Final Results

LEI: 213800JOFEGZJYS21P75

 

31 March 2022

 

Nippon Active Value Fund plc

 

Final Results to 31 December 2021

Nippon Active Value Fund plc ("NAVF" or the "Company") is pleased to announce its audited results for the year from 1 January 2021 to 31 December 2021.

 

INVESTMENT OBJECTIVE, FINANCIAL INFORMATION AND PERFORMANCE SUMMARY

INVESTMENT OBJECTIVE

The investment objective of the Company is to provide Shareholders with attractive capital growth through the active management of a focussed portfolio of quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified by the Investment Adviser as being undervalued.

FINANCIAL INFORMATION
	At 31 December 2021	At 31 December 2020
Net assets - (millions)	£156.0m	£117.0m
Net asset value ("NAV") per Ordinary Share ("Share") - (pence)1	137.90p	113.58p
Share price - (pence)	134.00p	106.50p
Share price discount to NAV - (pence)2	2.83%	6.23%
Ongoing charges2	1.37%	1.60%
PERFORMANCE SUMMARY
	For the year to 31 December 2021	For the period to 31 December 2020
	% change3	% change3
NAV total return per Share2	+22.3	+13.6
Share price total return per Share2	+26.8	+6.5
MSCI Japan Small Cap index (sterling terms)	-1.4	+8.04
Source: Bloomberg

¹ This is measured on a cum income basis.

² These are Alternative Performance Measures ("APM"), which is "a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework". Definition of these and other APMs used in this report, together with how these APMs have been calculated are disclosed in this report.

³Total returns are stated in GBP sterling, including dividend reinvested.

Chairman's Statement

Overview of the year  

I am pleased to present the second annual report of Nippon Active Value Fund (the "Company"), covering the year ended 31 December 2021.

By the end of the year total assets had risen by £39.0 million, which includes subscriptions of £14.0 million from the secondary issue in November. The year-end Net Asset Value ("NAV") was 137.90 pence per share, an encouraging rise of 21.4% over the year and 37.9% since the Company's launch on February 2020. While we do not target a particular index benchmark, for comparison, the MSCI Japan Small Cap Index returned -1.9% in Sterling terms over the year and +4.5% since the launch date.   The Company focuses on special situations rather than building a portfolio that reflects the broad Japanese economy and therefore returns are expected to differ markedly from the wider index.

In 2021 the share price discount to NAV ranged from a discount of 9.9% to a premium of 4.2%. The closing share price on 31 December 2021 was 134.0, a discount of 2.8% to NAV. It is the Board's intention to use the authority approved in the secondary issue prospectus to issue further new shares at a premium when appropriate.

For most of 2021 the equity market was led by companies with superior growth prospects. Since the year end, in common with global markets, Japanese equities corrected sharply as investors became increasingly concerned about inflationary pressures and geopolitical developments. Growth stocks have been a particular focus of profit-taking. Your Company has a concentrated portfolio invested in companies which trade at significantly lower valuations than the market as a whole, where the manger is trying to unlock value through extensive corporate and, at times, activist engagement. This strategy has proven defensive so far in 2022 in relative terms compared to the wider Japan stock market during an unsettled market environment. Our Investment Advisor, Rising Sun Management Limited (the "Investment Adviser" or "RSM"), highlights some of our investments in their report.

As detailed in the interim report, from time to time the Company invests alongside other vehicles advised by RSM. This enables the Company to build significant positions in slightly larger companies in which the Company on its own would not be able to build a large enough position to command the attention of management. At the end of 2021 your Company held nine investments on that basis.

Dividend

The Company's intention is to achieve its returns primarily through capital appreciation. As such, no specific dividend policy has been established and any distributions will be made entirely at the discretion of the Board, taking into consideration the requirement to ensure the Company's compliance with the rules relating to and maintaining the Company's investment trust status.

The Board is pleased to have declared on 31 March 2022, an interim dividend for the year ended 31 December 2021 of 1.95 pence (2020: 0.85 pence) per Ordinary Share. The dividend will be payable on 26 April 2022 to Shareholders who appear on the register by close of business on 8 April 2022, with an ex-dividend date of 7 April 2022. The Board will not target a dividend for future years but will substantially pay out distributable income for any particular period by way of dividend.

COVID-19

At the time of writing the report, it is still difficult to arrange short term business trips to Japan and our advisors based outside Japan have continued to hold virtual meetings. They have been able to continue engagement with our target companies without difficulty. Our local resources have proved invaluable: The President of RSM has been joined in Tokyo by a dedicated investment analyst. Your Company also has an advisory agreement for research input from Dalton KK's experienced Tokyo team. Accordingly, the Board is satisfied that Rising Sun Management have been able to carry out their due diligence and engagement effectively, despite the travel restrictions.

Japanese Corporate Governance Developments

Shareholder activism can no longer be categorised as a predominately foreign strategy setting criteria for listing on the Standard or more prestigious Prime Markets. There were a significant number of mergers and acquisitions and shareholder resolutions in 2021 from both domestic and foreign investors. In September SBI, a Japanese financial services group, bid for Shinsei Bank, the first hostile takeover of a major bank. The central government, one of Shinsei's major shareholders, declined to support the bank's defensive measures and the bid was successfully concluded in December 2021. 

The Corporate Governance Code was revised in June 2021 and Japanese listed companies are now required to disclose more transparent information concerning board diversity, ESG and measures to protect shareholder rights. Notably, proposals requesting improved shareholder returns rose from 13% of total resolutions in 2020 to 22% in 2021.

The first stage of the reorganisation of the Tokyo Stock Exchange has begun. Although there is an extended transition period before companies that fail to meet the new listing criteria are excluded from the new Prime Market, our Advisors expect that the possibility of an eventual demotion from the more prestigious market segment will encourage target companies to support recommendations designed to increase their market capitalisation and returns to all stakeholders.

ESG

Our Investment Advisors do not select investments based on companies' environmental or social policies. Their focus is on engaging with companies on governance issues to encourage them to improve oversight, returns to shareholders and use of capital. The Investment Manager's Report contains more details on the ESG characteristics of the portfolio.

Annual General Meeting ("AGM")

Your Company's AGM is scheduled for 10 June 2022 at 12:00 noon (British Summer Time) and will be held at 6th Floor, 125 London Wall, London, EC2Y 5AS. Even if you intend to attend the AGM, all shareholders are encouraged to cast their vote by proxy and to appoint the "Chair of the Meeting" as their proxy. Details of how to vote, either electronically, by proxy form or through CREST, can be found in the Notes to the Notice of the AGM.

Shareholders are invited to send any questions for the Board or Investment Adviser in advance by email to [email protected] by close of business on 8 June 2022.

Outlook

The Company seeks to take advantage of the corporate governance reforms in Japan introduced over the past fifteen years. Former Prime Minister Abe's original reforms have been accepted by his two successors and we believe that an activist strategy will continue to generate superior returns compared to the broader market.

RSM focuses on companies that have excess capital over and above that required for the operation of their business and seeks to persuade companies to distribute excess cash to shareholders by repurchasing their shares in the market or paying out larger cash dividends. The results of their discussions with management is increasingly apparent in portfolio returns. The Investment Report gives some case studies of investments made and the results of engagement with the holdings that have been disclosed to the market.

Although market conditions are likely to remain volatile until there is a resolution of the conflict in Ukraine, we remain confident of the potential for significant returns from our current investment portfolio and of the prospects for identifying attractive new targets. Our advisers will continue to seek out undervalued opportunities with the potential to unlock value to all shareholders, a strategy which we believe can generate strong absolute returns in a wide range of market environments. 

 

Rosemary Morgan

Chair

30 March 2022

 

Investment Adviser's Report

Results

	NAVF Growth in Net Asset Value
		GB £	Japan ¥
	Calendar year 2020	6.5%	4.1%
	Calendar year 2021	25.8%	38.9%
	CAGR since Inception *	16.5%	21.2%
	*Compound Annual Growth Rate, which is the average or mean growth rate/return of the investment portfolio since inception.

 

Statistics as at 31 December 2021

Share Price                                                         134.00p

NAV                                                                       137.90p

Discount                                                              2.83%

Total Shareholder Funds                               £156 million

Portfolio Composition

Having enjoyed a mostly strong run throughout calendar 2021, the Company made several trading decisions in the last three months to rebalance the portfolio and set it up for the year ahead:

·    We sold our position in Sakai Ovex into the buyout of that company;

·    We sold out of DKK TOA through a block trade to another large investor; and

·    We sold Japan Securities Finance in the open market.

At year-end we decided to reduce our holding in Hirano Tecseed: the Company has been operating at capacity given continued growing demand in the car industry for lithium-ion batteries and this has driven a powerful rally in the share price. We sold into strength at a price that reflects our estimate of fair value, more than doubling our money.

On the buy-side, we are increasing our purchases of Mitsuboshi Belting and Intage Holdings (in conjunction with Michael 1925 LLC), Vital KSK, Ebara Jitsugyo and Chiyoda Integre. We have also begun to purchase four new stocks: Meisei Industry, Meiko Transport, Chino Corp and Super Tool. There are now 21 stocks in the portfolio, with several more under consideration.

In the new financial year, the Zoom lines have been running hot with several Zoom meetings. Unfortunately, the Omicron variant has conspired to once again prevent any travel to Japan, which has frustrated any face-to-face meetings (at least for the non-Japanese directors of RSM) since the start of the Covid pandemic. Nevertheless, we have managed to continue our virtual dialogue with the managements of Ebara Jitsugyo and Intage Holdings, as well as engaging with Chiyoda Integre for the first time. As ever, these sessions were cordial and go a long way to helping both sides understand our respective views.

 

Intage Holdings - case study:

Intage Holdings Inc (4326)

Intage was part of the original suite of stocks that the Company invested in from February 2020. We first met the management team on Zoom in June 2020 (the same month in which Earle was incorporated on the 29 June) and found them more 'switched-on' than many of our other companies. In our first letter to Intage, we suggested the concept of a management buyout ("MBO"), amongst other ideas, in order to align the Company and shareholders' economic interests more closely. We sent this in March 2021 when the investor group of NAVF and Earle together held 6.47% of the Company's outstanding shares. The response was the anticipated very polite: 'Thank you for your suggestion--it is very interesting but no, we do not want to do an MBO'. At the time the share price was around yen 1300.

In late June 2021, we asked Intage to agree to sign a non-disclosure agreement ("NDA") with us to preserve mutual confidentiality. This allowed us to send another MBO proposal, this time with a price attached. They wanted various changes to the terms and, in negotiating these, we inserted the right to unilaterally withdraw. The agreement finally was signed in mid-July 2021. On 19^th July 2021, with the share price at Y1550, we sent our proposal that the Company undertake an MBO at Yen 1750. The investor group owned 7.56% of the Company's common stock at this point. The response was unaltered, causing us to exercise our right to withdraw from the NDA on 23^rd August 2021. By then, Michael 1925 LLC had joined the investor group.

Despite some of our specific misgivings, Intage is a well-run company, and this, plus a 2.5% share buy-back (as recommended by RSM, albeit we would have preferred it to be bigger), propelled the share price last Autumn to a high point of Yen 2057 on 1^st November 2021. We considered exiting and taking the profit at this point, but the trading volumes in Intage were too thin to have allowed us to make an appreciable dent in our overall investor group position. A combination of lacklustre forward guidance and very difficult markets (which still prevail at the time of writing in late January 2022), allowed the stock price to decline to a low point on 3^rd January 2022 of yen 1603. We decided to pursue more direct tactics. On 18^th January 2022 the investor group disclosed in a new filing in Tokyo that our total holding in Intage has now reached 4,112,000 shares or 10.17% of the outstanding, making us the Company's largest shareholder. We prepared a new MBO proposal letter, and, in another (slightly less cordial!) Zoom meeting with the Company, warned them that if they did not engage with our suggested process within a week (they did not), we would make it public and publish it on the Company's website, as well as issuing a press release on the London Stock Exchange's news feed via RNS and to all the principal financial newswires. This we did on Thursday 27^th January 2022.

Individual stocks commentary:

Teikoku Electric (6333)

·    RSM wrote to the new President & CEO Mr Koroyasu on 25^th October 2021 recommending our usual menu of strategies the company might adopt to increase economic alignment with that of shareholders, including encouraging consideration of an MBO

·    The company's written response, more terse than normal, declined our suggestions

·    RSM will make shareholder proposals to the AGM which will be forwarded in April 2022

·    An analysis of their shareholder register is underway

Chiyoda Integre (6915)

·    RSM wrote to the Chairman and President, Mr Koike, on 17^th December 2021 to provide advanced warning that we would be submitting proposals to the forthcoming AGM and to recommend consideration of an MBO (especially as Company will not have PRIME listing after TSE re-organisation)

·    Our proposals were formally submitted on 14^th January 2022 for the March AGM: they related to increased provision of restricted stock and larger buy-backs

·    We held a friendly Zoom meeting with senior management - they insisted STANDARD listing status was the Board's choice and asked questions about our MBO proposal: they had never considered this path in the past and asked whether we are long-term investors

·    RSM is aware that there are other activists on the Company's share register

Ebara Jitsugyo (6328)

·    RSM wrote to Chairman and CEO Mr Suzuki on 14^th December 2021 to congratulate company on achieving PRIME listing status, to advocate the granting of more restricted stock and the sale of cross shareholdings, and to advise them we would be making proposals to their forthcoming AGM

·    We did not push for a MBO, as we have discussed this with company previously and both sides understand each other's position

·    We held a friendly Zoom meeting on 11^th January 2022, in which the company discussed policies re dividend target, buy-backs, cross-shareholdings and new directors

·    On 14^th January 2022, we formally submitted proposals for the March AGM relating to increased provision of restricted stock and larger buy-backs and the appointment of RSM's President as new external director

Soda Nikka Co (8158)

·    The company has been granted PRIME status providing it submits an Improvement Plan under new TSE guidelines by March 2023

·    It needs to increase market value or it will be demoted to STANDARD listing status

·    RSM last wrote to the company in Q4 2021

Vital KSK (3151)

·    This is the poorest performer in NAVF's portfolio

·    The company is run very poorly and trades on negative Enterprise Value

·    Consequently, it is deeply undervalued

·    RSM will write to the company in Q1 2022

Mitsuboshi Belting (5192)

·    RSM wrote to the new Chairman (recently promoted from CEO) Mr Kakiuchi on 15^th December 20221 emphasising the attractions of a MBO given the long lead times of auto sector and pressure on their traditional products over time

·    A Zoom call will be arranged in Q1 2022

 

ESG

The area where we are most active and aligned with ESG sentiment is that concerning governance, where clear guidance has emerged over time from Japanese governmental and financial regulatory reform. Corporate governance reform was a genesis for the Nippon Active Value Fund plc and continues to be the prime mover in our investment rationale. It is the basis of the activist 'stick' with which we regularly 'beat' our investee companies. This happens across a broad selection of issues from the need for diversity and independence in the construction of modern boards and senior management teams to the more efficient and economically aligned allocation of capital with the interests of both shareholders and internal and external stakeholders generally. The successive measures of corporate governance reform initiated by the Abe regime, and continued under his successors, have and will continue to provide an invaluable lever for our Company, and others like ours, to throw light on the inadequacies and ignorance of management in many smaller Japanese companies. It would not be an exaggeration to say that promoting better governance is the driver and watchword of our investment policy.

It is also worth noting that several portfolio holdings are actively engaged in efforts to improve environmental conditions and processes, such as Ebara Jitsugyo, while others are important in generating social cohesion and a better understanding of public perceptions, most notably Intage Holdings.

Outlook

According to an analysis by our broker, Shore Capital, at 31 December 2021 Nippon Active Value Fund plc was the top rated investment vehicle in its sector based on the London market over six and twelve months. While this is clearly gratifying, it is only the beginning. Our successes over the last year have reinforced in the minds of the Rising Sun Management Investment Committee the efficacy of our model of activist engagement with portfolio companies. We are both 'friendly' and firm. We are not afraid to push our ideas for improvement in the behaviour of individual management teams, whether through formal proposals to company AGMs or private dialogue via meetings and correspondence. Where we feel we are being ignored or not taken sufficiently seriously, we have been willing to bring our campaign into the public arena, as has been seen recently in connection with Intage Holdings. The investor group we represent (discussed above) owns over 10% of this company, making it the largest shareholder, and we will be heard. I am optimistic that we are entering the endgame in our involvement with Intage. It has proven an object lesson for both of us. What we have learned will put us in good stead for future challenging engagements. We are long-term investors and we want the best for our investee companies, but, above all, we want the best for our investors. We are moving along several active tracks where we are expecting company initiatives that should markedly improve investment returns. However, as has always been our policy, we believe actions speak louder than words, and we will not be outlining our specific plans until they have yielded outcomes that we can present to shareholders.

Separately, we have made the strategic decision to divest companies designated as Category 3 by the regulators (companies defined as operating in core business sectors, which have the most stringent filing requirements and restrictions on foreign shareholder proposals), as we simply have less room to manoeuvre with them. This process is ongoing.

 

Rising Sun Management Limited

30 March 2022

 

Portfolio

As at 31 December 2021

 

Top ten holdings as a percentage of net assets
Company	Sector		%
1. Intage Holdings	Consulting		15.48%
2. Mitsuboshi Belting	Industrial		9.57%
3. Ebara Jitsugyo	Engineering		8.72%
4. Nippon Fine Chemical	Industrial		7.90%
5. Bunka Shutter	Industrial		5.23%
6.Hirano Tecseed	Industrial		4.67%
7. Nihon Denkei	Industrial		4.31%
8. Teikoku Electric	Industrial		4.28%
9. Chiyoda Integre	Industrial		4.18%
10. Vital KSK	Pharmaceutical		4.04%
Sector breakdown (%)
Industrial		52.73
Mining		3.95
Pharmaceuticals		4.08
Cash		12.05
Consulting		15.03
Engineering		12.16

Investment Policy, Results and Other Information

Investment objective

 

The investment objective of the Company is to provide Shareholders with attractive capital growth through the active management of a focussed portfolio of quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified by the Investment Adviser as being undervalued.

 

Investment policy

 

The Company will invest in a highly concentrated portfolio of shares issued by quoted companies which have the majority of their operations in, or revenue derived from Japan, and which the Investment Adviser deems attractive and undervalued and typically where (i) cash constitutes a significant proportion of the investee company's market capitalisation; and (ii) the relevant company has no controlling or majority shareholders.

 

The Board will not set any limits on sector weightings or stock selection within the portfolio. The Board

will apply the following restrictions on the size of its investments:

 

·    not more than 30 per cent. of the Gross Asset Value at the time of investment will be invested in

the securities of a single issuer (such restriction does not, however, apply to investment of cash

held for working capital purposes and pending investment or distribution in near cash equivalent instruments including securities issued or guaranteed by a government, government agency or instrumentality of any EU or OECD Member State or by any supranational authority of which one or more EU or OECD Member States are members); and

 

·    the value of the four largest investments at the time of investment will not constitute more than

75 per cent. of the Gross Asset Value.

 

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

 

Additionally, while the Company intends that the majority of its investments will be in quoted companies, it may also make investments in unquoted companies and the Company may become invested in unquoted companies as a result of corporate actions or commercial transactions undertaken by quoted companies. The Company will only make investments in unquoted companies in order to maintain or improve its position in relation to a business which operated through a quoted entity at the time of the Company's initial investment in that business. In any event, the Company will only make an investment in an unquoted company if the aggregate interest of the Company in unquoted companies at the time of such investment is not more than 10 per cent. of the Net Asset Value of the Company at that time.

 

This will mean that, if a quoted portfolio company is delisted or an unquoted investment is revalued with the effect of increasing the Company's interest in unquoted investments to above 10 per cent. of the Company's Net Asset Value at that time, the Company will not be in breach of its investment policy and will not have to divest itself of any unquoted investments. However, while the Company's interest in unquoted investments remains above 10 per cent. of its Net Asset Value, the Company will not be able to make any further investments in unquoted companies.

 

Investment restrictions

 

There are no restrictions placed on the market capitalisation of investee companies, but it is expected that the portfolio will be weighted towards small cap companies with market capitalisations of up to US$1 billion. Once fully invested, the portfolio is expected to have up to 20 holdings although there is no guarantee that this will be the case and it may contain a lesser or greater number of holdings at any time.

 

The Company intends to acquire large minority stakes of typically 4.9 to 25.0 per cent. in each investee company. Nevertheless, in certain limited circumstances the Company may acquire a larger stake in an investee company if the investment case so warrants. The Company will not, however, acquire any stake which could cause a change in its status as an investment trust under Chapter 4 of Part 24 of the Corporation Tax Act 2010.

 

The Company will comply with the following investment restrictions for so long as they remain requirements of the Listing Rules (relevant elements of which the Company has voluntarily undertaken to comply):

 

·    neither the Company, nor any of its subsidiaries will conduct any trading activity which is significant in the context of the Group as a whole;

 

·    no more than 10 per cent., in aggregate, of the value of the total assets of the Company will be invested in other listed closed-ended investment funds; and

 

·    the Company must, at all times, invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with the published investment policy.

 

Treasury policy

 

Until the Company is fully invested, and pending re-investment or distribution of cash receipts, the Company will invest in cash, cash equivalents, near cash instruments and money market instruments.

 

The Company expects to maintain any non-operational cash balances in Japanese yen.

 

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

 

Gearing Policy

 

The Company  may use borrowings and other gearing to seek to enhance investment returns at a level (not exceeding 20 per cent of the Company's net assets calculated at the time of drawdown) which the Directors, the AIFM and Rising Sun consider to be appropriate. It is expected that gearing will primarily comprise bank borrowings, public bond issuance or private placement borrowings, although overdraft or revolving credit facilities may be used to increase acquisition and cash flow flexibility.  The company is in the process of arranging an overdraft facility of between £20 to £25 million with The Northern Trust Company ("Northern Trust"). The Company expects all debt to be denominated in Japanese yen.

 

Hedging Policy

 

Although the Company does not currently intend to enter into any arrangements to hedge its underlying currency exposure to investments denominated in Japanese yen, it may in future, at its discretion, enter into currency hedging arrangements using futures, forwards, swaps or other derivative instruments.

 

Dividend policy

 

The Company's intention is to look to achieve its results primarily through capital appreciation. As such, no specific dividend policy has been established and any distributions will be made entirely at the discretion of the Board.

 

Distribution policy

 

The Company believes that the substantial undervaluation of Japanese equities, coupled with an activist strategy designed to unlock underlying value should allow the Company to achieve significant investment results over time. Given the nature of this strategy, however, it is possible that such returns could be "lumpy" and unpredictable. Accordingly, the Company will target results primarily through capital appreciation. No specific dividend policy will be established in the first instance and any distributions will be made entirely at the discretion of the Board. Notwithstanding the foregoing, the Company will make such distributions as may be required to ensure compliance with the rules relating to investment trusts.

 

Key performance indicators ("KPIs")

The Board measures the Company's success in attaining its investment objective by reference to the following KPIs:

(i) Long term capital growth

The Board considers the NAV and Share price total return figures to be the best indicator of performance over time and this therefore is the main indicator of performance used by the Board.  The NAV and Share price total return for the year ended 31 December 2021 was 22.3% and 26.8% respectively (31 December 2020: 13.6% and 6.5% respectively).

(ii) Revenue return per Share

The Company's revenue return per Ordinary Share based on the weighted average number of shares in issue during the year was 2.15p (31 December 2020: 1.23p). 

(iii) Discount/premium to NAV

The discount/premium relative to the NAV per Share represented by the share price is closely monitored by the Board. The Share price closed at a 2.83% discount to the NAV as at 31 December 2021 (31 December 2020: discount of 6.23%).

(iv) Control of the level of ongoing charges

The Board monitors the Company's operating costs carefully.  Based on the Company's average net assets for the year ended 31 December 2021, the Company's ongoing charges figure calculated in accordance with the AIC methodology was 1.37% (31 December 2020: 1.60%).

Risks and Risk Management

Principal and emerging risks and uncertainties

The Company has carried out a robust assessment of its principal and emerging risks and the procedures in place to identify any emerging risks are described below.

 

Procedures to identify principal or emerging risks

The Board regularly reviews the Company's risk matrix and focuses on ensuring that the appropriate controls are in place to mitigate each risk. The experience and knowledge of the Board is important, as is advice received from the Board's service providers, specifically the Alternative Investment Fund Manager ("AIFM"), who is responsible for the risk and portfolio management services and outsources the portfolio management to the Investment Adviser. The following is a description of the work that each service provider highlights to the Board on a regular basis.

 

1.    Investment Adviser: the Investment Adviser provides a report to the Board at least quarterly or periodically as required on industry trends, insight to future challenges in the Japanese equity sector including the regulatory, political and economic changes likely to impact the sector;

 

2.    AIFM: following advice from the Investment Adviser and other service providers, the AIFM maintains a register of identified risks including emerging risks likely to impact the Company;

 

3.    Broker: provides advice periodically specific to the Company on the Company's sector, competitors and the investment company market whilst working with the Board and Investment Adviser to communicate with shareholders;

 

4.    Company secretary and auditor: briefs the Board on forthcoming legislation/regulatory change that might impact on the Company.  The auditor provides has relevant briefings at least annually; and

 

5.    Association of Investment Companies ("AIC"): The Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.

Procedure for oversight

The Board is responsible for the management of risks faced by the Company. The principal and emerging risks, together with a summary of the processes and internal controls used to manage and mitigate risks where possible are outlined below.

Risk	Risk Mitigation
The Company may not meet its investment objective.	The Investment Adviser has a well-defined investment strategy and process which is regularly and rigorously reviewed by both the independent Board of Directors and the AIFM.   The Investment Adviser has a contract in place which defines the duties and responsibilities of the Investment Adviser and has safeguards in place including provisions for the termination of the agreement upon 12 months' notice, not to be served within the first 4 years from First Admission.   The Investment Adviser has stated that it will run a diversified portfolio and the Board reviews the composition of the portfolio and its performance of the Company at each Board meeting. A review of transactions is performed at each quarterly Board meeting.   Management Accounts, and Income and expense forecasts are reviewed at quarterly Board meetings.   The Investment Adviser sends the Board its monthly newsletter/factsheet and an investment report on a quarterly basis.   The Board considers the Investment Adviser and the AIFM's appointment on an annual basis.
Board fails to monitor whether there is style drift within the investment process.	The Investment Adviser provides individual company updates on both existing and target holdings regularly. These updates include key metrics that allow the Board to monitor whether these companies are consistent with the original investment thesis.   Details of the portfolio composition are also provided regularly to allow the Board to see if the portfolio construction is consistent with investment guidelines.
The Company's Shares trade at a discount to NAV.	The Investment Adviser, AIFM and Broker review market conditions on an ongoing basis.   Shares may trade to their NAV through further issues and buy-backs, as appropriate.   Discount protection mechanism in place whereby the Board will consider whether, in light of prevailing market conditions, the Company should purchase its own shares.
Board fails to monitor the Company's ability to build the Portfolio.	Quarterly meetings with the Investment Adviser to discuss market environment, team and business dynamics and ongoing viability of the strategy.   The Investment Adviser will inform the AIFM and Board as soon as they are aware of any issues that might compromise their ability to deliver vs the strategy.
Board fails to monitor the execution of the Investment Process.	Quarterly meetings with the Investment Advisor that covers implementation of the Investment Process. The Board relies on the AIFM to monitor the implementation of individual trades. If the Investment Adviser considers the opportunity to be appropriate after their extensive due diligence process, the Investment Adviser will send an initial recommendation to Board and AIFM, to add a target company to the investible universe.   Upon approval of a target company by the Board and AIFM, the Investment Adviser will send a formal recommendation, outlining the rationale for the recommendation, along with the size of investment and forward to the AIFM for consideration.   Upon receipt of approval from the AIFM, the Investment Adviser will arrange execution.   The Board regularly carry out Investment Process reviews of the Investment Adviser.
Cyber Security risks could potentially lead to breaches.	Cyber security policies and procedures are implemented by the Company's key service providers.   The AIFM has cyber essentials accreditation, which is reviewed on a continuous basis.   Penetration testing is carried out by the AIFM and Administrator every year.
Failure to provide notification of FEFTA/FOREX, FIEA threshold clearances along with required information to Hibiya-Nakata to allow for timely filing with the appropriate regulatory bodies.	Investment Adviser is tasked with notifying the AIFM at time of trade whenever a deal has caused the holding to surpass a threshold.   Filing is delegated to third party specialist Hibiya-Nakata, the Company's Tokyo-based legal advisor.   The AIFM performs their own weekly review of these limits against a portfolio that is reconciled to both the Investment Adviser and Custody records.   Once a deal has surpassed a threshold, the AIFM continue to provide Hibiya-Nakata with any subsequent trades to ensure their records can be as up to date as possible, this will allow them to act quickly in the event that a subsequent threshold is passed.
It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Company's Shares.	Secondary market liquidity can be improved by strong investor communications and having active brokers and market makers. The Broker monitors and reports to the Board as soon as they are aware of any issues.   Funding liquidity to satisfy redemption rights is not applicable, as the Company is a closed ended fund.
A corporate action is missed and the Company suffers a consequential loss.	The Custodian (Northern Trust) and Investment Adviser monitor such actions.   Northern Trust is a very large and experienced global custodian and produces an Internal Controls report which is reported to the Board.
Climate change has recently become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolio, with the inevitable impact on returns.	The Board is also considering the threat posed by the impact on climate change and its effects on the operations of the Investment Adviser and other major service providers. As climate change's impact become more common, the resiliency, business continuity planning and the location strategies of our service providers will come under more scrutiny.

 

Emerging Risks

The Board has identified the following emerging risks:

·    The war in Ukraine is protracted and/or intensifies

·    Heightened geopolitical concerns in other regions

·    Sustained rises in energy costs, food prices and other material costs results in sharp, sustained increases in inflation

 

Viability Statement

The continuation of the Company is subject to the approval of shareholders in 2025 and every second AGM thereafter. The Directors have assessed the viability of the Company for the period to 31 December 2024 (the "Period"). The Board believes that the Period, being approximately three years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the nature of the Company's investment strategy and the principal risks outlined above. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the Period.

 

In their assessment of the prospects of the Company, the Board considered each of the principal and emerging risks and uncertainties set out above and the liquidity and solvency of the Company. The Board also considered the Company's income and expenditure projections and the fact that the majority of the Company's investments comprise reasonably realisable securities, which could, if necessary, be sold to meet the Company's funding requirements including buying back shares in order for the Company's discount control policy to be achieved. Portfolio changes, market developments, level of premium/discount to NAV and share buybacks/share issues are discussed at quarterly Board meetings. The internal control framework of the Company is subject to a formal review on at least an annual basis.

 

The level of the ongoing charges is dependent to a large extent on the level of net assets. The Company's income from investments and cash realisable from the sale of its investments provide substantial cover to the Company's operating expenses, and any other costs likely to be faced by the Company over the Period of their assessment.

 

This assessment has included a detailed review of the market and operational risks associated with the COVID-19 pandemic, and the ongoing economic impact of measures introduced to combat its spread, which were also discussed in depth with the Investment Adviser and continually monitored by the Board throughout the year. The Investment Adviser and other key service providers have provided regular updates on operational resilience in light of the pandemic. The Board is satisfied that the key service providers have the ability to continue their operations efficiently in a remote or virtual working environment.

 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with UK adopted international accounting standards and 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 Company's financial statements in accordance with UK adopted international accounting standards.  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 company for that period.

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 UK adopted international accounting standards, 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;

·     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. 

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 accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

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 DTR4

The Directors confirm to the best of their knowledge:

·     The financial statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the company.

·     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.

 

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

 

Rosemary Morgan

Chair of the Board of Directors

30 March 2022

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

		Year ended 31 December 2021					For the period from incorporation on 22 October 2019 to 31 December 2020
		Revenue	Capital	Total			Revenue	Capital	Total
	Note	£'000	£'000	£'000			£'000	£'000	£'000
Gains on investments	4	-	26,666	26,666			-	15,737	15,737
Income	5	3,512	-	3,512			1,996	-	1,996
Foreign exchange losses		-	(1,770)	(1,770)			-	(2,070)	(2,070)
Investment adviser fees	6	(216)	(863)	(1,079)			(157)	(626)	(783)
Other operational expenses	7	(713)	-	(713)			(725)	34	(691)
Profit before taxation		2,583	24,033	26,616			1,114	13,075	14,189
Taxation	8	(351)	-	(351)			(202)	-	(202)
Profit and comprehensive income for the year/period		2,232	24,033	26,265			912	13,075	13,987
Earnings per Ordinary Share - Basic and diluted (pence)	13	2.15p	23.11p	25.26p			1.23p	17.61p	18.84p
There is no other comprehensive income and therefore the return for the year/period is also the total comprehensive income for the year/period.
The total column of the above statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations.
Both the supplementary revenue and capital columns are both prepared under guidance from the Association of Investment Companies ("AIC").   The notes form part of these interim financial statements.

STATEMENT OF FINANCIAL POSITION

		As at 31 December 2021			As at 31 December 2020
	Note	£'000			£'000
Non-current assets
Investments at fair value through profit or loss	4	138,626			102,905
Current assets
Cash and cash equivalents		15,815			12,645
Trade and other receivables	10	1,831			1,707
		17,646			14,352
Current liabilities
Trade and other payables	11	(418)			(271)
		(418)			(271)
Net current assets		17,228			14,081
Net assets		155,854			116,986
Capital and reserves attributable to Shareholders
Share capital	12	1,130			1,030
Share premium		115,349			101,970
Capital reserve		37,107			13,074
Revenue reserve		2,268			912
Total equity		155,854			116,986
NAV per Ordinary Share (pence)	14	137.90p			113.58p
Approved by the Board of Directors and authorised for issue on 30 March 2022 and signed on their behalf by:
Rosemary Morgan
Director
Nippon Active Value Fund plc is incorporated in England and Wales with registration number 12275668.
The notes form part of these interim financial statements.

STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2021		Share capital	Share premium	Capital reserve	Revenue reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2021		1,030	101,970	13,074	912	116,986
Issue of Ordinary Shares	12	100	13,900	-	-	14,000
Share issue costs	12	-	(521)	-	-	(521)
Profit and comprehensive income for the year		-	-	24,033	2,232	26,265
Dividends paid	9	-	-	-	(876)	(876)
Balance at 31 December 2021		1,130	115,349	37,107	2,268	155,854
For the period from incorporation on 22 October 2019 to 31 December 2020		Share capital	Share premium	Capital reserve	Revenue reserve	Total
	Note	£'000	£'000	£'000	£'000	£'000
Balance at 22 October 2019		-	-	-	-	-
Issue of Ordinary Shares	12	1,030	101,970	-	-	103,000
Profit and comprehensive income for the period		-	-	13,074	912	13,986
Balance at 31 December 2020		1,030	101,970	13,074	912	116,986
The capital reserve as at 31 December 2021 is split between realised gains of £20,773,000 and unrealised gains of £16,334,000 (2020: realised loss of £2,283,000 and unrealised gains of £15,357,000). The Company's distributable reserves consist of revenue reserve and capital reserve attributable to realised profit.
The notes form part of these interim financial statements.

 

STATEMENT OF CASH FLOWS

		Year ended 31 December 2021			For the period from incorporation on 22 October 2019 to 31 December 2020
	Note	£'000			£'000
Operating activities cash flows
Profit before taxation *		26,616			14,189
Adjustment for:
Gains on investments	4	(26,666)			(15,737)
Increase in trade and other receivables		(269)			(372)
Increase in trade and in other payables		131			149
Tax withheld on overseas income	8	(351)			(202)
Net cash flow used in operating activities		(539)			(1,973)
Investing activities cash flows
Purchases of investments		(39,182)			(88,840)
Sales of investments		30,288			458
Net cash flow used in investing activities		(8,894)			(88,382)
Financing activities cash flows
Issue of Ordinary Share capital		14,000			103,000
Payment of Ordinary Share issue costs		(521)			-
Equity dividends paid	9	(876)			-
Net cash flow from financing activities		12,603			103,000
Increase in cash and cash equivalents		3,170			12,645
Cash and cash equivalents at the beginning of the year/period		12,645			-
Cash and cash equivalents at the end of the year/period		15,815			12,645
*Cash inflow from dividends received for the year is £3,340,000 (2020: 1,531,000).

The notes form part of these interim financial statements.

NOTES TO THE FINANCIAL STATEMENTS

 

1.            GENERAL INFORMATION

The Company is a closed-ended investment company incorporated on 22 October 2019 in England and Wales with registered number 12275668 and registered as an investment company under Section 833 of Companies Act 2006, as amended from time to time. The Company is an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010, as amended. On 21 February 2020, the Company's shares were admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange. On the same day, trading of the Ordinary Shares commenced on the London Stock Exchange.

The investment objective of the Company is to provide Shareholders with attractive capital growth through the active management of a focussed portfolio of quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified by the Investment Adviser as being undervalued.   The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.   Sanne Fund Management (Guernsey) Limited (formerly International Fund Management Limited) acts as the Company's Alternative Investment Fund Manager (the "AIFM") for the purposes of Directive 2011/61/EU on Alternative Investment Fund Managers.   The Company's Investment Adviser is Rising Sun Management Limited.   Sanne Fund Services UK Limited, the Company's appointed Administrator, (the "Administrator") provides administrative and company secretarial services to the Company under the terms of an administration agreement between the Company and the Administrator.

With effect from 15 December 2021, the Company's registered office is 6th Floor, 125 London Wall, Barbican, London EC2Y 5AS.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES   a)            Basis of preparation

Statement of compliance

The financial statements have been prepared in accordance with UK adopted international accounting standards. On 31 December 2020, IFRSs as adopted by the European Union at that date were brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted international accounting standards in its financial statements on 1 January 2021. There was no impact or change in accounting policies from the transition.

The financial statements have also been prepared as far as is relevant and applicable to the Company in accordance with the Statement of Recommended Practice ("SORP") issued in April 2021.

Going Concern The financial statements have been prepared on a going concern basis. In forming this opinion, the Directors have considered any potential impact of the COVID-19 pandemic on the going concern and viability of the Company. In making their assessment, the Directors have reviewed income and expense projections and the liquidity of the investment portfolio, and considered the mitigation measures which key service providers, including the Investment Adviser, have in place to maintain operational resilience particularly in light of COVID-19.   In arriving at their conclusion that the Company has adequate financial resources, the Directors were mindful that the Company had unrestricted cash of £15.8 million as at 31 December 2021 (2020: £12.6 million). The Company's net assets at 31 December 2021 were £155.8 million (2020: £117.0 million) and total expenses for the year ended 31 December 2021 were £1.8 million (2020: £1.5 million), which represented approximately 1.4% of average net assets during the year ended (2020: 1.6%). At the date of approval of this document, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover. The Directors are satisfied that the Company has sufficient resources to continue to operate for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.

Use of estimates and judgements

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.   Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future periods affected. There have been no estimates, judgements or assumptions, which have had a significant impact on the financial statements for the year.

Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value.

Functional and presentation currency   The financial statements are presented in sterling, which is the Company's functional currency. The Company's investments are denominated in Japanese yen. However, the Company's Shares are issued in sterling. In addition, substantial majority of the Company's expenses are paid in sterling. It is also expected that the Company's dividend shall be declared and paid in sterling. All financial information presented in sterling has been rounded to the nearest thousand pounds.   The Company is required to identify its functional currency, being the currency of the primary economic environment in which the Company operates. The Board, having regard to the currency of the Company's share capital and the predominant currency in which its shareholders operate, has determined that sterling is the functional currency. Sterling is also the currency in which the financial statements are presented.

New standards, interpretations and amendments adopted from 1 January 2022 A number of new standards, amendments to standards are effective for the annual periods beginning after 1 January 2022. None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company. The Company intends to adopt the standards and interpretations in the reporting period when they become effective and the Board does not anticipate that the adoption of these standards and interpretations in future periods will materially impact the Company's financial results in the period of initial application although there may be revised presentations to the financial statements and additional disclosures. New standards and amendments issued but not yet effective The relevant new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. These standards are not expected to have a material impact on the entity in future reporting periods and on foreseeable future transactions.   Amendments to IAS 1: Classification of Liabilities as Current or Non-current In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.   Reference to the Conceptual Framework - Amendments to IFRS 3 In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.   Definition of Accounting Estimates - Amendments to IAS 8 In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.   Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2 In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023.

b)    Significant accounting policies The following accounting policies have been applied consistently throughout the reporting year.   Investments   Upon initial recognition investments are classified by the Company "at fair value through profit or loss". They are accounted for on the date they are traded and are included initially at fair value which is taken to be their cost. Subsequently quoted investments are valued at fair value, which is the bid market price, or if bid price is unavailable, last traded price on the relevant exchange. Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Statement of Comprehensive Income within "gains on investments". Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset. Taxation Investment trusts which have approval under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. The Company has successfully applied and has been granted approval as an Investment Trust by HMRC.   Irrecoverable withholding tax is recognised on any overseas dividends on an accruals basis using the applicable rate for the country of origin.   Segmental reporting The Chief Operating Decision Maker, which is the Board, is of the opinion that the Company is engaged in a single segment of business. The financial information used by the Chief Operating Decision Maker to manage the Company presents the business as a single segment.   Dividends payable Dividends to shareholders are recognised in the year of the ex-dividend date.   Income Income includes investment income from financial assets at fair value through profit or loss and finance income. Investment income from financial assets at fair value through profit or loss is recognised in the Statement of Comprehensive Income within investment income when the Company's right to receive payments is established. Dividend income is presented gross of non-recoverable withholding taxes, which are disclosed separately in the Statement of Comprehensive Income.   Other income comprises interest earned on cash held on deposit. Other income is recognised on a receipt basis.   Expenses All expenses are accounted for on an accrual basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, the Investment Adviser's fees are split 20% to revenue and 80% to capital. All other expenses are recognised as revenue.   Foreign currency Transactions denominated in foreign currencies are translated into sterling at the exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the period end are reported at the rates of exchange prevailing at the period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Income Statement as appropriate. Foreign exchange movements on investments are included in the Income Statement within gains on investments.   Cash and cash equivalents Cash and cash equivalents include deposits held at call with banks and other short-term deposits with original maturities of three months or less.   Trade and other payables Trade and other payables are initially recognised at fair value, and subsequently re-measured at amortised cost using the effective interest method where necessary. Nature and purpose of equity and reserves:   Share capital and share premium   Share capital represents the 1p nominal value of the issued share capital. Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares (that would have been avoided if there had not been a new issue of new shares) are recognised against the value of the ordinary share premium.   The share premium account arose from the net proceeds of new shares and from the excess proceeds received on the sale of shares from treasury over the repurchase cost.   Capital reserve   Profits and losses achieved by selling investments, changes in fair value arising upon the revaluation of investments that remain in the portfolio and other capital expenditure are all charged to the capital column of the Statement of Comprehensive Income and allocated to the capital reserve.   The capital reserve reflects any:   ·    gains or losses on the disposal of investments; ·    exchange movements of a capital nature; ·    the increases and decreases in the fair value of investments which have been recognised in the capital column of the income statement; and ·    expenses which are capital in nature.   Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.   Revenue reserve The revenue reserve reflects all income and expenditure recognised in the revenue column of the income statement and is distributable by way of dividends.

The Company's distributable reserve consists of the capital reserve attributable to realised profit and the revenue reserve.

3. INVESTMENTS
(a) Investment at fair value through profit or loss	As at 31 December 2021		As at 31 December 2020
		£'000		£'000
Listed on a recognised overseas exchange		138,626		102,905
Total		138,626		102,905
(b) Movements during year/period	Year ended 31 December 2021		For the period from incorporation on 22 October 2019 to 31 December 2020
		£'000		£'000
Book cost at the beginning of the year/period		87,548		-
Investment holding gains at beginning of the year/period		15,357		-
Valuation at beginning of the year/period		102,905		-
Investment purchases, at cost		39,160		88,873
Investment sales, at cost		(19,773)		(1,325)
Closing book cost		106,935		87,548
Investment holding gains		31,691		15,357
Closing valuation		138,626		102,905

These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Transaction costs on investment purchases for the year ended 31 December 2021 amounted to £39,000 (2020: 89,000) and on investment sales for the period amounted to £21,000 (2020: 2,000). These transaction costs are calculated in line with the AIC SORP.

(c) Gains on investments	Year ended 31 December 2021		For the period from incorporation on 22 October 2019 to 31 December 2020
		£'000		£'000
Realised gains on disposal of investments		10,391		471
Investment holding gains		16,334		15,357
Net transactions costs		(59)		(91)
Total gains on investments held at fair value		26,666		15,737

 

Fair Value Measurements of Financial Assets and Financial Liabilities
The financial assets and liabilities are either carried at their fair value, or the amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, expense accruals and cash and cash equivalents).
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 asset as follows:
Level 1 - valued using quoted prices in active markets for identical assets.
Level 2 - valued by reference to valuation techniques using observable inputs including quoted prices.
Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
The valuation techniques for investments and derivatives used by the Company are explained in the accounting policies notes 2 (b and c).
The table below sets out fair value measurements using the Fair Value Hierarchy.
		Level 1	Level 2		Level 3		Total
As at 31 December 2021		£'000	£'000		£'000		£'000
Assets:
Equity investments		138,626	-		-		138,626
Total		138,626	-		-		138,626
There were no transfers between levels during the year/period. There are no Level 3 investments as at 31 December 2021.
		Level 1	Level 2		Level 3		Total
As at 31 December 2020		£'000	£'000		£'000		£'000
Assets:
Equity investments		102,905	-		-		102,905
Total		102,905	-		-		102,905

 

4. INVESTMENT INCOME
	Year ended 31 December 2021			For the period from incorporation on 22 October 2019 to 31 December 2020
	£'000			£'000
Income from investments:
Overseas dividends	3,512			1,996
Total	3,512			1,996

 

5. INVESTMENT ADVISER FEES
	Year ended 31 December 2021			For the period from incorporation on 22 October 2019 to 31 December 2020
	£'000			£'000
Basic fee:
20% charged to revenue	216			157
80% charged to capital	863			626
Total	1,079			783
The Company's Investment Adviser is Rising Sun Management Ltd. The Investment Advisor is entitled, with effect from First Admission, to receive an annual fee from the Company 0.85% per annum of NAV.

 

6. OTHER EXPENSES
	Year ended 31 December 2021			For the period from incorporation on 22 October 2019 to 31 December 2020
	£'000			£'000
Directors' fees	146			169
Administration fees	84			54
Auditor's remuneration	30			26
AIFM fees	70			60
Broker retainer fees	49			43
Custodian fees	74			65
D&O insurance	17			15
Marketing fees	-			16
Legal Fees	36			36
Regulatory fees	33			23
Secretarial fees	47			47
Miscellaneous expenses	127			171
Other expenses - Revenue	713			725
Other expenses - Capital*	-			(34)
Total other expenses	713			691
* This is in relation to the capital element of VAT recoverable on the Company's expenses from inception to 31 December 2020, upon successful registration and submission of a VAT return for the period. The revenue portion of the VAT recoverable in the amount of £28,000 has been allocated to Miscellaneous expenses in the table above.

 

7. TAXATION
(a) Analysis of tax charge in the year/period:
	Year ended 31 December 2021				For the period from incorporation on 22 October 2019 to 31 December 2020
	Revenue	Capital	Total		Revenue	Capital	Total
	£'000	£'000	£'000		£'000	£'000	£'000
Overseas withholding tax	351	-	351		202	-	202
Total tax charge for the year/period (see note 8 (b))	351	-	351		202	-	202

 

(b) Factors affecting the tax charge for the year/period:
The tax charge assessed for the year to 31 December 2021 is lower than the Company's applicable rate of corporation tax of 19% (2020: 19%).
The differences are explained below.
		Year ended 31 December 2021						For the period from incorporation on 22 October 2019 to 31 December 2020
		Revenue	Capital		Total			Revenue		Capital		Total
		£'000	£'000		£'000			£'000		£'000		£'000
Profit before taxation		2,583	24,033		26,616			1,114		13,075		14,189
UK corporation tax at 19.00% (2020: 19.00%)		491	4,566		5,057			212		2,484		2,696
Effects of:
Overseas withholding tax suffered		351	-		351			202		-		202
Non-taxable overseas dividends		(667)	-		(667)			(379)		-		(379)
Capital gains not subject to tax		-	(5,066)		(5,066)			-		(2,990)		(2,990)
Unutilised management expenses		165	164		329			144		113		257
Unutilised finance costs		11	-		11			23		-		23
Foreign exchange losses not subject to tax		-	336		336			-		393		393
Total tax charge		351	-		351			202		-		202
The Company is not liable to tax on capital gains due to its status as an investment trust. The company has an unrecognised deferred tax asset of £825,000 (2020: £285,000) based on the long term prospective corporation tax rate of 25% (2020: 19%). The March 2021 Budget announced an increase to the main rate of corporation tax to 25% from 1st April 2023. This increase in the standard rate of corporation tax was substantively enacted on 24th May 2021 and became effective from 2nd June 2021.  This asset has accumulated because deductible expenses exceeded taxable income for the year ended 31 December 2021. No asset has been recognised in the financial statements because, given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future.
8. DIVIDEND
(i). Dividend paid during the year is detailed in the below table:
	Year ended 31 December 2021						For the period from incorporation on 22 October 2019 to 31 December 2020
Type - respective financial year end - dividend rate (pence)	Pence per Ordinary share			£'000			Pence per Ordinary share				£'000
Interim dividend - paid 30 April 2021	0.85p			876			-				-
Total	0.85p			876			-				-
(ii). The dividend relating to the year ended 31 December 2021, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below:
	Year ended 31 December 2021						For the period from incorporation on 22 October 2019 to 31 December 2020
	Pence per Ordinary share			£'000			Pence per Ordinary share				£'000
Interim dividend - payable 26 April 2022 (2020: paid 30 April 2021)*	1.95p			2,204			0.85p				876
Total	1.95p			2,204			0.85p				876
*Not included as a liability in the year ended 31 December 2021 accounts.
The Directors have declared an interim dividend for the financial year ended 31 December 2021 of 1.95p per Ordinary Share. The dividend will be paid on 26 April 2022 to Shareholders on the register at the close of business on 8 April 2022.

 

9. TRADE AND OTHER RECEIVABLES
	As at 31 December 2021			As at 31 December 2020
	£'000			£'000
Trade receivables	1,190			1,335
Accrued income	435			263
Other receivables	206			109
Total	1,831			1,707

 

10. TRADE AND OTHER PAYABLES
		As at 31 December 2021						As at 31 December 2020
		£'000						£'000
Amounts falling due within one year:
Trade payables		138						122
Accrued expenses		280						149
Total		418						271
11. SHARE CAPITAL
Share capital represents the nominal value of shares that have been issued. The share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.
	Year ended 31 December 2021				For the period from incorporation on 22 October 2019 to 31 December 2020
	No of shares		£'000		No of shares				£'000
Allotted, issued & fully paid:
Opening balance	103,000,001		1,030		-				-
Ordinary Shares of 1p each ('Ordinary Shares') issued	10,021,432		100		103,000,001				1,030
Closing balance	113,021,433		1,130		103,000,001				1,030
The Directors have been authorised to issue up to 400 million Shares.
Share capital movement during the year/period
	Year ended 31 December 2021				For the period from incorporation on 22 October 2019 to 31 December 2020
			Nominal value of shares						Nominal value of shares
Allotted, issued and fully paid:	No. of shares		£		No. of shares				£
Opening balance	103,000,001		1,030,000.01		-				-
Allotted upon Incorporation
Ordinary Shares of 1p each ('Ordinary Shares') (pence)	-		-		1				0.01
Redeemable Preference Share	-		-		50,000				12,500.00
Allotted/redesignated following admission to London Stock Exchange
Redeemable Preference Shares re-designated into Ordinary Shares	-		-		(50,000)				(12,500.00)
Ordinary Shares issued under the Initial Placing, Offer for Subscription and Intermediaries Offer	-		-		103,000,000				1,030,000.00
Share Issuance
Fundraise on 22 November 2021	10,021,432		100,214.32
Closing balance	113,021,433		1,130,214.33		103,000,001				1,030,000.01

 

Rights attaching to the Ordinary Shares

Dividend rights: All Ordinary Shares are entitled to participate in dividends which the Company declares from time to time in respect of the Ordinary Shares, proportionate to the amounts paid or credited as paid on such Ordinary Shares.

Rights as respect to capital: On a winding-up or a return of capital, in the event that the Directors resolve to make a distribution to Shareholders, all Ordinary Shares are entitled to a distribution of capital in the same proportions as capital is attributable to them.

Voting rights: Every Shareholder shall have one vote for each Ordinary Share held.

12. EARNINGS PER ORDINARY SHARE
Total return per Ordinary Share is based on the return on ordinary activities, including income, for the year after taxation of £26,265,000 (2020: 13,987,000)
Based on the weighted average number of Ordinary Shares in issue for the year to 31 December 2021 of 103,985,715 (2020: 103,000,001), the returns per share were as follows:
	Year ended 31 December 2021					For the period from incorporation on 22 October 2019 to 31 December 2020
	Revenue	Capital	Total			Revenue		Capital	Total
Return per Ordinary Share	2.15p	23.11p	25.26p			1.23p		17.61p	18.84p

 

13. NET ASSET VALUE PER SHARE
Total equity and the NAV per share attributable to the Ordinary Shareholders at the period end calculated in accordance with the Articles of Association were as follows:
	As at 31 December 2021			As at 31 December 2020
NAV (£)	155,854,000			116,986,000
Ordinary Shares in issue	113,021,433			103,000,001
NAV per Ordinary Share	137.90p			113.58p

 

14. RELATED PARTY TRANSACTIONS
Transactions with the Investment Adviser
The fees for the year are disclosed in note 5 and amounts outstanding at the year ended 31 December 2021 were £ nil.   A key member of the RSM team is a major shareholder of Rosenwald Capital Management, Inc. Rosenwald Management Inc,'s owns 38,460,001 shares in the Company, representing 34.03% of the Company's share capital.   Rosenwald Management Inc, receives dividends paid by the Company based on its shareholding.
Directors' fees and shareholdings
Directors' fees are payable at the rate of £27,000 per annum for each Director other than the Chairman, who is entitled to receive £35,000.  The Chairman of the Audit Committee is also entitled to an additional fee of £3,000 per annum.
The Directors had the following shareholdings in the Company, all of which were beneficially owned.
	As at 31 December 2021			As at 31 December 2020
Rosemary Morgan	40,000			40,000
Chetan Ghosh	40,000			40,000
Rachel Hill	115,791			80,000
Alicia Ogawa	25,000			25,000
Ayako Weissman	27,000			27,000

 

15. FINANCIAL INSTRUMENTS AND CAPITAL CLOSURES
Risk Management Policies and Procedures
As an investment trust the Company invests in equities for the long-term in order to achieve its investment objective. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets or a reduction of the profits available for dividends.
These risks, include market risk (comprising currency risk, interest rate risk, and other price risk), liquidity risk, credit risk and the Directors' approach to the management of them are set out follows.
The objectives, policies and processes for managing the risks and the methods used to measure the risks, are set out below.
Market Risk
Economic conditions
Changes in economic conditions in Japan (for example, interest rates and rates of inflation, industry conditions, competition, political and diplomatic events and other factors) and in the countries in which the Company's investee companies operate could substantially and adversely affect the Company's prospects.
Sectoral diversification
The Company is not subject to restrictions on the amount it may invest in any particular sector. Although the portfolio is expected to be diversified in terms of sector exposures, the Company may have significant exposure to portfolio companies from certain sectors from time to time. As there is no hard limit on the amount the Company may invest in any sector the entire Portfolio may, at certain times, be invested solely in one sector. Greater concentration of investments in any one sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to Shareholders.
Management of market risks
The Company is invested in a diversified portfolio of investments.
The Board will not set any limits on sector weightings or stock selection within the portfolio. The Board will apply the following restrictions on the size of its investments:
- not more than 30 per cent. of the Gross Asset Value at the time of investment will be invested in the securities of a single issuer; and
- the value of the four largest investments at the time of investment will not constitute more than 75 per cent. of the Gross Asset Value.

 

(a) Currency risks
The majority of the Company's assets will be denominated in a currency other than sterling (predominantly in Japanese yen) and changes in the exchange rate between sterling and Japanese yen may lead to a depreciation of the value of the Company's assets as expressed in sterling and may reduce the returns to the Company from its investments and, therefore, negatively impact the level of dividends paid to Shareholders.
Management of currency risks
The Company does not currently intend to enter into any arrangements to hedge its underlying currency exposure to investment denominated in Japanese yen, although the Investment Adviser and the Board may review this from time to time.
Foreign currency exposures
An analysis of the Company's equity investments that are priced in a foreign currency is:
	As at 31 December 2021		As at 31 December 2020
	£'000		£'000
Portfolio of investments: yen	138,626		102,905
Trade and other receivables: yen	1,625		1,598
Cash: yen	15,131		12,427
Total	155,382		116,930
Foreign currency sensitivity
If the Japanese yen had appreciated or depreciated by 10% as at 31 December 2021 then the value of the portfolio as at that date would have increased or decreased as shown below.
	Increase in Fair Value	Decrease in Fair Value	Increase in Fair Value	Decrease in Fair Value
	As at 31 December 2021	As at 31 December 2021	As at 31 December 2020	As at 31 December 2020
	£'000	£'000	£'000	£'000
Impact on portfolio - increase/(decrease)	13,863	(13,863)	10,291	(10,291)
Impact on NAV - increase/(decrease)	15,538	(15,538)	11,693	(11,693)

 

(b) Interest rate risks
The Company is exposed to interest rate risk specifically through its cash holdings. Interest rate movements may affect the level of income receivable from any cash at bank and on deposits. The effect of interest rate changes on the earnings of the companies held within the portfolio may have a significant impact on the valuation of the Company's investments.
Management of interest rate risks
Prevailing interest rates are taken into account when deciding on borrowings.
Interest rate exposure
The exposure at 31 December 2021 of financial assets and liabilities to interest rate risk is shown by reference to floating interest rates - when the interest rate is due to be reset.
	As at 31 December 2021		As at 31 December 2020
		(£'000)		(£'000)
Exposure to floating interest rates:
Floating rate on cash balance : yen		15,131		12,427

 

(c) Price risks
Price risk includes changes in market prices, other than those arising from interest rate risk or currency risk, which may affect the value of equity investments.
Management of price risk
The Board meets on at least four occasions each year to consider the asset allocation of the portfolio and the risk associated with particular industry sectors. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the Company's investment objective and seeks to ensure that individual stocks meet an acceptable risk/reward profile.
Price risk exposure
The Company's total exposure to changes in market prices at 31 December 2021 comprises its holdings in equity investments as follows:
	As at 31 December 2021		As at 31 December 2020
		(£'000)		(£'000)
Investments held at fair value through profit or loss		138,626		102,905
The effect on the portfolio of a 10.0% increase or decrease in the value of the investments held at fair value through profit or loss would have resulted in an increase or decrease of £13,862,000 (2020: £10,300,000).

 

Liquidity Risk
The securities of small-to-medium-sized (by market capitalisation) companies may have a more limited secondary market than the securities of larger companies. Accordingly, it may be more difficult to effect sales of such securities at an advantageous time or without a substantial drop in price than securities of a company with a large market capitalisation and broad trading market. In addition, securities of small-to-medium-sized companies may have greater price volatility as they can be more vulnerable to adverse market factors such as unfavourable economic reports.
Management of liquidity risks
The Company's Investment Adviser monitors the liquidity of the Company's portfolio on a regular basis.
Liquidity risk exposure
The undiscounted gross cash outflows of the financial liabilities as at 31 December 2021, based on the earliest date on which payment can be required, were as follows:
		As at 31 December 2021 less than 3 months		As at 31 December 2020 less than 3 months
Creditors: amounts falling due within one year		-		-
Trade and other payables		418		271
Total		418		271
Liquidity risk is minimised by holding sufficient liquid investments which can be readily realised to meet liquidity demands. The Company's liquidity risk is managed on a daily basis by the Investment Adviser in accordance with established policies and procedures in place. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted equities that are readily realisable.

 

Credit risks
Cash and other assets held by the depositary
Cash and other assets that are required to be held in custody will be held by the custodian or its sub-custodians. Cash and other assets may not be treated as segregated assets and will therefore not be segregated from any custodian's own assets in the event of the insolvency of a custodian.
Cash held with any custodian will not be treated as client money subject to the rules of the FCA and may be used by a custodian in the course of its own business. The Company will therefore be subject to the creditworthiness of its custodians. In the event of the insolvency of a custodian, the Company will rank as a general creditor in relation thereto and may not be able to recover such cash in full, or at all.
Management of credit risks
The Company has appointed Northern Trust as its custodian. The credit rating of Northern Trust was reviewed at time of appointment and will be reviewed on a regular basis by the Investment Adviser and/or the Board.
The Investment Adviser monitors the Company's exposure to its counterparties on a regular basis and the position is reviewed by the directors at Board meetings.
In summary, the exposure to credit risk as at 31 December 2021 was as follows:
		As at 31 December 2021		As at 31 December 2020
		£'000		£'000
Cash at bank		15,815		12,645
Trade and other receivables		1,831		1,707
Total		17,646		14,352

 

(vi) Capital Management Policies and Procedures

The Company's capital management objectives are:

- to ensure that the Company will be able to continue as a going concern; and

- to provide dividend income combined with capital growth, mainly through investment in equities listed or quoted in Japan.

The key performance indicators are contained in the strategic report.

The Company is subject to several externally imposed capital requirements:

- As a public company, the Company has to have a minimum share capital of £50,000.

- In order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law.

The Company's capital at 31 December 2021 comprises called-up share capital and reserves totalling £155,854,000(2020: £116,986,000).

The Board regularly monitors, and has complied with, the externally imposed capital requirements.

 

16. POST YEAR END EVENTS

There are no post year end events other than as disclosed in this Report.

ALTERNATIVE PERFORMANCE MEASURES ("APM")

Discount

The amount, expressed as a percentage, by which the share price is less than the NAV per Ordinary Share.
As at 31 December 2021			(Pence)
NAV per Ordinary Share	a		137.9
Share price	b		134.0
Discount	(b÷a)-1		2.83%

 

As at 31 December 2020			(Pence)
NAV per Ordinary Share	a		113.58
Share price	b		106.5
Discount	(b÷a)-1		6.23%

 

Total return

A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into its Ordinary Shares on the ex-dividend date.
Year end 31 December 2021		Share price	NAV
Opening (pence)	a	106.5	113.6
Closing (pence)	b	134.0	137.9
Movement (b÷a)-1	c	25.8%	21.4%
Dividend reinvestment factor	d	1.0%	0.9%
Total return	(c+d)	26.8%	22.3%

 

Year end 31 December 2020		Share price	NAV
Opening (pence)	a	100.0	100.0
Closing (pence)	b	106.5	113.6
Total return	(c+d)	6.5%	13.6%

 

Ongoing charges
A measure, expressed as a percentage of average NAV, of the regular, recurring annual costs of running an investment company.
Year end 31 December 2021
Average NAV	a		130,449,346
Annual expenses	b		1,792,000
Ongoing charges	(b÷a)		1.37%

 

Year end 31 December 2020
Average NAV	a		106,722,593
Annualised expenses	b		1,707,968
Ongoing charges	(b÷a)		1.60%

 

FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2021 is derived from the statutory accounts for 2021, which will be delivered to the registrar of companies.  The statutory accounts for 2020 have been delivered to the registrar of companies. The auditors have reported on the 2020 and 2021 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 December 2021 was approved on 30 March 2022.  The full Annual Report can be accessed via the Company's website at: https://www.nipponactivevaluefund.com/ 

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

 

ANNUAL GENERAL MEETING ("AGM")

The AGM of the Company will be held at 6th Floor, 125 London Wall, London, EC2Y 5AS on 10 June 2022 at 12:00 noon (British Summer Time).

Even if you intend to attend the AGM, all shareholders are encouraged to cast their vote by proxy and to appoint the "Chair of the Meeting" as their proxy. Details of how to vote, either electronically, by proxy form or through CREST, can be found in the Notes to the Notice of AGM.

Shareholders are invited to send any questions for the Board or Investment Adviser in advance by email to [email protected] by close of business on 8 June 2022.

 

31 March 2022

 

For further information contact:

 

Secretary and registered office:

Sanne Fund Services (UK) Limited

6th Floor, 125 London Wall, London, EC2Y 5AS

Tel: 020 3327 9720

 

END