Half-year Report

RNS Number : 2732U

Aberdeen Japan Investment Trust PLC

21 November 2019

 

21 November 2019

Aberdeen Japan Investment Trust PLC (the "Company")

Legal Entity Identifier (LEI):  5493007LN4380BLNLM64

ABERDEEN JAPAN INVESTMENT TRUST PLC

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

INVESTMENT OBJECTIVE

The Company's objective is to achieve long-term capital growth principally through investment in listed Japanese companies which are believed by the Investment Manager to have above average prospects for growth.

CHAIRMAN'S STATEMENT

Overview

Japanese equities rose in the six months under review, despite the market being subject to the vagaries of the ongoing trade tussle between the US and China. The dispute has had a material impact on the global economy. Decelerating economic growth, in turn, has weighed on corporate earnings, with Japanese companies reporting muted to disappointing results over successive quarters. In the June quarter for example, net profits slipped significantly, with the automotive sector bearing the brunt of the decline and the strengthening yen leading to earnings forecasts being trimmed.

Worries over the health of the global economy have resulted in a flight to safe-haven assets such as the yen. While the Japanese currency has strengthened against sterling, some of this can also be attributable to Brexit-related fears.

In domestic politics, Prime Minister Shinzo Abe's ruling coalition, as expected, won Japan's upper house elections (on a low turn-out), but without the two-thirds  majority that would have enabled him to pursue his controversial objective of constitutional reform. The general preference among voters is for the Government to concentrate on economic rather than constitutional policy.  Abe's own popularity rating during the period under review has remained reasonably robust despite administrative scandals, and he became the longest-serving post-war Japanese Prime Minister in August (and the longest-serving of all time in November).  He has been helped by the continuing fractures within the Opposition, and the absence of any obvious successor.  

ESG

On the engagement front, efforts by investors, your Manager included, appear to be bearing fruit, releasing trapped value from Japanese companies. For the year to May, Japanese companies as a whole doubled the number of share buybacks from a year ago, while the total amount exceeded that of the whole of 2018. Admittedly, this may have been partly fuelled by overcapitalised balance sheets and anaemic share prices.

Separately,  your Manager has also been encouraging the management of the underlying holdings in your Company's portfolio to become more open in their disclosure of their ESG efforts. Traditionally, Japanese companies tend to be modest and disdain self-promotion. However, being more transparent is also likely to result in investors rewarding these companies with better share valuations.

Performance

Against this backdrop, your Company's share price and net asset value (NAV) have outperformed the benchmark. The Company's NAV rose by 13.1%, outperforming the Company's Topix benchmark, which rose 9.3% on a sterling total return basis. The Ordinary Share price total return was 16.4% as the discount to NAV per Ordinary share narrowed from 13.6% to 11.2% at 30 September 2019.  As at 20 November 2019, the discount was 12.5%.

Since the change in the mandate (8 October 2013), your Company's net asset value has provided a total return of 91.1% compared to a return from the Topix benchmark of 84.4%.

The Company owns a concentrated portfolio of Japanese equities, aiming to generate long term capital growth. Broadly, your Company's holdings in the materials and healthcare sectors have performed well, while those that did not fare as well faced distinct issues. While keeping the portfolio's main characteristics intact, the proportion of small-cap companies has increased. It is worth noting that these smaller companies tend to be more immune from externalities, such as pressure from the worsening trade friction, the rising yen and ultimately the impact of both of these on end demand.  Details of the Company's performance over the six month period to 30 September 2019 are explained in the Investment Manager's Review on page 5. 

Dividend

A final dividend of 5.4p per ordinary share in respect of the year ended 31 March 2019 (2018 - 5.2p) was paid to shareholders on 12 July 2019. This was the level required to maintain investment company status, consistent with the Company's dividend policy.

A new enhanced dividend policy was endorsed by shareholders at the AGM in July this year. In line with this policy the Board has declared for the first time an interim dividend of 6.0p for the year ended 31 March 2020 (2019 - nil) which will be paid to shareholders on 20 December 2019.  The record date is 29 November 2019.  Dividend distributions will now be made on a semi-annual basis. 

The Board recognises the importance of income to our shareholders and  believes that a regular, sustainable dividend will help the Company to broaden the shareholder base and help to maintain the discount at reasonable levels. 

The enhanced dividend to be paid to shareholders will consist of the Company's earnings for the year, plus 3.0p from revenue reserves, plus an amount from capital reserves. As a guide, by using the Company's financial results for the year to 31 March 2019, a minimum distribution of 15.0p for the year ending 31 March 2020 is anticipated.

Gearing

The Company continued to make use of its capacity to gear through the Yen 1.3 billion fixed term and Yen 1.0 billion floating rate facilities with ING Bank.  The Board considers a gearing level of around 10% to be appropriate, although, with stock market fluctuations, this may range between 5% -15%.   Net gearing as at 30 September 2019 was 12.9% (31 March 2019: 11.6%).

The Board continues to believe that the sensible use of modest financial gearing should enhance returns to shareholders and further gearing options will be considered prior to the maturity of the loan facility on 23 January 2020.

Discounts and Share Buybacks

The Board monitors the discount level of the Company's shares in relation to the NAV.  There is a mechanism in place to buy back shares at appropriate levels when to do so will add value for ongoing investors.  During the six month period, 210,000 shares were bought back into treasury at a cost of £1.2 million.  Since the period end a further 140,800 shares have been repurchased.

Outlook

The Japanese stock market will continue to face the same litany of risks that it has done over the past half year. At the forefront is the protracted trade negotiations between the world's two largest economies and the unpredictability of the messages on these and other issues emerging from the US President.  Also affecting share prices are the geopolitical uncertainties that compel investors to flood into the yen as a safe haven each time volatility spikes. Japan/China relations have however improved (although Japan/Korea relations have deteriorated) and prospects for a resolution of US/Japan trade tensions (and perhaps also those between US and China), and the possibility that the forthcoming UK general election may bring some clarity on the way forward on Brexit, may help to calm market uncertainty.  The slowdown in China in 2019, however, has had a consequential impact on the Japanese manufacturing and service sectors. 

Against this backdrop, your Manager feels that many Japanese companies, particularly those held by your Company, are now well-positioned. At the company level, many are still expanding, investing for the future. Their efforts are augmented by the strength of the yen, which is  encouraging some to invest abroad.   Your Manager (and other asset management companies) are also watching closely and liaising with Japanese officials on proposed changes to Japanese law to reduce the threshold at which foreign investors are required, for reasons of national security, to file pre-acquisition notifications. 

The fundamentals of the underlying stocks within your Company's portfolio remain robust. Many of these are market leaders in their own fields and will continue to do well regardless of the external pressures they may face. Even though stock prices have risen, valuations remain attractive, given the prospects for these companies. The Board has confidence that your Manager will continue to be a good steward of the Company's assets and the optimistic stance adopted should stand the Company in good stead as we seek further solid growth.

Karen Brade

Chairman

21 November 2019

INTERIM BOARD REPORT - OTHER MATTERS

Principal Risks and Uncertainties

The Company's risks are regularly monitored at Board meetings and the Board believes that the Company is resilient to most short term operational risks which are effectively mitigated by the internal controls of the Manager and Depositary. Analysis and mitigation of other longer term and more strategic risks are managed by the Board.

The principal risks and uncertainties facing the Company have been identified as follows:

-    Investment strategy risk

-    Investment risk

-    Reputation

-    Regulatory compliance risk

-    Performance risk

-    Share price and discount risk

Further details of these risks are provided on pages 10 to 11 of the 2019 Annual Report and Accounts which is available on the Company's website www.aberdeenjapan.co.uk. 

In addition to these risks, the outcome and potential impact of the UK Government's negotiations with the European Union on Brexit is still unclear at the date of this report.  This remains an economic risk for the Company, principally in relation to the potential impact of Brexit on currency volatility and the Manager's operations.  Aberdeen Standard Investments has a significant Brexit program in place aimed at ensuring that they can continue to satisfy their clients' investment needs post Brexit. 

In all other respects, the Company's principal risks and uncertainties have not changed materially since the

publication of the 2019 Annual Report and Accounts. 

Related Party Transactions

Any related party transactions during the period are disclosed in the Notes to the Financial Statements. There have been no related party transactions that have had a material effect on the financial position of the Company during the period.

Going Concern

The Company's assets consist of equity shares in companies listed on the Tokyo Stock Exchange and in most circumstances are realisable within a short timescale.  The Board has set limits for borrowing, foreign exchange contract positions with regards to hedging and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Board believe that the Company has adequate resources to continue its operational existence for the foreseeable future. Accordingly, we continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibility Statement

The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

-    the condensed set of Financial Statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting);

-    the Half Yearly Financial Report includes a fair review of the information required by rule 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

-    the Half Yearly Financial Report includes a fair review of the information required by 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

The Half Yearly Financial Report for the six months ended 30 September 2019 comprises the Interim Board Report, which consists of the Chairman's Statement, Investment Manager's Review and Other Matters (including the Directors' Responsibility Statement), and the condensed set of Financial Statements.

Karen Brade

Chairman

21 November 2019

INVESTMENT MANAGER'S REVIEW

Overview

Japanese equities rose in sterling terms for the half year to September 2019. Geopolitical events swayed the market during the period, with US-China trade talks dominating headlines, alongside large-scale protests in Hong Kong and heightened tension in the Middle East. Reflecting these concerns, the yield on the 10-year Japanese Government Bond fell to its lowest level in three years, and the yen, often viewed as a safe haven asset, appreciated against major currencies. Domestic economic indicators were broadly negative - consumer confidence fell ahead of the consumption tax hike in October, and on concerns of a domestic economic slowdown brought on by trade conflict. While the government's measures to mitigate the impact of the higher tax rates could cushion a dip in the economy, uncertainty is likely to persist as long as trade tensions remain.

Portfolio review

The portfolio's total return on net asset value was 13.1%, surpassing the benchmark's 9.3% gain. During the period under review, the Trust's share price rose by 16.4%. The performance was helped by our pick of businesses with wide competitive moats and good management, especially in a challenging environment. In particular, our selection of basic materials stocks contributed to performance, as did our choice of healthcare stocks.

The Trust's holdings in the materials sector, Nippon Paint, Kansai Paint, and Shin-Etsu Chemical, performed admirably during the period. Alongside the retreat in oil prices, which provided some relief on raw material costs, the two paint stocks were driven by several company-specific factors. These include Nippon Paint's acquisition of Australia's leading decorative paint company Dulux Group, as well as resilient performance at its operations in China. Auto paints leader Kansai Paint benefited from a firmer commitment on financial targets and aggressive fiscal stimulus measures in India, which contributes to more than a third of its operating profits. Shin-Etsu Chemical benefited from firm demand at its core silicon wafers business, as well as resilient earnings from its PVC and silicones divisions. The company is increasing capital expenditure in areas where it sees medium-term growth opportunities, particularly in its specialty silicones business.

In the healthcare sector, the portfolio's performance was helped by leading pharmaceutical company Chugai Pharmaceutical, as sales of its hemophilia treatment Hemlibra greatly surpassed expectations. We expect Hemlibra to become a blockbuster drug, given its ability to command premium pricing, having earned the accolade of a breakthrough therapy in the US. Chugai has an excellent track record of commercialising its research. Its relationship with major shareholder Roche offers mutual product pipeline access and an extensive overseas distribution network, allowing it to focus on drug discovery.

Detractors among the Trust's holdings include consumer financing firm Aeon Financial Service, and exchange operator Japan Exchange Group. Aeon Financial leverages on the brand strength and store network of its parent. However, its investments for integrating a digital payment system into Aeon's retail network, coupled with promotional activities to win users, have dampened earnings. Meanwhile, the share price of Japan Exchange Group retreated as trading volumes have fallen. On a more upbeat note, its merger with Tokyo Commodity Exchange will diversify its business and eventually boost trading volumes.

Shares of musical instrument maker Yamaha Corp also fell, as sales in China and Europe were affected by weakening discretionary consumer demand. Revenues in Europe further suffered from the yen's appreciation. Nonetheless, Yamaha remains attractive, with a dominant global market share in musical instruments and audio equipment, as well as a competitive edge in sound-synthesis technology. It is also the industry leader in responsible sourcing of materials for its musical instruments, and the integration of its sustainability practices with marketing has proven to be highly effective.

Our corporate engagement during the first half of the year focused on accountability to shareholders and improving disclosure in ESG matters, which many Japanese firms tend to be modest about. Corporate governance continued to inch forward this year, with some companies making changes ahead of shareholder meetings, most notably with either the abolishment of poison pills or raising of pay-out ratios. A new record of 54 proposals was raised by institutional investors during annual shareholder meetings this June. As was the case last year, there were several high-profile failures to pass resolutions that would have been positive for governance. This was most likely the result of cross-shareholdings. We actively vote in all shareholder resolutions, and at times, reject agenda which we do not concur with. This is especially the case when there has been poor execution, or a low level of shareholder returns without a satisfactory rationale. We also take the view that external directors and auditors should be truly independent to ensure the protection of minority shareholders' interests. Kansai Paint, for instance, has appointed two new independent directors to better represent minority shareholders, as well as abolished its poison pill strategy. Separately, Z Holdings (formerly Yahoo Japan) banned ivory products from its e-commerce platform after we voiced our concerns.

In portfolio strategy, we have raised the proportion of smaller companies, as highlighted in the previous annual report. This is in light of our ability to uncover better quality companies in this segment of the market, amid a broad improvement in governance. With valuations more reasonable after the sell-down of many Japanese stocks in the past 18 months, we took the opportunity to initiate several smaller firms, such as professional hair care company Milbon Co, Heiwa Real Estate and TKP Corp.

Milbon is a leading hair care products manufacturer in Japan, with distribution primarily at beauty salons nationwide. The company has a good product range and is rapidly expanding abroad, particularly in China and Korea. Heiwa Real Estate is a Tokyo-based real estate developer that we believe will see earnings uplift from rent hikes and redevelopment. The company also takes a proactive stance towards shareholder returns. TKP Corp has a foothold in operating conference rooms and banquets through sub-leasing under-utilised real estate, and its recent acquisition of IWG's Regus franchise in Japan and Taiwan will expand its footprint into shared workspaces.

Among larger firms, we introduced Recruit Holdings, a leading manpower recruitment agency. Its investment in human-resources technology overseas, particularly through job-search engine Indeed.com, allowed it to meet the untapped hiring needs of small and medium firms worldwide. We believe this platform, as well as the potential to expand into job placements and staffing, will be key sources of future growth. It already has one of the world's largest temporary-staffing businesses.

Another new holding is Musashi Seimitsu, a maker of automobile and motorcycle parts, with a growth potential that is supported by automotive electrification and growing motorbike demand across Asia. Against this, we exited automobile maker Honda Motor, auto-parts supplier Denso, and construction and mining machinery maker Komatsu.

Outlook

While the macroeconomic outlook remains highly uncertain, with indicators suggesting broad weakness in the global economy, there is optimism that geopolitical concerns are abating: the US-China trade dispute appears to be nearing an initial agreement; and central banks stand ready to support a decelerating global economy.

Nevertheless, the sentiment for Japanese equities remains muted in the near term. Stocks boosted by the recent consumption tax hike may correct in the coming quarter; while order book forecasts of industrial firms point to a bottom. But the market appears to be looking past these issues and has remained relatively resilient thus far.

More importantly, your portfolio companies are not sitting still: Shiseido is expanding capacity for premium skincare products; Nippon Paint is making a significant foray into Australia; while Shin-Etsu Chemical's new ethylene cracker will lower costs and reduce business risks. These individual actions come alongside a period of higher awareness of shareholder return: Japanese firms are returning record amounts of capital on pristine balance sheets through share buybacks or higher dividends.

We believe these developments will drive the long-term value of the Trust, even as this period of macro-driven volatility clouds the stock market's short-term prospects. The challenge, as ever, is to uncover stocks with sound management, wide competitive moats, solid balance sheets, and the resilience to navigate these difficult times.

Aberdeen Standard Investments (Japan) Limited

Investment Manager

21 November 2019

FINANCIAL HIGHLIGHTS

	As at	As at
	30 September 2019	31 March 2019	Change %
Total assets (£'000){A}	109,997	99,810	10.2
Total equity shareholders' funds (£'000)	97,233	88,025	10.5
Net asset value per Ordinary share	681.4p	607.9p	12.1
Share price (mid-market)	605.0p	525.0p	15.2
Discount to net asset value per Ordinary share{B}	11.2%	13.6%
Net gearing{B}	12.9%	11.6%
Ongoing charges{B}	1.03%	1.10%
{A}        Excludes foreign currency bank loans of £12,764,000 (31 March 2019 - £11,785,000).
{B}        Considered to be an Alternative Performance Measure. Further details can be found below.

PERFORMANCE (total return) {A}
	Six months ended	Year ended	Three years ended	Five years ended
	30 Sept 2019	30 Sept 2019	30 Sept 2019	30 Sept 2019
Share price{B}	+16.4%	+1.4%	+23.3%	+64.4%
Net asset value per Ordinary share{B}	+13.1%	-1.0%	+21.9%	+62.5%
Index{C}	+9.3%	-0.3%	+26.8%	+78.2%
{A} Total return represents capital return plus dividends reinvested.
{B} Considered to be an Alternative Performance Measure. Further details can be found below
{C} Index represents the TOPIX.

INVESTMENT PORTFOLIO

As at 30 September 2019

		Valuation	Total assets
Company	Sector	£'000	%
Tokio Marine Holdings Inc	Nonlife Insurance	4,421	4.0
Shin-Etsu Chemical Company	Chemicals	4,413	4.0
Chugai Pharmaceutical Company	Pharmaceuticals & Biotechnology	4,085	3.7
KDDI Corporation	Mobile Telecommunications	3,767	3.5
Nippon Paint Holdings Company	Chemicals	3,601	3.3
Daikin Industries	Construction & Materials	3,501	3.2
Keyence Corporation	Electronic & Electrical Equipment	3,358	3.1
Asahi Intecc Company	Health Care Equipment & Services	3,334	3.0
Elecom Company	Technology Hardware & Equipment	3,316	3.0
Toyota Motor Corporation	Automobiles & Parts	3,186	2.9
Top ten investments		36,982	33.7
Pigeon Corporation	Personal Goods	3,074	2.8
Japan Exchange Group Inc.	Financial Services	2,796	2.6
Shiseido Company	Personal Goods	2,777	2.5
Yamaha Corporation	Leisure Goods	2,759	2.5
Nabtesco Corporation	Industrial Engineering	2,679	2.4
Amada Holdings Company	Industrial Engineering	2,635	2.4
Shionogi & Company	Pharmaceuticals & Biotechnology	2,629	2.4
Kansai Paint Company	Chemicals	2,579	2.3
Welcia Holdings Company	Food & Drug Retailers	2,491	2.3
Otsuka Corporation	Software & Computer Services	2,431	2.2
Top twenty investments		63,832	58.1
Misumi Group Inc.	Industrial Engineering	2,415	2.2
Stanley Electric Company	Automobiles & Parts	2,077	1.9
Sakai Moving Service Company	Industrial Transportation	2,072	1.9
Z Holdings Corporation (formerly Yahoo Japan)	Software & Computer Services	1,927	1.8
Nitori Holdings	General Retailers	1,899	1.7
USS Company	General Retailers	1,857	1.7
Seven & I Holdings Company	General Retailers	1,763	1.6
Makita Corporation	Household Goods & Home Construction	1,705	1.6
Net One Systems Company	Software & Computer Services	1,684	1.5
Sho-Bond Holdings Company	Construction & Materials	1,675	1.5
Top thirty investments		82,906	75.5
Heiwa Real Estate	Real Estate Investment & Services	1,651	1.5
SCSK Corporation	Software & Computer Services	1,576	1.4
TKP  Corporation	Support Services	1,557	1.4
As One Corporation	Health Care Equipment & Services	1,510	1.4
Pilot Corporation	Household Goods & Home Construction	1,489	1.4
Fuji Soft	Software & Computer Services	1,471	1.3
Resorttrust Inc.	Travel & Leisure	1,152	1.0
AIN Holdings Inc.	Food & Drug Retailers	1,132	1.0
Recruit Holdings Corporation	Support Services	1,131	1.0
Aeon Fantasy Company	Travel & Leisure	1,124	1.0
Top forty investments		96,699	87.9
Daibiru Corporation	Real Estate Investment & Services	1,119	1.0
Sysmex Corporation	Health Care Equipment & Services	1,112	1.0
BML	Health Care Equipment & Services	1,111	1.0
Mani Inc.	Health Care Equipment & Services	1,107	1.0
Daiwa Industrial	Industrial Engineering	1,105	1.0
Milbon Corporation	Personal Goods	1,094	1.0
Sanken Electric Company	Technology Hardware & Equipment	1,025	0.9
Renesas Electronics Corporation	Technology Hardware & Equipment	1,005	0.9
Musashi Seimitsu Industry Corporation	Automobiles & Parts	904	0.8
Mandom Corporation	Personal Goods	723	0.7
Top fifty investments		107,004	97.2
San-A Company	Food & Drug Retailers	606	0.6
Aeon Financial Service Company	Financial Services	548	0.5
Fanuc Corporation	Industrial Engineering	518	0.5
Sansan	Support Services	368	0.3
Tokyu  Fudosan Holdings	Real Estate Investment & Services	198	0.2
Fukui Computer Holdings	Software & Computer Services	102	0.1
Total investments		109,344	99.4
Net current assets{A}		653	0.6
Total assets		109,997	100.0
{A} Excludes bank loans of £12,764,000
Unless otherwise stated, Japanese stock is held and all investments are equity holdings.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

	Six months ended
	30 September 2019
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	11,776	11,776
Income (note 2)	976	-	976
Investment management fee (note 11)	(128)	(193)	(321)
Administrative expenses	(185)	(8)	(193)
Exchange losses	-	(884)	(884)
	________	_________	________
Net return before finance costs and taxation	663	10,691	11,354
Finance costs	(23)	(34)	(57)
	________	_________	________
Net return before taxation	640	10,657	11,297
Taxation (note 4)	(97)	-	(97)
	________	_________	________
Net return after taxation	543	10,657	11,200
	________	_________	________
Return per Ordinary share (pence) (note 6)	3.77	73.93	77.70
	________	_________	________
The total column of this statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses have been reflected in the Condensed Statement of Comprehensive Income.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Cont'd)

	Six months ended
	30 September 2018
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	2,928	2,928
Income (note 2)	826	-	826
Investment management fee (note 11)	(151)	(227)	(378)
Administrative expenses	(171)	(7)	(178)
Exchange losses	-	(614)	(614)
	________	_________	________
Net return before finance costs and taxation	504	2,080	2,584
Finance costs	(21)	(32)	(53)
	________	_________	________
Net return before taxation	483	2,048	2,531
Taxation (note 4)	(83)	-	(83)
	________	_________	________
Net return after taxation	400	2,048	2,448
	________	_________	________
Return per Ordinary share (pence) (note 6)	2.73	13.96	16.69
	________	_________	________

CONDENSED STATEMENT OF FINANCIAL POSITION (unaudited)

		As at	As at
		30 September 2019	31 March 2019
	Note	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		109,344	97,709
		_________	_________
Current assets
Debtors		659	1,359
Cash at bank and in hand		437	1,516
		_________	_________
		1,096	2,875
		_________	_________
Creditors: amounts falling due within one year
Foreign currency bank loans	7	(12,764)	(11,785)
Other creditors		(443)	(774)
		_________	_________
		(13,207)	(12,559)
		_________	_________
Net current liabilities		(12,111)	(9,684)
		_________	_________
Net assets		97,233	88,025
		_________	_________
Share capital and reserves
Called-up share capital		1,582	1,582
Share premium		6,656	6,656
Capital redemption reserve		2,273	2,273
Capital reserve	8	84,122	74,675
Revenue reserve		2,600	2,839
		_________	_________
Equity shareholders' funds		97,233	88,025
		_________	_________
Net asset value per Ordinary share (pence)	9	681.36	607.89
		_________	_________
The accompanying notes are an integral part of the financial statements.

CONDENSED STATEMENT OF CHANGES IN EQUITY (unaudited)

Six months ended 30 September 2019
			Capital
	Share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2019	1,582	6,656	2,273	74,675	2,839	88,025
Purchase of Ordinary shares to be held in treasury	-	-	-	(1,210)	-	(1,210)
Return after taxation	-	-	-	10,657	543	11,200
Dividend paid (note 5)	-	-	-	-	(782)	(782)
	_____	_____	_____	_____	_____	_____
Balance at 30 September 2019	1,582	6,656	2,273	84,122	2,600	97,233
	_____	_____	_____	_____	_____	_____
Six months ended 30 September 2018
			Capital
	Share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2018	1,582	6,656	2,273	87,357	2,604	100,472
Purchase of Ordinary shares to be held in treasury	-	-	-	(501)	-	(501)
Return after taxation	-	-	-	2,048	400	2,448
Dividend paid (note 5)	-	-	-	-	(763)	(763)
	_____	_____	_____	_____	_____	_____
Balance at 30 September 2018	1,582	6,656	2,273	88,904	2,241	101,656
	_____	_____	_____	_____	_____	_____
The accompanying notes are an integral part of the financial statements.

CONDENSED STATEMENT OF CASH FLOWS (unaudited)

	Six months ended	Six months ended
	30 September 2019	30 September 2018
	£'000	£'000
Operating activities
Net return before taxation	11,297	2,531
Adjustments for:
Gains on investments	(11,776)	(2,928)
Increase in other creditors	81	50
Finance costs	57	53
Expenses taken to capital reserve	7	7
Foreign exchange losses	884	83
Overseas withholding tax	(97)	(83)
Decrease in accrued dividend income	34	213
(Increase) / decrease in other debtors	(2)	2
	_________	_________
Net cash inflow / (outflow)  from operating activities	485	(72)
Investing activities
Purchases of investments	(25,355)	(16,895)
Sales of investments	25,752	18,695
Expenses allocated to capital	(8)	(7)
	_________	_________
Net cash inflow from investing activities	389	1,793
Financing activities
Bank and loan interest paid	(55)	(53)
Equity dividend paid	(782)	(763)
Purchase of own shares to treasury	(1,210)	(501)
	_________	_________
Net cash outflow from financing activities	(2,047)	(1,317)
	_________	_________
(Decrease) / increase in cash	(1,173)	404
	_________	_________
Analysis of changes in cash during the period
Opening balance	1,516	881
Effect of exchange rate fluctuations on cash held	94	(8)
(Decrease) increase in cash as above	(1,173)	404
	_________	_________
Closing balance	437	1,277
	_________	_________
The accompanying notes are an integral part of the financial statements.

NOTES TO THE ACCOUNTS (unaudited)

For the period ended 30 September 2019
1.	Accounting policies - Basis of accounting
	The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 'Interim Financial Reporting' and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted.
	The Half-Yearly financial statements have been prepared using the same accounting policies applied as the preceding annual financial statements, which were prepared in accordance with Financial Reporting Standard 102.

		Six months ended	Six months ended
		30 September 2019	30 September 2018
2.	Income	£'000	£'000
	Income from investments
	Overseas dividends	976	826
		_________	_________
	Total income	976	826
		_________	_________

3.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. Expenses incurred in acquiring investments have been expensed through capital and are included within administration expenses in the Condensed Statement of Comprehensive Income, whilst expenses incurred in disposing of investments have been expensed through capital and are included within gains on investments in the Condensed Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended
		30 September 2019	30 September 2018
		£'000	£'000
	Purchases	8	7
	Sales	7	6
		_________	_________
		15	13
		_________	_________
	The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations.

4.	Taxation
	The taxation charge for the period represents withholding tax suffered on overseas dividend income.

		Six months ended	Six months ended
		30 September 2019	30 September 2018
5.	Dividends	£'000	£'000
	2018 final dividend - 5.20p	-	763
	2019 final dividend - 5.40p	782	-
		_________	_________
		782	763
		_________	_________
	An interim dividend of 6.00p for the year to 31 March 2020 (2019 - nil) will be paid on 20 December 2019 to shareholders on the register on 29 November 2019. The ex-dividend date was 28 November 2019.

		Six months ended	Six months ended
		30 September 2019	30 September 2018
6.	Return per Ordinary share	£'000	£'000
	Based on the following figures:
	Revenue return	543	400
	Capital return	10,657	2,048
		_________	_________
	Total return	11,200	2,448
		_________	_________
	Weighted average number of Ordinary shares in issue	14,414,748	14,671,115
	Total net return per share (p)	77.70	16.69

			As at	As at
			30 September 2019	31 March 2019
7.	Foreign currency bank loan		£'000	£'000
	Falling due within one year		12,764	11,785
			_________	_________
	Short term Japanese Yen loan	Amount £'000	3,003	2,773
		JPY'000	400,000	400,000
		Interest rate (%)	0.7000	0.7000
	Long term Japanese Yen loan	Amount £'000	9,761	9,012
		JPY'000	1,300,000	1,300,000
		Interest rate (%)	0.7865	0.7865
	The short term loan is drawn down from the JPY1,000,000,000 one year rolling credit facility with ING Bank entered into in January 2019 and expires in January 2020.
	The long term loan is drawn from the JPY1,300,000,000 two year facility with ING Bank entered into in January 2018 and expires in January 2020.

8.	Capital reserve
	The capital reserve figure reflected in the Condensed Statement of Financial Position includes investment holdings gains of £24,578,000 (31 March 2019 - £17,349,000).

		As at	As at
9.	Net asset value per Ordinary share	30 September 2019	31 March 2019
	Attributable net assets (£'000)	97,233	88,025
	Number of Ordinary shares in issue	14,270,457	14,480,439
	Net asset value per Ordinary share (p)	681.36	607.89

10.	Fair value hierarchy
	FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications:
	Level 1:		unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
	Level 2:		inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.
	Level 3:		inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
	The financial assets and liabilities measured at fair value in the Condensed Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
					Level 1	Level 2	Level 3	Total
	As at 30 September 2019			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities			a)	109,344	-	-	109,344
					_______	_______	_______	_______
	Net fair value				109,344	-	-	109,344
					_______	_______	_______	_______
					Level 1	Level 2	Level 3	Total
	As at 31 March 2019			Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities			a)	97,709	-	-	97,709
					_______	_______	_______	_______
	Net fair value				97,709	-	-	97,709
					_______	_______	_______	_______
	a)	Quoted equities
		The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Level 1 are actively traded on recognised stock exchanges.

11.	Transactions with the Manager
	The Company has agreements with the Standard Life Aberdeen Group (the "Manager") for the provision of investment management, secretarial, accounting and administration and promotional activity services.
	The management fee is payable monthly in arrears at a rate of 0.75% per annum on the lesser of the Company's net asset value or market capitalisation. The investment management fee is chargeable 40% to revenue and 60% to capital. During the period £321,000 (30 September 2018 - £378,000) of investment management fees were earned by the Manager, with a balance of £106,000 (30 September 2018 - £125,000) being payable to the Manager at the period end.
	The promotional activities fee is based on a current annual amount of £51,000 (30 September 2018 - £72,000 per annum), payable quarterly in arrears. During the period £25,500 (30 September 2018 - £36,000) of fees were earned, with a balance of £12,750 (30 September 2018 - £18,000) being payable to the Manager at the period end.

12.	Segmental information
	The Company is engaged in a single segment of business, which is to invest in equity securities and debt instruments. All of the Company's activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based on the Company as one segment.

13.	Subsequent events
	Following the period end, the Company purchased a further 140,800 Ordinary shares at a cost of £844,000. As at the date of this report there were 14,129,657 Ordinary shares in issue and 1,691,915 Ordinary shares held in treasury.

14.	The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 September 2019 and 30 September 2018 has not been audited.
	The information for the year ended 31 March 2019 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498 of the Companies Act 2006.

15.	This Half-Yearly Report was approved by the Board on 21 November 2019.

ALTERNATIVE PERFORMANCE MEASUREMENTS

Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. 

Total return

Total return is considered to be an alternative performance measure. NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend. 

The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the six months ended 30 September 2019 and the year ended 31 March 2019 and total return for the periods. 

		Dividend				Share
Value as at:		rate		NAV		price
31 March 2019		N/A		607.89p		525.00p
13 June 2019		5.40p		623.10p		552.50p
30 September 2019		N/A		681.36p		605.00p
Total return for the six months ended 30 September 2019				+13.1%		+16.4%
		Dividend				Share
Value as at:		rate		NAV		price
31 March 2018		N/A		682.31p		582.50p
14 June 2018		5.20p		703.94p		620.00p
31 March 2019		N/A		607.89p		525.00p
Total return for the year ended 31 March 2019				-10.2%		-9.1%

Discount to net asset value per Ordinary share

The discount is the amount by which the share price of 605.00p (31 March 2019 - 525.00p) is lower than the net asset value per share of 681.36p (31 March 2019 - 607.89p), expressed as a percentage of the net asset value. 

Net gearing

Net gearing measures the total borrowings of £12,764,000 (31 March 2019 - £11,785,000) less cash and cash equivalents of £239,000 (31 March 2019 - £1,574,000) divided by shareholders' funds of £97,233,000 (31 March 2019 - £88,025,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes amounts due from and to brokers at the period end as well as cash at bank and in hand. 

Ongoing charges

Ongoing charges is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values throughout the year. The ratio for 30 September 2019 is based on forecast ongoing charges for the year ending 31 March 2020. 

		30 September	31 March
		2019	2019
Investment management fees (£'000)		644	706
Administrative expenses (£'000)		335	342
Less: transaction costs on investment purchases (£'000)		-	(11)
Ongoing charges (£'000)		979	1,037
Average net assets (£'000)		94,732	94,269
Ongoing charges ratio		1.03%	1.10%

The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which amongst other things, includes the cost of borrowings and transaction costs.

 

END

 

 

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