 75% of sales derive from paint replacement rather than new construction, and its focus on the niche segment of architectural coatings allows it to command a 52% market share and earn an impressive 27% return on capital. It is the only large paint company to focus predominantly on the domestic market, with Nippon Paint and Kansai Paint more exposed to China and India - both of whom significantly outperformed SK Kaken this year appreciating by 102% and 20% in 2020 respectively.

SK Kaken's lagging share price presents an opportunity for a rebound, as we do not believe that the fundamental outlook of the business has materially worsened. While we wait for a recovery, we are comfortable owning the shares knowing that the underlying value will continue to appreciate each year.

Tokyo Radiator

Contribution to total return	-1.9%
Weight in AJOT net assets	1.8%
EV/EBIT	<0.0
NFV/Market Cap	148.2%

Tokyo Radiator was the second largest detractor, despite only an average weight of 2.1%. It suffered a -47% fall in its share price, with net cash now covering a preposterous 148% of the market cap. Tokyo Radiator is one of the few companies in the market whose share price has fallen since the lows of the February selloff, despite an improving business environment.

Tokyo Radiator's mainstay products are cooling radiators, used in trucks to avoid high temperature damage, and EGR coolers, which provide a mechanism to reduce harmful NOx emission by cooling exhaust gas. Most of Tokyo Radiator's sales are for commercial vehicles with less than 15% for passenger vehicles. This is important as the electrification of commercial vehicles is behind that of passenger, giving Tokyo Radiator time to develop products used in electric vehicles (batteries still need to be cooled).

It has been a difficult period for Tokyo Radiator which has suffered on multiple fronts. Its overseas business struggled amidst the US-China trade war resulting in slowed China sales, while the onset of COVID-19 saw weak commercial vehicle demand for Tokyo Radiator's key customer, Isuzu.

Last year Tokyo Radiator appointed a new President tasked with improving operations. He has focused on increasing R&D expenditure, expanding sales in China, outsourcing the production of some commoditised parts and modernising facilities. The effects of his efforts have yet to bear fruit, but the management team are confident about the outlook, particularly for their China business.

Trading with 148% of its market cap covered by net cash, Tokyo Radiator is undeniably cheap. Applying a very modest 5x EV/EBIT multiple to pre-COVID profits (which were already depressed), gets to a fair value of ¥949/share, 90% higher than the ¥500 share price at year end. In a meeting with management at the end of the year they commented that they too did not understand Tokyo Radiator's low share price.

We believe the crystallisation of Tokyo Radiator's undervaluation will be either through a buy-in by 40% shareholder Marelli, which is owned by KKR, or a management buyout funded by a private equity firm. Given the pressure on companies to collapse parent-child relationships and Tokyo Radiator's subpar corporate governance, we believe it is untenable for Tokyo Radiator to continue in its current form, especially given the reputational risk to KKR. Tokyo Radiator is poised for a rapid bounce in its share price and has one of the largest upsides in the portfolio.

Toyota Industries

Contribution to total return	-1.2%
Weight in AJOT net assets	0.0%
EV/EBIT	n/a
NFV/Market Cap	n/a

Toyota Industries - the family controlled holding company of the Toyoda family - was also a detractor from returns, reducing performance by 120bps. The position was exited in the spring in order to reduce the portfolio's exposure to more economically sensitive areas of the economy, such as the auto industry, and so as to use the proceeds of one of the portfolio's more liquid names to invest in other areas where we felt valuations were more compelling. It was the timing of the sale that accounted for the detraction from performance, as we did not hold a position when markets rebounded.

The portfolio did, however, retain an interest in the Toyota nexus via Aichi Corp, the listed subsidiary of Toyota Industries. As we have communicated previously, we believe such structures are becoming increasingly untenable, and view Aichi as a possible take-out target.

We have long been attracted to Toyota Industries' world-leading forklift business, which has successfully shifted into warehouse logistics, and a beneficiary of the increased need for warehouse capacity to support ecommerce. It also manufactures parts used in electric vehicles, an attractive growth opportunity. Toyota Industries remains on our watchlist and at the right valuation could re-enter the portfolio.

Tachi-S

Contribution to total return	-0.7%
Weight in AJOT net assets	0.0%
EV/EBIT	n/a
NFV/Market Cap	n/a

We exited our position in Tachi-S over the period and although it was a relatively small weight, its share price weakness caused it to detract 70bps from performance. From the start of the year to our average selling price Tachi-S' share price fell -37%.

Tachi-S is a manufacturer of seats for automobile producers. Uniquely, it is an independent operator without affiliation to one brand, producing seats for Honda, Nissan, Toyota and Mitsubishi. Our first investment in Tachi-S was at the launch of AJOT in October 2018. Tachi-S' valuation was compelling, with net cash and investment securities covering more than 100% of its market cap, and we had made positive inroads with our engagement - with management undertaking two separate buybacks. However, ultimately it is the business performance that drives returns and Tachi-S' business suffered severely from COVID-19, reporting a heavy loss for the first half of its fiscal year. Fortunately, we were cognisant of the cyclicality risks of the business and Tachi-S was never a core position in the portfolio, averaging a weight of only 2.1% over our holding.

Faced with a difficult business situation we think that management's focus should rightly be on stemming losses rather than considering how to enhance shareholder returns and rightsize the balance sheet. Confronted by business headwinds, we don't think that further engagement would be fruitful and that the recovery in Tachi-S' earnings could take some years to come through. We, therefore, felt it prudent to recycle the cash into more exciting opportunities.

Secom Joshinetsu

Contribution to total return	-0.6%
Weight in AJOT net assets	5.4%
EV/EBIT	1.3x
NFV/Market Cap	87.4%

Secom Joshinetsu detracted 62bps from returns as its share price fell -8% with its illiquid shares indiscriminately sold during the COVID-induced sell-off and failed to fully recover. This, despite a respectable earnings performance during the period from 31 March to 30 September 2020, which encompassed the worst of the COVID-related social restrictions, where sales fell only -2% and operating profits grew +2%.

Secom Joshinetsu has a remarkably defensive business, providing security systems and security personnel. Its customers are on yearly contracts, but around 98% renew, resulting in sticky and stable revenues. Secom Joshinetsu is 54% owned by Secom and, with the support of Secom's systems and R&D, serves the prefectures of Gunma, Niigata and Nagano.

Secom Joshinetsu's close relationship with its parent shareholder opens a raft of potential conflicts of interest. 3 out of 8 board directors at Secom Joshinetsu previously worked at Secom; Secom Joshinetsu pays Secom a percentage of their sales to use Secom's trademark and to access other intellectual property; and almost all of Secom Joshinetsu's cash is deposited at Secom.

Given the multitude of potential conflicts of interest with minority investors and the inefficiency of Secom operating its business in three prefectures through a separately listed subsidiary, our thesis is that Secom will buy in Secom Joshinetsu. Management of Secom Joshinetsu have been receptive to our suggestions and seem cognisant of the governance issues. With a new President at Secom and some nudging from minority shareholders at Secom Joshinetsu, we think this process can be hastened.

A buyout multiple of 10x EV/EBIT would not be unreasonable for a business of Secom Joshinetsu's quality - implying 62% upside to the share price at the end of December.

Notwithstanding the optionality from a buyout, it is perplexing that for a business that proved its resilience during one of the most difficult trading periods in the past decade, its share price fell by -8%. Secom Joshinetsu ended 2020 on a derisory 1.3x EV/EBIT multiple with net cash covering 83% of its market cap. Considering this and the buy-out potential, Secom Joshinetsu presents one of the most compelling risk adjusted opportunities in our portfolio.

Outlook

At the time of writing, two quarters of earnings have been reported since the worst of the COVID-related disruptions. 19 of our 27 companies have shown not only a recovery in profits but have reported year-on-year growth. However, the rosier picture has not yet been reflected in the share prices of our companies. On top of that, we are confident that shareholder engagement activity that was delayed by COVID will return with rigour at the upcoming AGM season - indeed, we are preparing our own shareholder proposals for a number of companies. All this taken together reinforces our conviction in the potential upside of the portfolio.

Joe Bauernfreund

Asset Value Investors Limited

Top 10 investments*

1. Fujitec (8.1% of portfolio, 12.3x EV/EBIT)

A leading manufacturer of lifts and escalators with a global presence. It trades at a significant discount compared to global peers due to weak margins outside of Japan and a lower ROE exacerbated by a large cash pile on its balance sheet. In May we launched a public campaign highlighting Fujitec's underperformance and undervaluation. Management have started to address a number of these issues and we believe there is considerable upside from an improving margin and higher valuation.

2. Pasona (6.3% of portfolio, <0 EV/EBIT)

A staffing company providing dispatch workers and recruitment services throughout Japan. Pasona has a 51% stake in Benefit One, a provider of welfare agency services. Benefit One has grown rapidly in recent years and Pasona's stake in the company is worth 287% of its market cap. The listed subsidiary phenomenon is a problem particularly acute in Japan and one we have paid close attention to as it comes under increasing scrutiny and pressure.

3. DTS (6.1% of portfolio, 5.6x EV/EBIT)

DTS provides a variety of IT-related services to Japanese corporations. It is expanding its business in "DX-related" fields such as cloud, robotics and IoT ("Internet of Things"). Japanese companies have underinvested in their IT infrastructure, with antiquated processes and complex legacy systems. With support from the Japanese government to digitalise processes we believe companies will dramatically increase their IT expenditure - much to the benefit of DTS.

4. SK Kaken (6.0% of portfolio, 1.2x EV/EBIT)

SK Kaken specialises in industrial paints, commanding more than 50% domestic market share. It is a stable business with consistent earnings and margins but a low payout ratio has led to cash ballooning on the balance sheet. This capital inefficiency masks an otherwise high-quality business, that trades on an EV/EBIT multiple of only 1.2x.

5. Konishi (5.5% of portfolio, 6.3x EV/EBIT)

Konishi has two main business lines, household sealant products and a civil engineering business. Its core sealant business has a leading market share in multiple product lines in Japan with strong brand loyalty, while its civil engineering business is a beneficiary of increasing repair work due to Japan's ageing infrastructure. This year management increased the dividend payout ratio, bought back shares and started to disclose financials in English.

6. Secom Joshinetsu (5.4% of portfolio, 1.3x EV/EBIT)

Secom Joshinetsu, a regional subsidiary of Secom, is an example of the problems of parent-subsidiary listings in Japan. It operates in Niigata, Gunma, and Nagano prefectures providing security services. Despite having similar business characteristics to its parent, Secom, Secom Joshinetsu trades at a severe discount and an EV/EBIT multiple of only 1.3x. Ultimately, we believe Secom Joshinetsu will be taken private by Secom.

7. Digital Garage (5.4% of portfolio, 11.5x EV/EBIT)

Its three main business interests are in: card payment processing, online marketing, and venture investments. Digital Garage has a good track record of incubating young tech businesses in Japan and being at the front of digital innovation. It also has a large stake in the online price comparison site Kakaku.com. Its complex holding structure leads to a large discount as investors overlook the value in its growing payments business.

8. Teikoku Sen-i (5.2% of portfolio, 5.3x EV/EBIT)

Founded as a textile company, Teikoku Sen-i's main business now is in manufacturing disaster prevention equipment. It has a strong track record of growth with high operating margins. We submitted shareholder proposals to Teikoku Sen-i's March AGM highlighting its excessive cash. Encouragingly, management have undertaken a large capital investment program to build a new factory and expand production, using their cash more productively.

9. C Uyemura (4.9% of portfolio, 4.4x EV/EBIT)

C Uyemura produces plating and surface finishing related chemicals for electronic circuit boards. Although it has a long history of developing and manufacturing high-quality products, several years of hoarding cash have unfairly depressed its valuation. Its business should be a beneficiary of strong trends in the increased adoption of electric vehicles, 5G-enabled devices and the Internet of Things.

10.Daiwa Industries (4.8% of portfolio, <0 EV/EBIT)

Daiwa Industries manufactures commercial kitchen equipment, centred around refrigeration units, although it has been successfully expanding into other product lines. The business benefitted from increased tourism and restaurant expenditure, although a low-payout ratio saw cash build on the balance sheet, depressing its valuation. Remarkably, Daiwa Industries trades with net cash covering 103% of its market cap.

Portfolio Construction

The objective of AVI's portfolio construction is to create a concentrated position of about 20-30 holdings, facilitating a clear monitoring process of the entire portfolio. AVI picks stocks that meet our investment criteria and once we decide to invest a minimum position size of approximately 2% of the portfolio is initiated. In determining position sizes, AVI is mindful of liquidity and the likely timing of any catalysts to unlock value. A key consideration is the make-up of the shareholder register, a proxy for how receptive management might be to our suggestions. The portfolio is diverse in the industries within it but we are sector agnostic and select investments based on quality and value.

Portfolio Value by Sector

	2020	2019
Industrials	40.6%	39.7%
Materials	19.7%	21.1%
Information Technology	16.5%	7.1%
Consumer Discretionary	8.7%	17.2%
Communication Services	4.3%	5.1%
Consumer Staples	4.0%	5.2%
Health Care	2.5%	4.6%
Real Estate	2.1%	0.0%
Financials	1.6%	0.0%

Equity Portfolio Value by Market Capitalisation

	2020	2019
>£1 billion	29.0%	25.0%
£500m-£1bn	32.0%	27.5%
£250m-£500m	26.0%	35.5%
<£250m	13.0%	12.0%

Investment Portfolio
At 31 December 2020
Company	Stock Exchange Identifier	% of investee company	Cost  £'000*	Market  value  £'000	% of  AJOT  net  assets	NFV/Market  Capitalisation1	EV/EBIT1
Fujitec	TSE: 6406	0.8	6,515	10,337	8.1%	37%	12.3
Pasona	TSE: 2168	1.3	5,560	8,016	6.3%	284%	<0
DTS	TSE: 9682	1.0	8,566	7,813	6.1%	48%	5.6
SK Kaken	JASDAQ: 4628	0.9	9,444	7,672	6.0%	88%	1.2
Konishi	TSE: 4956	1.5	6,781	7,036	5.5%	40%	6.3
Secom Joshinetsu	TSE: 4342	2.1	6,596	6,922	5.4%	87%	1.3
Digital Garage	TSE: 4819	0.5	5,322	6,922	5.4%	68%	11.5
Teikoku Sen-i	TSE: 3302	1.4	6,232	6,624	5.2%	58%	5.3
C Uyemura	TSE: 4966	1.2	5,895	6,326	4.9%	59%	4.4
Daiwa Industries	TSE: 6459	1.6	6,819	6,106	4.8%	107%	<0
Top ten investments			67,730	73,774	57.7%
SoftBank Group	TSE: 9984	-	3,861	5,850	4.6%	118%	<0
Toagosei	TSE: 4045	0.5	5,753	5,809	4.5%	59%	5.9
NS Solutions	TSE: 2327	0.3	5,380	5,522	4.3%	35%	7.5
Sekisui Jushi	TSE: 4212	0.8	5,292	5,505	4.3%	71%	3.5
Kato Sangyo	TSE: 9869	0.6	5,417	5,495	4.3%	77%	2.5
King	TSE: 8118	4.1	3,891	3,920	3.1%	99%	0.4
Aichi	TSE: 6345	0.7	2,789	3,740	2.9%	50%	6.4
Fukuda Denshi	JASDAQ: 6960	0.3	2,934	3,300	2.6%	67%	3.9
A-One Seimitsu	JASDAQ: 6156	5.6	3,293	3,139	2.5%	102%	<0
Alps Logistics	TSE: 9055	1.4	2,989	3,132	2.4%	36%	5.4
Top twenty investments			109,329	119,186	93.2%
Soft99	TSE: 4464	1.9	2,811	2,997	2.3%	104%	<0
Daibiru	TSE: 8806	0.3	2,863	2,877	2.3%	-105%	24.3
Asante	TSE: 6073	2.1	2,593	2,676	2.1%	45%	6.1
Kanematsu Electronics	TSE: 8096	0.3	2,462	2,414	1.9%	35%	7.1
Tokyo Radiator MFG	TSE: 7235	4.6	4,061	2,300	1.8%	148%	<0
The Bank of Kyoto	TSE: 8369	0.1	1,919	2,233	1.7%	199%	<0
Kanaden	TSE: 8081	0.7	1,871	1,933	1.5%	80%	2.5
Total investments			127,909	136,616	106.8%
Other net assets and liabilities				(8,666)	(6.8%)2
Net assets				127,950	100.0%
* Please refer to Glossary below.
1 Estimates provided by AVI. Refer to Glossary below.
2 Gearing. Please refer to Glossary below.

Business Model

Company Status

The Company is registered as a public limited company under the Companies Act 2006 and is an investment company under Section 833 of the Companies Act 2006. It is a member of The AIC.

The Company was incorporated on 27 July 2018 and listed on the London Stock Exchange on 23 October 2018.

The Company has been approved as an investment trust under Sections 1158/1159 of the Corporation Tax Act 2010. The Directors are of the opinion, under advice, that the Company continues to conduct its affairs as an Approved Investment Trust under the Investment Trust (Approved Company) (Tax) Regulations 2011.

The Company qualifies as an Alternative Investment Fund in accordance with the Alternative Investment Fund Managers Directive ("AIFMD").

Investment Objective

The Company's investment objective is to provide Shareholders with capital growth in excess of the MSCI Japan Small Cap Total Return Index, through the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by AVI as undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or realisable assets.

Investment Policy

The Company invests in a diversified portfolio of equities listed or quoted in Japan which are considered by the Investment Manager to be undervalued and where cash, listed securities and/or realisable assets make up a significant proportion of the market capitalisation. AVI seeks to unlock this value through proactive engagement with management and taking advantage of the increased focus on corporate governance and returns to shareholders in Japan. The Board has not set any limits on sector weightings or stock selection within the portfolio. Whereas it is not expected that a single holding (including any derivative instrument) will represent more than 10% of the Company's gross assets at the time of investment, the Company has discretion to invest up to 15% of its gross assets in a single holding, if a suitable opportunity arises.

No restrictions are placed on the market capitalisation of investee companies, but the portfolio is weighted towards small and mid-cap companies. The portfolio normally consists of between 20 and 30 holdings although it may contain a lesser or greater number of holdings at any time.

The Company may invest in exchange traded funds, listed anywhere in the world, in order to gain exposure to equities listed or quoted in Japan. On acquisition, no more than 15% of the Company's gross assets will be invested in other UK listed investment companies.

The Company may also use derivatives for gearing and efficient portfolio management purposes.

The Company will not be constrained by any index benchmark in its asset allocation.

Borrowing Policy

The Company may use borrowings for settlement of transactions, to meet on-going expenses and may be geared through borrowings and/or by entering into long-only contracts for difference or equity swaps that have the effect of gearing the Company's portfolio to seek to enhance performance.

The aggregate of borrowings and long-only contracts for difference and equity swap exposure will not exceed 25% of NAV at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate. It is expected that any borrowings entered into will principally be denominated in JPY.

Hedging Policy

The Company does not currently intend to enter into any arrangements to hedge its underlying currency exposure to investments denominated in JPY, although the Investment Manager and the Board may review this from time to time.

Material Changes to the Investment Policy

No material change will be made to the Company's investment policy without Shareholder approval. In the event of a breach of the Company's investment policy, the Directors will announce through a Regulatory Information Service the actions which have been taken to rectify the breach.

Management Arrangements

The Company has an independent Board of Directors which has appointed AVI, the Company's Investment Manager, as Alternative Investment Fund Manager ("AIFM") under the terms of an Investment Management Agreement ("IMA") dated 6 September 2018. The IMA is reviewed annually by Board and may be terminated by one year's notice from either party subject to the provisions for earlier termination as stipulated therein.

The portfolio is managed by Joe Bauernfreund, the Chief Executive Officer and Chief Investment Officer of AVI. He also manages AVI Global Trust Plc and is responsible for all investment decisions across the Investment Manager's strategies. Travel restrictions permitting, he conducts regular visits to Japan, engaging with prospective and current investments, which he has done for over 15 years.

Management fees are charged in accordance with the terms of the management agreement, and provided for when due. The Investment Manager is entitled to an annual fee of 1% per annum of the lesser of the Company's NAV or the Company's market capitalisation, invoiced monthly in arrears. The IMA requires AVI to invest not less than 25% of the management fee in shares in the Company. Management fees paid during the year were £1,218,000 and the number of shares held by AVI is set out in note 14.

J.P. Morgan Europe Limited was appointed as Depositary under an agreement with the Company and AVI dated 6 September 2018 (the "Depositary Agreement"). The Depositary Agreement is terminable on 90 calendar days' notice from either party.

JPMorgan Chase Bank, London Branch, has been appointed as the Company's Custodian under an agreement dated 6 September 2018 (the "Custodian Agreement"). The Custodian Agreement is terminable on 90 calendar days' notice from the Company or 180 calendar days' notice from the Custodian.

Link Company Matters Limited was appointed as corporate Company Secretary on 27 July 2018. The current annual fee is £61,440, which is subject to an annual RPI increase. The agreement may be terminated by either party on six months' written notice.

Link Alternative Fund Administrators Limited has been appointed to provide general administrative functions to the Company. The Administrator receives an annual fee of £91,980. The agreement can be terminated by either the Administrator or the Company on six months' written notice, subject to an initial term of one year.

Directors' Duties

Overview

The Directors' overarching duty is to act in good faith and in a way that is the most likely to promote the success of the Company as set out in Section 172 of the Companies Act 2006 ("Section 172"). In doing so, Directors must take into consideration the interests of the various stakeholders of the Company, the impact the Company has on the community and the environment, take a long-term view on consequences of the decisions they make as well as aim to maintain a reputation for high standards of business conduct and fair treatment between the members of the Company.

Fulfilling this duty naturally supports the Company in achieving its investment objective and helps to ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the Company explains how the Directors have discharged their duty under Section 172 below.

To ensure that the Directors are aware of, and understand, their duties, they are provided with the pertinent information when they first join the Board as well as receive regular and ongoing updates and training on the relevant matters. They also have continued access to the advice and services of the Company Secretary, and when deemed necessary, the Directors can seek independent professional advice. The schedule of matters reserved for the Board, as well as the terms of reference of its committees are reviewed on at least an annual basis and further describe Directors' responsibilities and obligations, and include any statutory and regulatory duties. The Audit Committee has the responsibility for the ongoing review of the Company's risk management systems and internal controls and, to the extent that they are applicable, risks related to the matters set out in Section 172 are included in the Company's risk register and are subject to periodic and regular reviews and monitoring.

Decision-making

The importance of the stakeholder considerations, in particular in the context of decision-making, is taken into account at every Board meeting. All discussions involve careful considerations of the longer-term consequences of any decisions and their implications for stakeholders.

Stakeholders

The Board seeks to understand the needs and priorities of the Company's stakeholders and these are taken into account during all its discussions and as part of its decision-making. The Board has discussed which parties should be considered as stakeholders of the Company. Following thorough review, it was concluded that, as the Company is an externally managed investment company and does not have any employees or customers, its key stakeholders comprise its Shareholders and service providers. The section below discusses why these stakeholders are considered of importance to the Company and the actions taken to ensure that their interests are taken into account.

Importance	Board Engagement
Shareholders
Continued shareholder support and engagement are critical to the existence of the Company and the delivery of the long-term strategy of the Company. The Directors intend to offer shareholders the opportunity to exit the Company at close to NAV in October 2022 and every two years thereafter. The Board and Corporate Broker will canvass opinion from Shareholders in the months leading up to October 2022 (and at each appropriate interval thereafter) when making any decision in respect of any potential Exit Opportunity.	The Company has over 200 shareholders, including institutional and retail investors. The Board is committed to maintaining open channels of communication and to engage with Shareholders in a manner which they find most meaningful, in order to gain an understanding of the views of Shareholders. These include: • AGM - Under normal circumstances, the Company welcomes and encourages attendance and participation from Shareholders at the AGM. Due to the restrictions relating to the COVID-19 pandemic, the Company's first AGM in March 2020 had to be held as a closed meeting. At the time of writing it appears unlikely that the Company will be able to welcome Shareholders at this year's AGM. Ahead of the 2020 AGM, the Company enabled Shareholders to put questions to the Board and Investment Manager via email. In order to enable Shareholder engagement under the current uncertain circumstances, similar arrangements will be made for the upcoming AGM. A presentation by the Investment Manager will also be made available on the Company's website. Please refer to the AGM notice for further details of the arrangements for this year's AGM. In future years, under hopefully more normal circumstances, Shareholders will have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Investment Manager attends the AGM and provides a presentation on the Company's performance and the future outlook. The Company values any feedback and questions it may receive from Shareholders ahead of and during the AGM and will take action or make changes, when and as appropriate; • Publications - The Annual Report and Half-Year results are made available on the Company's website and the Annual Report is circulated to Shareholders. These reports provide Shareholders with a clear understanding of the Company's portfolio and financial position. This information is supplemented by the daily calculation and publication of the NAV per share and a monthly factsheet and quarterly reports which are available on the Company's website and the publication of which is announced via a Regulatory Information Service. Feedback and/or questions the Company receives from the Shareholders help the Company evolve its reporting, aiming to render the reports and updates transparent and understandable; • Shareholder meetings - Unlike trading companies, Shareholder meetings often take the form of meeting with the Investment Manager rather than members of the Board. Shareholders are able to meet with the Investment Manager throughout the year and the Investment Manager provides information on the Company and videos of the Investment Manager on the Company's website and via various social medial channels. Feedback from all meetings between the Investment Manager and Shareholders is shared with the Board. The Chairman, the Chairman of the Audit Committee or other members of the Board are available to meet with Shareholders to understand their views on governance and the Company's performance where they wish to do so. With assistance from the Investment Manager, the Chairman seeks meetings with Shareholders who might wish to meet with him and Shareholders can contact him by emailing [e-mail]; • Shareholder concerns - In the event Shareholders wish to raise issues or concerns with the Directors, they are welcome to do so at any time by writing to the Chairman at the registered office or emailing [e-mail]. Other members of the Board are also available to Shareholders if they have concerns that have not been addressed through the normal channels; and • Investor Relations updates - at every Board meeting, the Directors receive updates from the Company's broker on the share trading activity, share price performance and any Shareholders' feedback, as well as an update from the Investment Manager on any publications or comments by press. To gain a deeper understanding of the views of its Shareholders and potential investors, the Investment Manager will also undertake regular Investor Roadshows. Any pertinent feedback is taken into account when Directors discuss the share capital, any possible fundraisings or the dividend policy and actioned as and when appropriate. The willingness of the Shareholders, including the partners and staff of the Investment Manager, to maintain their holdings over the long term period is another way for the Board to gauge how the Company is meeting its objectives and suggests a presence of a healthy corporate culture.
Other stakeholders
The Investment Manager
Holding the Company's shares offers investors an investment vehicle through which they can obtain exposure to AJOT's diversified portfolio of Japanese equities. The Investment Manager's performance is critical for the Company to successfully deliver its investment strategy and meet its objective to provide Shareholders with capital growth in excess of the MSCI Japan Small Cap Index through active management of the portfolio and engagement with portfolio companies.	Maintaining a close and constructive working relationship with the Investment Manager is crucial as the Board and the Investment Manager both aim to continue to achieve consistent, long-term returns in line with the investment objective. Important components in the collaboration with the Investment Manager, representative of the Company's culture are: • Encouraging open discussion with the Investment Manager, allowing time and space for original and innovative thinking; • The Chairman has weekly conversations with the Investment Manager to talk through any matters discussed by the Board between scheduled meetings, as well as any matters raised by the Investment Manager; • The IMA requires AVI to invest not less than 25% of the management fee in shares in the Company and to hold these for a minimum of two years, which ensures that the interests of Shareholders and the Investment Manager are well aligned; • Recognising the alignment of interests mentioned above, adopting a tone of constructive challenge, balanced with robust negotiation of the Manager's terms of engagement if those interests should not be fully congruent; • Drawing on Board Members' individual experience and knowledge to support the Investment Manager in its monitoring of and engagement with portfolio companies; and • Willingness to make the Board Members' experience available to support the Manager in the sound long-term development of its business and resources, recognising that the long-term health of the Investment Manager is in the interests of Shareholders in the Company.
The Administrator, the Company Secretary, the Registrar, the Depositary, the Custodian and the Corporate Broker
In order to function as an investment trust with a premium listing on the London Stock Exchange, the Company relies on a diverse range of reputable advisors for support in meeting all relevant obligations.	The Board maintains regular contact with its key external providers and receives regular reporting from them, both through the Board and committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely taken into account. The Board formally assesses their performance, fees and continuing appointment at least annually to ensure that the key service providers continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. For the year under review all key service providers were asked to complete a questionnaire regarding the matters discussed above, the results of which were discussed during a formal review of service providers at the March 2021 Board meeting. The Audit Committee reviews and evaluates the control environment in place at each service provider. In the light of the exceptional circumstances caused by the COVID-19 pandemic during the year under review, the Audit Committee also requested and reviewed updates from key service providers on business continuity, cyber security and fraud prevention at its September 2020 meeting.
Lender
Availability of funding and liquidity are crucial to the Company's ability to take advantage of investment opportunities as they arise.	Therefore, the Company aims to demonstrate to lenders that it is a well-managed business, capable of consistently delivering long-term returns.
Proxy Advisors
The evolving practice and support (or lack thereof) of proxy adviser agencies are important to the Directors, as the Company aims to build a good reputation and maintain high standards of corporate governance, which contribute to the long-term sustainable success of the Company.	The Board recognises that the views, questions from, and recommendations of many proxy adviser agencies provide a valuable feedback mechanism and play a part in highlighting evolving Shareholders' expectations and concerns. When deemed relevant, the Company will engage with proxy advisers regarding resolutions that will be proposed to the Company's Shareholders at AGMs and, based on feedback received, incorporate changes to future Annual Reports to enhance disclosures. Based on feedback received from proxy advisers on the 2019 Annual Report, the Company has included more detailed disclosures on Board effectiveness and diversity as well as more detailed disclosures on the Audit Committee's assessment of the quality of the audit in this Annual Report.
Regulators
The Company can only operate with the approval of its regulators who have a legitimate interest in how the Company operates in the market and treats its Shareholders.	The Company follows voluntary and best-practice guidance,  regularly considers how it meets various regulatory and statutory obligations and how any governance decisions it makes can have an impact on its stakeholders, both in the shorter and in the longer-term.

The above mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed on a regular basis at Board meetings to ensure that they remain effective.

Culture

The Directors agree that establishing and maintaining a healthy corporate culture within the Board and in its interaction with the Investment Manager, Shareholders and other stakeholders will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness, debate and integrity through ongoing dialogue and engagement with its service providers, principally the Investment Manager.

The Board strives to ensure that its culture is in line with the Company's purpose, values and strategy. The Company has a number of policies and procedures in place to assist with maintaining good corporate governance including those relating to diversity, Directors' conflicts of interest and Directors' dealings in the Company's shares. The Board assesses and monitors compliance with these policies as well as the general culture of the Board regularly through Board meetings and in particular during the annual evaluation process which is undertaken by each Director (for more information see the performance evaluation section in the Corporate Governance Statement of the Annual Report).

The Board seeks to appoint the best possible service providers and evaluates their service on a regular basis. The Board considers the culture of the Investment Manager and other service providers, including their policies, practices and behaviour, through regular reporting from these stakeholders and in particular during the annual review of the performance and continuing appointment of all service providers.

Environmental, Social and Governance Matters

As an investment company, the Company's own direct environmental impact is minimal. The Company has no greenhouse gas emissions to report from its operations (2019: none), nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 or the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.

The Company's operations are delegated to third-party service providers, and the Company has no employees. The Board seeks assurances, at least annually, from its suppliers that they comply with the provisions of the UK Modern Slavery Act 2015 and maintain adequate safeguards in keeping with the provisions of the Bribery Act 2010 and Criminal Finances Act 2017.

The Directors do not have service contracts. There are four Directors, two male and two female. Further information on the Board's policy on diversity and recruitment of new Directors is contained within the Corporate Governance Statement of the Annual Report.

Both the Board and AVI recognise that social, human rights, community, governance and environmental issues have an effect on its investee companies. The Board supports AVI in its belief that good corporate governance will help to deliver sustainable long-term Shareholder value. AVI is an investment management firm that invests on behalf of its clients and its primary duty is to produce returns for its clients. AVI seeks to exercise the rights and responsibilities attached to owning equity securities in line with its investment strategy. A key component of AVI's investment strategy is to understand and engage with the management of public companies. AVI's Stewardship Policy recognises that Shareholder value can be enhanced and sustained through the good stewardship of executives and boards. It therefore follows that in pursuing Shareholder value AVI will implement its investment strategy through proxy voting and active engagement with management and boards. Further details on AVI's environmental, social and governance policy can be found in the Annual report. AVI has confirmed it will become a signatory to the UN-supported Principles for Responsible Investment ("UNPRI"). The UNPRI is the world's leading proponent of responsible investment which entails the following commitments, developed by an international group of institutional investors.

As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance ("ESG") issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, Asset Value Investors Ltd. commit to the following:

• To incorporate ESG issues into investment analysis and decision-making processes;

• To be an active owner and to incorporate ESG issues into our ownership policies and practices;

• To seek appropriate disclosure on ESG issues by the entities in which we invest;

• To promote acceptance and implementation of the Principles within the investment industry;

• To work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the Principles;

• To report on our activities and progress towards implementing the Principles.

KPIs

The Company's Board meets regularly and at each meeting reviews performance against a number of key measures. In selecting these measures, the Directors considered the key objectives and expectations of typical investors in an investment trust such as the Company.

NAV Performance in Absolute and Relative Terms

-1.4% 31 December 2020

12.7% Since Inception (SI)

5.6% SI Annualised

The Directors regard the Company's NAV total return as being the overall measure of value delivered to Shareholders over the long-term. Total return reflects both the NAV growth of the Company and also dividends paid to Shareholders. Since the launch on 23 October 2018, the Company's NAV has increased by 12.7%, resulting in an annualised return of 5.6%. The Investment Manager's investment style is such that performance is likely to deviate materially from that of any broadly based equity index. The Board considers the most useful comparator to be the MSCI Japan Small Cap Total Return Index. Since the launch on 23 October 2018, the benchmark has increased by 11.3%, resulting in an annualised return of 5.0%. For the year ended 31st December 2020, the Company's NAV fell by 1.4%. The MSCI Japan Small Cap Total Return Index rose by 3.2%. A full description of performance and the investment portfolio is contained in the Investment Manager's Report above.

Discount/Premium

2.2% Premium - 31 December 2020

9.5% Premium - High for the period

12.4% Discount - Low for the period

The Board believes that an important driver of an investment trust's discount or premium over the long-term is investment performance. However, there can be volatility in the discount or premium. Therefore, the Board seeks Shareholder approval each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium. During the period under review, 3.55 million new shares were issued under the authorisation granted at the 2020 AGM, using the Company's Block Listing Facility.

Peer Group NAV Performance Total Return AIC Japanese Smaller Companies Sector*

1.4% AVI Japan Opportunity Trust

24.1% Atlantis Japan Growth

32.9% Baillie Gifford Shin Nippon

29.4% JPMorgan Japan Smaller Companies

28.8% Average AIC peer group

The Board is aware of other investment trusts in The AIC Japanese Smaller Companies Sector. Each investment trust has its own focus and strategy which will differ from the one implemented by AVI. The Company's activist approach is concurrent with the focus on corporate governance reform taking place in Japan.

*Returns are for the year to 31 December 2020

Ongoing Charges

1.56% - 31 December 2020

The Board continues to be conscious of expenses and aims to maintain a sensible balance between good service and costs. In reviewing charges, the Board reviews in detail each year the costs incurred and ongoing commercial arrangements with each of the Company's key suppliers. The majority of the ongoing charges ratio is the cost of the fees paid to the Investment Manager. This fee is reviewed annually and the Board believes that the cost is reasonable, given the Investment Manager's activist approach to fund management and the resources required to provide the level of service. The Company adheres to The AIC guidance in calculating its ongoing charges ratio.

Going Concern

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of at least 12 months from the date these financial statements were approved). Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore the financial statements have been prepared on a going concern basis.

Viability

The Directors consider viability as part of their continuing programme of monitoring risk. The Directors believe five years to be a reasonable time horizon to consider the continuing viability of the Company, reflecting a balance between a longer-term investment horizon and the inherent shorter-term uncertainties within equity. The Company is an investment trust whose portfolio is invested in readily realisable listed securities and with some short-term cash deposits.

The five year time horizon takes in account the fact that Shareholders may be given the opportunity to exit the Company close to NAV on the fourth anniversary of the Company (October 2022) and every two years thereafter. Considering investment and share price performance, the Ordinary Shares' liquidity as well as apparent Shareholder satisfaction, the Board does not anticipate more than a minimal take-up of any exit opportunity. The investment strategy remains robust and the Board expects this to remain viable well beyond October 2022.

The following facts support the Directors' view of the viability of the Company:

• In the period under review, expenses (including finance costs and taxation) were adequately covered by investment income;

• The Company's investment portfolio is made up of listed equities;

• The Company has short-term debt of ¥ 2.15 billion via an unsecured revolving credit facility. This debt was covered over 9 times as at the end of December 2020 by the Company's total assets. The Directors are of the view that, subject to unforeseen circumstances, the Company will have sufficient resources to meet the costs of annual interest and eventual repayment of principal on this debt; and

• The Company has a large margin of safety over the covenants on its debt.

The Company's viability depends on the Japanese and the global economy and markets continuing to function. The Directors also consider the possibility of a wide-ranging collapse in corporate earnings and/or the market value of listed securities. To the latter point, it should be borne in mind that a significant proportion of the Company's expenses are in ad valorem investment management fees, which would reduce if the market value of the Company's assets were to fall. In arriving at its conclusion, the Board has taken account of the potential effects of the COVID-19 pandemic on the value of the Company's assets, income from those assets and the ability of the Company's key suppliers to maintain effective and efficient operations.

In order to maintain viability, the Company has a robust risk control framework which follows the FRC guidelines and has the objectives of reducing the likelihood and impact of: poor judgement in decision-making, risk-taking that exceeds the levels agreed by the Board, human error or control processes being deliberately circumvented.

Taking the above into account, and the potential impact of the principal risks as set out below, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of approval of this Annual Report.

Principal Risks and Uncertainties

The Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. However, as AJOT has a limited operating history, some risks are not yet known and some that are currently not deemed material, could later turn out to be material. Following the risk assessment process described above, the Board considers the following as the principal risks faced by the Company and the following controls are in place to manage or mitigate these risks:

Risk Area	Controls and mitigation
Investment Objective
The Company may be unsuccessful in achieving its investment objective, leading to a potential loss of demand for its shares.	The Company has a clearly defined strategy and investment remit. The portfolio is managed by a highly experienced Investment Manager backed by a strong team. The Board relies on the Investment Manager's skills and judgement to make investment decisions based on research and analysis of individual stocks and sectors. The Board reviews the performance of the portfolio against the Company's Benchmark Index, that of its competitors and the outlook of the markets on a regular basis. The Board ensures that there is regular dialogue with major investors, primarily through the Company's broker and the Investment Manager; it follows up on any concerns and regularly reviews the discount control policy.
Investment opportunities matching the criteria encapsulated in the investment objective may become less available in the future.	The Board monitors the portfolio's composition, performance and development. Should appropriate opportunities diminish, the Board will consider the future of the Company and may recommend that the Company's investments are sold, it is wound up and cash returned to Shareholders.
Gearing
The use of borrowings by the Company has the effect of amplifying the gains or losses the Company experiences. A significant fall in portfolio value could cause gearing levels to exceed pre-set limits, requiring the Company to sell investments at short notice.	The Board and the Investment Manager regularly review gearing, as well as the effect of interest rate movements on the Company's finances and the Company's on-going compliance with the loan covenants. Aggregate borrowings may not exceed 25% of net assets. The Company has in place a 364 day ¥4.330 billion (£32 million) unsecured revolving facility agreement unsecured revolving facility agreement which was renewed in February 2021. As at 31 December 2020, ¥2.150 billion (£15 million) of the facility had been drawn. Interest is payable at a rate equal to LIBOR plus 0.95%. As at 31 December 2020, gearing stood at 6.8%.
Reliance on the Investment Manager and Other Service Providers
The Company has no employees and relies on a number of third-party service providers, principally the Investment Manager, Registrar, Administrator and Custodian / Depositary. It is dependent on the effective operation of its service providers' control systems with regard to the security of the Company's assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements.	The Board carries out regular reviews of the delegated services to ensure their continued competitiveness and effectiveness, which include assessment of the providers' control systems, whistleblowing policies and business continuity plans.
The Company is heavily reliant on the Investment Manager's processes, both in terms of making investment decisions and compliance with the investment policy.	The Investment Manager has an established investment process which has proven to be successful within the AVI Global Trust plc portfolio. The Board evaluates the investment process and compliance with investment limits and restrictions in conjunction with its portfolio review at every board meeting.
Cyber Security
The Company has limited direct exposure to cyber risk. However, the Company's operations or reputation could be affected if any of its service providers suffered a major cyber security breach.	The Board monitors the preparedness of its service providers in general. In the light of the impact of the COVID-19 pandemic and related changes to working conditions during the year under review, the Audit Committee requested and reviewed additional updates from key service providers on cyber security and other matters. Following this review, the Board remained satisfied that the risk is given due priority.
Portfolio Liquidity
The market for smaller Japanese stocks can be illiquid. The Company is exposed to the risk that it will not be able to sell its investments at the current market value or on a timely basis, when the Investment Manager chooses or is required to do so to meet financial liabilities.	The Investment Manager monitors trading volumes and prices and looks to ensure that a proportion of the portfolio is invested in readily realisable assets. The Board also receives updates on the liquidity of the portfolio and the current level of liquidity of the Company on a regular basis.
Foreign Exchange
The functional and presentational currency of the Company is Pounds Sterling. All investments held and income derived from these investments are denominated in Japanese Yen. Certain costs of the Company are impacted by the underlying value of investments denominated in Japanese Yen and converted to Pounds Sterling. The Company is subject to currency risk on exchange rate movements between Pounds Sterling and Japanese Yen.	It is the Company's current policy not to hedge against currency risk, however the Investment Manager and the Board continuously monitor currency movements and exposure. The revolving credit facility is denominated in Yen and therefore the effect of Yen exchange rate movements on the drawn down facility will be offset against the assets.
Global/Systemic
Unforeseen global emergencies such as a pandemic could lead to dramatically increased market and Company share price volatility. Fraud and cyber security vulnerability could increase for key service providers.	The Board regularly monitors the performance of the Investment Manager and is aware of emerging risks and has a robust process for addressing them. All key service providers were asked to provide updates on business continuity, fraud and cyber security processes and how they are dealing with the impact of the COVID-19 pandemic.

Environmental, social and governance policy

Factor	What we look at	The tools we use
Governance	Good governance is paramount to the Board and has always been at the core of AVI's investment approach. The two areas of focus are: • How the managers and directors guide a business. This includes topics such as dividend policy, capital expenditure, merger and acquisition activity, and buybacks, and; • The set of rules that describes the company's governing mechanisms, including incentive and compensation structures, tenure policy, shareholder rights and remedies, and (specifically in Japan) poison pills.	We engage with our investee businesses in a variety of ways. Our preference is for collaborative engagement with management, although we will have the ability and willingness to bring issues to broader attention where we deem it necessary. The Corporate Governance and Stewardship Codes provide a useful framework for our interactions with companies, as they provide a set of standards against which we can measure a company's standing and progress. The various methods through which we engage with companies include: voting at AGMs; letters to boards requesting change; dialogue (usually via meetings and letters) with management and boards about governance issues.
Social	We try to understand the social system that an investee company operates within. The areas of focus are: • The stakeholder relationships between the company and its suppliers, customers, employees, and society-at-large.	As a minority shareholder, AVI advises and guides its investee companies in these areas. In this regard, we have been pleased to see progress in Japan on minimum wage laws, and a reduction in levels of overtime required of employees. Areas of engagement for the 'Social' aspect include: • Discussions on unequal relationships between stakeholders and how they can be remedied, and; • How employees are remunerated.
Environmental	As a responsible steward of capital, AVI fully supports policies and actions implemented by its portfolio companies to support a sustainable environment.	Our influence is limited as AVI is not involved in the day-today activities of its portfolio companies. However, we look to understand a company's stewardship of the environment to ensure that there are no egregious practices.

Approval of Strategic Report

The Strategic Report has been approved by the Board and is signed on its behalf by:

Norman Crighton

Chairman

17 March 2021

Board of Directors

Norman Crighton, Chairman, Director

Ekaterina Thomson (known as Katya), Chairperson of the Audit Committee, Director

Yoshi Nishio, Non-executive Director

Margaret Stephens, Chairperson of the Nomination Committee, Director

Extracts from the Directors' Report

Share Capital

The Company's share capital comprises Ordinary Shares with a nominal value of 1p each. The voting rights of the shares on a poll are one vote for each share held. There are no restrictions on the transfer of the Company's Ordinary Shares or voting rights, no shares which carry specific rights with regard to the control of the Company and no agreement which the Company is party to that affects its control following a takeover bid. To the extent that they exist, the revenue profits of the Company (including accumulated revenue reserves) are available for distribution by way of dividends to the holders of the Ordinary Shares. Upon a winding-up, after meeting the liabilities of the Company, the surplus assets would be distributed to the Shareholders pro rata to their holding of Ordinary Shares.

At 31 December 2020, there were 117,489,742 Ordinary Shares of 1p each in issue, of which none were held in treasury, and therefore the total voting rights attaching to Ordinary Shares in issue were 117,489,742. 12,107,323 shares were issued in the period from 1 January 2021 to 15 March 2021 and the voting rights attaching to Ordinary Shares as at 15 March 2021 were 131,430,702.

The Directors intend to seek annual authority from Shareholders to allot new Ordinary Shares, to disapply pre-emption rights of existing Shareholders and to buyback Ordinary Shares for cancellation or to be held in treasury.

Issues of Shares

At the AGM held on 26 March 2020, the Company was granted authority to allot up 22,977,800 shares on a non-pre-emptive basis. This authority is due to expire at the Company's forthcoming AGM on 28 April 2021. In addition to this authority, at the General Meeting held on 26 March 2020, the Company was authorised to allot up to 85 million Ordinary Shares and/or C Shares on a non-pre-emptive basis pursuant to a Placing Programme and Prospectus. On 15 February 2021, the Company announced that it had raised gross proceeds of approximately £13.9 million through the issue of 12,107,323 new Ordinary Shares at £1.1507 each (mid market price on 15 February 2021: £1.1300 per share). These shares were admitted to trading on the London Stock Exchange on 17 February 2021. The net proceeds of the placing have been used to fund investments in accordance with the Company's investment objective and policy. The Placing Programme closed on 2 March 2021, and the authority to issue up to 85 million Ordinary Shares is due to expire at the Company's forthcoming AGM on 28 April 2021. As at 31 December 2020, the remaining authority to allot Ordinary Shares under the combined authorities granted at the AGM and General Meeting held on 26 March 2020 was 105,377,800 Shares and at 15 March 2021 the remaining authority was 91,436,840 Shares.

A Resolution was also passed at the General Meeting held on 26 March 2020 to authorise the Company to allot up to 30 million Ordinary Shares pursuant to an Initial Issue. Any Ordinary Shares issued under this authority would have been subtracted from the authority to issue up to 85 million Ordinary Shares under the Placing Programme described above. However, in the light of continued market volatility and uncertainty surrounding the COVID-19 pandemic, the Company announced on 23 March 2020 that it would not proceed with the Initial Issue and no Ordinary Shares were issued under this authority.

The Company has a block listing of Ordinary Shares to be listed to the premium segment of the Official List of the FCA and admitted to trading on the premium segment of the LSE's main market. During the year, the Company issued 3,550,000 shares utilising the block listing, details of which (as well as a further issue following the year end) are provided in the schedule below. As at 31 December 2020, the remaining authority under the block listing facility was 4,465,000 Ordinary Shares and as at 15 March 2021 the remaining authority is 2,631,363 Ordinary Shares.

Share Issues during the year and following year end

Date	Number of shares	Price paid per share	Mid market price
06/01/2020	600,000	£1.14500	£1.14500
08/01/2020	250,000	£1.14000	£1.16000
15/01/2020	100,000	£1.17500	£1.17500
16/06/2020	350,000	£1.05000	£1.08000
18/06/2020	600,000	£1.07750	£1.07750
19/06/2020	550,000	£1.07360	£1.07500
22/06/2020	750,000	£1.07182	£1.05000
23/06/2020	200,000	£1.07101	£1.07500
25/06/2020	150,000	£1.05833	£1.04000
15/02/2021*	12,107,323	£1.15070	£1.13000
24/02/2021	1,833,637	£1.10440	£1.10500
Total	17,490,960

* Share issue pursuant to equity placing as discussed above.

Purchase of shares

At the general meeting held on 26 March 2020, the Company was granted authority to purchase up to 14.99% of the Company's Ordinary Shares in issue following initial Admission, such authority to expire on conclusion of the 2021 AGM. No Ordinary Shares have been bought back under this authority.

Sale of Shares from Treasury

At the AGM held on 26 March 2020, the Company was authorised to waive pre-emption rights in respect of Treasury Shares, such authority to expire on conclusion of the 2021 AGM. No shares were held in Treasury and no shares were sold from Treasury during the period. As at the date of this report, no shares are held in Treasury.

Related party transactions

The Company's related parties in the year were its Directors, the Investment Manager and Finda Oy as the Company's largest shareholder.

There have been no material transactions between the Company and its Directors during the year and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable. Directors' shareholdings are disclosed in the Directors' Remuneration Report within the Annual Report.

In relation to the provision of services by the Investment Manager, other than fees payable by the Company in the ordinary course of business and the facilitation of marketing activities with third parties, there have been no material transactions with the Investment Manager affecting the financial position of the Company during the year under review. More details on transactions with the Investment Manager, including amounts outstanding at 31 December 2020 and shares held by AVI, are given in note 14 below.

Finda Oy, a significant Shareholder of the Company, is deemed to be a related party of the Company for the purposes of the Listing Rules by virtue of its holding in the Company's issued share capital. During the year under review, no transactions took place between the Company and Finda Oy.

Dividends

The Directors are proposing a final dividend of 0.65 pence per Share for the year to 31 December 2020. Subject to the approval of Shareholders at the forthcoming AGM, the proposed final ordinary dividend will be payable on 27 May 2021 to Shareholders on the register at the close of business on 30 April 2021. The ex-dividend date will be 29 April 2021.

By order of the Board

For and on behalf of Link Company Matters Limited

Company Secretary

17 March 2021

Statement of Directors' Responsibilities in Relation to the Annual Report and Financial Statements

The directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements for each financial year and have elected to prepare the company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that year.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Subject to any material departures disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

• prepare a Directors' report, a strategic report and Directors' remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the Company financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and Financial Statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for Shareholders to assess the Company's performance, business model and strategy.

The Directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements based on the Directors' identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.

Website Publication

The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' Responsibilities Pursuant to Disclosure Guidance and Transparency Rules

The Directors listed above, being the persons responsible, hereby confirm to the best of their knowledge:

• The Company's financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company; and

• The Annual Report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that they face.

In the opinion of the Board, the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy.

Directors Statement as to the Disclosure of Information to Auditors

All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

For and on behalf of the Board

Norman Crighton

Chairman

17 March 2020

Non-statutory accounts

The financial information set out below does not constitute the Company's Annual financial statements for the year ended 31 December 2020 and 31 December 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course. The Annual Report, including the Annual financial statements, for the period ended 31 December 2020 was approved by the Board on 17 March 2021. The Auditor has reviewed those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report at: www.ajot.co.uk  

Statement of Comprehensive Income

For the period ended 31 December 2020

			For the year ended 31 December 2020			For the period from 27 July 2018 to 31 December 2019
		Notes	Revenue  return  £'000	Capital  return  £'000	Total  £'000	Revenue  return  £'000	Capital  return  £'000	Total  £'000
Income
Investment income		2	2,818	-	2,818	2,345	-	2,345
(Losses)/gains on investments held at fair value		8	-	(1,171)	(1,171)	-	14,905	14,905
Exchange losses on currency balances			-	(745)	(745)	-	(791)	(791)
			2,818	(1,916)	902	2,345	14,114	16,459
Expenses
Investment management fee		3	(122)	(1,096)	(1,218)	(106)	(954)	(1,060)
Other expenses (including irrecoverable VAT)		3	(638)	-	(638)	(738)	-	(738)
Profit/(loss) before finance costs and tax			2,058	(3,012)	(954)	1,501	13,160	14,661
Finance costs		4	(22)	(194)	(216)	(9)	(77)	(86)
Exchange (losses)/gains on revolving credit facility revaluation		4	-	(210)	(210)	-	62	62
Profit/(loss) before taxation			2,036	(3,416)	(1,380)	1,492	13,145	14,637
Taxation		5	(284)	-	(284)	(230)	-	(230)
Profit/(loss) for the year			1,752	(3,416)	(1,664)	1,262	13,145	14,407
Earnings per Ordinary Share		7	1.51p	(2.94p)	(1.43p)	1.40p	14.63p	16.03p

The total column of this statement is the Income Statement of the Company prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The supplementary revenue and capital columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

There is no other comprehensive income, and therefore, the profit for the year after tax is also the total comprehensive income.

The accompanying notes are an integral part of these financial statement

Statement of Changes in Equity
For the period ended 31 December 2020

	Ordinary Share capital £'000	Share  premium  £'000	Special  reserve* £'000	Capital  reserve* £'000	Revenue  reserve** £'000	Total  £'000
For the year to 31 December 2020
Balance as 31 December 2019	1,139	34,476	77,588	13,145	1,262	127,610
Issue of Ordinary Shares	36	3,835	-	-	-	3,871
Expenses of share issue	-	(69)	-	-	-	(69)
Total comprehensive (loss)/income for the period	-	-	-	(3,416)	1,752	(1,664)
Ordinary dividends paid	-	-	-	-	(1,798)	(1,798)
Balance as at 31 December 2020	1,175	38,242	77,588	9,729	1,216	127,950

	Ordinary Share capital £'000	Share  premium  £'000	Special  reserve* £'000	Capital  reserve* £'000	Revenue  reserve** £'000	Total  £'000
For the period 27 July 2018 to 31 December 2019
Issue of Ordinary Shares	1,139	114,412	-	-	-	115,551
Expenses of share issue	-	(2,322)	-	-	-	(2,322)
Cancellation of share premium account as at 4 June 2019	-	(77,588)	77,588	-	-	-
Expenses in relation to cancellation of share premium account	-	(26)	-	-	-	(26)
Total comprehensive income for the period	-	-	-	13,145	1,262	14,407
Ordinary dividends paid	-	-	-	-	-	-
Balance as at 31 December 2019	1,139	34,476	77,588	13,145	1,262	127,610

*Within the balance of the capital reserve, £1,022,000 (31 December 2019: £5,934,000) relates to realised gains which under the Articles of Association is distributable by way of dividend. The remaining £8,707,000 (31 December 2019: £7,211,000) relates to unrealised gains on investments and is non-distributable.

**Revenue reserve is fully distributable by way of dividend.

The accompanying notes are an integral part of these financial statements.

Balance Sheet
As at 31 December 2020

	Notes	As at  31 December  2020  £'000	As at  31 December  2019  £'000
Non-current assets
Investments held at fair value through profit or loss	8	136,616	125,531
		136,616	125,531
Current assets
Receivables	9	909	296
Cash and cash equivalents		6,028	17,995
		6,937	18,291
Total assets		143,553	143,822
Current liabilities
Revolving credit facility	10	(15,231)	(15,965)
Payables	10	(372)	(247)
		(15,603)	(16,212)
Total assets less current liabilities		127,950	127,610
Net assets		127,950	127,610
Equity attributable to equity Shareholders
Ordinary Share capital	11	1,175	1,139
Share premium		38,242	34,476
Special reserve		77,588	77,588
Capital reserve		9,729	13,145
Revenue reserve		1,216	1,262
Total equity		127,950	127,610
NAV per Ordinary Share - basic	12	108.90p	112.00p
Number of shares in issue	11	117,489,742	113,939,742

These financial statements were approved and authorised for issue by the Board of AVI Japan Opportunity Trust plc on 17 March 2021 and were signed on its behalf by:

Norman Crighton

The accompanying notes are an integral part of these financial statements.

Registered in England & Wales No. 11487703

Statement of Cash Flows

For the period ended 31 December 2020

	Year to  31 December  2020  £'000	Period to  31 December  2019  £'000
Reconciliation of (loss)/profit before taxation to net cash outflow from operating activities
(Loss)/profit before taxation	(1,380)	14,637
Losses/(gains) on investments held at fair value through profit or loss	1,171	(14,905)
Increase in receivables	(1)	(296)
Exchange losses/(gains) on revolving credit facility	210	(62)
Increase in payables	57	247
Taxation paid	(284)	(230)
Net cash outflow from operating activities	(227)	(609)
Investing activities
Purchases of investments	(50,653)	(143,350)
Sales of investments	38,141	32,724
Net cash outflow from investing activities	(12,512)	(110,626)
Financing activities
Dividends paid	(1,798)	-
Issue of shares net of costs	3,802	113,229
(Repayment)/issue of revolving credit facility net of cost	(944)	16,027
Prospectus issue cost	(288)	-
Share premium cancellation costs	-	(26)
Cash inflow from financing activities	722	129,230
(Decrease)/increase in cash and cash equivalents	(11,967)	17,995
Reconciliation of net cash flow movement:
Cash and cash equivalents at beginning of year	17,995	-
(Decrease)/increase in cash and cash equivalents	(11,967)	17,995
Cash and cash equivalents at end of period	6,028	17,995

The accompanying notes are an integral part of these financial statements.

Notes to the Financial Statements

For the period ended 31 December 2020

1 General information and accounting policies

AVI Japan Opportunity Trust plc is a public limited company incorporated on 27July 2018 and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and its investment approach is detailed in the Strategic Report.

The Company commenced trading and was listed on the London Stock Exchange on 23 October 2018.

The financial statements of the Company have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to the extent it is not consistent with the requirements of IFRS.

Basis of preparation

The financial statements of the Company have been prepared for the year ended 31 December 2020.

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by The AIC, supplementary information which analyses the Statement of Comprehensive Income between items of revenue and a capital nature has been prepared alongside the Statement of Comprehensive Income.

The Company invests in Japan with subsequent cash-flows (dividend receipts and interest payments) being received in Japanese Yen, however the Directors consider the Company's functional currency to be Pound Sterling as the Shares of the Company are listed on the London Stock Exchange, it is regulated in the United Kingdom, principally having its Shareholder base in the United Kingdom and pays dividend and expenses in Pounds Sterling. The Directors have chosen to present the financial statements in Pounds Sterling rounded to the nearest thousand except where otherwise indicated.

Going concern

The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met.

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date when these financial statements were approved.

In making this assessment, the Directors have considered in particular the likely economic effects and the effects on the Company's operations of the current COVID-19 pandemic.

The longer-term economic effects of the pandemic are very difficult to predict but in considering preparing the accounts on a going concern basis, the Directors noted the Company holds a portfolio of liquid investments whose value is a multiple of liabilities. The Directors are of the view that the Company can meet its obligations as and when they fall due. The cash available and revolving credit facility enables the Company to meet any funding requirements and finance future additional investments. The Company is a closed-end fund, where assets are not required to be liquidated to meet day-to-day redemptions.

The Board has reviewed stress testing and scenario analysis prepared by the Investment Manager to assist them in assessing the impact of changes in market value and income with associated cash flows. In making this assessment, the Investment Manager have considered plausible downside scenarios. These tests included the possible further effects of the continuation of the COVID-19 pandemic but, as an arithmetic exercise, apply equally to any other set of circumstances in which asset value and income are significantly impaired. It was concluded that in a plausible downside scenario, the Company could continue to meet its liabilities. Whilst the economic future is uncertain, and the Directors believe that it is possible the Company could experience further reductions in income and/or market value, the opinion of the Directors is that this should not be to a level which would threaten the Company's ability to continue as a going concern.

The Investment Manager and the Company's third-party service providers have contingency plans to ensure the continued operation of their business in the event of disruption, such as the impact of COVID-19. The Board was satisfied that there has been minimal impact to the services provided during the year and are confident that this will continue. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis.

Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

The Company invests in companies listed in Japan on recognised exchanges.

Accounting developments

In the year under review, the Company has applied amendments to IFRS issued by the IASB. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. The adoption of the changes to accounting standards has had no material impact on these or prior years' financial statements. There are amendments to IAS/IFRS that will apply from 1 January 2021 as follows: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The Directors do not anticipate that the adoption of the above standard will have a material impact on the financial statements as presented.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Statement of Comprehensive income and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about discounts to fair valuations, carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There are no further significant judgements or estimates in these financial statements.

Investments

The investment objective of the Company is to provide Shareholders with capital growth in excess of the MSCI Japan Small Cap Total Return Index in GBP, through the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by the Investment Manager as undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or realisable assets.

The investments held by the Company are designated 'at fair value through profit or loss'. All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as 'Gains or losses on investments held through profit or loss'. Also included within this heading are transaction costs in relation to the purchase or sale of investments. When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which is the bid price. The Company derecognises a financial asset only when the contractual right to the cash flows from the asset expire, or when it transfers the financial asset and subsequently all the risks and rewards of ownership to another entity. On derecognition of a financial asset, the difference between the asset's carrying value carrying amount and the sum of the consideration received and receivable, and the cumulative gain or loss that had been accumulated is recognised in profit or loss.

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 13.

Foreign currency

Transactions denominated in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the date of transaction. Items which are denominated in foreign currencies are  translated at the rates prevailing on the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as exchange gain or loss in the capital reserve or revenue reserve depending on whether the gain or loss is capital or revenue in nature.

Cash and cash equivalents

Cash comprises cash in hand and demand deposits. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

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

Receivables and payables

Trade and other receivables and payables are measured where applicable, at amortised cost and balances revalued for exchange rate movements.

Revolving credit facility

The revolving credit facility is shown at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of Comprehensive Income.

Income

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis. Dividends from overseas companies are shown gross of any withholding taxes. Irrecoverable withholding taxes are disclosed separately within taxation in the Statement of Comprehensive Income.

Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis.

When the Company has elected to receive scrip dividends in the form of additional shares rather than cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of cash dividend is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

All other income is accounted for on a time-apportioned accruals basis and is recognised in the Statement of Comprehensive Income.

Expenses and finance costs

All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board's expected long-term split of total returns the Company charges 90% of its management fee and finance costs to capital.

Taxation

The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary differences between the treatment of certain items for accounting and taxation purposes.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting  date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the 'marginal' basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

Dividends payable to Shareholders

Dividends to Shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

Share premium

The share premium account represents the accumulated premium paid for shares issued above their nominal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve:

• costs associated with the issue of equity; and

• premium on the issue of shares.

Special reserve

The special reserve was created by the cancellation of the share premium account by order of the court.

Capital reserve

The following are taken to the capital reserve through the capital column in the Statement of Comprehensive Income:

Capital reserve - other, forming part of the distributable reserves:

• gains and losses on the disposal of investments;

• issue expenses on revolving credit facility;

• exchange differences of a capital nature; and

• expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Capital reserve - investment holding gains, not distributable:

• increase and decrease in the valuation of investments held at the year end.

Revenue reserve

The revenue reserve represents the surplus of accumulated profits and is distributable by way of dividends.

2. Income

	Year ended  31 December  2020  £'000	Period ended 31 December 2019 £'000
Income from investments
Overseas dividends	2,840	2,304
Bank and deposit interest	(17)	39
Exchange (losses)/gains on receipt of income*	(5)	2
Total income	2,818	2,345

*Exchange movements arise from ex-dividend date to payment date.

3. Investment management fee and other expenses

	Year ended 31 December 2020			Period ended 31 December 2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Management fee	122	1,096	1,218	106	954	1,060
Other expenses:
Directors' emoluments - fees	128	-	128	132	-	132
Directors' and officers' insurances	9	-	9	12	-	12
Directors' National Insurance Contributions	13	-	13	10	-	10
Auditor's remuneration - audit services	44	-	44	20	-	20
Auditor's  remuneration - non-audit services in respect of agreeing procedures for Adjusted Share Capital	-	-	-	3	-	3
Marketing	52	-	52	170	-	170
Printing and postage costs	48	-	48	6	-	6
Registrar fees	13	-	13	14	-	14
Custodian fees	33	-	33	40	-	40
Depositary fees	33	-	33	39	-	39
Advisory and professional fees	244	-	244	271	-	271
Regulatory fees	21	-	21	21	-	21
Total other expenses	638	-	638	738	-	738

The management fee of 1% per annum is calculated on the lesser of the Company's NAV or Market Capitalisation at each quarter end. The Investment Manager will invest 25% of the management fee it receives in shares of the Company (through open market purchases) and will hold these for a minimum of two years.

4. Finance costs

	Year ended 31 December 2020			Period ended 31 December 2019
	Revenue return £'000	Capital  Return  £'000	Total  £'000	Revenue return £'000	Capital return £'000	Total £'000
JPY revolving credit facility	22	194	216	9	77	86
Exchange (loss)/gain on JPY revolving credit facility*	-	(210)	(210)	-	62	62

On 1 April 2020 the Company increased its unsecured revolving credit facility (the "facility") to a maximum of ¥4,330,000,000. At the year end, ¥2,150,000,000 was drawn down. Following renewal of the facility for 364 day term, the amount will be repayable on 16 February 2022.

Interest is payable at a rate equal to LIBOR plus 0.95%.

* Revaluation of revolving credit facility.

5. Taxation

	Year ended 31 December 2020			Period ended 31 December 2019
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Analysis of charge for the year
Overseas tax not recoverable*	284	-	284	230	-	230
Tax cost for the period	284	-	284	230	-	230

The tax assessed for the year is the standard rate of corporation tax in the United Kingdom of 19%. The differences are explained below:

	Year ended 31 December 2020			Period ended 31 December 2019
	Revenue  Return  £'000	Capital  return  £'000	Total  £'000	Revenue  return  £'000	Capital  return  £'000	Total  £'000
Profit/(loss) on ordinary activities after interest payable but before appropriations	2,036	(3,416)	(1,380)	1,492	13,145	14,637
Theoretical tax at UK corporation tax rate 19%	387	(649)	(262)	283	2,498	2,781
Effects of the non-taxable items:
- Tax-exempt overseas investment income	(539)	-	(539)	(438)	-	(438)
- Gains on investments and exchange losses on capital items	-	363	363	-	(2,693)	(2,693)
- Excess management expenses carried forward	144	209	353	151	195	346
- Disallowed expenses	1	-	1	4	-	4
- Movement in NTLR deficit not utilised	7	77	84	-	-	-
- Overseas tax recoverable	284	-	284	230	-	230
Tax charge for year	284	-	284	230	-	230

At 31 December 2020, the Company had unrelieved losses of £4,061,000 (31 December 2019: £1,825,000) that are available to offset future taxable revenue. A deferred tax asset of £772,000 (31 December 2019: £310,000) has not been recognised because the Company is not expected to generate sufficient taxable income in future periods to utilise these losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an investment trust company.

6. Dividends

	Year ended 31 December 2019 £'000	Period ended 31 December 2019 £'000
Amounts recognised as distribution to equity holders in the year:
Final dividend for the period ended 31 December 2019 of 0.90 per Ordinary Share	1,034	-
Interim dividend for the year ended 31 December 2020 of 0.65p per Ordinary Share	764	-
	1,798	-

Set out below are the interim and final dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered:

	31 December  2020  £'000	31 December 2019 £'000
Interim dividend for the year ended 31 December 2020 of 0.65 per Ordinary Share	764	-
Proposed final dividend for the period ended 31 December 2020 of 0.65p (2019: 0.90p) per Ordinary Share	854*	1,034
	1,618	1,034
*Based on shares in circulation on 15 March 2021

7. Earnings per Ordinary Share

The earnings per Ordinary Share is based on the Company's net loss after tax of £1,664,000 (period ended 31 December 2019: profit of £14,407,000) and on 116,259,004 (period ended 31 December 2019: 89,867,183) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year.

The earnings per Ordinary Share detailed above can be further analysed between revenue and capital as follows:

	Year to 31 December 2020			Period to 31 December 2019
	Revenue	Capital	Total	Revenue	Capital	Total
Net (loss)/profit (£'000)	1,752	(3,416)	(1,664)	1,262	13,145	14,407
Weighted average number of Ordinary Shares			116,259,044			89,867,183
Earnings per Ordinary Share (pence)	1.51	(2.94)	(1.43)	1.40	14.63	16.03

There are no dilutive instruments by the Company.

8. Investments held at fair value through profit or loss

	31 December  2020  £'000	31 December  2019  £'000
Financial assets held at fair value
Opening book cost	118,320	-
Opening investment holding gains	7,211	-
Opening fair value	125,531	-
Movement in the year:
Purchases at cost: Equities	50,722	143,350
Sales proceeds: Equities	(38,466)	(32,724)
- realised (losses)/gains on equity sales	(2,667)	7,694
Increase in investment holding gains	1,496	7,211
Closing fair value	136,616	125,531
Closing book cost	127,909	118,320
Closing investment holding gains	8,707	7,211
Closing fair value	136,616	125,531

	Year ended  31 December  2020  £'000	Period ended 31 December 2019 £'000
Transaction costs
Cost on acquisition	30	88
Cost on disposal	22	19
	52	107
Analysis of capital gains
(Losses)/gains on sales of financial assets based on historical cost	(2,667)	7,694
Movement in investment holding gains for the year	1,496	7,211
Net (losses)/gains on investments held at fair value	(1,171)	14,905

The Company received £38,466,000 (period ended 31 December 2019: £32,724,000) from investments sold in the year. The book cost of these investments when they were purchased was £41,133,000 (period ended 31 December 2019: £25,030,000). These investments have been revalued over time and until they were sold any unrealised gains or losses were included in the fair value of the investments.

9. Receivables

	31 December  2019  £'000	31 December 2019 £'000
Due from Brokers	325	-
Other receivables	584*	296
Total	909	296

*The Auditor BDO LLP provided additional non-audit service fees of £26,000 as reporting accountants for the issue of the Prospectus for the issue of additional shares.

No other receivables are past due or impaired.

10. Current liabilities

	31 December 2020 £'000	31 December 2019 £'000
Revolving credit facility	15,231	15,965
Payables:
Management fees	106	33
Interest payable	22	24
Purchases for future settlement	44	-
Other payables	200	190
	372	247
Total current liabilities	15,603	16,212

Revolving credit facility

On 1 April 2020 the Company's agreement with Scotiabank Europe Plc was amended to a ¥4,330,000,000 unsecured revolving credit facility (the "facility") for a period of 365 days. At the year end, ¥ 2,150,000,000 was drawn down, and following renewal of the facility on 17 February 2021, this will be repayable on 16 February 2022.

The facility bears interest at the rate of 0.95% over LIBOR on any drawn balance. Undrawn balances above ¥1,465,000 are charged at 0.425% and any undrawn portion below this is charged at 0.375%. Under the terms of the facility, the net assets shall not be less than £35m and the adjusted net asset coverage to borrowing shall not be less than 4.5:1.

The facility is shown at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange rates are included in the capital reserves and shown in the capital column of the Statement of Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company's accounting policies.

11. Share capital

	As at 31 December 2020 Ordinary Shares of 1p each		As at 31 December 2019 Ordinary Shares of 1p each
	Number of shares	Nominal value (£)	Number of shares	Nominal value (£)
Allocated, called up, and fully paid	117,489,742	1,174,897	113,939,742	1,139,397

During the period to 31 December 2020, 3,550,000 (31 December 2019: 113,939,742) Ordinary Shares were issued for a net consideration of £3,802,000 (31 December 2019: £113,929,000).

12. NAV per Ordinary Share

The NAV per Ordinary Share is based on net assets of £127,950,000 (31 December 2019: £127,610,000) and on 117,489,742 (31 December 2019: 113,939,742) Ordinary Shares, being the number of Ordinary Shares in issue at the year end.

13. Financial instruments and capital disclosures

Investment objective and policy

The investment objective of the Company is to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying NAV.

The Company's investment objective and policy are detailed above.

The Company's financial instruments comprise equity investments, cash balances, receivables, payables and borrowings. The Company makes use of borrowings to achieve improved performance in rising markets. The risk of borrowings may be reduced by raising the level of cash balances held.

Risks

The risks identified arising from the financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency risk), liquidity risk and credit and counterparty risk. The Company may also enter into derivative transactions to manage risk.

The Board and Investment Manager consider and review the risks inherent in managing the Company's assets which are detailed below.

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 which the Company might suffer through holding market positions by way of price movements, interest rate movements and exchange rate movements. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager.

Market price risk

The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with the objective of maximising overall returns to Shareholders. If the fair value of the Company's investments at the period end increased or decreased by 10%, then it would have had an impact on the Company's capital return and equity of £13,662,000 (31 December 2019: £12,553,000).

Foreign currency

The value of the Company's assets and the total return earned by the Company's Shareholders can be significantly affected by foreign exchange rate movements as most of the Company's assets are denominated in currencies other than Pounds Sterling, the currency in which the Company's financial statements are prepared. Income denominated in foreign currencies is converted to Pounds Sterling upon receipt. The JPY exchange rate at 31 December 2020 was ¥141.16:£1 (31 December 2019: ¥143.905:£1).

Currency risk

	GBP  £'000	JPY  £'000	Total  £'000
At 31 December 2020
Receivables	666	243	909
Cash and cash equivalents	693	5,335	6,028
JPY revolving credit facility	-	(15,231)	(15,231)
Payables	(253)	(119)	(372)
Currency exposure on net monetary items	1,106	(9,772)	(8,666)
Investment held at fair value through profit or loss	-	136,616	136,616
Total net currency exposure	1,106	126,844	127,950

	GBP  £'000	JPY  £'000	Total  £'000
At 31 December 2019
Receivables	15	281	296
Cash and cash equivalents	345	17,650	17,995
JPY revolving credit facility	-	(15,965)	(15,965)
Payables	(223)	(24)	(247)
Currency exposure on net monetary items	137	1,942	2,079
Investment held at fair value through profit or loss	-	125,531	125,531
Total net currency exposure	137	127,473	127,610

A 5% rise or decline in Sterling against foreign currency denominated (i.e. non Pounds Sterling) assets and liabilities held at the year end would have increased/decreased the NAV by £6,342,000 (31 December 2019: £6,374,000).

This exposure is representative at the Balance Sheet date and may not be representative of the period as a whole. The balances are shown in the reporting currencies of the investee companies and may not represent the underlying currency exposures of the investee companies.

Interest rate risk

Interest rate movements may affect:

• the level of income receivable on cash deposits; and

• the interest payable on variable rate borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.

The exposure at 31 December of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates.

	31 December  2020  £'000	31 December  2019  £'000
Exposure to floating interest rates
Cash and cash equivalents	6,028	17,995
JPY revolving credit facility	(15,231)	(15,965)

If the above level of cash was maintained for a year, a 1% increase in interest rates would decrease the revenue return and net assets by £92,000 (31 December 2019: £20,000). Management proactively manages cash balances. If there was a fall of 1% in interest rates, it would potentially impact the Company by turning positive interest to negative interest. The total effect would be a cost increase/revenue reduction of £92,000 (31 December 2019: £20,000).

Liquidity risk

The Company's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments, if necessary. Unlisted investments, if any, in the portfolio are subject to liquidity risk. The risk is taken into account by the Directors when arriving at their valuation of these items.

The remaining contractual payments on the Company's financial liabilities at 31 December 2020, based on the earliest date on which payment can be required and current exchange rates at the Balance Sheet date, were as follows:

	Due in  1 year or less  £'000
At 31 December 2020
JPY revolving credit facility	(15,231)
Payables	(372)
	(15,603)

	Due in  1 year or less  £'000
At 31 December 2019
JPY revolving credit facility	(15,965)
Payables	(223)
	(16,188)

Credit risk

Credit risk is mitigated by diversifying the counterparties through which the Investment Manager conducts investment transactions. The credit standing of all counterparties is reviewed periodically, with limits set on amounts due from any one counterparty.

The total credit exposure represents the carrying value of cash and receivable balances and totals £6,649,000 (31 December 2019: £18,291,000).

Fair values of financial assets

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The fair value is the amount at which the asset could be sold or the liability transferred in an orderly transaction between market participants, at the measurement date, other than a forced or liquidation sale.

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 assets as follows:

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

• Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability 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 for the asset or liability.

The table below sets out fair value measurements of financial instruments as at the period end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets at fair value through profit or loss at 31 December 2020	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equity investments	136,616	-	-	136,616
	136,616	-	-	136,616

Financial assets at fair value through profit or loss at 31 December 2019	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equity investments	125,531	-	-	125,531
	125,531	-	-	125,531

There have been no transfers during the period between Levels 1, 2 and 3.

Capital management policies and procedures

The structure of the Company's capital is described above and details of the Company's reserves are shown in the Statement of Changes in Equity.

The Company's capital management objectives are:

· to ensure that it will be able to continue as a going concern;

· to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying NAV, through an appropriate balance of equity capital and debt; and

· to maximise the return to Shareholders while maintaining a capital base to allow the Company to operate effectively and meet obligations as they fall due.

The Board, with the assistance of the Investment Manager, regularly monitors and reviews the broad structure of the Company's capital on an ongoing basis. These reviews include:

· the level of gearing, which takes account of the Company's position and the Investment Manager's views on the market; and

· the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company's objectives, policies and processes for managing capital are set out in the Strategic Report. The Company is subject to externally imposed capital requirements:

· as a public company, the Company is required to have a minimum share capital of £50,000; and

· in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company, as an investment company:

-  is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities after the dividend payment has been made; and

-  is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from shares and securities.

The Company has complied with these requirements at all times since commencing trading on 23 October 2018.

14. Related party disclosures and investment management fees

Fees paid to the Company's Directors are disclosed in the Report on Directors' Remuneration Report within the Annual Report and in note 3.

The Company paid management fees to AVI during the year amounting to £1,145,000 (2019: £1,027,000). As at the period end, £106,000 remained outstanding in respect of management fees. As at 31 December 2020, AVI held 675,000 Ordinary Shares (2019: 325,000 Ordinary Shares) of the Company.

Finda Oy, a significant Shareholder of the Company, is deemed to be a related party of the Company for the purposes of the Listing Rules by virtue of its holding in the Company's issued share capital. During the year under review no material transactions took place and as at 31 December 2020 the Company had not been notified of any change to Finda Oy's holding of 30,000,000 Ordinary Shares reported in the period to 31 December 2019, which represented 25.53% of the Ordinary Shares in issue as at 31 December 2020 (2019: 26.33%).

15. Post Balance Sheet events

Since 31 December 2020 the Company has issued 13,940,960 Ordinary Shares at an average price of 114.46p pursuant to a placing as well as utilising its block listing facility as detailed in the Annual Report.

On 17 February 2021 the Company entered into an amendment and novation deed between the Company, Scotiabank Europe plc and The Bank of Nova Scotia which amended and restated the ¥2,930,000,000 revolving facility agreement between Scotiabank Europe plc and the Company, which was originally entered into on 5 April 2019 and amended on 1 April 2020. Details of the facility can be found in note 10.

AIFMD Disclosures

The Company's AIFM is Asset Value Investors Limited.

The AIFMD requires certain information to be made available to investors in AIFs before they invest and requires that material changes to this information be disclosed in the annual report of each AIF. Those disclosures that are required to be made pre-investment are included within an AIFMD Investor Disclosure Document. This, together with other necessary disclosures required under AIFMD, can be found on the Company's website www.ajot.co.uk. All authorised AIFMs are required to comply with the AIFMD Remuneration Code. The AIFM's remuneration disclosures can be found on the Company's website www.ajot.co.uk.

Glossary

Alternative Performance Measure ("APM")

An APM is a numerical measure of the Company's current, historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework.

The definitions below are utilised for the measures of the Company, the investment portfolio and underlying individual investments held by the Company. Certain of the metrics are to look through to the investments held, excluding certain non-core activities, so the performance of the actual core of the investment may be evaluated. Where a company in the investment portfolio holds a number of listed investments these are excluded in order to determine the actual core value metrics.

Comparator Benchmark

The Company's Comparator Benchmark is the MSCI Japan Small Cap Index, expressed in Sterling terms. The benchmark is an index which measures the performance of the Japan equity market. The weighting of index constituents is based on their market capitalisation. Dividends paid by index constituents are assumed to be reinvested in the relevant securities at the prevailing market price. The Investment Manager's investment decisions are not influenced by whether a particular company's shares are, or are not, included in the benchmark. The benchmark is used only as a yard stick to compare investment performance.

Cost

The book cost of each investment is the total acquisition value, including transaction costs, less the value of any disposals or capitalised distributions allocated on a weighted average cost basis.

Discount/Premium

If the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

The discount and performance are calculated in accordance with guidelines issued by The AIC. The discount is calculated using the net asset values per share inclusive of accrued income with debt at market value.

Earnings Before Interest and Taxes ("EBIT")

EBIT is equivalent to profit before finance costs and tax set out in the statement of comprehensive income.

Enterprise Value ("EV")

Enterprise Value reflects the economic value of the business by taking the market capitalisation less cash, investment securities and the value of treasury shares plus debt and net pension liabilities.

Enterprise Value ("EV")/Earnings Before Interest and Taxes ("EBIT")

A multiple based valuation metric that takes account of the excess capital on a company's balance sheet. For example, if a company held 80% of its market capitalisation in NFV (defined under Net Financial Value / Market Capitalisation), had a market capitalisation of 100 and EBIT of 10, the EV/EBIT would be 2x, (100-80)/10.

Enterprise Value ("EV") Free Cash Flow Yield ("EV FCF Yield")

A similar calculation to free cash flow yield except the free cash flow excludes interest and dividend income and is divided by enterprise value. This gives a representation for how overcapitalised and undervalued a company is. If a company were to pay out of all of its NFV (defined under Net Financial Value/Market Capitalisation) and the share price remained the same, the EV FCF Yield would become the FCF yield. For example, take a company with a market capitalisation of 100 that had NFV of 80 and FCF of 8. The FCF yield would be 8%, 8/100, but if the company paid out all of its NFV the FCF yield would become 40%, 8/(100-80). This gives an indication of how cheaply the market values the underlying business once excess capital is stripped out.

Free Cash Flow ("FCF") Yield

Free cash flow is the amount of cash profits that a business generates, adjusted for the minimum level of capital expenditure required to maintain the company in a steady state. It measures how much a business could pay out to equity investors without impairing the core business. When free cash flow is divided by the market value, we obtain the free cash flow yield.

Gearing

Gearing refers to the ratio of the Company's debt to its equity capital. The Company may borrow money to invest in additional investments for its portfolio. If the Company's assets grow, the Shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

The gearing of 11.9% (31 December 2019: 12.5%) represents borrowings of £15,231,000 (31 December 2019: £15,965,000) expressed as a percentage of Shareholders' funds of £127,950,000 (31 December 2019: £127,610,000). The gearing of -6.8% (31 December 2019: 1.6%) represents borrowings net of cash of (£8,666,000) (31 December 2019: £2,079,000) expressed as a percentage of Shareholders' funds of £127,950,000 (31 December 2019: £127,610,000).

Net Asset Value ("NAV")

The NAV is Shareholders' funds expressed as an amount per individual share. Shareholders' funds are the total value of all of the Company's assets, at their current market value, having deducted all liabilities and prior charges at their par value, or at their asset value as appropriate. The total NAV per share is calculated by dividing the NAV by the number of Ordinary Shares in issue.

Net Cash/Market Capitalisation

Net cash consists of cash and the value of treasury shares less debt and net pension liabilities. It is a measure of the excess cash on a company's balance sheet and, by implication, how much value the market attributes to the core operating business. For example, the implied valuation of the core operating business of a company trading with a net cash/market capitalisation of 100% is zero.

Net Financial Value ("NFV")/Market Capitalisation

Net Financial Value consists of cash, investment securities (less capital gains tax) and the value of treasury shares less debt and net pension liabilities. A measure of the excess cash on a company's balance sheet and, by implication, how much value the market attributes to the core operating business. For example, the implied valuation of the core operating business of a company trading with a NFV/market capitalisation of 100% is zero.

Ongoing Charges Ratio

As recommended by The AIC in its guidance, ongoing charges are the Company's annualised expenses of £1,856,000 (31 December 2019: £1,509,000) (excluding finance costs and certain non-recurring items) expressed as a percentage of the average monthly net assets of £119,025,000 (31 December 2019: £92,170,000) of the Company during the year.

Portfolio Discount

A proprietary estimate of how far below fair value a given company is trading. For example, if a company with a market capitalisation of 100 had 80 NFV and a calculated fair value of the operating business of 90, we would attribute it a discount of -41%, 100/(90+80)-1. This indicates the amount of potential upside. The company trading on a -41% discount has a potential upside of +69%, 1/(1-0.41).

Portfolio Yield

The weighted-average dividend yield of each underlying company in AJOT's portfolio.

Return on Equity ("ROE")

A measure of performance calculated by dividing net income by Shareholder equity.

ROE ex Non-Core Financial Assets

Non-core financial assets consists of cash and investment securities (less capital gains tax) less debt and net pension liabilities. The ROE is calculated as if non-core financial assets were paid out to Shareholders. Companies with high balance sheet allocations to non-core, low yielding financial assets have depressed ROEs. The exclusion of non-core financial assets gives a fairer representation of the true ROE of the underlying business.

Total Return - NAV and Share Price Returns

The combined effect of any dividends paid, together with the rise or fall in the share price or NAV. Total return statistics enable the investor to make performance comparisons between investment trusts with different dividend policies. Any dividends received by a Shareholder are assumed to have been reinvested in either additional shares in the Company or in the assets of the Company at the prevailing NAV, in either case at the time that the shares begin to trade ex-dividend.

Investing in the Company

The Company's Ordinary Shares are listed on the London Stock Exchange and can be bought directly on the London Stock Exchange or through the platforms listed on www.ajot.co.uk/how-to-invest/platforms/ .

Share Prices

The share price is published daily in The Financial Times, as well as on the Company's website: www.ajot.co.uk

Dividends

Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for the purpose. Mandate forms may be obtained from Link Group, using the contact details given below or via www.signalshares.com. The Company operates the BACS system for the payment of dividends. Where dividends are paid directly into Shareholders' bank accounts, dividend tax vouchers are sent to Shareholders' registered addresses.

Registrar Customer Support Centre

Link Group Customer Support Centre is available to answer any queries you have in relation to your shareholding:

-  By phone: from the UK, call 0371 664 0300, from overseas call [phone] (calls are charged at the standard geographic rate and will vary per provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00-17:30, Monday to Friday excluding public holidays in England and Wales);

-  By email: [e-mail] ;

-  By post: Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL.

Change of Address

Communications with Shareholders are mailed to the last address held on the share register. Any change or amendment should be notified to Link Group using the contact details given above, under the signature of the registered holder.

Daily NAV

The daily net asset value of the Company's shares can be obtained from the London Stock Exchange or via the website: www.ajot.co.uk

Company Information

Directors Norman Crighton (Chairman) Ekaterina (Katya) Thomson Yoshi Nishio Margaret Stephens	Investment Manager and AIFM Asset Value Investors Limited 25 Bury Street London SW1Y 6AL
Administrator Link Alternative Fund Administrators Limited Beaufort House 51 New North Road Exeter EX4 4EP	Registered office Beaufort House 51 New North Road Exeter Devon EX4 4EP
Auditor BDO LLP 55 Baker Street London W1U 7EU	Registrar and Transfer Office Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL
Corporate Broker N+1 Singer 1 Bartholomew Lane London EC2N 2AX	Registrar's Shareholder Helpline Tel. [phone] From overseas call: [phone] Calls are charged at the standard geographic rate and will vary by provider. Calls from outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00-17:30, Monday to Friday, excluding public holidays in England and Wales.
Custodian J.P. Morgan Chase Bank National Association London Branch 25 Bank Street Canary Wharf London E14 5JP	Secretary Link Company Matters Limited Beaufort House 51 New North Road Exeter Devon EX4 4EP
Depositary J.P. Morgan Europe Limited 25 Bank Street Canary Wharf London E14 5JP	Solicitors Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH

LEI: 894500IJ5QQD7FPT3J73

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at:

https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of this announcement.

 

END

 

 

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