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AJOT Avi Japan Opportunity Trust Plc

131.50
0.00 (0.00%)
Last Updated: 08:19:26
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Avi Japan Opportunity Trust Plc LSE:AJOT London Ordinary Share GB00BD6H5D36 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 131.50 128.00 132.50 929 08:19:26
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Trust,ex Ed,religious,charty -2.94M -6.99M -0.0496 -26.51 185.2M

AVI Japan Opportunity Trust PLC Half-year Report (9191L)

16/09/2021 7:00am

UK Regulatory


Avi Japan Opportunity (LSE:AJOT)
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TIDMAJOT

RNS Number : 9191L

AVI Japan Opportunity Trust PLC

16 September 2021

AVI JAPAN OPPORTUNITY TRUST PLC INTERIM REPORT 2021

The Directors present the unaudited Interim Report for the six months ended 30 June 2021.

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

Investment Objective

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

Portfolio Statistics(*)

 
                                       As at          As at 
                                30 June 2021    31 December 
                                                       2020 
 Net cash/Market Cap*                  37.8%          46.1% 
 Net financial value/Market 
  Cap                                  83.2%          82.1% 
 FCF Yield                              4.6%           5.3% 
 EV/ FCF Yield                         16.3%          18.1% 
 EV/ EBIT                               5.0x           4.3x 
 Portfolio discount                   -41.6%         -41.9% 
 Portfolio Yield                        2.0%           2.1% 
 ROE                                    9.1%           7.9% 
 ROE ex non-core financial 
  assets                               27.3%          21.3% 
 

Performance Summary

 
 Net asset value per share at 30 June 
  2021                                                111.08p 
 Share price at 30 June 2021                          112.00p 
 
 Premium as at 30 June 2021 
 (difference between share price and 
  net asset value)                                       0.8% 
 
 Financial Highlights                     NAV*   Share Price*   Benchmark 
                                                                     (**) 
 Period from 1 January 2021 to 30 
  June 2021                               2.7%           2.5%        1.4% 
 Period from 23 October 2018 to 
  30 June 2021                           15.9%          15.1%       12.8% 
 
 

As at the close of business on the 14th September 2021, the share price was 123.50 pence per Share and the NAV per Share of the Company was 126.02 pence.

*For all Alternative Performance Measures, please refer to the definitions in the Glossary below.

** MSCI Japan Small Cap Total Return Index (GBP adjusted total return)

Chairman's Statement

"Considering the continued positive corporate governance developments and compelling valuations, Japan makes for an attractive investment destination and a well-deserved home in a balanced global portfolio."

Norman Crighton, Chairman

Introductory Comments

Welcome to the third interim report of AVI Japan Opportunity Trust plc ("the Company", or "AJOT"), covering the period from 1 January 2021 to 30 June 2021. Your Company finds itself in good health, with performance ahead of our benchmarks and validation of our Company's strategy steadily building. With the distractions of the Tokyo Olympics concluding what has undoubtedly been a challenging period, we look forward with great optimism to the coming year as the one in which corporate Japan as a whole definitively passes the point of no return for governance reform. We are very proud of the role your investment manager, AVI, will have played in that transformation.

The first half of 2021 saw a resumption of corporate activity and shareholder engagement return to Japan with fervour. The headline grabbing developments at Toshiba are a great showcase for the good that can come from shareholder engagement and AVI was at the forefront of this year's AGM activity. This contrasts to 2020 which was a challenging year for the Investment Strategy, with subdued corporate activity and delayed engagement knocking the wind out of corporate reform.

AVI submitted shareholder proposals to seven companies' June AGMs, subsequently withdrawing four after shareholder friendly actions were taken by management. It was pleasing to see more proposals withdrawn than not, showcasing the positive impact that patient, behind-the-scenes engagement can have. There are numerous other successful cases of positive change brought about by private engagement, where satisfactory improvements were made prior to needing to submit shareholder proposals.

Japan has been a tough place to invest in 2021, however considering the continued positive corporate governance developments and compelling valuations, Japan makes for an attractive investment destination and a well-deserved home in a balanced global portfolio.

Performance and Dividend

Your Company generated a net asset value ("NAV") per share total return of +2.7% over the six months to 30(th) June, compared to a return of +1.4% from the MSCI Japan Small Cap Total Return Index (measured in GBP terms). It was a favourable period for value stocks and small cap companies kept pace with their large cap counterparts. While not affecting relative performance, the Yen depreciated by -8%, which strongly detracted from returns.

Since the end of the period covered by this report, the Share Price and NAV have strengthened to 123.5 pence and 126.0 pence per Share respectively. These represent gains of 10.3% for the share Price and 13.5% for the NAV. Both numbers have substantially outperformed the benchmark index which has risen by 9.7% over the same period.

The Board has elected to propose an interim dividend of 0.70 pence per share. As stated in the Prospectus at the Initial Public Offering ("IPO"), the Company intends to distribute substantially all the net revenue arising from the portfolio and is expected to pay an annual dividend, but this may vary substantially from year to year.

Investment Strategy

AJOT was launched in October 2018 to capitalise on undervalued, overlooked, high-quality companies, whose value would be unlocked through a more supportive environment for corporate governance reform. AJOT has built a portfolio of attractive companies and there are few places to invest globally where you can replicate such portfolio characteristics.

The companies in the portfolio have proven their quality over the past year. Despite facing tremendous disruption from COVID, operating profits of the portfolio for the six-month period ending 31 March 2021 grew 11%, faring better than the -7% for the companies in the MSCI Japan Small Cap. Over the last year they grew 1%, again outperforming the MSCI Japan Small Cap whose operating profits fell -11%.

The portfolio trades on an EV/EBIT of 5.0x, with net cash and listed investment securities covering 83% of the market cap. All the while, the portfolio generates operating margins of 11.5% and a cash-adjusted ROE of 27%. What is equally important - if more difficult to measure - are the relationships that AVI has built with the companies over the past three years. Knowing the right people and being in regular contact, allows for a more constructive engagement relationship - and one that is more likely to bear fruit.

2021 is looking like a more supportive environment for the Investment Strategy, and with further planned engagement over the remainder of the year and hopefully continued positive earnings' trends, the portfolio remains well positioned.

Share Premium and Issuance

As at 30 June 2021, your Company's shares traded at a premium of 0.8% to net asset value per share. Over the period under review, this ranged from a 2% discount to a 6% premium.

The Board monitors the discount/premium situation carefully, ensuring investors are protected on the downside from a widening discount while also taking advantage of the premium to grow the Company. Over the period under review, the Board issued 15,130,960 new shares, 12,107,323 of which were issued in February under a placing at a 2% premium, while 250,000 shares were repurchased at a 1% discount. The net result was an increase in the total shares outstanding from 117,489,742 to 132,370,702.

During the period under review, as part of AVI's commitment to invest one quarter of its management fee in AJOT shares, AVI purchased 100,000 shares.

Debt Structure and Gearing

At the end of the period, AJOT had Yen2.9 billion of debt, with gross gearing standing at 13% of NAV. Not all the debt was utilised, largely due to a recent sale of Secom Joshinetsu, and net gearing was circa 4.4%.

Annual General Meeting

The Company's Annual General Meeting was held on 28 April 2021. All resolutions were passed by a large majority of those voting. The Board thanks Shareholders for their continuing support.

Closing Remarks

I would like to welcome Makiko Shimada and Kaz Sakai to AVI's Japan team. They are already making contributions to the Investment Strategy, and I expect with their experience working in Tokyo and native Japanese language skills, they will prove invaluable to the team, increasing capacity for company engagement and research.

The Board would like to thank Shareholders for their continued trust and support. If you have any queries, please do not hesitate to contact me personally (norman.crighton@ajot.co.uk) or alternatively speak to our broker Singer Capital Markets to arrange a meeting.

Norman Crighton

Chairman

15 September 2021

Chairman's ESG update

"We look forward to helping everyone work together to improve all aspects of ESG for the investment trust industry."

Norman Crighton, Chairman

In the Chairman's Statement in the last Annual Report, several paragraphs were dedicated to a discussion on how the Company could engage meaningfully with its stakeholders on Environmental, Social and Governance ("ESG") issues. During the first half of the year, I spoke with several shareholders of the three investment trusts of which I am a director, and subsequently several service providers on a confidential basis about their ESG approach. As the Directors have made corporate governance central to the custodianship of Shareholders' interests, most of the time was spent discussing Environmental and Social ("E&S") issues. I would like to thank all those who took part.

The aim of the discussions with the various investment managers was not to determine, encourage or suggest that they use ESG criteria in stock selection. Some investment mandates may take that into consideration, others will not. The aim was to start a conversation on how ESG criteria are applied within their own organisations. Shareholders pay investment managers, lawyers, accountants, and other service providers significant fees so many are keen to establish that some of that money is used to further E&S issues.

All but one of the stakeholders approached was willing to discuss E&S issues in detail and those agreeable gave up a great deal of their valuable time to participate. The overwhelming impression from my discussions was that many Shareholders and service providers are treating E&S considerations with an increasing sense of importance and that changes being made in these areas are being driven from the ground up, by shareholders, clients and staff rather than top down by governments or industry bodies. Some individuals have taken it upon themselves to push E&S matters up the corporate agenda, whereas others have created committees to ensure that ESG issues are promoted within their organisation and encouraged in the wider community. It is clear that an organisation's ESG principles are now scrutinised when Shareholders and service providers determine with whom to do business. As one person said, "If we pay anyone, then we believe they should adhere to our ESG principles."

Many of those contacted believed that the UN Principles of Responsible Investment ("UNPRI") provided a useful standard. I encourage everyone to familiarise themselves with the Principles (www.unpri.org). Another common theme was that many Shareholders and service providers use interactions with other groups to promote their ESG agenda. This may include the companies in which investment managers invest on behalf of shareholders, other shareholders they might interact with, as well as governments, national pension funds and other interested parties.

On Environmental issues, the main concern was climate change. Several recognised that business travel is one of the biggest sources of carbon emissions within their workplace and had used offset programs in the past. Some were now in the process of refining that approach to find the best offset program or reduce business travel accordingly. Others still were looking to quantify less obvious sources of carbon emissions by asking staff to detail their modes of travel to work. Once the problem has been measured, it is much easier to work on a solution. The Board felt this was a very sensible approach and will be adopting this in the coming months for your Company. Many were looking to lower carbon emissions by encouraging more environmentally friendly modes of transport such as cycling or walking to work, which may mean the installation of bicycle racks and showers. Only one of the companies approached was able to say that they used green suppliers for their electricity, but we are sure that number will increase over time.

The response to Social issues was even more positive. Social issues such as sexism, racism, bullying and mental health are all now front of mind, and all are working hard to address these problems. The Directors are particularly pleased that some of the money that Shareholders pay to service providers is being used to address mental health, which has been brought so clearly into focus during the pandemic. Too many of us, who have worked in the industry long enough to have lost friends and colleagues to suicide, drugs, alcohol or just over-work, understand the importance of proper mental health support. Commendably, some stakeholders are also expanding this care into support for groups outside their offices. Many stakeholders support local charities with one stakeholder going even further and donating 10% of corporate profit to charities around the world, selected by employees.

The E&S issues touched on above should be important in a civilised society but all too often they are downplayed in the quest for profit. One stakeholder approached has established an Ethics Committee, which we applaud. Acting ethically by definition means identifying and solving ESG issues.

During these discussions it was suggested that the Company should introduce a framework to measure progress in ESG issues. I am reluctant to do this now as many groups already have a great deal of form-filling to deal with and adding to that burden should be avoided. We will however continue to discuss ESG with our stakeholders on an informal basis for the moment and I will report back to Shareholders in the next Annual Report. For now your Board will be satisfied to see an improvement in ESG standards from all of your stakeholders. Some are just beginning to address E&S issues whereas others have a very sophisticated approach. We look forward to helping everyone work together to improve all aspects of ESG for the investment trust industry.

The investment trust industry pays billions of pounds to investment managers and hundreds of millions of pounds to accountants, lawyers, company secretaries and all the other groups that make our businesses run effectively. It is a fact that shareholders of investment trusts have now added E&S to their list of priorities along with governance. I believe that investment trust boards, as the representatives of shareholders, have a duty to reflect these new priorities, and to ensure that they are communicated clearly and addressed proactively. Just as the industry responded to higher governance standards during my own career from the 1990's onwards, so must the entire industry react to increasing concerns about E&S standards. On behalf of my fellow Directors and Shareholders, we very much look forward to working together to improve ESG standards for the investment trust industry.

Norman Crighton

Chairman

15 September 2021

Investment Manager's Report

"Whilst the underlying fundamental performance of your portfolio companies has been strong, and the backdrop for shareholder engagement and corporate activity is becoming increasingly supportive, share prices have not kept pace with the underlying trend."

Joe Bauernfreund

In your Company's last Annual Report we wrote about the remarkable year that 2020 had been and the unprecedented challenges we have all had to confront. The first half of 2021 has seen an easing of those challenges thanks to the rollout of vaccines around the world.

Japan has been slower than the US, UK and Europe to approve and rollout a vaccine, and this appears to have impacted stock market performance. Whilst the MSCI America, Europe and Asia Pacific ex Japan have returned 13.4%, 10.6%, and 5.3% in the first half of 2021, the MSCI Japan is up only 0.2% (all in GBP).

The good news is that Japan is now rapidly ramping up its vaccine rollout programme. Since early June the number of vaccines being administered daily has jumped to over 1 million. At the current pace, the expectation is that by October Japan will have administered more vaccines per person that the EU and US. At some point therefore, we are confident that the Japanese stock market will play catch up with the rest of the world on the re-opening trade.

During the reporting period your Company returned 2.7% in GBP. This compares with a return for the benchmark index, the MSCI Japan Small Cap Index, of 1.4%. Over the course of the past 6 months the Yen has depreciated by 8.0% against the Pound, which has been a headwind to sterling-based returns.

Undoubtedly the COVID-19 pandemic has had an impact on your Company's performance. Our investments suffered sharp declines in earnings during the first quarter of 2020; plans for shareholder activism were put on hold and corporate governance reform slowed as prioritises were placed elsewhere.

However, we are encouraged that on all these fronts we are seeing extremely positive developments.

Fundamental Operating Environment

The recovery in sales and profits that our portfolio companies have experienced since the summer of 2020 has been extremely strong. The majority are now back to pre-COVID levels of profits and some have even surpassed them. Whilst companies were quick to downgrade forecasts as the world grappled with the uncertainty of COVID-19, many have been slow to revise them back upwards. Despite companies surpassing those forecasts in recent quarters, share price performance in many cases has been lacklustre. This reflects a lack of investor interest rather than any fundamental concern. As earnings continue to grow, we expect share prices to follow.

Shareholder Activism

Much shareholder engagement was delayed during 2020 because of the pandemic. Many investors took the view that they needed to give companies time to see how the virus played out before making public demands. However, there is evidence that corporate activity levels are increasing. Our portfolio benefitted from one such example when Secom Joshinetsu (at the time a 5% weight) agreed to be taken over by its parent company, Secom. We expect several more similar transactions to occur in the coming years.

Corporate Governance Reform

In addition to pressure from the increasing number of activist investors in Japan, companies are also facing pressure from the regulators to continue to improve corporate governance and to focus to an ever greater extent on shareholder returns. The revision to the Corporate Governance Code requires subsidiary companies to have a greater proportion of independent directors, whilst changes to the stock exchange listing rules will make it more challenging for some companies to retain their listing in their present form. All of these measures improve our negotiating position when engaging with portfolio companies.

Whilst the underlying fundamental performance of your portfolio companies has been strong, and the backdrop for shareholder engagement and corporate activity is becoming increasingly supportive, share prices have not kept face with the underlying trend. The portfolio trades at a 5.0x EV/EBIT multiple which, while higher than at the start of the year (4.3x), on a constant portfolio basis (ignoring changes in weights) it has not increased and remains highly compelling.

AVI Shareholder Engagement

AVI's approach to engaging with portfolio companies is designed to be constructive and patient, but at the same time firm. Our preference is to work collaboratively with management in private, to make constructive suggestions as to how to make operational and strategic improvements, as well as to corporate governance. A good example of this approach is Fujitec, where AVI was instrumental in getting management to make changes to their corporate governance standards, as well as to some of their business practices. Fujitec remains a core holding of your Company and has generated a total return of 67% since we first invested in it.

It goes without saying that much of our engagement takes place in private. An increasing number of portfolio companies are working with AVI team members on adopting proposals that we have made to management, and the fact that so many companies are happy working with us in this way is testament to the success of the Stewardship Code and Corporate Governance Code.

Occasionally we feel compelled to put companies under pressure. During the past 6 months we submitted shareholder proposals to seven different companies. We were very pleased that four of these companies adopted the measures we were proposing, and we withdrew the formal proposals before they were ever made public. The relationship with all of these companies continues to be constructive and collaborative, and we feel confident that management will continue to make improvements that will unlock further value for shareholders.

Our shareholder engagement has been focused mainly on governance issues however, we are fundamentally committed to supporting long-term sustainable businesses that will grow and participate in the prosperity of the economy with a responsible approach to the environment, society, and governance. We believe that the integration of ESG and sustainability considerations into our Investment Strategy is not only essential to comprehensively understanding each investment's ability to create long term value but aligned with our values as responsible investors. As such, AVI has committed to a new integrated ESG policy and became a signatory to the UN-supported Principles for Responsible Investment (PRI) and a supporter of TCFD this year.

Our intense approach to shareholder engagement has meant that we have expanded the investment team at AVI, and I am pleased to welcome Kaz Sakai and Makiko Shimada who join myself, Daniel Lee and Yuki Nichols in London, together with Jason Bellamy who is based in Tokyo.

In the following section we describe the major detractors and contributors to returns over the period.

Secom Joshinetsu

Secom Joshinetsu was the largest contributor over the first six months of the year, adding 3.3% to performance. The strong contribution came following a takeover bid from its parent company, Secom, at a 66% premium to the prevailing share price.

Although perhaps happening sooner than anticipated, Secom Joshinetsu's privatisation did not come as a complete surprise. We commented in AJOT's 2020 Annual Report that "Given the multitude of potential conflicts of interest with minority investors.... our thesis is that Secom will buy in Secom Joshinetsu". This is the third listed subsidiary buyout that we have been exposed to since the launch of AJOT, which has been a hugely rewarding theme.

While we had anticipated that Secom Joshinetsu would benefit from a privatisation event, the investment was not reliant on it. Our conviction was grounded in the high-quality business, installation of security systems, and the sticky, recurring nature of the service contracts. In the past four quarters, the business only once suffered a profit decline once, and over the past year, profits grew +2%, vs an -11% decline for the companies in the MSCI Japan Small Cap Index.

Secom Joshinetsu is a great example of the possible upside from corporate events, which many of our remaining portfolio companies could be beneficiaries of. Exposure specifically to the listed subsidiary theme stood at 16% at the end of June, and we hope that continued pressure on improving corporate governance might see at least one of these privatised over the coming year.

DTS

Although a relatively new investment (Jan 2020) and one that only reached full size at the start of this year, DTS contributed 1.1% to performance, as its share price appreciated by +26%.

We made an investment in DTS, along with NS Solutions, to gain exposure to the digitalisation theme. While institutions have made some efforts to digitalise in the face of remote working, they still have a long way to go. Crucially, Japan is short of experienced IT engineers, and companies do not have the in-house IT expertise to develop new digital solutions, relying on third parties.

DTS is an outsourced IT system provider, offering solutions for upgrading IT systems across a range of applications. Its over 5,000 strong work force is becoming increasingly valuable as demand increases and the supply of IT engineers dwindles. Although 2020 was a difficult year, with companies delaying large IT projects due to COVID disruptions, DTS grew operating profits by +1.3% to an all-time high, increased its dividend by 9% and announced a buyback for 0.8% of shares outstanding.

Crucially, although overlooked by investors, DTS has been successfully shifting its business towards higher growth Digital Transformation ("DX") business. The new President, Mr.Kitamura, has committed to focusing on DX and recurring business, which we expect will generate significant shareholder value. DX-related business now accounts for 30% of sales, compared with 13% two years ago.

While DTS has lagged peers in its shift to DX, it is fast catching up. However, this has not been reflected in its valuation, trading on an EV/EBIT of 7.2x compared to peers on 14.6x. We have been privately engaging with the company and it is encouraging that some of our suggestions are starting to be implemented (M&A, share buyback, introduction of stock-based compensation plan). DTS is due to announce a new mid-term plan next summer. We will be making suggestions to management ahead of this and see it as a potential rerating catalyst, along with continued earnings growth.

C Uyemura

C Uyemura, a manufacturer of chemicals used in the production of electronic devices, contributed 1.1% to performance with its share price appreciating by +31%. The share price was driven higher after the company announced a string of shareholder friendly actions in May.

Along with releasing a public mid-term business plan for the first time, C Uyemura announced stock-based compensation for directors, a 2-for-1 stock split to improve liquidity, a 9% buyback over the next 3 years and revised up earnings by +22% (to the highest in the company's history). This sends a powerful message to the market helping to change investors' perception of C Uyemura from a sleepy family-oriented company, to a more progressive shareholder-friendly one.

We put in a significant amount of effort to engaging with management behind closed doors, suggesting multiple ways in which C Uyemura could increase its corporate value. While we have been consistently engaging with management, having an expanded team allowed us to step up the pressure earlier this year, which we believe was a contributing factor behind C Uyemura's shareholder-friendly announcements.

Despite the strong share price appreciation, C Uyemura is still trading on a 4.6x EV/EBIT multiple, with net cash and investment securities covering 53% of its market cap. C Uyemura is a candidate for promotion to the Prime Section under the new Tokyo Stock Exchange market structure, a potential catalyst for a valuation re-rating. Coupled with a strong earnings backdrop, we are optimistic about C Uyemura's prospects.

Teikoku Sen-i

Teikoku Sen-i (Teikoku) was the largest detractor over the period, reducing returns by 1.0%, as its share price fell -12%.

Teikoku manufactures disaster prevention equipment including fire hoses, special rescue vehicles and pumps for flood control. In a country so precariously situated for a variety of natural disasters, Teikoku has a strong base of potential customers. This has allowed the business to generate double-digit operating margins and expand into new product lines while shifting earnings away from the legacy textile business, which accounts for 20% of sales compared to 40% almost 15 years ago.

However, the next year will be comparatively tough for Teikoku, with sales of high-margin special purpose vehicles used at nuclear reactor sites declining, which is forecast to reduce margins from 13% to 11%, despite 2% sales growth. We are optimistic, however, that longer term, with a tailwind from the need to invest in disaster prevention infrastructure, Teikoku will be able to shift to other high margin business lines and continue to grow profits. In fact, last year it announced plans to open a new factory to increase capacity in anticipation of future growth.

On only a 5.3x EV/EBIT multiple with net cash and investment securities covering 69% of the market cap, the anticipated weakness is more than priced in.

Bank of Kyoto

The Bank of Kyoto detracted 0.8% from performance as its share price fell -6%. The Bank of Kyoto is a relatively new position which we added to the position during the interim period.

The Bank of Kyoto is more a Japan ETF than a bank, owning a collection of exceptionally high-quality businesses like Nidec and Nintendo. The investments alone, after tax, account for 156% of the Bank of Kyoto's market cap with the core banking business being ascribed a large negative value. Over the interim period, our estimated value of these investments plus the value of the bank, fell by a modest -1%, with the share price falling -4% as the discount widened from 61.8% to 63.5%.

While the Bank suffered from an increase in provisions from loan-losses due to COVID, it continued its efforts to streamline costs, with operating expenses falling -2.5% after falling -3.7% the year before. We attribute the share price weakness less to operating issues, and more to investors taking profits after the share price rose 41% in the second half of 2020.

Our investment case in the Bank of Kyoto is predicated on being exposed to an attractive portfolio of blue chip Japanese companies while increasing pressure from regulators to improve regional banks operating performance continues. On a 64% discount, investors are pricing in a low prospect of change and given the upside, we can be patient.

Toagosei

Toagosei detracted a modest 0.6% from returns, with a -6% share price performance over the interim period. Toagosei is a diversified chemical manufacturer, producing inputs for a variety of end products from cosmetics to instant glues.

As part of its 2020 mid-term management plan, Toagosei pledged to expand sales in high-value-added businesses (namely semiconductor chemicals), boost margins to double digits, and conduct 6% worth of buybacks over three years. Despite disruption from COVID-19 on global demand for Toagosei's end products, Toagosei has made progress. Profits for the most recent quarter grew 37% year-on-year, with management revising up H1 guidance for 52% profit growth and operating margins of 11.7%, while buybacks are running ahead of pace, with 2.7% bought back in 2020, and plans to buyback another 2.7% in 2021.

It is hard to explain Toagosei's lacklustre share price performance with the fundamental performance. With no sell-side coverage, we attribute the weakness more to a lack of market awareness. While somewhat out of management hands, there is a lot of room to improve investor communication, which is something we are impressing on the Board.

With 66% of the market cap covered by net cash and investment securities, trading on an EV/EBIT of 3.7x and a buoyant operating environment, we are optimistic that over the rest of the year, Toagosei's share price will catch up with the fundamentals.

Outlook

Over the past weeks the Japanese equity market, along with your Company's NAV, has increased sharply. Change of political leadership, along with a successful rollout of the vaccine have led to increased optimism about the prospects for the Japanese economy and for the stock market. With valuations remaining on wide discounts to other markets, Japan represents an attractive destination for investors to focus on. We look forward to the remainder of the year, not just from an earnings perspective but also to continue with our engagement efforts to narrow the gap between the share prices and fundamental values of the companies in our portfolio.

Joe Bauernfreund

Asset Value Investors

15 September 2021

 
 Investment Portfolio 
 At 30 June 2021 
 
 
                 Stock                % of                     Market          % of 
                 Exchange         Investee         Cost         value          AJOT           NFV/Market 
   Company       Identifier        company     GBP'000*       GBP'000    net assets    Capitalisation(1)    EV/EBIT(1) 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 T Hasegawa     TSE: 4958              1.6        9,755        10,931          7.4%                  26%          11.6 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 DTS            TSE: 9682              1.2       10,290        10,832          7.4%                  41%           7.2 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Fujitec        TSE: 6406              0.8        6,515        10,524          7.1%                  35%          13.3 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Digital 
  Garage        TSE: 4819              0.6        7,427         9,971          6.8%                  73%          13.1 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 C Uyemura      TSE: 4966              1.4        7,076         8,711          5.9%                  53%           4.6 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Daibiru        TSE: 8806              0.7        7,619         7,806          5.3%                  n/a           n/a 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Pasona         TSE: 2168              1.3        5,560         7,689          5.2%                 302%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 SK Kaken       JASDAQ: 4628           0.9        9,444         7,599          5.2%                  92%           1.0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 NS Solutions   TSE: 2327              0.3        6,397         7,003          4.8%                  36%           8.7 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Kato Sangyo    TSE: 9869              0.8        7,151         6,446          4.4%                  89%           1.2 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Top ten investments                             77,234        87,512         59.5% 
----------------------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Konishi        TSE: 4956              1.5        6,781         6,249          4.3%                  42%           5.3 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Teikoku 
  Sen-i         TSE: 3302              1.4        6,232         5,340          3.6%                  69%           5.3 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 The Bank of 
  Kyoto         TSE: 8369              0.2        5,994         5,140          3.5%                 215%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Daiwa 
  Industries    TSE: 6459              1.5        6,278         5,091          3.5%                 102%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Toagosei       TSE: 4045              0.5        5,753         4,982          3.4%                  67%           3.6 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Sekisui 
  Jushi         TSE: 4212              0.8        5,292         4,912          3.3%                  72%           2.6 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Softbank 
  Group         TSE: 9984                -        3,382         4,228          2.9%                 135%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 A-One 
  Seimitsu      JASDAQ: 6156           8.0        4,571         4,188          2.8%                 101%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Hazama Ando    TSE: 1719              0.4        4,277         4,005          2.7%                  62%           2.2 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Soft99         TSE: 4464              1.9        2,811         3,537          2.4%                  81%           1.7 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Top twenty investments                         128,605       135,184         91.9% 
----------------------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Keisei 
  Electric 
  Railway       TSE: 9009              0.1        3,501         3,486          2.4%                  99%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 King           TSE: 8118              4.1        3,891         3,377          2.3%                 108%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Alps 
  Logistics     TSE: 9055              1.4        2,989         3,256          2.2%                  35%           5.5 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Aichi          TSE: 6345              0.7        2,789         3,067          2.1%                  55%           4.3 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Tokyo 
  Radiator 
  MFG           TSE: 7235              4.9        4,250         2,822          1.9%                 120%            <0 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Kanaden        TSE: 8081              0.6        1,554         1,200          0.8%                  99%           0.2 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 NC Holdings    TSE: 6236              1.5          693           792          0.6%                  74%           2.5 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Asante         TSE: 6073              0.2          308           343          0.2%                  45%           6.6 
-------------  -------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Total investments                              148,580       153,527        104.4% 
----------------------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Other net assets 
  and liabilities                                             (6,488)     (4.4%)(2) 
----------------------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 Net assets                                                   147,039        100.0% 
----------------------------  ------------  -----------  ------------  ------------  -------------------  ------------ 
 
 * Please refer to Glossary below. 
  1 Estimates provided by AVI. Refer to Glossary below. 
  2 Net gearing. Please refer to Glossary below. 
 

Principal Risks and Uncertainties

The principal risks and uncertainties associated with the Company's business include, but are not limited to, risks relating to the investment objective, gearing, reliance on the Investment Manager and other service providers, cyber security, portfolio liquidity and foreign exchange. Information on these risks and how they are managed is set out on pages 23 and 24 of the 2020 Annual Report.

Whilst the ongoing COVID-19 pandemic has impacted the business in a number of areas as detailed in the Chairman's Statement and the Investment Manager's Report, in the view of the Board the majority of these principal risks and uncertainties were unchanged over the last six months and are as applicable to the remaining six months of the financial year as they were to the six months under review.

Directors' Responsibility Statement

The Directors confirm that to the best of their knowledge:

-- the condensed set of financial statements has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting; and gives a true and fair view of assets, liabilities, financial position and profit and loss of the Company; and

   --      this Interim Report includes a fair review of the information required by: 

a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the period under review and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place during the period ended 30 June 2021 and that have materially affected the financial position or performance of the Company during that period and any material changes in the related party transactions described in the last Annual Report.

This Interim Report was approved by the Board of Directors and the above responsibility statement was signed on its behalf by:

Norman Crighton

Chairman

15 September 2021

Statement of Comprehensive Income

For the period ended 30 June 2021 (unaudited)

 
                             For the 6 month period         For the 6 month period            For the year ended 
                                        to                             to                       31 December 2020 
                                   30 June 2021                   30 June 2020 
                          ----------------------------  ------------------------------  ------------------------------ 
                           Revenue   Capital     Total   Revenue    Capital      Total   Revenue    Capital      Total 
                   Notes   GBP'000   GBP'000   GBP'000   GBP'000    GBP'000    GBP'000   GBP'000    GBP'000    GBP'000 
----------------  ------  --------  --------  --------  --------  ---------  ---------  --------  ---------  --------- 
 Income 
 Investment 
  income               2     1,929         -     1,929     1,747          -      1,747     2,818          -      2,818 
 Gains/(losses) 
  on investments 
  held at fair 
  value                          -     1,986     1,986         -    (9,487)    (9,487)         -    (1,171)    (1,171) 
 Exchange losses 
  on currency 
  balances                       -     (585)     (585)         -      (278)      (278)         -      (745)      (745) 
----------------  ------  --------  --------  --------  --------  ---------  ---------  --------  ---------  --------- 
                             1,929     1,401     3,330     1,747    (9,765)    (8,018)     2,818    (1,916)        902 
 
 Expenses 
 Investment 
  management 
  fee                         (69)     (617)     (686)      (60)      (542)      (602)     (122)    (1,096)    (1,218) 
 Other expenses 
  (including 
  irrecoverable 
  VAT)                       (350)         -     (350)     (308)          -      (308)     (638)          -      (638) 
----------------  ------  --------  --------  --------  --------  ---------  ---------  --------  ---------  --------- 
 
 Profit/(loss) 
  before 
  finance costs 
  and tax                    1,510       784     2,294     1,379   (10,307)    (8,928)     2,058    (3,012)      (954) 
 Finance costs                (11)      (98)     (109)      (10)       (92)      (102)      (22)      (194)      (216) 
 Exchange 
  gains/(losses) 
  on revolving 
  credit 
  facility 
  revaluation          3         -     1,635     1,635         -    (1,108)    (1,108)         -      (210)      (210) 
----------------  ------  --------  --------  --------  --------  ---------  ---------  --------  ---------  --------- 
 
 Profit/(loss) 
  before 
  taxation                   1,499     2,321     3,820     1,369   (11,507)   (10,138)     2,036    (3,416)    (1,380) 
 Taxation                    (199)         -     (199)     (173)          -      (173)     (284)          -      (284) 
----------------  ------  --------  --------  --------  --------  ---------  ---------  --------  ---------  --------- 
 Profit/(loss) 
  for the 
  period                     1,300     2,321     3,621     1,196   (11,507)   (10,311)     1,752    (3,416)    (1,664) 
----------------  ------  --------  --------  --------  --------  ---------  ---------  --------  ---------  --------- 
 
 Earnings per 
  Ordinary 
  Share 
  - basic and 
  diluted 
  (pence)              5      1.01      1.81      2.82      1.04    (10.00)     (8.96)      1.51     (2.94)     (1.43) 
 

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

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

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

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

Statement of Changes in Equity

For the period ended 30 June 2021 (unaudited)

 
                               Ordinary 
                                  Share      Share      Special     Capital      Revenue 
                                capital    premium     reserve*    reserve*    reserve**      Total 
                                GBP'000    GBP'000      GBP'000     GBP'000      GBP'000    GBP'000 
----------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 For the six months 
  to 30 June 2021 
 Balance as at 31 December 
  2020                            1,175     38,242       77,588       9,729        1,216    127,950 
 Issue of Ordinary 
  Shares                            151     17,115            -           -            -     17,266 
 Expenses of share 
  issue                               -      (674)            -           -            -      (674) 
 Ordinary Shares bought 
  back and held in Treasury           -          -        (264)           -            -      (264) 
 Total comprehensive 
  income for the period               -          -            -       2,321        1,300      3,621 
 Ordinary dividends 
  paid                                -          -            -           -        (860)      (860) 
----------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 Balance as at 30 June 
  2021                            1,326     54,683       77,324      12,050        1,656    147,039 
----------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 
 
                              Ordinary 
                                 Share      Share      Special     Capital      Revenue 
                               capital    premium     reserve*    reserve*    reserve**      Total 
                               GBP'000    GBP'000      GBP'000     GBP'000      GBP'000    GBP'000 
---------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 For the six months 
  to 30 June 2020 
 Balance as at 31 December 
  2019                           1,139     34,476       77,588      13,145        1,262    127,610 
 Issue of Ordinary 
  Shares                            36      3,835            -           -            -      3,871 
 Expenses of share 
  issue                              -       (69)            -           -            -       (69) 
 Expenses in relation 
  to proposed share 
  issue                              -          -        (288)           -            -      (288) 
 Total comprehensive 
  (loss)/income for 
  the period                         -          -            -    (11,507)        1,196   (10,311) 
 Ordinary dividends 
  paid                               -          -            -           -      (1,034)    (1,034) 
---------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 Balance as at 30 June 
  2020                           1,175     38,242       77,300       1,638        1,424    119,779 
---------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 
 
                              Ordinary 
                                 share      Share      Special     Capital      Revenue 
                               capital    premium     reserve*    reserve*    reserve**      Total 
                               GBP'000    GBP'000      GBP'000     GBP'000      GBP'000    GBP'000 
---------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 For the year to 31 
  December 2020 
 Balance as at 31 December 
  2019                           1,139     34,476       77,588      13,145        1,262    127,610 
 Issue of Ordinary 
  Shares                            36      3,835            -           -            -      3,871 
 Expenses of share 
  issue                              -       (69)            -           -            -       (69) 
 Total comprehensive 
  (loss)/income for 
  the year                           -          -            -     (3,416)        1,752    (1,664) 
 Ordinary dividends 
  paid                               -          -            -           -      (1,798)    (1,798) 
---------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 Balance as at 31 December 
  2020                           1,175     38,242       77,588       9,729        1,216    127,950 
---------------------------  ---------  ---------  -----------  ----------  -----------  --------- 
 

*The total distributable reserves are GBP86,083,000 (30 June 2020: GBP78,897,000; 31 December 2020: GBP79,826,000). Within the balance of the capital reserve, GBP7,103,000 (30 June 2020: GBP173,000; 31 December 2020: GBP1,022,000) relates to realised gains/(losses) which under the Articles of Association is distributable by way of dividend. The remaining GBP4,947,000 (30 June 2020: GBP1,465,000; 31 December 2020: GBP8,707,000) relates to unrealised gains on investments and is non-distributable.

** Revenue reserve is distributable.

Balance Sheet

As at 30 June 2021 (unaudited)

 
                                                                   At            At             At 
                                                              30 June       30 June    31 December 
                                                                 2021          2020           2020 
                                                  Notes       GBP'000       GBP'000        GBP'000 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 Non-current assets 
 Investments held at fair value through profit 
  or loss                                                     153,527       125,338        136,616 
-----------------------------------------------  ------  ------------  ------------  ------------- 
                                                              153,527       125,338        136,616 
 Current assets 
 Other receivables                                                385           315            909 
 Cash and cash equivalents                                     13,787        10,573          6,028 
-----------------------------------------------  ------  ------------  ------------  ------------- 
                                                               14,172        10,888          6,937 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Total assets                                                 167,699       136,226        143,553 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Current liabilities 
 Revolving credit facility                            3      (19.108)      (16,129)       (15,231) 
 Other payables                                               (1,552)         (318)          (372) 
-----------------------------------------------  ------  ------------  ------------  ------------- 
                                                             (20,660)      (16,447)       (15,603) 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Total net assets                                             147,039       119,779        127,950 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Equity attributable to equity Shareholders 
 Ordinary Share capital                               7         1,326         1,175          1,175 
 Share premium                                                 54,683        38,242         38,242 
 Special reserve                                               77,324        77,300         77,588 
 Capital reserve                                               12,050         1,638          9,729 
 Revenue reserve                                                1,656         1,424          1,216 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Total equity                                                 147,039       119,779        127,950 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Net asset value per Ordinary Share - basic 
  and diluted (pence)                                 6       111.08p       101.95p        108.90p 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 
 Number of shares in issue excluding treasury 
  shares                                              7   132,370,702   117,489,742    117,489,742 
-----------------------------------------------  ------  ------------  ------------  ------------- 
 

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

Statement of Cash Flows

For the period ended 30 June 2021 (unaudited)

 
                                                          30 June    30 June   31 December 
                                                             2021       2020          2020 
                                                          GBP'000    GBP'000       GBP'000 
------------------------------------------------------  ---------  ---------  ------------ 
 Reconciliation of profit/(loss) before taxation to 
  net cash inflow/(outflow) from operating activities 
 Profit/(loss) before taxation                              3,820   (10,138)       (1,380) 
 (Gains)/losses on investments held at fair value 
  through profit or loss                                  (1,986)      9,487         1,171 
 Increase in other receivables                               (84)       (17)           (1) 
 Exchange (gains)/losses on revolving credit facility     (1,635)      1,108           210 
 Increase in other payables                                    38         71            57 
 Taxation paid                                              (199)      (173)         (284) 
------------------------------------------------------  ---------  ---------  ------------ 
 Net cash (outflow)/inflow from operating activities         (46)        338         (227) 
------------------------------------------------------  ---------  ---------  ------------ 
 
 Investing activities 
 Purchases of investments                                (36,078)   (31,091)      (50,653) 
 Sales of investments                                      22,611     21,795        38,141 
------------------------------------------------------  ---------  ---------  ------------ 
 Net cash outflow from investing activities              (13,467)    (9,296)      (12,512) 
------------------------------------------------------  ---------  ---------  ------------ 
 
 Financing activities 
 Dividends paid                                             (860)    (1,034)       (1,798) 
 Issue of shares net of costs                              16,880      3,802         3,802 
 Payments for Ordinary Shares bought back and held 
  in Treasury                                               (264)          -             - 
 Issue/(repayment) of revolving credit facility net 
  of costs                                                  5,512      (944)         (944) 
 Costs associated with proposed share issue                     -      (288)         (288) 
 Cash inflow from financing activities                     21,268      1,536           772 
------------------------------------------------------  ---------  ---------  ------------ 
 
 Increase/(decrease) in cash and cash equivalents           7,755    (7,422)      (11,967) 
------------------------------------------------------  ---------  ---------  ------------ 
 
 Reconciliation of net cash flow movement: 
 Cash and cash equivalents at beginning of period           6,028     17,995        17,995 
 Exchange rate movements                                        4          -             - 
 Increase/(decrease) in cash and cash equivalents           7,755    (7,422)      (11,967) 
------------------------------------------------------  ---------  ---------  ------------ 
 
 Cash and cash equivalents at end of period                13,787     10,573         6,028 
------------------------------------------------------  ---------  ---------  ------------ 
 

Notes to the Financial Statements

For the period ended 30 June 2021 (unaudited)

1. Accounting Policies

The condensed financial statements of the Company have been prepared in accordance with International Accounting Standards (IAS) 34 - "Interim Financial Reporting".

In the current period, the Company has applied amendments to IFRS. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements including updates related to COVID-19. The adoption of these has not had any material impact on these financial statements and the accounting policies used by the Company followed in these half-year financial statements are consistent with the most recent Annual Report for the year ended 31 December 2020.

Basis of Preparation

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

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

Comparative Information

The financial information contained in this Interim Report does not constitute statutory accounts as defined in the Companies Act 2006. The financial information for the six month period ended 30 June 2021, and the six month period ended 30 June 2020, have not been audited or reviewed by the Company's Auditor. The comparative figures for the financial period ended 31 December 2020 are not the Company's statutory accounts for that financial period. Those accounts have been reported on by the Company's Auditor and delivered to the Registrar of Companies. The report of the Auditor was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Going Concern

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

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

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

The Directors noted the Company holds a portfolio of liquid investments whose value is a multiple of liabilities. The Directors are of the view that the Company can meet its obligations as they fall due. The cash available and revolving credit facility enables the Company to meet any funding requirements and finance future additional investments. The Company is a closed-end fund, where assets are not required to be liquidated to meet day-to- day redemptions.

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

The Directors, Investment Manager and other service providers have put in place contingency plans to minimise disruption. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis.

2. Income

 
                                        30 June    30 June   31 December 
                                           2021       2020          2020 
                                        GBP'000    GBP'000       GBP'000 
------------------------------------  ---------  ---------  ------------ 
 Income from investments 
 Overseas dividends                       1,987      1,730         2,840 
 Bank and deposit interest                 (13)        (9)          (17) 
 Exchange (losses)/gains on receipt 
  of income*                               (45)         26           (5) 
------------------------------------  ---------  ---------  ------------ 
 Total income                             1,929      1,747         2,818 
------------------------------------  ---------  ---------  ------------ 
 

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

3. Revolving Credit Facility

 
                                Six months to 30 June     Six months to 30 June     Year to 31 December 2020 
                                         2021                      2020 
                                   Yen '000    GBP'000       Yen '000    GBP'000        Yen '000      GBP'000 
----------------------------  -------------  ---------  -------------  ---------  --------------  ----------- 
 Opening balance                  2,150,000     15,231      2,297,500     15,965       2,297,500       15,965 
 Proceeds from amounts 
  drawn                             780,000      5,512              -          -         632,500        4,466 
 Repayment of amounts 
  drawn                                   -          -      (147,500)      (944)       (780,000)      (5,410) 
 Exchange rate movement                   -    (1,635)              -      1,108               -          210 
----------------------------  -------------  ---------  -------------  ---------  --------------  ----------- 
 Closing balance                  2,930,000     19,108      2,150,000     16,129       2,150,000       15,231 
----------------------------  -------------  ---------  -------------  ---------  --------------  ----------- 
 
 Maximum facility available       4,330,000     28,239      4,330,000     32,483       4,330,000       30,674 
----------------------------  -------------  ---------  -------------  ---------  --------------  ----------- 
 

Under the revolving credit facility ("the facility") the maximum available is Yen4,330,000,000 of which Yen2,930,000,000 has been drawn.

Subsequent to the period end, on 9 September 2021, the facility has been amended to switch interest rate calculation from LIBOR to Tokyo

Overnight Average Rate ("TONAR"). The interest rate from the switching date will be TONAR plus 0.95% replacing LIBOR plus 0.95%.

4. Dividends per Ordinary Share

A final dividend of 0.65p per Ordinary Share for the period ended 31 December 2020 was paid on 27 May 2021 to Ordinary Shareholders on the register at the close of business on 30 April 2021 (ex-dividend date 28 April 2021).

An interim dividend of 0.70p per Ordinary Share for the period ended 30 June 2021 has been declared and will be paid on 25 October 2021 to Ordinary Shareholders on the register at the close of business on 1 October 2021 (ex-dividend date is 30 September 2021).

5. Earnings per Ordinary Share

 
                       Six months to 30 June           Six months to 30 June 2020         Year to 31 December 2020 
                                2021 
                 --------------------------------  ---------------------------------  -------------------------------- 
                  Revenue   Capital         Total   Revenue    Capital         Total   Revenue   Capital         Total 
---------------  --------  --------  ------------  --------  ---------  ------------  --------  --------  ------------ 
 Net 
  profit/(loss) 
  (GBP'000)         1,300     2,321         3,621     1,196   (11,507)      (10,311)     1,752   (3,416)       (1,664) 
 Weighted 
  average 
  number of 
  Ordinary 
  Shares                              128,205,505                        115,014,742                       116,259,044 
---------------  --------  --------  ------------  --------  ---------  ------------  --------  --------  ------------ 
 Earnings per 
  Ordinary 
  Share 
  (pence)            1.01      1.81          2.82      1.04    (10.00)        (8.96)      1.51    (2.94)        (1.43) 
---------------  --------  --------  ------------  --------  ---------  ------------  --------  --------  ------------ 
 

There are no dilutive instruments issued by the Company.

6. Net Asset Value per Ordinary Share

The net asset value per Ordinary Share is based on net assets of GBP147,039,000 (30 June 2020: GBP119,779,000; 31 December 2020: GBP127,950,000) and on 132,370,702 Ordinary Shares (30 June 2020: 117,489,742; 31 December 2020: 117,489,742), being the number of Ordinary Shares in issue excluding treasury shares.

7. Share Capital

 
                                                          At 30 June 2021 
                                                     Ordinary Shares of 1p each 
                                                   ----------------------------- 
                                                       Number of   Nominal value 
                                                          shares         GBP'000 
-------------------------------------------------  -------------  -------------- 
 Allotted, called-up and fully paid                  132,620,702           1,326 
-------------------------------------------------  -------------  -------------- 
 
 Balance at beginning of period                      117,489,742 
 Issue of Ordinary shares                             15,130,960 
                                                     132,620,702 
 Treasury shares 
 Balance at beginning of year                                  - 
 Buyback of Ordinary Shares into Treasury                250,000 
-------------------------------------------------  -------------  -------------- 
 Balance at end of period                                250,000 
-------------------------------------------------  -------------  -------------- 
 Total Ordinary Share Capital excluding treasury 
  shares                                             132,370,702 
-------------------------------------------------  -------------  -------------- 
 

During the period to 30 June 2021, 15,130,960 Ordinary Shares (6 months to 30 June 2020: 3,550,000; year to 31 December 2020: 3,550,000) were issued for a net consideration of GBP16,880,000 (6 months to 30 June 2020: GBP3,802,000; year to 31 December 2020: GBP3,802,000).

During the period 250,000 Ordinary Shares (6 months to 30 June 2020: nil; year to 31 December 2020: nil) were bought back and placed in Treasury for an aggregate consideration of GBP264,000 ( 6 months to 30 June 2020: GBPnil; year to 31 December 2020: GBPnil).

8. Values of Financial Assets and Financial Liabilities

Valuation of financial instruments

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

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

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

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

-- Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included in Level 1.

-- Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

Financial assets

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

 
 Financial assets at fair value through     Level 1    Level 2      Level      Total 
  profit or loss at 30 June 2021            GBP'000    GBP'000          3    GBP'000 
                                                                  GBP'000 
                                          ---------  ---------  ---------  --------- 
 Equity investments                         153,527          -          -    153,527 
----------------------------------------  ---------  ---------  ---------  --------- 
                                            153,527          -          -    153,527 
----------------------------------------  ---------  ---------  ---------  --------- 
 
 
 Financial assets at fair value through     Level 1    Level 2      Level      Total 
  profit or loss at 30 June 2020            GBP'000    GBP'000          3    GBP'000 
                                                                  GBP'000 
                                          ---------  ---------  ---------  --------- 
 Equity investments                         125,338          -          -    125,338 
----------------------------------------  ---------  ---------  ---------  --------- 
                                            125,338          -          -    125,338 
----------------------------------------  ---------  ---------  ---------  --------- 
 
 
 Financial assets at fair value through     Level 1      Level      Level      Total 
  profit or loss at 31 December 2020        GBP'000          2          3    GBP'000 
                                                       GBP'000    GBP'000 
                                          ---------  ---------  ---------  --------- 
 Equity investments                         136,616          -          -    136,616 
----------------------------------------  ---------  ---------  ---------  --------- 
                                            136,616          -          -    136,616 
----------------------------------------  ---------  ---------  ---------  --------- 
 

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

9. Related Parties and Transactions with the Investment Manager

Investment management fees for the period amounted to GBP686,000 (six months to 30 June 2020: GBP602,000); year to 31 December 2020: GBP1,218,000).

At the period end, GBP116,000 (30 June 2020: GBP94,000; 31 December 2020: GBP106,000) remained outstanding in respect of management fees.

The management fee of 1% per annum is calculated on the lesser of the Company's net asset value or Market Capitalisation at each quarter end. The Investment Manager will invest 25% of the management fee it receives in shares of the Company and will hold these for a minimum of two years. As at 30 June 2021, AVI held 775,000 shares of the Company.

Fees paid to Directors for the period ended 30 June 2021 amounted to GBP64,000 (six months to 30 June 2020: GBP64,000; year to 31 December 2020: GBP128,000).

Finda Oy, a significant Shareholder of the Company, is deemed to be a related party of the Company for the purposes of the Listing Rules by virtue of its holding in the Company's issued share capital. During the period under review no material transactions took place and as at 30 June 2021 the Company had not been notified of any change to Finda Oy's holding of 30,000,000 Ordinary Shares reported in the period to 31 December 2020, which represented 22.66% of the total voting rights as at 30 June 2021 (31 December 2020: 25.53%).

Glossary

 
 Alternative Performance Measure               Net Asset Value ("NAV") 
  ("APM")                                       The NAV is Shareholders' funds 
  An APM is a numerical measure                 expressed as an amount per 
  of the Company's current, historical          individual share. Shareholders' 
  or future financial performance,              funds are the total value of 
  financial position or cash                    all of the Company's assets, 
  flows, other than a financial                 at their current market value, 
  measure defined or specified                  having deducted all liabilities 
  in the applicable financial                   and prior charges at their 
  framework.                                    par value, or at their asset 
                                                value as appropriate. The total 
  The definitions below are utilised            NAV per share is calculated 
  for the measures of the Company,              by dividing the NAV by the 
  the investment portfolio and                  number of Ordinary Shares in 
  underlying individual investments             issue. 
  held by the Company. Certain 
  of the metrics are to look 
  through the investments held, 
  excluding certain non-core 
  activities, so the performance 
  of the actual core of the investment 
  may be evaluated. Where a company 
  in the investment portfolio 
  holds a number of listed investments 
  these are excluded in order 
  to determine the actual core 
  value metrics. 
 
 Comparator Benchmark                          Net Cash/Market Capitalisation 
  The Company's Comparator Benchmark            Net cash consists of cash and 
  is the MSCI Japan Small Cap                   the value of treasury shares 
  Index, expressed in Sterling                  less debt and net pension liabilities. 
  terms. The benchmark is an                    It is a measure of the excess 
  index which measures the performance          cash on a company's balance 
  of the Japan equity market.                   sheet and, by implication, 
  The weighting of index constituents           how much value the market attributes 
  is based on their market capitalisation.      to the core operating business. 
  Dividends paid by index constituents          For example, the implied valuation 
  are assumed to be reinvested                  of the core operating business 
  in the relevant securities                    of a company trading with a 
  at the prevailing market price.               net cash/market capitalisation 
  The Investment Manager's investment           of 100% is zero. 
  decisions are not influenced 
  by whether a particular company's 
  shares are, or are not, included 
  in the benchmark. The benchmark 
  is used only as a yard stick 
  to compare investment performance. 
 
 Cost                                          Net Financial Value ("NFV")/Market 
  The book cost of each investment              Capitalisation 
  is the total acquisition value,               Net Financial Value consists 
  including transaction costs,                  of cash, investment securities 
  less the value of any disposals               (less capital gains tax) and 
  or capitalised distributions                  the value of treasury shares 
  allocated on a weighted average               less debt and net pension liabilities. 
  cost basis.                                   A measure of the excess cash 
                                                on a company's balance sheet 
                                                and, by implication, how much 
                                                value the market attributes 
                                                to the core operating business. 
                                                For example, the implied valuation 
                                                of the core operating business 
                                                of a company trading with a 
                                                NFV/market capitalisation of 
                                                100% is zero. 
 
 Discount/Premium                              Ongoing Charges Ratio 
  If the share price is lower                   As recommended by The AIC in 
  than the NAV per share it is                  its guidance, ongoing charges 
  said to be trading at a discount.             are the Company's annualised 
  The size of the discount is                   expenses of GBP2,074,000 (excluding 
  calculated by subtracting the                 finance costs and certain non-recurring 
  share price from the NAV per                  items) expressed as a percentage 
  share and is usually expressed                of the average monthly net 
  as a percentage of the NAV                    assets of GBP138,032,000 of 
  per share. If the share price                 the Company during the year. 
  is higher than the NAV per 
  share, this situation is called 
  a premium. 
 
  The discount and performance 
  are calculated in accordance 
  with guidelines issued by the 
  AIC. The discount is calculated 
  using the net asset values 
  per share inclusive of accrued 
  income with debt at market 
  value. 
 
 Earnings Before Interest and                  Portfolio Discount 
  Taxes ("EBIT")                                A proprietary estimate of how 
  EBIT is equivalent to profit                  far below fair value a given 
  before finance costs and tax                  company is trading. For example, 
  set out in the statement of                   if a company with a market 
  comprehensive income.                         capitalisation 100 had 80 NFV 
                                                and a calculated fair value 
                                                of the operating business of 
                                                90, we would attribute it a 
                                                discount of -41%, 100/(90+80) 
                                                -1. This indicates the amount 
                                                of potential upside. The company 
                                                trading on a -41% discount 
                                                has a potential upside of +69%, 
                                                1/(1-0.41). 
 
 Enterprise Value ("EV")                       Portfolio Yield 
  Enterprise Value reflects the                 The weighted-average dividend 
  economic value of the business                yield of each underlying company 
  by taking the market capitalisation           in AJOT's portfolio. 
  less cash, investment securities 
  and the value of treasury shares 
  plus debt and net pension liabilities. 
 
 Enterprise Value ("EV")/Earnings              Return on Equity ("ROE") 
  Before Interest and Taxes ("EBIT")            A measure of performance calculated 
  A multiple based valuation                    by dividing net income by shareholder 
  metric that takes account of                  equity. 
  the excess capital on a company's 
  balance sheet. For example, 
  if a company held 80% of its 
  market capitalisation in NFV 
  (defined under Net Financial 
  Value / Market Capitalisation), 
  had a market capitalisation 
  of 
  100 and EBIT of 10, the EV/EBIT 
  would be 2x, (100-80)/10. 
 
 Enterprise Value ("EV") Free                  ROE ex non-core financial assets 
  Cash Flow Yield ("EV FCF Yield")              Non-core financial assets consists 
  A similar calculation to free                 of cash and investment securities 
  cash flow yield except the                    (less capital gains tax) less 
  free cash flow excludes interest              debt and net pension liabilities. 
  and dividend income and is                    The ROE is calculated as if 
  divided by enterprise value.                  non-core financial assets were 
  This gives a representation                   paid out to shareholders. Companies 
  for how overcapitalised and                   with high balance sheet allocations 
  undervalued a company is. If                  to non-core, low yielding financial 
  a company were to pay out of                  assets have depressed ROEs. 
  all of its NFV (defined under                 The exclusion of non-core financial 
  Net Financial Value/Market                    assets gives a fairer representation 
  Capitalisation) and the share                 of the true ROE of the underlying 
  price remained the same, the                  business. 
  EV FCF Yield would become the 
  FCF yield. For example, take 
  a company with a market capitalisation 
  of 100 that had NFV of 80 and 
  FCF of 8. The FCF yield would 
  be 8%, 8/100, but if the company 
  paid out all of its NFV the 
  FCF yield would become 40%, 
  8/(100-80). This gives an indication 
  of how cheaply the market values 
  the underlying business once 
  excess capital is stripped 
  out. 
 
 Free Cash Flow ("FCF") Yield                  Total Return - NAV and Share 
  Free cash flow is the amount                  Price Returns 
  of cash profits that a business               The combined effect of any 
  generates, adjusted for the                   dividends paid, together with 
  minimum level of capital expenditure          the rise or fall in the share 
  required to maintain the company              price or NAV. Total return 
  in a steady state. It measures                statistics enable the investor 
  how much a business could pay                 to make performance comparisons 
  out to equity investors without               between investment trusts with 
  impairing the core business.                  different dividend policies. 
  When free cash flow is divided                Any dividends received by a 
  by the market value, we obtain                Shareholder are assumed to 
  the free cash flow yield.                     have been reinvested in either 
                                                additional shares in the Company 
                                                or in the assets of the Company 
                                                at the prevailing NAV, in either 
                                                case at the time that the shares 
                                                begin to trade ex-dividend. 
 
 Gearing 
  Gearing refers to the ratio 
  of the Company's debt to its 
  equity capital. The Company 
  may borrow money to invest 
  in additional investments for 
  its portfolio. If the Company's 
  assets grow, the Shareholders' 
  assets grow proportionately 
  more because the debt remains 
  the same. But if the value 
  of the Company's assets falls, 
  the situation is reversed. 
  Gearing can therefore enhance 
  performance in rising markets 
  but can adversely impact performance 
  in falling markets. 
 
  The gearing of 13.0% represents 
  borrowings of GBP19,108,000 
  expressed as a percentage of 
  Shareholders' funds of GBP147,039,000. 
  The net gearing of 4.4% represents 
  borrowings net of cash and 
  current assets of GBP6,488,000 
  expressed as a percentage of 
  Shareholders' funds of GBP147,039,000. 
 

Company Information

 
 Directors                               Investment Manager and AIFM 
  Norman Crighton (Chairman)              Asset Value Investors Limited 
  Ekaterina (Katya) Thomson               2 Cavendish Square 
  Yoshi Nishio                            London 
  Margaret Stephens                       W1G 0PU 
 Administrator                           Registered o ce 
  Link Alternative Fund Administrators    Beaufort House 
  Limited                                 51 New North Road 
  Beaufort House                          Exeter 
  51 New North Road                       Devon 
  Exeter                                  EX4 4EP 
  Devon 
  EX4 4EP 
 Auditor                                 Registrar and Transfer Office 
  BDO LLP                                 Link Group 
  55 Baker Street                         10(th) Floor 
  London                                  Central Square 
  W1U 7EU                                 29 Wellington Street 
                                          Leeds 
  Corporate Broker                        LS1 4DL 
  Singer Capital Markets 
  1 Bartholomew Lane                      Registrar's Shareholder Helpline 
  London                                  Tel. 0371 664 0300 
  EC2N 2AX                                From overseas call: +44 (0) 371 664 
                                          0300 
  Custodian                               Calls are charged at the standard geographic 
  J.P. Morgan Chase Bank                  rate and will vary by provider. Calls 
  National Association                    from outside the UK will be charged 
  London Branch                           at the applicable international rate. 
  25 Bank Street                          Lines are open between 09:00-17:30, 
  Canary Wharf                            Monday to Friday, excluding public 
  London                                  holidays in England and Wales. 
  E14 5JP 
                                          Secretary 
  Depositary                              Link Company Matters Limited 
  J.P. Morgan Europe Limited              Beaufort House 
  25 Bank Street                          51 New North Road 
  Canary Wharf                            Exeter 
  London                                  Devon 
  E14 5JP                                 EX4 4EP 
 
                                          Solicitor 
                                          Stephenson Harwood LLP 
                                          1 Finsbury Circus 
                                          London 
                                          EC2M 75H 
 

LEI: 894500IJ5QQD7FPT3J73

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September 16, 2021 02:00 ET (06:00 GMT)

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