Half-Yearly Results

RNS Number : 3767G

Aberdeen Japan Investment Trust PLC

25 November 2020

 

25 November 2020

Aberdeen Japan Investment Trust PLC (the "Company")

Legal Entity Identifier (LEI):  5493007LN4380BLNLM64

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020

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

Performance

Against what has been an extraordinary period due to the global COVID-19 pandemic, both your Company's share price and net asset value have outperformed the benchmark by a healthy margin. The Company's net asset value total return for the six month period to 30 September 2020 was 26.3%, posting a strong and welcome gain compared with the Topix benchmark's 14.8% total return.

Broadly, your Company's holdings fared well across most sectors, reaffirming the Manager's strategy of selecting well-run businesses with management adapting well to the fluidity of market conditions stemming from both international and domestic factors. The volatility has also presented some interesting investment opportunities for the Company.  Over the period under review, your Manager has worked to unlock shareholder value in the portfolio companies, including driving improvements in governance and capital efficiency, as well as seeking evidence of post-pandemic recovery plans, in advance of AGM votes.  These efforts are bearing fruit and underpin your Manager's approach to long-term, active investment.   Further details can be found in the Manager's Report.

The Company's longer term performance has also been strong with NAV returns of 23.9% and 78.0% over 3 and 5 years respectively, compared to benchmark returns of 15.3% and 71.7%.

The ordinary share price's total return for the period was 18.0% as the discount to NAV per ordinary share widened from 10.9% to 16.8% as at 30 September 2020.  Market volatility has continued to feature following the COVID-19 outbreak and discounts of most investment trusts have increased substantially at times.  We are working closely with the Manager and advisers to address the widening discount.  As at 23 November 2020, the discount was 9.0%. 

Overview

Japan suffered less from the initial wave of the Coronavirus pandemic than most other major developed economies, with an early declaration of a state of emergency and relatively fewer fatalities.  Two multi-trillion yen packages of financial support for companies and households helped mitigate the economic effects, as did continued lending by the Bank of Japan.  Japanese firms' strong cash positions cushioned many from the worst impacts. However, corporate concerns persisted regarding worsening trade tensions between the US and China, Japan's top two trading partners, and Japan, in common with other economies, faces recession in the current year.

Shinzo Abe, Japan's longest-serving Prime Minister, resigned because of ill-health in September. His successor, Yoshihide Suga, who had been Abe's Chief Cabinet Secretary (effectively second in command) throughout his premiership, will maintain the principles of 'Abenomics' - fiscal and monetary stimulus, accompanied by structural reform - as well as increasing focus on digitalisation.

Dividend

Under the newly enhanced dividend policy approved last year, a final dividend of 9.0p per ordinary share in respect of the year ended 31 March 2020 was paid to shareholders in July 2020, making a total dividend for the year of 15.0p. Using the Company's closing share price of 640p for 30 September 2020 this indicates a historic yield of 2.3%.

Whilst the revenue return per ordinary share over the six month period to 30 September 2020 fell to 2.65p (2019 - 3.77p), the Manager has forecast an overall drop in dividend income for the full year in the low single digits.  This is following a detailed review of the portfolio and discussions with portfolio company management teams.

The Board has declared an unchanged interim dividend of 6.0p for the year ending 31 March 2021 (2020 - 6.0p) which will be paid to shareholders on 31 December 2020.  The record date is 4 December 2020. 

The Board recognises the importance of income to our shareholders, particularly in this low interest environment. Good performance combined with a regular, sustainable semi-annual dividend should allow the Company to broaden the shareholder base and help to maintain the share price discount to NAV at reasonable levels. The Board continues  to make use of the benefits of the investment trust structure to allow the Company to support the enhanced dividend policy.

Gearing

The Company made 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 g earing as at 30 September 2020 was 11.4% (31 March 2020: 13.6%).

The Board believes that the potential to gear the portfolio at the right time is one of the strong advantages of the closed ended company structure, with the sensible use of modest financial gearing seeking to enhance returns to shareholders. Further gearing options will be considered prior to the maturity of the current loan facility on 22 January 2021.

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 shareholders. During the six month period, 241,746 shares were bought back into treasury at a cost of £1.5 million. Since the period end a further 126,411 shares have been repurchased.

The Board

It was with great sadness and regret earlier this year that I had to report that Kevin Pakenham, the Company's Senior Independent Director, passed away on 19 July 2020. Kevin had served as a Director of the Company since 2007. During this time, the Board and the shareholders benefited hugely from Kevin's significant knowledge and experience and his special wit and humour. He will be greatly missed.

Following a search involving an external recruitment agency, the Board is pleased to report the appointment of Sam Dean as an independent non-executive Director with effect from 1 December 2020.  Sam has a long career in investment banking, working in Equity Capital Markets and corporate finance on behalf of corporate and government clients globally . 

Outlook

The world remains in a state of uncertainty with a second wave of COVID-19 infections. Many governments have re-imposed social-distancing measures to contain the virus. Meanwhile, the ongoing infusion of massive stimulus to economies worldwide should continue to support asset prices. The full recovery in fundamentals which was thought to be increasingly distant due to the continuing impact of the global pandemic may now seem just a little closer following the latest news on potential vaccines.

In spite of all of the challenges witnessed, healthy balance sheets and ample free cash flow place your Company's holdings on firm ground. These fundamentals, coupled with their managements' experience in successfully navigating previous crises, should allow these companies to recover at a faster pace than that of the broader market. Moreover, many of them have built dominant positions in their own fields and will continue to thrive regardless of the external pressures faced. I have every confidence that your Tokyo-based Manager's consistent approach of seeking out the best companies, whether small, mid or large capitalisation stocks, through stringent screening and regular meetings with senior management will ensure the long-term growth prospects of the underlying investments in your Company's portfolio. The Manager's ESG focus, which is core to its investment process, should also help to ensure effective engagement at all levels as we encourage better and more sustainable practices and thus hopefully better share price ratings in recognition of their efforts.

Karen Brade,

Chairman

24 November 2020

INTERIM BOARD REPORT - OTHER MATTERS

Principal Risks and Uncertainties

The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company and to identify and evaluate newly emerging risks.  The Company's risks are regularly assessed by the Audit Committee and managed by the Board through the adoption of a risk matrix which identifies the key risks for the Company, including emerging risks, and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third party service providers.  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:

-  Market, Economic and Political risk

-  Investment strategy risk

-  Investment Management risk

-  Operational risk

-  Regulatory risk

-  Share price and discount risk

-  Leverage

-  COVID-19 Pandemic

Further details of these risks are provided on pages 14 to 16 of the 2020 Annual Report and Accounts which is available on the Company's website www.aberdeenjapan.co.uk. 

In addition to these risks, there are also a large number of international political and economic uncertainties which could have an impact on the performance of global markets.  The outbreak of the COVID-19 virus has resulted in business disruption and stockmarket volatility across the world.  The extent of the effect of the virus, including its long term impact, remains uncertain.  The Manager has undertaken a detailed review of the investee companies in the Company's portfolio to assess the impact of COVID-19 on their operations such as employee absence, reduced demand, reduced turnover and supply chain breakdowns and will review carefully the composition of the Company's portfolio and will be pro-active where necessary.  The Manager has implemented extensive business continuity procedures and contingency arrangements to ensure that they are able to continue to service their clients, including investment trusts. 

The outcome and potential impact of Brexit remains an economic risk for the Company.  As an investment trust with a Japanese mandate, the Company's portfolio is unlikely to be adversely impacted as a direct result of Brexit although some currency volatility could arise. The uncertainty surrounding Brexit could impact investor sentiment and could lead to increased or reduced demand for the Company's shares, which would be reflected in a narrowing or widening of the discount at which the Company's shares trade relative to their net asset value.  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. 

The Board will continue to monitor developments as they occur.

In all other respects, the Company's principal risks and uncertainties have not changed materially since the publication of the 2020 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

In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, the Directors have undertaken a rigorous review and consider that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate.  This review included the additional risks relating to the ongoing Covid-19 pandemic and, where appropriate, action taken by the Manager and Company's service providers in relation to those risks.

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 Company has a fixed term loan facility of JPY 1.3 billion and a revolving loan facility of JPY 1.0 billion in place until January 2021.  The Board has set limits for borrowing and regularly reviews the Company's gearing levels and its compliance with bank covenants.  Initial discussions with banks have commenced with a view to renewing the facility. 

The Board have a reasonable expectation that the Company has adequate financial resources to continue its operational existence for the foreseeable future and the ability to meet all its liabilities and ongoing expenses from its assets.  Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Directors believe that adopting a going concern basis of accounting remains appropriate.

Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. 

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 2020 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

24 November 2020

INVESTMENT MANAGER'S REVIEW

Overview

Japanese equities rose by 14.8%, in sterling terms, in the half year under review, bouncing back from a sharp fall earlier in the year. The market recovery was driven by effective government efforts to control the outbreak of COVID-19, in conjunction with generous fiscal and monetary polic ies .

Compared with most other developed nations, Japan was spared the worst of the coronavirus outbreak. This was surprising given the country's   ageing population, dense cities and over crowded public transportation system. Yet the situation on the ground was less severe than in some other countries , helped primarily by a socially-responsible populace who were quite accustomed to wearing masks even before the pandemic hit. This allowed the government to cautiously re-open   the economy only a month after a state of emergency was declared. While Japanese companies reported material declines in their June quarter earnings due to reduced global economic activity, the results were better than expected due to prudent cost controls. Furthermore, Japanese balance sheets were in better shape before the pandemic than those of global peers. 

T wo   supplementary budgets and the continuation and expansion of the central bank's lending programme helped cushion the economy from the sudden halt in international travel and trade. Although second-quarter gross domestic product contracted by an unprecedented 7.8%, Japan still outpaced its peers, including the US, Europe, and the rest of the OECD.

What could have derailed the market's rise was Abe's unexpected resignation due to ill health. Investors were concerned that this could herald the end of his signature policies, dubbed 'Abenomics', that had fostered seven and a half years of stable growth. Those fears were allayed by Abe's being succeeded by his right-hand man and former Chief Cabinet Secretary, Yoshihide Suga, who reaffirmed his commitment to policy continuity. 

Portfolio review

Over the period, the net asset value total return was 26.3% in sterling terms, comfortably surpassing the benchmark's 14.8% rise. The Company's share price rose by 18.0% on a total return basis.   This performance was driven by portfolio holdings composed of market leaders with significant barriers to entry, led by experienced management teams, who are equipped to circumnavigate the challenging COVID-19 environment. Their quality is easily quantified through key measures , such as the ir   profitability, returns on equity or dividend yield. Our stock picks stand out for their sustainable cash flows and access to liquidity, together with their solid balance sheets that support dividend pay - outs, even during these challenging times.

Having said that, the impact of the pandemic should not be understated.  While COVID-19 has been an advantage for the more obvious businesses, it triggered a fundamental shift towards digitalization (which the new Prime Minister wants to accelerate). This has benefited some industries more than others, notably those that cater to the new virtual environment for working or shopping. These trends are mirrored across the world, as stay-at-home strictures compel the global workforce to telecommute, creating a swathe of possible new winners and losers.

Among the top performers was Z Holdings, a beneficiary of this new trend. Its e-commerce business has posted robust transaction volumes as consumers under lockdown were compelled to meet their everyday needs electronically. Another key contributor was Nippon Paint, albeit in a more traditional business segment. It has done well as the lower oil price, a direct consequence of the pandemic, translated into cheaper input costs. COVID-19 stimulus in China, where the company is the market leader in decorative paints, should also boost demand for its products. Also contributing to the Company's outperformance was Japan Exchange Group, the operator of the Tokyo Stock Exchange. Its shares rose on the back of positive sentiment stemming from an increase in trading volumes.

On the flipside, companies that haven't done as well over this period were the more traditional bricks and mortar ones , from owners of shopping malls and hotels, to restaurants and bars. Most forms of transportation have also been adversely affected. Among the portfolio's holdings, general insurer Tokio Marine was a key detractor from performance. Its shares were dampened by concerns over its exposure to small domestic businesses hurt by the pandemic. We met with management , who reassured us that this exposure was contained, and that the company expects an improvement in underwriting when the pandemic recedes and is considering streamlining its operations to prime itself for the eventual upturn. It remains a high quality company and stands out against its domestic rivals because of its successful expansion abroad .

Overall, the Company's holdings are led by capable management teams who were decisive and nimble in the face of the crisis , whether it was taking the initiative to cut   costs, conserv e capital or quickly adapting their business es to the 'new normal'. Chief among these are air-conditioner maker Daikin and Hoya , a manufacturer of optical products for use in healthcare and information technology . Both were quick to cut costs, while Daikin pivoted to selling products tied to concerns of air quality in enclosed spaces. Another company that has done well during the period is boutique brokerage Nihon M&A Center, as demand for its services remained firm, aided by its ability to capitalise on technological solutions to reach its clients. For Nippon Paint, its share price was buoyed by its plans to grow the business despite the uncertainty, announcing that it is buying Singapore-based Wuthelam Group's Indonesian operations, together with its other joint ventures across Asia.

In portfolio activity, we sold several companies in favour of more attractive opportunities elsewhere . These included Mani , Musashi Seimitsu , Pilot Corp , Sakai Moving Service and   TKP .  Conversely, the sell-off in March allowed us to introduce a number of new companies to the portfolio. They include drug maker Astellas Pharma, semiconductor testing equipment maker Advantest and speech-recognition solutions provider Advanced Media.

We also initiated a position in Zenkoku Hosho, the largest third-party mortgage guarantor in Japan. The company is expected to benefit from local banks' outsourcing of such guarantees, as these financial institutions contend with low yields, a muted economic outlook and an over-competitive operating environment. Zenkoku Hosho's recent tie-up with Bank of Yokohama, one of Japan's largest regional banks, is in line with these trends. Another interesting new addition was Edulab, which provides systems, test design, support, analysis and learning materials for Japan's largest provider of independent English-as-a-foreign-language qualifications in Japan, amongst other testing services. The company has technological expertise in computer-based testing with optical character recognition, as well as education testing-related expertise that can be leveraged to capture other opportunities. Importantly, the government is shifting towards online learning and testing and EduLab is now poised to benefit from the shift to higher-margin computer-based testing, as well as further monetisation of its online portal for test applicants.

Outlook

While we have been pleasantly s urprised by the rebound in Japanese equities considering the global backdrop, the world is facing a second wave of infections. Governments are back to where they were six months ago, re-imposing lockdowns in an attempt to rein in the spike in COVID-19 infections before the winter sets in. Recent announcements in respect of potentially effective vaccines in the pipeline have however lifted investor sentiment and stock markets across the globe.  As at 23 November 2020, the Topix index has risen 6.2% since the period end.

In geopolitics, US/China tensions are likely to persist, even under a Democratic US Administration.  Japan will remain a crucial political and security ally of the US, although China remains a crucial trade and investment partner for the Japanese corporate sector. 

What is certain is that your Company's holdings continue to possess favourable long-term prospects that have not been so badly affected by the pandemic; indeed for many the pandemic has proven to be a very positive catalyst. These holdings reflect the investment approach that we take, in seeking out and investing in good-quality businesses that have the financial strength to withstand protracted and systemic shocks. They are run by progressive management, backed by solid fundamentals, and are open to engaging with investors like ourselves , while respecting minorities' interests. This bodes well for the Company in the uncertain days ahead, knowing that the quality of these underlying holdings is what will make the difference in difficult times.

As a team of locally-based investment managers, we seek to constantly engage with our investee companies to encourage better governance and ESG policies. This should, and often does, deliver better results in terms of share price, as investors recognise the efforts that these companies are making, resulting in share price re-rating where fully disclosed and understood. We are committed to this active engagement and our detailed bottom-up research process should continue to improve returns for shareholders.

Aberdeen Standard Investments (Japan) Limited

Investment Manager

24 November 2020

FINANCIAL HIGHLIGHTS

Net asset value total return{A}		Index total return		Share price total return{A}
Six months to 30 September 2020:		Six months to 30 September 2020:		Six months to 30 September 2020:
+26.3%		+14.8%		+18.0%
Six months to 30 September 2019:		Six months to 30 September 2019:		Six months to 30 September 2019:
13.1%		+9.3%		+16.4%
Ongoing charges ratio {A}		Discount to net asset value{A}		Dividend per share
Six months to 30 September 2020:		As at 30 September 2020:		Six months to 30 September 2020:
1.03%		16.8%		6.00p
Year to 31 March 2020:		As at 31 March 2020:		Six months to 30 September 2019:
1.04%		10.9%		6.00p
{A}   Considered to be an Alternative Performance Measure. Further details can be found below.

	As at	As at
	30 September 2020	31 March 2020	Change %
Total assets (£'000){A}	117,298	97,904	+19.8%
Total equity shareholders' funds (£'000)	104,838	85,206	+23.0%
Net asset value per Ordinary share	769.6p	617.1p	+24.7%
Share price (mid-market)	640.0p	550.0p	+16.4%
Discount to net asset value per Ordinary share{B}	16.8%	10.9%
Net gearing{B}	11.4%	13.6%
Ongoing charges{B}	1.03%	1.04%
{A}   Excludes foreign currency bank loans of £12,460,000(31 March 2020 - £12,698,000).
{B}   Considered to be an Alternative Performance Measure. Further details can be found below.

	Six months to	Six months ended
	30 September 2020	30 September 2019	% change
Revenue return per Ordinary share	2.65p	3.77p	-29.7
Interim dividend	6.00p	6.00p	-

PERFORMANCE (total return) {A}
	Six months ended	Year ended	Three years ended	Five years ended
	30 Sept 2020	30 Sept 2020	30 Sept 2020	30 Sept 2020
Share price{B}	+18.0%	+8.3%	+18.2%	+54.1%
Net asset value per Ordinary share{B}	+26.3%	+15.3%	+23.9%	+78.0%
Index{C}	+14.8%	+2.4%	+15.3%	+71.7%
{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 2020

		Valuation	Total assets
Company	Sector	£'000	%
Shin-Etsu Chemical Company	Chemicals	4,750	4.0
Toyota Motor Corporation	Automobiles & Parts	4,607	3.9
Daikin Industries	Construction & Materials	4,469	3.8
Tokio Marine Holdings	Nonlife Insurance	4,423	3.8
Keyence Corporation	Electronic & Electrical Equipment	4,236	3.6
Sony Corporation	Leisure Goods	3,976	3.4
Nippon Paint Holdings Company	Chemicals	3,388	2.9
Nabtesco Corporation	Industrial Engineering	3,305	2.8
Chugai Pharmaceutical Company	Pharmaceuticals & Biotechnology	3,249	2.8
Amada Holdings Company	Industrial Engineering	3,066	2.6
Top ten investments		39,469	33.6
Makita Corporation	Household Goods & Home Construction	3,033	2.6
Misumi Group	Industrial Engineering	2,975	2.5
Japan Exchange Group	Financial Services	2,901	2.5
Z Holdings Corporation (formerly Yahoo Japan)	Software & Computer Services	2,767	2.4
Stanley Electric Company	Automobiles & Parts	2,736	2.3
KDDI Corporation	Mobile Telecommunications	2,433	2.1
Elecom Company	Technology Hardware & Equipment	2,387	2.0
Asahi Intecc Company	Health Care Equipment & Services	2,344	2.0
Sho-Bond Holdings Company	Construction & Materials	2,287	1.9
Welcia Holdings Company	Food & Drug Retailers	2,262	1.9
Top twenty investments		65,594	55.8
Heiwa Real Estate	Real Estate Investment & Services	2,180	1.9
Azbil Corporation	Electronic & Electrical Equipment	2,037	1.7
Kansai Paint Company	Chemicals	1,987	1.7
USS Company	General Retailers	1,851	1.6
Hoya Corporation	Health Care Equipment & Services	1,790	1.5
Resorttrust	Travel & Leisure	1,760	1.5
Otsuka Corporation	Software & Computer Services	1,759	1.5
Recruit Holdings Company	Support Services	1,735	1.5
Yamaha Corporation	Leisure Goods	1,722	1.5
NEC Networks	Technology Hardware & Equipment	1,708	1.5
Top thirty investments		84,123	71.7
Nitori Holdings	General Retailers	1,618	1.4
Zenkoku Hosho Company	Financial Services	1,524	1.3
Tokyo Century Corporation	Financial Services	1,519	1.3
As One Corporation	Health Care Equipment & Services	1,504	1.3
Shiseido Company	Personal Goods	1,446	1.2
Tokyu  Fudosan Holdings	Real Estate Investment & Services	1,402	1.2
Fuji Soft	Software & Computer Services	1,309	1.1
BML	Health Care Equipment & Services	1,292	1.1
Sanken Electric	Technology Hardware & Equipment	1,282	1.1
Pigeon Corporation	Personal Goods	1,186	1.0
Top forty investments		98,205	83.7
SCSK Corporation	Software & Computer Services	1,156	1.0
AIN Holdings Inc.	Food & Drug Retailers	1,153	1.0
Milbon Company	Personal Goods	1,106	0.9
Nihon M&A Centre	Financial Services	1,091	0.9
Sansan	Support Services	1,073	0.9
Nippon Sanso Holdings	Chemicals	990	0.9
Astellas Pharma	Pharmaceuticals & Biotechnology	871	0.8
Daiichi Sankyo	Pharmaceuticals & Biotechnology	864	0.7
Valuecommerce Company	Media	863	0.7
Shionogi & Company	Pharmaceuticals & Biotechnology	854	0.7
Top fifty investments		108,226	92.2
Fukui Computer Holdings	Software & Computer Services	842	0.7
Scroll Corporation	Financial Services	795	0.7
Zuken	Electronic & Electrical Equipment	726	0.6
Advantest Corporation	Technology Hardware & Equipment	722	0.6
Edulab	General Retailers	703	0.6
Daifuku	Industrial Engineering	690	0.6
Menicon Company	Health Care Equipment & Services	592	0.5
Seven & I Holdings Company	General Retailers	569	0.5
Daiwa Industrial	Industrial Engineering	565	0.5
Advanced Media	Software & Computer Services	560	0.5
Top sixty investments		114,990	98.0
Sysmex Corporation	Health Care Equipment & Services	558	0.5
Okinawa Cellular Telephone	Mobile Telecommunications	528	0.5
Fanuc Corporation	Industrial Engineering	500	0.4
Total investments		116,576	99.4
Net current assets{A}		722	0.6
Total assets		117,298	100.0
{A}   Excludes bank loans of £12,460,000
Unless otherwise stated, Japanese stock is held and all investments are equity holdings.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

	Six months ended
	30 September 2020
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	21,608	21,608
Income (note 2)	807	-	807
Investment management fee (note 11)	(128)	(193)	(321)
Administrative expenses	(214)	(5)	(219)
Exchange gains/(losses)	-	228	228
	________	_________	________
Net return before finance costs and taxation	465	21,638	22,103
Finance costs	(21)	(31)	(52)
	________	_________	________
Net return before taxation	444	21,607	22,051
Taxation (note 4)	(81)	-	(81)
	________	_________	________
Net return after taxation	363	21,607	21,970
	________	_________	________
Return per Ordinary share (pence) (note 6)	2.65	157.72	160.37
	________	_________	________
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 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 gains/(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
	________	_________	________

CONDENSED STATEMENT OF FINANCIAL POSITION (unaudited)

			As at
		As at	31 March 2020
		30 September 2020	(audited)
	Note	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		116,576	96,247
		_________	_________
Current assets
Debtors		607	982
Cash at bank and in hand		469	1,000
		_________	_________
		1,076	1,982
		_________	_________
Creditors: amounts falling due within one year
Foreign currency bank loans	7	(12,460)	(12,698)
Other creditors		(354)	(325)
		_________	_________
		(12,814)	(13,023)
		_________	_________
Net current liabilities		(11,738)	(11,041)
		_________	_________
Net assets		104,838	85,206
		_________	_________
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		92,287	72,334
Revenue reserve		2,040	2,361
		_________	_________
Equity shareholders' funds		104,838	85,206
		_________	_________
Net asset value per Ordinary share (pence)	9	769.64	617.09
		_________	_________
The accompanying notes are an integral part of the financial statements.

CONDENSED STATEMENT OF CHANGES IN EQUITY (unaudited)

Six months ended 30 September 2020
			Capital
	Share	Share	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2020	1,582	6,656	2,273	72,334	2,361	85,206
Purchase of Ordinary shares to be held in treasury	-	-	-	(1,105)	-	(1,105)
Return after taxation	-	-	-	21,607	363	21,970
Dividend paid (note 5)	-	-	-	(549)	(684)	(1,233)
	_____	_____	_____	_____	_____	_____
Balance at 30 September 2020	1,582	6,656	2,273	92,287	2,040	104,838
	_____	_____	_____	_____	_____	_____
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
	_____	_____	_____	_____	_____	_____
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 2020	30 September 2019
	£'000	£'000
Operating activities
Net return before taxation	22,051	11,297
Adjustments for:
Gains on investments	(21,608)	(11,776)
Increase in other creditors	151	81
Finance costs	52	57
Expenses taken to capital reserve	5	7
Foreign exchange (gains)/losses	(228)	884
Overseas withholding tax	(81)	(97)
Decrease in accrued dividend income	139	34
Decrease/(increase) in other debtors	11	(2)
	_________	_________
Net cash inflow from operating activities	492	485
Investing activities
Purchases of investments	(19,969)	(25,355)
Sales of investments	21,354	25,752
Expenses allocated to capital	(5)	(8)
	_________	_________
Net cash inflow from investing activities	1,380	389
Financing activities
Bank and loan interest paid	(54)	(55)
Equity dividend paid	(1,233)	(782)
Purchase of own shares to treasury	(1,105)	(1,210)
	_________	_________
Net cash outflow from financing activities	(2,392)	(2,047)
Decrease in cash	(520)	(1,173)
	_________	_________
Analysis of changes in cash during the period
Opening balance	1,000	1,516
Effect of exchange rate fluctuations on cash held	(11)	94
Decrease in cash as above	(520)	(1,173)
	_________	_________
Closing balance	469	437
	_________	_________
The accompanying notes are an integral part of the financial statements.

NOTES TO THE ACCOUNTS (unaudited)

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.

2.	Income
		Six months ended	Six months ended
		30 September 2020	30 September 2019
		£'000	£'000
	Income from investments
	Overseas dividends	807	976
	Total income	807	976

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 2020	30 September 2019
		£'000	£'000
	Purchases	5	8
	Sales	5	7
		_________	_________
		10	15
		_________	_________
	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.

5.	Dividends
		Six months ended	Six months ended
		30 September 2020	30 September 2019
		£'000	£'000
	2019 final dividend - 5.40p	-	782
	2020 final dividend (paid from revenue - 5.00p)	684	-
	2020 final dividend (paid from capital -  4.00p)	549	-
		_________	_________
		1,233	782
		_________	_________
	An interim dividend of 6.00p for the year to 31 March 2021 (2020 - 6.00p) will be paid on 31 December 2020 to shareholders on the register on 4 December 2020. The ex-dividend date will be 3 December 2020.

6.	Return per Ordinary share
		Six months ended	Six months ended
		30 September 2020	30 September 2019
		£'000	£'000
	Based on the following figures:
	Revenue return	363	543
	Capital return	21,607	10,657
		_________	_________
	Total return	21,970	11,200
		_________	_________
	Weighted average number of Ordinary shares in issue	13,699,382	14,414,748
	Total net return per share (p)	160.37	77.70

7.	Foreign currency bank loan
			As at	As at
			30 September 2020	31 March 2020
			£'000	£'000
	Falling due within one year		12,460	12,698
			_________	_________
	Revolving credit facility Japanese Yen loan	Amount £'000	2,932	2,987
		JPY'000	400,000	400,000
		Interest rate (%)	0.7000	0.7000
	Short term Japanese Yen loan	Amount £'000	9,528	9,711
		JPY'000	1,300,000	1,300,000
		Interest rate (%)	0.7150	0.7150
	The revolving credit facility loan is drawn down from the JPY1,000,000,000 one year revolving credit facility with ING Bank entered into in January 2020 and which expires in January 2021.
	The short term loan is drawn from the JPY1,300,000,000 one year credit  facility with ING Bank entered into in January 2020 and which expires in January 2021.

8.	Analysis of changes in net debt
		At			At
		31 March	Currency	Cash	30 September
		2020	differences	flows	2020
		£'000	£'000	£'000	£'000
	Cash and short term deposits	1,000	(11)	(520)	469
	Debt due within one year	(12,698)	238	-	(12,460)
		_________	________	_______	_________
		(11,698)	227	(520)	(11,991)
		_________	_________	________	________
		At			At
		31 March	Currency	Cash	30 September
		2019	differences	flows	2019
		£'000	£'000	£'000	£'000
	Cash and short term deposits	1,516	94	(1,173)	437
	Debt due within one year	(11,785)	21	-	(11,764)
		_________	_________	________	_________
		(10,269)	115	(1,173)	(11,327)
		_________	_________	________	_________
	A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis.

9.	Net asset value per Ordinary share
		As at	As at
		30 September 2020	31 March 2020
	Attributable net assets (£'000)	104,838	85,206
	Number of Ordinary shares in issue	13,621,695	13,807,780
	Net asset value per Ordinary share (p)	769.64	617.09

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 (i.e. for which market data is unavailable) for the asset or liability.
	All of the Company's investments are in quoted equities (31 March 2020 - same) which are actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments as at 30 September 2020 of £116,576,000 (31 March 2020 - £96,247,000) has therefore been deemed as Level 1.

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 2019 - £321,000) of investment management fees were payable to the Manager, with a balance of £215,000 (30 September 2019 - £106,000) being outstanding at the period end.
	The promotional activities fee is based on a current annual amount of £51,000 (30 September 2019 - £51,000 per annum), payable quarterly in arrears. During the period £25,500 (30 September 2019 - £25,500) of fees were payable to the Manager, with a balance of £25,500 (30 September 2019 - £12,750) being outstanding 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 126,411 Ordinary shares at a cost of £836,000. As at the date of this report there were 13,495,284 Ordinary shares in issue and 2,326,288 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 2020 and 30 September 2019 has not been audited by the Company's independent auditor.
	The information for the year ended 31 March 2020 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 24 November 2020.

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. 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 2020 and the year ended 31 March 2020 and total return for the periods.
	Dividend				Share
Value as at:	rate		NAV		price
31 March 2020	N/A		617.09p		550.00p
2 July 2020	9.00p		718.97p		642.50p
30 September 2020	N/A		769.64p		640.00p
			_________		_________
Total return for the six months ended 30 September 2020			+26.3%		+18.0%
			_________		_________
	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
28 November 2019	6.00p		702.31p		632.50p
31 March 2020	N/A		617.09p		550.00p
			_________		_________
Total return for the year ended 31 March 2020			+3.3%		+6.8%
			_________		_________
Discount to net asset value per Ordinary share. The discount is the amount by which the share price of 640.00p (31 March 2020 - 550.00p) is lower than the net asset value per share of 769.64p (31 March 2020 - 617.09p), expressed as a percentage of the net asset value.
Net gearing. Net gearing measures the total borrowings of £12,460,000 (31 March 2020 - £12,698,000) less cash and cash equivalents of £469,000 (31 March 2020 - £1,106,000) divided by shareholders' funds of £104,838,000 (31 March 2020 - £85,206,000), expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the period end of £nil (31 March 2020 - due from brokers of £106,000) as well as cash at bank and in hand of £469,000 (2019 - £1,000,000).
Ongoing charges. 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, expressed as a percentage of the average net asset values throughout the year. The ratio for 30 September 2020 is based on forecast ongoing charges for the year ending 31 March 2021.
		30 September		31 March
		2020		2020
Investment management fees (£'000)		648		635
Administrative expenses (£'000)		394		354
Less: transaction costs on investment purchases (£'000)		-		(20)
		_________		_________
Ongoing charges (£'000)		1,042		969
		_________		_________
Average net assets (£'000)		101,251		93,581
		_________		_________
Ongoing charges ratio		1.03%		1.04%
		_________		_________
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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