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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END
IR BLGDCUDBDGBU
(END) Dow Jones Newswires
September 16, 2021 02:00 ET (06:00 GMT)
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