LEI: 213800JOFEGZJYS21P75

 

6 April 2023

Nippon Active Value Fund plc

 Final Results for the year ended 31 December 2022

Nippon Active Value Fund plc ("NAVF" or the "Company") is pleased to announce its audited results for the year from 1 January 2022 to 31 December 2022.

 

Investment Objective

 

The investment objective of the Company is to provide Shareholders with attractive capital growth through the active management of a focused 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 2022	At 31 December 2021

 

Net assets - (millions)	£158.7	£156.0
Net asset value ("NAV") per Ordinary Share ("Share") - (pence)1	140.5	137.90
Share price - (pence)	117.5	134.00
Share price discount to NAV2	16.3%	2.8%
Ongoing charges2	1.41%	1.37%
Performance Summary
	For the year to 31 December 2022	For the year to 31 December 2021
NAV total return per Share2	+3.5%	+22.3%
Share price total return per Share2	-10.9%	+26.8%
MSCI Japan Small Cap index (sterling terms)	-1.6%	-1.4%

 

 

Source: Bloomberg

 

1.    This is measured on a cum income basis.

 

2.    These are Alternative Performance Measures ("APMs"), 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 at the end of this report.

 

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

 

 

 

Chairman's Statement

 

 

Overview of the Year

 

I am pleased to present the third annual report of Nippon Active Value Fund plc (the "Company" or "NAVF"), covering the period from 1st January 2022 to 31 December 2022 (the "Year").

 

At the end of the Year total assets were £158.7 million and NAV per Share was 140.5p, reflecting a rise of +3.5% over the Year and a cumulative increase of +43.7% since the Company's launch on 21 February 2020. While we do not target a particular index benchmark, for comparison, the MSCI Japan Small Cap Index returned -1.6% in sterling terms over the Year and +7.4% since the launch date. The returns since inception assume dividends were reinvested.

 

The closing share price on 31 December 2022 was 117.5p, reflecting a discount of 16.4% to NAV. The average discount to NAV over the Year was 8.9% and the Shares traded in wide range from a premium of 5.2% to a discount of 16.7% to NAV. Since the end of the Year the discount has narrowed and stood at 6.7% as at 3^rd April 2023, the latest practicable date before publishing this report.

 

Global markets struggled through the Year in the face of geopolitical tensions, rising inflation and corresponding interest rate increases and general nervousness resulted in outflows from open-ended funds and wider discounts in closed-end equity funds.  One factor specific to Japan was the weakness of the yen. Although consumer price inflation in Japan also rose, to 4% in December, the Bank of Japan continued to intervene in bond markets to keep rates within a tight range around its target 10-year rate of 0%. Since 2016, the Central Bank has kept that range at 0.25% around the target. As rates rose elsewhere, the interest rate differential put extreme pressure on the yen, which fell to its lowest point against the US dollar in over 30 years. Market commentators generally expected the Governor of the Bank of Japan ('BOJ') to maintain the policy for the duration of his tenure, which is scheduled to end in the first quarter of 2023. As reiterated in the most recent Interim Report, the Company does not hedge the currency and the returns reflect the full impact of the yen's weakness.  In mid-December the central bank unexpectedly announced it would allow bonds to trade within 0.5% of the target, though the target was held at 0%. The yen bounced by more than 4% against the USD on the day of the announcement. December's volatility provides an illustration of the added risks hedging at this point would entail.

 

Your Company's portfolio is a concentrated one, with a focus on undervalued targets, mostly small market capitalisation stocks, where engagement with management could unlock value to all shareholders. We expect returns to be relatively lowly correlated to the broader market.

 

We utilise the research input of our sub-advisors at Dalton KK in Tokyo and now have two members of the Rising Sun Management team based in Tokyo. With the re-opening of Japan's borders the overseas-based officers have also been able to arrange in-person meetings with target companies. Their report, which follows, includes highlights of the Year's engagement.

 

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 investment trusts.

 

The Board is pleased to have declared on 5 April 2023, an interim dividend for the year ended 31 December 2022 of 3.20 pence (2021: 1.95 pence) per Ordinary Share. The dividend will be payable on 26 May 2023 to Shareholders who appear on the register by close of business on 21 April 2023, with an ex-dividend date of 20 April 2023. 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.

 

Co-Investment

As detailed in previous reports, from time to time the Company invests alongside other vehicles advised by Rising Sun Management. In mid-2022 we also announced a memorandum of understanding with Dalton Investments, to allow holdings in common. This enables NAVF to build significant positions in slightly larger companies in which NAVF on its own would not be able to build a large enough position to command the attention of management. At the end of 2022 your Company held thirteen investments also owned by Dalton or RSM-advised entities.

 

Gearing

The Company has arranged a borrowing facility of £30 million to provide the Investment Adviser with flexibility to gear the portfolio when appropriate. At the end of December 2022, this facility had not been drawn down and the portfolio held £31,738,000 (31 December 2021: £15,815,000) in cash. As at 3 April 2023, the latest practicable date prior to publication of this report cash comprised 30.4% of the Company's assets.

 

Japanese Corporate Governance Developments

The trend of increasing shareholder activism is intact and there are increasing numbers of domestic participants. According to IR Japan, the number of activist funds operating in Japan has risen from 17 in 2017 to 65 in May 2022. While U.S. and European funds are still the largest group, over that period domestic activist funds have increased from fewer than 5 to 18. The number of shareholder proposals presented to AGMs in 2022 rose by 80% to 293 and the number of companies subject to proposals rose by 60%, to 77. About half of the proposals are related to balance sheet efficiency such as share buybacks or dividend increases. More of them were supported by over 20% of shareholders compared to 2021, (26 vs 13). This Company was among those submitting resolutions and examples are included in the Investment Adviser's Report which follows.

 

The first stage of the reorganisation of the Tokyo Stock Exchange has begun. There is an extended transition period before companies that fail to meet the new listing criteria are excluded from the new Prime Market, but more details were clarified in 2022 and progress, though slow, has begun.  Our Investment Adviser expects 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.

 

Annual General Meeting (the "AGM")

Your Company's AGM is scheduled for 8 June 2023 at 4pm to be held at the Company's registered office located at Apex Group, 6^th Floor, 125 London Wall, London, EC2Y 5AS. The Board strongly encourages all shareholders to exercise their votes by completing their proxy forms in advance of the Meeting. For more details, please see below AGM Notice. Those shareholders who are unable to attend the AGM in person are welcome to submit questions to the Board or their Investment Adviser at [email protected] .

 

Outlook

The Company seeks to take advantage of the corporate governance reforms in Japan introduced over the past fifteen years and we believe that an activist strategy will continue to generate superior returns compared to the broader market.

 

Rising Sun Management 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. We have begun to see the benefits of co-investment with other funds, as described below in the Investment Adviser's Report.

 

We remain confident of the potential for significant returns from our current investment portfolio and of the prospects of identifying attractive new targets. Our Investment Adviser 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

Chairman

5 April 2023

 

Investment Adviser's Report

 

Performance since inception (excluding dividends re-invested)

				Cumulative
Period	JPY	Sterling/Yen FX Change	GBP	JPY	FX	GBP
21 February 2020 to 31 December 2020	12.	1.39%	13.58%	12.19%	1.39%	13.58%
Year Ending 31 December 2021	3   %	-12.77%	21.41%	50.54%	-12.64%	37.90%
1st Quarter 31 March 2022	-   %	-2.28%	-7.30%	42.99%	-15.15%	27.84%
2nd Quarter 30 June 2022	-%	-3.07%	-5.33%	39.76%	-18.73%	21.03%
3rd Quarter 30 September 2022	6   %	2.24%	8.37%	48.33%	-17.17%	31.16%
4th Quarter 31 December 2022	9   %	1.90%	7.09%	56.04%	-15.58%	40.46%
Year Ending 31 December 2022	%	-1.79%	1.86%	56.04%	-15.58%	40.46%

 

Overview

 

Thanks to Russia's invasion of Ukraine, 2022 was, as the late Queen once said, an 'annus horribilis' for most of the world, and for markets in particular. Japan was no exception. The benchmark Nikkei index was down 9.4% over the course of the year, while the MSCI Japanese Smaller Companies index (which, though not a comparator for the Company, at least incorporates the sea in which NAVF fishes, was off 11.7% in yen terms) over the same period. And the Yen suffered the largest decline against major currencies for 40 years. Against this difficult backdrop, NAVF did well. It was the top performing Japanese (Japanese Smaller companies peer group) fund in the UK, even with a discount to NAV averaging over 10% and an additional cumulative currency drag of another 25% or so.  The Net Asset Value per share (NAV) on 4^th January 2022, the first trading day of the year, was 136.81p, by 30^th December it had reached 140.46p and net assets under management (AUM) totalled £158,744,650. The good news is that 2023 has started much better for the Company. As of 3 April 2023 (the last practicable date) the Company's NAV is above 151.71p and AUM are over £171.5 million.

 

Portfolio Composition

 

In my interim half-year report, I described the success we have enjoyed with several companies who have acted, in one way or another, to improve their capital allocation policies following our prompting with written submissions at their Annual General Meetings (AGMs). The most successful of these, because they did everything we recommended and more, was Mitsuboshi Belting. On 7^th September 2022 I gave an interview to Kohei Onishi, a journalist with the Nikkei in Tokyo, and we spoke, amongst other topics, about Mitsuboshi Belting. Afterwards, Onishi-san, in further research for his article, followed up with the company directly. They told him that they had considered our recommendations and had concluded that they were sitting on excess cash that they were not planning to use in the business. They therefore decided to institute the changes under discussion - a restricted stock programme, a large share repurchase and a 100% payout ratio for dividends both now and in the future - and asked us to withdraw our AGM submission, which we were happy to do. They now expressed themselves pleased with the constructive dialogue they had with RSM and I am pleased to say this has continued.

 

This article appears to have had both a reassuring and galvanizing effect on several other of our portfolio companies. Daiichi Kensetsu announced a buyback of 3.45% of outstanding shares. On 31^st October 2022 Vital KSK announced all of the following:

 

§ Paying out a dividend on equity of at least 2%

§ A total pay-out ratio of 50% or more (estimated at Y45 per share, considering EPS of Y90 per share)

§ Continued share repurchases until reaching the highest PBR among drug distributors

§ Selling 50% of their current cross-shareholdings within five years

§ Changing their ROE target to 5% in 2023, 5.2% in 2024, and NAVF's recommended 8% by 2031

§ Creating an Audit Committee and implementing a restricted share compensation programme (subject to June 2023 approval), as recommended by RSM

§ Declaring the intention to spend Y60bn of surplus net cash with

·     Y10 billion of buybacks

·     Y30 billion of investments in the Osaka distribution centre and updates to existing allocations

·     Y20 billion growth in capex and M&A

 

The shares rose by 15% (the maximum allowed) on the day of the announcement.

 

In the second half of the year we decided to rationalise the portfolio. The portfolio currently consists of 18 core holdings. There were several reasons for the choice of stocks to be jettisoned - too illiquid, stocks in FEFTA Category 3 (the Foreign Exchange and Foreign Trade Act category which imposes the most restrictions on foreign shareholders), companies that had already implemented our recommendations and/or reached our target valuation, etc - but, overriding all of these, was the desire to build up liquidity in the portfolio to permit the more vigorous pursuit of our goals. It has given us enhanced capacity to build larger positions, launch tender offers, and generally speak with a louder, if still 'friendly', voice to our more recalcitrant management teams.

 

While we were selling out of the names above, we also added to one or two favourites, principally Ihara Science (which is discussed below). Our universe of potential targets for engagement remains in the hundreds, and recent announcements by the TSE, pushing lowly-valued companies to augment their share prices so they no longer trade below book value, is yet another comforting breeze at our backs. The regulators continue, at least as far as the big picture is concerned, to be the activists' best friends.

 

Recent Developments

 

In December, and in anticipation of the retirement of Mr Kuroda as Governor of the central bank, the Yen started to react to the prospect of higher interest rates. The long journey towards the normalisation of the currency has begun, with the conundrum of how to control the unwinding of decades' long manipulation landed squarely on the shoulders of the newly appointed Mr Ueda. This is all good news for NAVF and will provide another support to its valuation, as the currency discount that was such a drag on performance in 2022 gradually unwinds.

 

Early in the current financial year, NAVF, in conjunction with Michael 1925 and Hikari Acquisition, launched a tender offer (TOB) for between 40-44% of T&K Toka. The group, in combination with Dalton Investments, who have owned around 20% of the company's outstanding shares for over twelve years, sought to help management improve their capital allocation policies. Regrettably, the TOB has fallen short, but the dialogue will continue, and the company's cage will continue to be rattled by its largest shareholder(s). The costs were born by Rosenwald Capital.

 

 

Following a presentation from RSM's CIO, Jamie Rosenwald, and our Tokyo-based partner, Masumi Nishida, in November 2022, the President of Ihara Science, Tokuo Nakano, has launched an MBO to take the company private. Following Sakai Ovex, this is the second example of a portfolio company responding positively to our MBO recommendation.

 

Outlook

 

We are encouraged by recent positive comments about the Company in the UK press. NAVF has recently been tipped by Questor in the Daily Telegraph (for whom it is the Investment Trust of the Year) and by the Midas column in the Mail on Sunday. Both these articles will be very helpful in promoting the Fund's attraction to UK retail investors, whom we have been seeking to target for some time. Institutional marketing continues, with buyers from as far afield as Australia and the US showing increasing interest. At the Fund's third anniversary, it is the top performing Japanese investment trust in the UK, now with the second lowest discount in the sector. With a large cash position and plenty of interesting candidates for our attention, there is everything to play for in a continually improving macro environment. As markets continue to recover from last year's weakness, it is hoped the Investment Trust sector will become once more 'in vogue' and that discounts will begin to narrow.  NAVF is in a good position to take advantage of an improving mood amongst investors, and we aim to grow the fund through new issuance when appropriate.  The fund has been growing steadily, we would like to see this really accelerate to capitalise on what has already been achieved. Fingers crossed - 2023 could be shaping up to be an 'annus mirabilis'.

 

 

 

Paul ffolkes Davis

Rising Sun Management Limited

5 April 2023

 

 

Portfolio As at 31 December 2022

Top ten holdings as a percentage of net assets as of 31 December 2022
	Company	Sector	%
1.	Intage Holdings	Industrial	12.0
2.	Mitsuboshi Belting	Industrial	10.9
3.	Ihara Science	Engineering	8.7
4.	Nippon Fine Chemical	Industrial	8.0
5.	Ebara Jitsugyo	Engineering	7.7
6.	Meisei Industrial	Industrial	4.4
7.	Vital KSK	Pharmaceutical	4.3
8.	Ishihara Chemical	Industrial	3.7
9.	Bunka Shutter	Industrial	3.5
10.	Konishi	Industrial	2.9

 

Sector Breakdown
Sector	Percentage
Industrials	42.1%
Materials	20.3%
Communication services	12.1%
Healthcare	4.3%
Financials	2.1%
Cash	19.1%

 

 

 

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 focused 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 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 capitalization of investee companies, but it is expected that the portfolio will be weighted towards small cap companies with market capitalization 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.

 

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 2022 were +3.5% and -10.9% respectively (31 December 2021: +22.3% and +26.8% 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 3.43p (31 December 2021: 2.15p).

 

(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 16.35% discount to the NAV as at 31 December 2022 (31 December 2021: discount of 2.83%).

 

(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 2022, the Company's ongoing charges figure calculated in accordance with the AIC methodology was 1.41% (31 December 2021: 1.37%).

 

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 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	Possible consequences	Possible Impact	Risk Mitigation
MARKET	The Company may not meet its investment objective.	Low	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.
MARKET	Board fails to monitor whether there is style drift within the investment process.	Low	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.
MARKET	The Company's Shares trade at a discount to NAV.	High	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.
MARKET	Board fails to monitor the Company's ability to build the Portfolio.	Low	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.
MARKET	Board fails to monitor the execution of the Investment Process.	Medium	Quarterly meetings with the Investment Advisor that cover 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 the 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 carries out Investment Process reviews of the Investment Adviser.
OPERATIONAL	Cyber Security risks could potentially lead to breaches	Medium	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.
OPERATIONAL	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.	Medium	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.
LIQUIDITY	It may be difficult for Shareholders to realise their investment and there may not be a liquid market in the Company's Shares.	Medium	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.
OPERATIONAL	A corporate action is missed and the Company suffers a consequential loss.	Medium	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.
MARKEET	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.	Low	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 becomes more common, the resiliency, business continuity planning and the location strategies of our service providers will come under more scrutiny.
MARKET	Interest rate / Inflation Risk /Currency	Medium	The Company may use derivative instruments such as futures, forwards, swaps or other derivative instruments, to protect the Company from fluctuations in foreign exchange rates.   The AIFM constantly monitors risks and impact on portfolio, discussing with the Investment Advisor and Board as appropriate.
BANKING CRISIS	The collapse of Silicon Valley Bank ("SVB") might trigger a new banking crisis, which might directly or indirectly affect the Company's RCF or other debt facilities. The collapse of a bank could have a drastic domino effect on other financial institutions.	EMERGING	The Company has no direct exposure to SVB.   The Board, the AIFM, the Investment Adviser and the Company's Brokers are monitoring developments.
GEOOPOLITICAL	The war in Ukraine is protracted and/or intensifies;   Heightened geopolitical concerns in other regions; and   Sustained rises in energy costs, food prices and other material costs resulting in sharp, sustained increases in inflation.	EMERGING	The Board, the AIFM, the Investment Adviser and the Company's Brokers are monitoring developments

 

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 2025 (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 realizable 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 realizable 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.

 

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 the 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; and

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

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company 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 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

Chairman of the Board of Directors

5 April 2023

 

Statement of Comprehensive Income

	Year ended 31 December 2022			Year ended 31 December 2021
	Revenue	Capital	Total	Revenue	Capital	Total
Note	£'000	£'000	£'000	£'000	£'000	£'000

 

Gains on investments	3	-	1,274	1,274		-	26,666	26,666
Income	4	5,487	-	5,487		3,512	-	3,512
Foreign exchange gains/(losses)		-	938	938		-	(1,770)	(1,770)
Investment adviser fees	5	(248)	(995)	(1,243)		(216)	(863)	(1,079)
Other operational expenses	6	(812)	-	(812)		(713)	-	(713)
Profit before taxation		4,427	1,217	5,644		2,583	24,033	26,616
Taxation	7	(549)	-	(549)		(351)	-	(351)
Profit and comprehensive income for the year		3,878	1,217	5,095		2,232	24,033	26,265
Earnings per Ordinary Share - Basic and diluted (pence)	12	3.43p	1.08p	4.51p		2.15p	23.11p	25.26p

 

 

 

There is no other comprehensive income and therefore the return for the year is also the total comprehensive income for the year.

 

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 in accordance with Statement of Recommended Practice ("SORP") issued by Association of Investment Companies ("AIC").

 

The notes form an integral part of these financial statements.

 

 

     Statement of Financial Position

 

Non-current assets     Note		As at 31 December 2022 £'000	As at 31 December 2021 £'000
Investments at fair value through profit or loss	3	126,284	138,626
Current assets
Cash and cash equivalents		31,738	15,815
Trade and other receivables	9	1,240	1,831
		32,978	17,646
Current liabilities
Trade and other payables	10	(517)	(418)
		(517)	(418)
Net current assets		32,461	17,228
Net assets		158,745	155,854
Capital and reserves attributable to Shareholders
Share capital	11	1,130	1,130
Share premium		115,349	115,349
Capital reserve		38,324	37,107
Revenue reserve		3,942	2,268
Total equity		158,745	155,854
NAV per Ordinary Share (pence)	13	140.46p	137.90p

 

Approved by the Board of Directors and authorised for issue on 5 April 2023 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 an integral part of these financial statements.

 

 

Statement of Changes in Equity

	Share capital		Share premium	Capital reserve	Revenue reserve	Total
Year ended 31 December 2022	Note           £'000		£'000	£'000	£'000	£'000
Balance at 1 January 2022		1,130	115,349	37,107	2,268	155,854
Profit and comprehensive income for the year		-	-	1,217	3,878	5,095
Dividends paid	8	-	-	-	(2,204)	(2,204)
Balance at 31 December 2022	1,130		115,349	38,324	3,942	158,745

 

 

 

 

	Share capital		Share premium	Capital reserve	Revenue reserve	Total
Year ended 31 December 2021	Note           £'000		£'000	£'000	£'000	£'000
Balance at 1 January 2021		1,030	101,970	13,074	912	116,986
Issue of Ordinary Shares	11	100	13,900	-	-	14,000
Share issue costs	11	-	(521)	-	-	(521)
Profit and comprehensive income for the year		-	-	24,033	2,232	26,265
Dividends paid	8	-	-	-	(876)	(876)
Balance at 31 December 2021	1,130		115,349	37,107	2,268	155,854

 

The capital reserve as at 31 December 2022 is split between realised gains of £48,945,000 and unrealised losses of £10,621,000 (as at 31 December 2021: realised gains of £20,773,000 and unrealised gains of £16,334,000).

The revenue reserve and realised element of the capital reserve represents the amount of the Company's retained reserves.

 

The notes form an integral part of these financial statements.

 

Statement of Cash Flows

 

 

 

Note	Year ended 31 December 2022	Year ended 31 December 2022
Operating activities cash flows
Profit before taxation*	5,644	26,616
Adjustment for:
Gains on investments                                                                                                         3	(1,274)	(26,666)
Decrease/(increase) in trade and other receivables	174	(269)
(Decrease)/increase in trade and in other payables	(20)	131
Tax withheld on overseas income                                                                                    7	(549)	(351)
Net cash flow from/(used in) operating activities	3,975	(539)
Investing activities cash flows
Purchases of investments	(41,052)	(39,182)
Sales of investments	55,204	30,288
Net cash flow from/(used in) investing activities	14,152	(8,894)
Financing activities cash flows
Issue of Ordinary Share capital	-	14,000
Payment of Ordinary Share issue costs	-	(521)
Equity dividends paid                                                                                                        8	(2,204)	(876)
Net cash flow (used in)/from financing activities	(2,204)	12,603
Increase in cash and cash equivalents	15,923	3,170
Cash and cash equivalents at the beginning of the year	15,815	12,645
Cash and cash equivalents at the end of the year	31,738	15,815

 

* Cash inflow from dividends received for the year is £5,161,000 (31 December 2021: £3,340,000)

 

The notes form an integral part of these financial statements.

 

Notes to the Accounts

 

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 focused 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.

 

Fundrock Management Company (Guernsey) Limited (formerly Sanne Fund Management (Guernsey) 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.

 

Apex Listed Companies Services (UK) Limited (formerly 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.

 

The Company's registered office is: 6th Floor, 125 London Wall, 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. 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 July 2022.

 

Going Concern

The Directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the Directors' assessment of the going concern status of the Company.

 

The Company's ability to continue as a going concern for the period assessed by the Directors, being at least 12 months from the date the financial statements were authorised for issue.

 

This assessment took account of Russia's invasion into Ukraine and the recovery of the Covid-19. These uncertainties have created supply chain disruption and exacerbated inflationary pressures worldwide. The Directors do not foresee any immediate material risk to the Company's investment portfolio. A prolonged and deep market decline could lead to falling values of the underlying business or interruptions to cashflow, however the Company currently has more than sufficient liquidity available to meet any future obligations. An explanation of the market, liquidity and credit risks and how they are managed is contained in note 15 to the financial statements.

 

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of this report. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. The Company's net assets at 31 December 2022 were £158,745,000 (31 December 2021: £155,854,000). As at 31 December 2022, the Company held £31,738,000 (31 December 2021: £15,815,000) in cash. The total expenses for the year ended 31 December 2022 were £2,055,000 (31 December 2021: £1,792,000), which represented approximately 1.41% (31 December 2021: 1.37%) of average net assets during the year. At the date of approval of this document, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover.

 

Use of estimates and judgements

The preparation of the financial statements and the manner in which they are presented 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. See below paragraph for judgement around determination of the functional and presentation currency.

 

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, a 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 has a significant effect on the measurement of the amounts recognised in the financial statements of the Company.

 

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.

 

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. Subsequently investments are revalued at fair value, which is the bid market price for listed investments over the time until they are sold, any unrealised gains/losses are included in the fair value of the 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.

 

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".

 

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 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.

 

Dividend receivable arising from companies with the United Kingdom (UK) are classified as UK dividend income and all other income is classified as overseas dividend income.

 

Special dividends are assessed on their individual merits and may be credited to the Statement of Comprehensive Income as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions.

 

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 2022 £'000	As at   31 December 2021 £'000
Listed on a recognised overseas exchange	126,284	138,626
Total	126,284	138,626

  

 

b)      Movements during year

 

 

	Year ended 31 December 2022	Year ended 31 December 2021
	£'000	£'000
Book cost at the beginning of the year	106,935	87,548
Investment holding gains at beginning of the year	31,691	15,357
Valuation at beginning of the year	138,626	102,905
Investment purchases, at cost	41,134	39,160
Investment sales, at cost	(42,855)	(19,773)
Closing book cost	105,214	106,935
Investment holding gains	21,070	31,691
Closing valuation	126,284	138,626

 

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 2022 amounted to £36,000 (2021: £39,000) and on investment sales for the year amounted to £54,000 (2021: £21,000).

 

c)   Gains on investments

 

 

	Year ended 31 December 2022 £'000	Year ended 31 December 2021 £'000
Realised gains on disposal of investments	11,985	10,391
Investment holding (losses)/ gains	(10,621)	16,334
Net transactions costs	(90)	(59)
Total gains on investments held at fair value	1,274	26,666

 

 

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 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.

 

 

As at 31 December 2022	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Assets:
Equity investments	126,284	-	-	126,284
Total	126,284	-	-	126,284

 

There were no transfers between levels during the year. There are no Level 3 investments as at 31 December 2022.

 

As at 31 December 2021	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Assets:
Equity investments	138,626	-	-	138,626
Total	138,626	-	-	138,626
4. INVESTMENT INCOME
			Year ended	Year ended
			31 December 2022 £'000	31 December 2021 £'000

 

Income from investments:
Overseas dividends	5,487	3,512
Total	5,487	3,512

 

 

5.   INVESTMENT ADVISER FEES

 

 

	Year ended 31 December 2022 £'000	Year ended 31 December 2021 £'000
Basic fee:
20% charged to revenue	248	216
80% charged to capital	995	863
Total	1,243	1,079

 

The Company's Investment Adviser is Rising Sun Management Ltd. The Investment Adviser is entitled, with effect from First Admission, to receive an annual fee from the Company of 0.85% per annum of NAV.

 

 

6.   OTHER EXPENSES

	Year ended 31 December 2022 £'000	Year ended 31 December 2021 £'000
Directors' fees	157	146
Administration fees	86	84
Auditor's remuneration	45	30
AIFM fees	70	70
Broker retainer fees	50	49
Custodian fees	75	74
D&O insurance	24	17
Marketing fees	51	-
Legal Fees	40	36
Regulatory fees	41	33
Secretarial fees	47	47
Miscellaneous expenses	126	127
Other expenses - Revenue	812	713

 

 

 

7.   TAXATION

(a) Analysis of tax charge in the year:

 

	Year ended 31 December 2022			Year ended 31 December 2021
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Overseas withholding tax	549	-	549	351	-	351
Total tax charge for the year (see note 7(b))	549	-	549	351	-	351

 

(b) Factors affecting the tax charge for the year:

The tax charge assessed for the year to 31 December 2022 is lower than the Company's applicable rate of corporation tax of 19% (2021: 19%).

 

The differences are explained below:

 

 

	Year ended 31 December 2022			Year ended 31 December 2021
	Revenue £'000	Capital £'000	Total £000	Revenue £'000	Capital £'000	Total £000
Profit before taxation	4,427	1,217	5,644	2,583	24,033	26,616
UK corporation tax at 19% (2021: 19%)	841	231	1,072	491	4,566	5,057
Effects of:
Overseas withholding tax suffered	549	-	549	351	-	351
Non-taxable overseas dividends	(1,043)	-	(1,043)	(667)	-	(667)
Capital gains not subject to tax	-	(242)	(242)	-	(5,066)	(5,066)
Unutilised management expenses	189	189	378	165	164	329
Unutilised finance costs	13	-	13	11	-	11
Foreign exchange losses not subject to tax	-	(178)	(178)	-	336	336
Total tax charge	549	-	549	351	-	351

 

 

The Company is not liable to pay tax on capital gains due to its status as an investment trust. The company has an unrecognised deferred tax asset of £1,339,000 (2021: £825,000) based on the long-term prospective corporation tax rate of 25% (2021: 25%). 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 24 May 2021 and became effective from 2 June 2021. This asset has accumulated because deductible expenses exceeded taxable income for the year ended 31 December 2022. 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 2022	Year ended 31 December 2021
Type - respective financial year end- dividend rate (pence)	Pence per Ordinary share                          £'000	Pence per            Ordinary share             £'000
Interim dividend - paid on 26 April 2022 (2021: paid on 30 April 2021)	1.95p                         2,204	0.85p               876
Total	1.95p                         2,204	0.85p	876

 

(ii). The dividend relating to the year ended 31 December 2022, 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	Year ended 31 December 2022
	Pence per Ordinary share                      £'000	Pence per Ordinary share                     £'000
Interim dividend - payable 26 May 2023* (2021: paid 26 April 2022)	3.20p                            3,617	1.95p                           2,204
Total	3.20p                           3,617	1.95p                           2,204

 

*Not included as a liability in the year ended 31 December 2022 accounts.

 

The Directors have declared an interim dividend for the financial year ended 31 December 2022 of 3.20p per Ordinary Share. The dividend will be paid on 26 May 2023 to Shareholders on the register at the close of business on 21 April 2023.

 

9.   TRADE AND OTHER RECEIVABLES

 

 

	As at 31 December 2022	As at 31 December 2021
Trade receivables	773	1,190
Accrued income	212	435
Other receivables	255	206
Total	1,240	1,831

  

 

10.  TRADE AND OTHER PAYABLES

 

	As at 31 December 2022	As at 31 December 2021
	£'000	£'000
Amounts falling due within one year:
Trade payables	256	138
Accrued expenses	261	280
Total	517	418

 

 

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 2022		Year ended 31 December 2021
	No. of shares                           £'000		No. of shares                           £'000
Allotted, issued & fully paid:
Opening balance	113,021,433	1,130	103,000,001	1,030
Ordinary Shares of 1p each ('Ordinary Shares') Issued	-	-	10,021,432	100
Closing balance	113,021,433	1,130	113,021,433	1,130

 

 

 

Share capital movement during the year
	Year ended 31 December 2022			Year ended                                       31 December 2021
	No. of shares	Nominal value of shares £		No. of shares	Nominal value of shares £
Allotted, issued & fully paid:
Opening balance	113,021,433		1,130,214.33	103,000,001		1,030,000.01
	-		-	10,021,432*          100,214.32
Closing balance	113,021,433		1,130,214.33	113,021,433		1,130,214.33

 

* Fundraise on 22 November 2021

 

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 £5,095,000 (2021: 26,265,000).

 

Based on the weighted average number of Ordinary Shares in issue for the year to 31 December 2022 of 113,021,433 (2021: 103,985,715), the returns per share were as follows:

	Year ended 31 December 2022			Year ended 31 December 2021
	Revenue £'000	Capital £'000	Total £000	Revenue £'000	Capital £'000	Total £000
Return per Ordinary Share	3.43p	1.08p	4.51p	2.15p	23.11p	25.26p

13.  NET ASSET VALUE PER SHARE

Total equity and the NAV per share attributable to the Ordinary Shareholders at the year-end calculated in accordance with the Articles of Association were as follows:

 

 

	As at 31 December 2022	As at 31 December 2021
NAV (£)	158,745,000	155,854,000
Ordinary Shares in issue	113,021,433	113,021,433
NAV per Ordinary Share	140.46p	137.90p

 

 

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 2022 were £ nil.

 

A key member of the RSM team is a major shareholder of Rosenwald Capital Management, Inc.

 

Rosenwald Capital Management Inc, receives dividends paid by the Company based on its shareholding.

 

Directors' fees and shareholdings

Directors' fees are payable at the rate of £27,810 per annum for each Director other than the Chairman, who is entitled to receive £41,000. The Chairman of the Audit Committee is also entitled to an additional fee of £5,190 per annum.

 

The Directors had the following shareholdings in the Company, all of which were beneficially owned.

 

 

	As at 31 December 2022	As at 31 December 2021
Rosemary Morgan	40,000	40,000
Chetan Ghosh	40,000	40,000
Rachel Hill	115,791	115,791
Alicia Ogawa	25,000	25,000
Ayako Weissman	27,000	27,000

 

 

15.  FINANCIAL INSTRUMENTS AND CAPITAL DISCLOSURES

 

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 2022 £'000	As at 31 December           2021 £'000
Portfolio of investments: yen	126,284	138,626
Trade and other receivables: yen	985	1,625
Cash: yen	31,762	15,131
Total	159,031	155,382

 

Foreign currency sensitivity

If the Japanese yen had appreciated or depreciated by 10% as at 31 December 2022 then the value of the portfolio as at that date would have increased or decreased as shown below.

 

Increase in	Decrease in	Increase in	Decrease in
Fair Value	Fair Value	Fair Value	Fair Value
As at	As at	As at	As at
31 December	31 December	31 December	31 December
2022	2022	2021	2021
£'000	£'000	£'000	£'000

 

Impact on portfolio - increase/(decrease)	12,628	(12,628)	13,863                 (13,863)
Impact on NAV - increase/(decrease)	15,903	(15,903)	15,538                 (15,538)

 

 

(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 on deposit with banks. 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 2022 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 2022 £'000	As at 31 December 2021 £'000
Exposure to floating interest rates:
Floating rate on cash balance: yen	31,762	15,131

 

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 2022 comprises its holdings in equity investments as follows:

 

 

	As at 31 December 2022 £'000	As at 31 December 2021 £'000
Investments held at fair value through profit or loss	126,284	138,626

 

 

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 £12,628,000 (2021: £13,862,000).

 

Liquidity risks

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 2022, 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 2022 less than 3 months
Creditors: amounts falling due within one year	-	-
Trade and other payables	517	418
Total	517	418

 

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 the 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 2022 was as follows:

 

 

	As at 31 December 2021 £'000	As at 31 December 2022 £'000
Cash at bank	31,738	15,815
Trade and other receivables	1,240	1,831
Total	32,978	17,646

 

 

(d) 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 2022 comprises called-up share capital and reserves totalling £158,745,000 (2021: £155,854,000).

 

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

 

 

15.         POST YEAR END EVENTS

 

Since 31 December 2022, there are no post balance sheet events which would require adjustment of or disclosure in the financial statements.

 

Alternative Performance Measures ("APMs")

 

Discount

The amount, expressed as a percentage, by which the share price is less than the NAV per Ordinary Share.

 

As at 31 December 2022			(Pence)
NAV per Ordinary Share	a		140.46
Share price	b		117.50
Discount	(b÷a)-1		16.35%
As at 31 December 2021			(Pence)
NAV per Ordinary Share	a		137.9
Share price	b		134.0
Discount	(b÷a)-1		2.83%

 

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 2022		Share price	NAV
Opening (pence)	a	134.0	137.9
Closing (pence)	b	117.5	140.5
Movement (b÷a)-1	c	-12.3%	1.9%
Dividend reinvestment factor	d	1.4%	1.6%
Total return	(c+d)	-10.9%	3.5%
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%

 

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 2022
Average NAV	a	145,955,840
Annual expenses	b	2,055,000
Ongoing charges	(b÷a)	1.41%
Year end 31 December 2021
Average NAV	a	130,449,346
Annual expenses	b	1,792,000
Ongoing charges	(b÷a)	1.37%

 

FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2022 is derived from the statutory accounts for 2022, which will be delivered to the registrar of companies.  The statutory accounts for 2021 have been delivered to the registrar of companies. The auditors have reported on the 2021 and 2022 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 2022 was approved on 5 April 2023.  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 8 June 2022 at 4 pm.

Even if shareholders 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 in the Annual Report and Accounts.

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 6 June 2022.

 

6 April 2023

 

For further information contact:

 

Secretary and registered office:

Apex Listed Companies Services (UK) Limited

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

Tel: 020 3327 9720

 

END