Fidelity Japan Trust Plc - Half-year Report
Half-Yearly Results for the six months ended
Financial Highlights:
-- During the six-month period ended30 June 2024 ,Fidelity Japan Trust PLC reported a net asset value (NAV) return of -2.8% and ordinary share price total return of -6.2%. -- The TOPIX Total Return Index (in sterling terms) returned +6.2% over the same timeframe. -- The Portfolio Manager believes a broadening out of theTokyo Stock Exchange reforms is likely and expects to see a clear improvement in capital efficiency and shareholder returns further down the market-cap scale. -- A peaking out of the interest rate cycle in the US is conducive to better performance by growth stocks, an area of the market where the Portfolio Manager sees a lot of undervaluation.
Contacts
For further information, please contact:
Company Secretary
0207 961 4240
Chairman’s Statement
The recovery in the Japanese equity market which started in 2023 has continued in 2024 with the Nikkei Dow Jones 225 Index reaching levels last seen in the 1990s. However, it has not been a market that has suited the positioning of
The focus of the market performance has been concentrated in the large-cap value area while your Company’s bias has been to growth orientated stocks, including mid-sized and smaller companies. These have been largely overlooked by investors in the past six months. It is striking that since the beginning of the year, the Japanese Value Index has risen by 11.6% while the Japanese Growth Index has risen by just 1.7%. This divergence has been even starker since
Discount Management, Share Repurchases and Treasury Shares
The primary purpose of the Board’s discount management policy is to reduce discount volatility. At the Annual General Meeting in
As part of the discount management policy, in the six months to
Gearing
The Board continues to believe that gearing is a distinct advantage of the investment trust structure and will benefit the performance of the Company as the market recovers. The Board remains satisfied that the use of long Contracts for Difference (CFDs) provides more flexibility and at a lower cost than traditional bank debt. Gearing has remained fairly constant in the six months under review, beginning 2024 at 23.1% and standing at 24.0% at the end of June.
Ongoing Charges
We do not provide an annualised ongoing charges figure at the interim stage. However, it is worth noting that the Company’s variable management fee arrangement allows for a partial refund of charges in the event of underperformance on a rolling three-year basis. This has resulted in a credit of £244,000 in the variable element of the management fee for the six months to
Unlisted Companies
Unlisted investments currently make up 6.1% of the Company’s net assets. While your Portfolio Manager has the authority to invest up to 20% in unlisted companies, the Board believes that currently it is prudent to limit the proportion held in such companies to a maximum of 10% at the time of any further investment. Together with Kroll, as independent valuers, the Board has recently reviewed the current valuation of each of the seven unlisted investments.
Due Diligence Trip
The Board visited
Board changes
As covered in the 2023 Annual Report,
Outlook
The recent underperformance of the Company against the Japanese stock market and many peers has clearly been disappointing. However, the Company has generated significant outperformance in the past and we have every reason to believe that
For the past year, it is mainly the larger companies in
The return to investors in sterling terms will also be enhanced by any strengthening in the yen as we anticipate a steady narrowing of the interest rate differential between
As an actively managed investment trust with a flexible mandate, shareholders understandably expect the Company to add significant value over broad market indices and to be competitive against peers. The Board remains focused on ensuring the Company returns to delivering strong investment performance and is confident that the Company is well placed to benefit from the positive outlook for the Japanese market.
Chairman
Portfolio Manager’s Review
Market Review
Japanese equities got off to a strong start to the year with the
At a sector level, financials, led by Insurance and Banks, generated the strongest returns, buoyed by higher interest rates and governance-related developments. Shares in power utilities gained on reports of higher dividend payouts, while commodity related segments outperformed. Conversely, domestic oriented industries that are struggling with rising logistics and labour costs underperformed. In terms of style, large-cap value stocks generated the strongest returns over the period contrasting with the far more muted performance of small-cap growth names despite a late rebound.
In economic news, real GDP contracted by 2.9% annualised in the first three months of 2024 after showing modest growth of just 0.1% in the previous quarter. Private consumption remained weak, declining for a fourth consecutive quarter due to persistent price pressures and negative real incomes. Meanwhile, the core Consumer Price Index (CPI) for May came in at +2.5% year-on-year, with electricity prices contributing to an acceleration from April’s reading of +2.2%. The core-core measure of inflation (excluding fresh food and energy) stood at +2.1% and remained above the BoJ’s price stability target. The summary of opinions from the BoJ’s June meeting indicated that more board members had considered adjusting monetary policy in response to upside risks to prices accompanying the recent weakness of the yen. A Bloomberg survey conducted in late June found that 33% of economists polled had expected the BoJ to raise interest rates in July, while those expecting an October increase stood at 42%.
Although economic growth tailed off towards the end of last year, nominal GDP expanded by 5% in fiscal year 2023, which is the strongest growth in more than 30 years. This marks a significant change for
Portfolio Review
In the six months to
The 13.1% fall in the value of the yen against sterling since the end of 2023 weighed on the sterling based returns of the Company’s NAV, its share price and the Reference Index. This stems largely from the wide policy divergence between the BoJ and the
The US bond yield cycle and accompanying currency trends continued to exert a sizeable impact on style returns with strong gains in large-cap value stocks contrasting with the far more muted performance of small-cap growth names. These trends continued to generate headwinds for growth-oriented strategies, particularly during periods of sharp rises in long-term interest rates. At a time of limited market breadth and with returns concentrated in large-cap value stocks, the Company’s exposure to mid/small-cap growth names constrained relative performance.
In the Chemicals sector, the Company’s holding in
NOF
, a speciality chemicals producer with strengths in raw materials for cosmetics and drug delivery systems (DDS), was among the most significant detractors from performance. Inventory corrections at specific customers clouded the immediate outlook for sales of DDS materials, while an accelerated pace of strategic investments through fiscal 2025 (12 months to
Shares in Mitsui High-tec , a leading producer of xEV motor cores, lost ground as its fiscal 2024 earnings guidance came in below market expectations due to the impact of higher capital expenditure and depreciation costs. However, the company’s upfront investment reflects strong demand for motor cores used in hybrid vehicles and we expect profitability to improve as the business expands.
Among domestic services companies, positions in
On a positive note, holdings in semiconductor related companies were among the key contributors to performance. Shares in semiconductor production equipment (SPE) maker
Tokyo Electron
set successive highs as investors factored in a multi-year growth trajectory for the global semiconductor market amid growing demand for generative artificial intelligence (AI). As a highly competitive player in a structural growth market,
Tokyo Electron
is well positioned to capture sustained semiconductor demand and drive technological advances in chip making and benefit from government support amid rising geopolitical tensions. Meanwhile,
Rorze
, a leading producer of semiconductor wafer transfer and processing equipment, announced stronger-than-expected earnings guidance for the fiscal year to
Power utility Kyushu Electric Power announced above consensus annual results and met its commitment to increase dividends one year ahead of schedule. With all four nuclear reactors online, it enjoys a steadier energy production mix compared with many other Japanese utilities. As the largest provider of electricity to the Kyushu region, it is well positioned to benefit from an influx of investments related to semiconductor production facilities and data centres.
Positioning
The Company remains overweight in the Chemicals, Services and Electric Appliances sectors. At the opposite end of the scale, Pharmaceuticals and Transportation Equipment remain underweight. The level of gearing was little changed at 24.0% and is, as always, dependent on bottom-up conviction in the investment opportunities available and accompanying valuations.
Given the BoJ’s dovish tone and limited immediate scope for yen strengthening, export oriented companies look attractive amid signs of a recovery in the global manufacturing Purchasing Managers’ Index (PMI). We favour exposure to industrial cyclicality through technology and factory automation-related names. MISUMI Group , Harmonic Drive Systems and Tokyo Electron remain among the Company’s key active positions. There are also opportunities in automobile related companies that are committed to addressing below 1x price-to-book ratios through better balance sheet management and increasing shareholder returns.
Although the Company remains underweight in Financials as a broad grouping, we have selectively added to or increased positions in Real Estate, Insurance and Banks. Stock selection decisions were underpinned by a combination of favourable fundamentals, supportive policy developments and stronger commitments to capital efficiency and shareholder returns. At the end of the reporting period, key active positions included mega bank Mizuho Financial Group , consumer finance company Credit Saison and insurer Sompo Holdings .
A new position that features among the Company’s top ten holdings is industrial conglomerate Mitsubishi Electric . Factory automation related orders, a key driver of the stock, have bottomed out and restructuring measures, notably at its automobile business, are leading to an improvement in profitability.
Valuations are historically cheap and we expect the stock to rerate as the market discounts its growth prospects.
Conversely, a combination of profit taking and targeted reductions in high valuation names resulted in a lower allocation to the Retail sector. We took some profits in Ryohin Keikaku , operator of the Muji brand of general merchandise stores, and sold Uniqlo owner Fast Retailing as upside appeared limited with valuations at historical highs. Among other strong performers, the Company’s positions in financial services group ORIX and power company Kansai Electric Power were sold.
At the end of the review period, seven unlisted names were held, representing 6.1% of the net assets. We continue to evaluate new opportunities, while maintaining a disciplined approach towards valuations.
Mid/Small-Caps: An Underappreciated Opportunity
The market rally in
As the
Although mid/small-caps account for around 90% of the TOPIX universe, they are often overlooked or under researched. Almost all smaller companies have little or no street coverage and around 60% of mid-caps have limited coverage. This level of market inefficiency can create extreme mispricings and as an active manager on the ground who meets a lot of companies, this creates a wealth of untapped and differentiated investment opportunities among both domestic and export oriented firms.
Osaka Soda is a good example of an under researched small-cap stock. It is transforming from a basic chemicals company to a supplier of value-added functional and health care materials. In mid-2022, the company had a market cap of below £500 million and was only covered by local brokers that catered to individual investors. The lack of street coverage belies the fact that Osaka Soda is the monopoly supplier of high-grade silica gel which is a high-margin purification material that is key to the production of GLP-1 and insulin drugs. With GLP-1 drugs expanding into obesity treatments, it is well positioned to meet the rapid growth in demand from global pharmaceuticals companies. Since mid-2022, Osaka Soda’s market cap has more than doubled and its net cash balance sheet offers scope for higher shareholder returns.
TSE Reforms Unlocking Value
In
So far, the highest disclosure rates have been concentrated in large-cap, low price-to-book companies in sectors including Banks, Shipping, Utilities and Commodities. However, the TSE led reforms are broadening out across the market. Through our engagements, we are seeing growth and mid-cap companies become more active in their shareholder returns. Given that mid/small- caps have a large presence both in absolute numbers and the proportion that trade below book value, there are grounds for optimism.
Companies that are committed to balance sheet change by optimising their capital structures, enhancing cash allocation and payout policies and eliminating idle assets and cross shareholdings, offer attractive opportunities for investors. The recently concluded fiscal 2023 reporting season delivered many governance-related announcements, including a notable jump in share buybacks. As a result of these actions and as illustrated in the chart in the Half-Yearly Report, we have seen a significant increase in total shareholder return yields for selected firms held by the Company.
engagement
In the first six months of 2024, the Engagement team in
Following the fiscal 2023 reporting season, many Japanese companies released their medium-term plans, including business strategies for fiscal 2024 and beyond. In line with the TSE’s request, companies are clearly placing greater focus on capital allocation and the effective use of assets. For example, we have seen progress in the unwinding of strategic shareholdings, the proceeds of which in the majority of cases, are being directed towards shareholder returns and growth investments.
Sompo Holdings , a non-life insurer held by the Company, announced its new medium-term plan in May. This included specific profitability targets, a commitment to reduce its cross shareholdings by at least a third within three years and to utilise the funds to increase shareholder returns. Capital allocation will remain a key theme in the Japanese equity market and we believe this will drive further improvements in corporate value and help to protect the rights of minority shareholders.
In terms of specific engagements with investee companies, we worked with Riken Keiki to develop its capital strategy and tackle its low price-to-book ratio. In response to a request from Tokyo Electron , we met with an executive director to discuss the company’s board structure, executive remuneration and the unwinding of cross shareholdings ahead of this year’s annual general meeting. In the case of Kansai Paint , we discussed management’s awareness of the cost of capital and share price levels, and the need to improve shareholder returns. It was gratifying to see the company subsequently commit to paying 100% of free cash flow (excluding mergers and acquisitions) to shareholders through progressive dividend hikes and continuous buybacks.
Constructive Outlook for
We believe that Japan’s economic shift to moderate inflation and its impact on spending and investment decisions by households and corporates, combined with steady progress in governance reforms, represent multi-year structural trends.
Japanese equities traded on a forward price-to-earnings multiple north of 50x during the bubble period in the 1990s, so the current multiple of around 15x is not expensive historically nor relative to other markets, especially considering the current low interest rates in
Although we have seen renewed buying of Japanese stocks by overseas investors since
This structural under-allocation in investor portfolios suggests there is ample room for inflows into Japanese markets. If the corporate sector, guided by more shareholder friendly policymaking, can continue to build on its success in recent years in boosting returns, then inflows could persist.
Any signs of weakness in China’s recovery and the risk of a US recession represent potential headwinds that could prompt a near-term adjustment in the Japanese market, primarily in external demand oriented stocks and sectors. However, the underlying positive drivers should support the mid to long-term outlook for the Japanese market.
PERFORMANCE OUTLOOK
The performance of the Company has remained challenging in an environment where high interest rates have favoured value stocks and worked against my natural tilt towards higher growth and mid/small cap companies. The extent of the underperformance compared to the Reference Index, over the past three years in particular, is disappointing for me and doubtless for shareholders too.
The fundamental investment approach, centred on identifying companies with good growth prospects through our proprietary bottom-up research, remains firmly in place and I continue to look for differentiated and under-researched stocks across a wide range of sectors in the Japanese market. At the same time, I am finding opportunities in typical large-cap sectors where companies are moving from value to growth, and signs of improvement in the global manufacturing cycle are supportive of technology and factory automation stocks that have struggled in recent years. I am encouraged by a broadening out of the TSE reforms and expect to see a clear improvement in capital efficiency and shareholder returns (a trend that was initially led by large-cap value companies) further down the market-cap scale. Finally, a peaking out of the interest rate cycle in the US is conducive to better performance by growth stocks, an area of the market where we are seeing a lot of undervaluation.
Portfolio Manager
Thirty
The Portfolio Exposures shown below measure exposure to market price movements as a result of owning shares and derivative instruments. The Fair Value is the realisable value of the portfolio as reported in the Balance Sheet. Where a Contract for Difference (CFD) is held, the Fair Value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying share has moved. Where the Company only holds shares, the Fair Value and the Portfolio Exposure will be the same.
Fair Value Portfolio Exposure Company Sector £’000 £’000 %1 Exposures – shares unless otherwise stated Osaka Soda Chemicals 13,972 13,972 5.9 MISUMI Group (shares and Wholesale Trade 5,551 13,173 5.5 long CFD) Ryohin Keikaku Retail Trade 65 11,264 4.7 (long CFD) Mizuho Banks 10,859 10,859 4.6 Financial Group Keyence (long Electric 100 10,641 4.5 CFD) Appliances Tokyo Electron Electric (25) 9,786 4.1 (long CFD) Appliances Riken Keiki Precision 8,853 8,853 3.7 Instruments Mitsubishi Electric Electric 3,671 8,686 3.7 (shares and Appliances long CFD) Harmonic Drive Machinery 8,232 8,232 3.5 Systems NOF (long CFD) Chemicals 206 7,212 3.0 Honda Motor Transportation 6,750 6,750 2.8 Equipment Recruit Services 6,701 6,701 2.8 Holdings Yonex Other Products 6,647 6,647 2.8 Oriental Land Services (27) 6,401 2.7 (long CFD) Mitsui High-tec Electric 6,301 6,301 2.7 Appliances Sony Electric 5,767 5,767 2.4 Appliances Sumitomo Mitsui Banks 5,619 5,619 2.4 Financial Group Asoview Unlisted 5,423 5,423 2.3 Toyota Transportation 4,793 4,793 2.0 Industries Equipment Shin-Etsu Chemicals 4,723 4,723 2.0 Chemical C. Uyemura Chemicals 4,527 4,527 1.9 Kosaido Other Products 4,485 4,485 1.9 Holdings Central Automotive Wholesale Trade 4,151 4,151 1.7 Products Sompo Holdings Insurance 4,076 4,076 1.7 Kotobuki Foods 3,971 3,971 1.7 Spirits Credit Saison Other Financing 3,940 3,940 1.7 Business Renesas Electric 3,554 3,554 1.5 Electronics Appliances Inforich Services 3,301 3,301 1.4 Maruwa Ceramic Glass & Ceramics 3,253 3,253 1.4 Products Descente Textiles & 3,175 3,175 1.3 Apparels --------------- --------------- --------------- Thirty largest 142,614 200,236 84.3 exposures Other exposures 94,341 94,341 39.7 (72 holdings) --------------- --------------- --------------- Total Portfolio (including long 236,955 294,577 124.0 CFDs) ========= ========= =========
Fair Value and Portfolio Exposure of Investments as at
Fair Value Portfolio Exposure £’000 £’000 %1 Investments 236,215 236,215 99.4 Derivative instrument assets – 814 40,707 17.2 long CFDs Derivative instrument (74) 17,655 7.4 liabilities – long CFDs --------------- --------------- --------------- Total Portfolio (including long 236,955 294,577 124.0 CFDs) ========= ========= ========= Shareholders’ Funds 237,639 ========= Gearing2 24.0% =========
1 Portfolio Exposure is expressed as a percentage of Shareholders’ Funds.
2 Gearing is the amount by which the Portfolio Exposure exceeds Shareholders’ Funds.
Interim Management Report
Principal Risks and Uncertainties
The Board, with the assistance of the Manager (
The Board considers that the principal risks and uncertainties faced by the Company continue to fall into the following categories: geopolitical risk; natural disaster risk; market, economic and currency risks; investment performance and gearing risks; discount control and demand risks; key person risk; environmental, social and governance (ESG) risks; business continuity risk; cybercrime and information security risks; and tax and regulatory risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended
The principal risks and uncertainties remain the same as those at the last year end. There continues to be geopolitical tensions and economic and market events, including continued tensions such as those between
Climate change continues to be a key principal risk confronting asset managers and their investors. Globally, climate change effects are already being experienced in the form of changing weather patterns. Climate change can potentially impact the operations of investee companies, their supply chains and their customers. Additional risks may also arise from increased regulations, costs and net-zero programmes which can all impact investment returns. The Board notes that the Manager has integrated ESG considerations, including climate change, into the Company’s investment process. The Board will continue to monitor how this may impact the Company as a risk, the main risk being the impact on investment valuations and potentially shareholder returns.
The Board and the Manager are also monitoring the emerging risks posed by the rapid advancement of artificial intelligence (AI) and technology and how it may threaten the Company’s activities and its potential impact on the portfolio and investee companies. AI can provide asset managers powerful tools, such as enhancing data analysis risk management, trading strategies, operational efficiency and client servicing, all of which can lead to better investment outcomes and more efficient operations. However, with these advances in computer power that will impact society, there are risks from its increasing use and manipulation with the potential to harm, including a heightened threat to cybersecurity.
Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long-term investment. Risks are mitigated by the investment trust structure of the Company which means that the Portfolio Manager is not required to trade to meet investor redemptions. Therefore, investments in the Company’s portfolio can be held over a longer-time horizon.
The Manager has appropriate business continuity and operational resilience plans in place to ensure the continued provision of services. This includes investment team key activities, including those of portfolio managers, analysts and trading/support functions. The Manager reviews its operational resilience strategies on an ongoing basis and continues to take all reasonable steps in meeting its regulatory obligations, assess its ability to continue operating and the steps it needs to take to serve and support its clients, including the Board.
The Company’s other third-party service providers also have similar measures in place to ensure that business disruption is kept to a minimum.
Transactions with the Manager and Related Parties
The Manager has delegated the Company’s portfolio management and company secretariat services to
Going Concern Statement
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. The Directors, having considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure, are satisfied that the Company is financially sound and has adequate resources to meet all of its liabilities and ongoing expenses and can continue in operational existence for a period of at least twelve months from the date of this Half-Yearly Report.
This conclusion also takes into account the Board’s assessment of the ongoing risks as outlined above.
Accordingly, the Financial Statements of the Company have been prepared on a going concern basis.
Continuation votes are held every three years and the next continuation vote will be put to shareholders at the Annual General Meeting in 2025.
BY ORDER OF THE BOARD
Directors’ Responsibility Statement
The Disclosure and Transparency Rules (DTR) of the
The Directors confirm to the best of their knowledge that:
· the condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard FRS 104: Interim Financial Reporting; and
· the Chairman’s Statement, the Portfolio Manager’s Review and the Interim Management Report above include a fair review of the information required by DTR 4.2.7R and 4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on
Financial Statements
Income Statement for the six months ended
Six months ended 30 June 2024 Six months ended 30 June 2023 Year ended 31 December 2023 unaudited unaudited audited Revenue Capital Total Revenue Capital Total Revenue Capital Total Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 (Losses)/gains – (14,701) (14,701) – 3,951 3,951 – 12,376 12,376 on investments Gains on derivative – 5,340 5,340 – 8,271 8,271 – 14,299 14,299 instruments Income 4 2,428 – 2,428 2,226 – 2,226 4,218 – 4,218 Investment management 5 (171) (438) (609) (173) (578) (751) (344) (1,018) (1,362) fees Other expenses (417) (13) (430) (376) – (376) (708) (4) (712) Foreign exchange – (265) (265) – (664) (664) – (642) (642) losses --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Net return/ (loss) on ordinary activities 1,840 (10,077) (8,237) 1,677 10,980 12,657 3,166 25,011 28,177 before finance costs and taxation Finance costs 6 (16) (63) (79) (13) (54) (67) (27) (106) (133) --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Net return/ (loss) on ordinary 1,824 (10,140) (8,316) 1,664 10,926 12,590 3,139 24,905 28,044 activities before taxation Taxation on return/(loss) 7 (218) – (218) (181) – (181) (347) – (347) on ordinary activities --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Net return/ (loss) on ordinary 1,606 (10,140) (8,534) 1,483 10,926 12,409 2,792 24,905 27,697 activities before taxation ========= ========= ========= ========= ========= ========= ========= ========= ========= Return/(loss) per ordinary 8 1.31p (8.25p) (6.94p) 1.14p 8.45p 9.59p 2.17p 19.33p 21.50p share ========= ========= ========= ========= ========= ========= ========= ========= =========
The Company does not have any other comprehensive income. Accordingly, the net return/(loss) on ordinary activities after taxation for the period is also the total comprehensive income for the period and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the period and all items in the above statement derive from continuing operations.
Statement of Changes in Equity for the six months ended
Share Capital Total Share premium redemption Other Capital Revenue shareholders’ capital account reserve reserve reserve reserve funds Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 Six months ended 30 June 2024 (unaudited) Total shareholders’ 34,041 20,722 2,767 40,382 165,416 (5,535) 257,793 funds at 31 December 2023 Repurchase of ordinary 10 – – – (11,620) – – (11,620) shares Net (loss)/return on ordinary activities – – – – (10,140) 1,606 (8,534) after taxation for the period --------------- --------------- --------------- --------------- --------------- --------------- --------------- Total shareholders’ 34,041 20,722 2,767 28,762 155,276 (3,929) 237,639 funds at 30 June 2024 ========= ========= ========= ========= ========= ========= ========= Six months ended 30 June 2023 (unaudited) Total shareholders’ 34,041 20,722 2,767 46,658 140,511 (8,327) 236,372 funds at 31 December 2022 Repurchase of ordinary 10 – – – (1,029) – – (1,029) shares Net return on ordinary activities – – – – 10,926 1,483 12,409 after taxation for the period --------------- --------------- --------------- --------------- --------------- --------------- --------------- Total shareholders’ 34,041 20,722 2,767 45,629 151,437 (6,844) 247,752 funds at 30 June 2023 ========= ========= ========= ========= ========= ========= ========= Year ended 31 December 2023 (audited) Total shareholders’ 34,041 20,722 2,767 46,658 140,511 (8,327) 236,372 funds at 31 December 2022 Repurchase of ordinary 10 – – – (6,276) – – (6,276) shares Net return on ordinary activities – – – – 24,905 2,792 27,697 after taxation for the year --------------- --------------- --------------- --------------- --------------- --------------- --------------- Total shareholders’ 34,041 20,722 2,767 40,382 165,416 (5,535) 257,793 funds at 31 December 2023 ========= ========= ========= ========= ========= ========= =========
Balance Sheet as at
Company Number 2885584
30.06.24 31.12.23 30.06.23 unaudited audited unaudited Notes £’000 £’000 £’000 Fixed assets Investments 9 236,215 253,843 242,990 --------------- --------------- --------------- Current assets Derivative instruments 9 814 1,216 1,382 Debtors 3,474 708 1,021 Cash collateral held with – – 256 brokers Cash at bank 500 3,073 4,136 --------------- --------------- --------------- 4,788 4,997 6,795 ========= ========= ========= Current liabilities Derivative instruments 9 (74) (53) (584) Other creditors (3,290) (994) (1,449) --------------- --------------- --------------- (3,364) (1,047) (2,033) ========= ========= ========= Net current assets 1,424 3,950 4,762 ========= ========= ========= Net assets 237,639 257,793 247,752 ========= ========= ========= Capital and reserves Share capital 10 34,041 34,041 34,041 Share premium account 20,722 20,722 20,722 Capital redemption reserve 2,767 2,767 2,767 Other reserve 28,762 40,382 45,629 Capital reserve 155,276 165,416 151,437 Revenue reserve (3,929) (5,535) (6,844) --------------- --------------- --------------- Total shareholders’ funds 237,639 257,793 247,752 ========= ========= ========= Net asset value per 11 198.79p 204.46p 191.89p ordinary share ========= ========= =========
Notes to the Financial Statements
1 Principal Activity
2 Publication of Non-statutory Accounts
The Financial Statements in this Half-Yearly Report have not been audited by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (the Act). The financial information for the year ended
3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company has prepared its Financial Statements on a going concern basis and in accordance with
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements. This conclusion also takes into account the Directors’ assessment of the risks faced by the Company as detailed in the Interim Management Report above.
4 Income
Six months Six months Year ended ended ended 30.06.24 30.06.23 31.12.23 unaudited unaudited audited £’000 £’000 £’000 Investment income Overseas dividends 2,182 1,812 3,475 Derivative income Dividends received on long CFDs 246 414 743 --------------- --------------- --------------- Total income 2,428 2,226 4,218 ========= ========= =========
No special dividends have been recognised in capital during the period (six months ended
5 Investment Management Fees
Revenue Capital Total £’000 £’000 £’000 Six months ended30 June 2024 (unaudited) Investment management fees – 171 682 853 base Investment management fees – – (244) (244) variable1 --------------- --------------- --------------- 171 438 609 ========= ========= ========= Six months ended30 June 2023 (unaudited) Investment management fees – 173 693 866 base Investment management fees – – (115) (115) variable1 --------------- --------------- --------------- 173 578 751 ========= ========= ========= Year ended31 December 2023 (audited) Investment management fees – 344 1,377 1,721 base Investment management fees – – (359) (359) variable1 --------------- --------------- --------------- 344 1,018 1,362 ========= ========= =========
1 For the calculation of the variable management fee element, the Company’s NAV return was compared to the Reference Index return on a daily basis. The period used to assess the performance is on a rolling three year basis.
FII charges base investment management fees at an annual rate of 0.70% of net assets. In addition, there is a +/- 0.20% variation fee based on performance relative to the Reference Index. Fees are payable monthly in arrears and are calculated on a daily basis.
The base investment management fees have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.
6 Finance Costs
Revenue Capital Total £’000 £’000 £’000 Six months ended30 June 2024 (unaudited) Interest paid on long CFDs 15 59 74 Interest paid on collateral and 1 4 5 deposits1 --------------- --------------- --------------- 16 63 79 ========= ========= ========= Six months ended30 June 2023 (unaudited) Interest paid on long CFDs 12 47 59 Interest paid on collateral and 1 7 8 deposits1 --------------- --------------- --------------- 13 54 67 ========= ========= ========= Year ended31 December 2023 (audited) Interest paid on long CFDs 24 94 118 Interest paid on collateral and 3 12 15 deposits1 --------------- --------------- --------------- 27 106 133 ========= ========= =========
1 Due to negative interest rates during the current and prior periods, the Company paid interest on its collateral and deposits.
Finance costs have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.
7 Taxation on Return/(Loss) on Ordinary Activities
Six months Six months Year ended ended ended 31.12.23 30.06.24 30.06.23 audited unaudited unaudited £’000 £’000 £’000 Overseas taxation 218 181 347 ========= ========= =========
8 Return/(Loss) per Ordinary Share
Six months Six months Year ended ended ended 30.06.24 30.06.23 31.12.23 unaudited unaudited audited Revenue return per ordinary 1.31p 1.14p 2.17p share Capital (loss)/return per (8.25p) 8.45p 19.33p ordinary share --------------- --------------- --------------- Total (loss)/return per ordinary (6.94p) 9.59p 21.50p share ========= ========= =========
The return/(loss) per ordinary share is based on the net return/(loss) on ordinary activities after taxation for the period divided by the weighted average number of ordinary shares held outside of
£’000 £’000 £’000 Net revenue return on ordinary 1,606 1,483 2,792 activities after taxation Net capital (loss)/return on ordinary activities after (10,140) 10,926 24,905 taxation --------------- --------------- --------------- Net total (loss)/return on ordinary activities after (8,534) 12,409 27,697 taxation ========= ========= =========
Number Number Number Weighted average number of ordinary shares 122,901,516 129,357,741 128,843,583 held outside ofTreasury during the period ========= ========= =========
9 Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.
Classification Input Level 1 Valued using quoted prices in active markets for identical assets. Valued by reference to inputs other than quoted prices included Level 2 in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly. Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data.
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The valuation techniques used by the Company are as disclosed in the Company’s Annual Report for the year ended
Level 1 Level 2 Level 3 Total 30 June 2024 £’000 £’000 £’000 £’000 (unaudited) Financial assets at fair value through profit or loss Investments 221,837 – 14,378 236,215 Derivative instrument – 814 – 814 assets --------------- --------------- --------------- --------------- 221,837 814 14,378 237,029 ========= ========= ========= ========= Financial liabilities at fair value through profit or loss Derivative instrument – (74) – (74) liabilities ========= ========= ========= =========
Level 1 Level 2 Level 3 Total 31 December 2023 £’000 £’000 £’000 £’000 (audited) Financial assets at fair value through profit or loss Investments 237,440 – 16,403 253,843 Derivative instrument – 1,216 – 1,216 assets --------------- --------------- --------------- --------------- 237,440 1,216 16,403 255,059 ========= ========= ========= ========= Financial liabilities at fair value through profit or loss Derivative instrument – (53) – (53) liabilities ========= ========= ========= =========
Level 1 Level 2 Level 3 Total 30 June 2023 £’000 £’000 £’000 £’000 (unaudited) Financial assets at fair value through profit or loss Investments 227,433 – 15,557 242,990 Derivative instrument – 1,382 – 1,382 assets --------------- --------------- --------------- --------------- 227,433 1,382 15,557 244,372 ========= ========= ========= ========= Financial liabilities at fair value through profit or loss Derivative instrument – (584) – (584) liabilities ========= ========= ========= =========
30.06.24 31.12.23 30.06.23 unaudited audited unaudited Level 3 Investments (unlisted) £’000 £’000 £’000 Asoview 5,423 5,740 5,872 GO Inc 2,586 2,487 – Studyplus 1,974 2,110 2,042 iYell 1,589 2,189 1,941 Moneytree 1,063 1,832 2,269 Spiber 1,034 1,011 1,306 Yoriso 709 1,034 2,127 --------------- --------------- --------------- 14,378 16,403 15,557 ========= ========= =========
10 SHARE CAPITAL
30 June 2024 31 December 2023 30 June 2023 unaudited audited unaudited Number of Number of Number of shares £’000 shares £’000 shares £’000 Issued, allotted and fully paid Ordinary shares of25 pence each held outside of Treasury Beginning of the 126,086,249 31,521 129,701,893 32,425 129,701,893 32,425 period Ordinary shares repurchased (6,545,426) (1,636) (3,615,644) (904) (587,834) (147) into Treasury ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- End of the 119,540,823 29,885 126,086,249 31,521 129,114,059 32,278 period ========== ========== ========== ========== ========== ========== Ordinary shares of25 pence each held in Treasury* Beginning of the 10,075,446 2,520 6,459,802 1,616 6,459,802 1,616 period Ordinary shares repurchased 6,545,426 1,636 3,615,644 904 587,834 147 into Treasury ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- End of the 16,620,872 4,156 10,075,446 2,520 7,047,636 1,763 period ========== ========== ========== ========== ========== ========== Total share 34,041 34,041 34,041 capital ========== ========== ==========
*
Ordinary shares held in
The Company repurchased 6,545,426 ordinary shares for the six months to
11 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the total shareholders’ funds divided by the number of ordinary shares held outside of
30.06.24 31.12.23 30.06.23 unaudited audited unaudited Total shareholders’ funds £237,639,000 £257,793,000 £247,752,000 Ordinary shares held outside of Treasury 119,540,823 126,086,249 129,114,059 at the period end Net asset value per ordinary share 198.79p 204.46p 191.89p ========= ========= =========
It is the Company’s policy that shares held in
12 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
During the period, fees for portfolio management services of £609,000 (six months ended
As at
The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended
The information for the year ended
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at www.fidelity.co.uk/japan where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.