Five years of

change in Japan

AVI Japan Opportunity

Trust plc (“AJOT” or “the

Company”) invests in a

focused portfolio of quality

small and mid-cap listed

companies in Japan that

have a large portion of their

market capitalisation in cash

or realisable assets.

NET ASSETS†

£183 million*

LAUNCH DATE

23 October 2018

ANNUALISED RETURN

6.8%*

ONGOING CHARGES RATIO

1.5%*

† For all Alternative Performance Measures,

please refer to the definitions in the Glossary

on pages 73 and 74.

* As at 31 December 2023.

Welcome to our 2023 Annual Report

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AN ACTIVE APPROACH TO INVESTING RESPONSIBLY

As an active investor, AVI considers all drivers

relevant to each company’s success, offering

suggestions to enhance sustainable corporate

value in consideration of all stakeholders and in

the best long-term interest of our clients.

We aim to build strong relationships with the boards and management of

our portfolio companies. Through constructive engagement, we encourage

and expect them to take meaningful action in the context of long-term

value creation.

Read more about our ESG Perspective on pages 32 and 33 of the

Annual Report

AVI Japan Opportunity Trust plc / Annual Report 2023

CONTENTS

Strategic Report

Company Performance

Company Overview

Chairman’s Statement

Our Top 10 Holdings

Investment Manager’s Report

Portfolio Construction

Japan Investment Team

Investment Portfolio

Business Model

Stakeholders

Key Performance Indicators

ESG Policy

Our Approach to ESG

Principal Risks and Uncertainties

Governance

Directors

Directors’ Report

Corporate Governance Statement

Directors’ Remuneration Report

Statement of Directors’

Responsibilities in Relation to

the Annual Report and Financial

Statements

Report from the Audit Committee

Independent Auditor’s Report

Financial Statements

Statement of Comprehensive

Income

Statement of Changes in Equity

Balance Sheet

Statement of Cash Flows

Notes to the Financial Statements

Shareholder Information

AIFMD Disclosures

Glossary

Investing in the Company

Company Information

KEY STORIES

The Company’s website www.ajot.co.uk,

includes useful information on the Company,

such as price performance, news, monthly

and quarterly reports, as well as previous

Annual and Half-Year reports.

avi-japan-opportunity-trust

u/avi-ajot

@AVIJapan

Five years of change in Japan

Read more on pages 08 and 09 of the Annual Report

Incorporating ESG in our strategy

Read more on pages 32 to 35 of the Annual Report

Read more on pages 10 and 11 of the Annual Report

Focus on small and mid-cap business

2023

2022

<£250m

17%

26%

£250m - £500m

21%

15%

£500m - £750m

21%

19%

£750m - £1bn

29%

17%

£1bn - £2.5bn

11%

23%

>£2.5bn

1% 0%

Portfolio Breakdown by Market Capitalisation

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

* For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 73 and 74.

Strategic Report / Company Performance

31 December 2023 31 December 2022

Net Asset Value* £182,943,000 £156,395,000

Net Asset Value per Share (total return) for the year 15.8% -4.3%

Share price total return for the year* 14.8% -4.5%

Comparator Benchmark

MSCI Japan Small-Cap Index (£ adjusted total return)

6.9% -1.0%

Portfolio Valuation*

Net Cash as % of Market Cap

Net Financial Value as % of Market Cap

EV/EBIT

FCF Yield

35.8%

49.6%

8.7x

4.4%

41.9%

63.0%

6.0x

6.0%

Year to 31 December 2023 Year to 31 December 2022

Earnings and Dividends

Profit/(loss) before tax

Investment income

Revenue earnings per share

Capital earnings per share

Total earnings per share

Ordinary dividends per share

£25.2m

£4.0m

1.76p

15.89p

17.65p

1.70p

-£6.6m

£3.7m

1.69p

-6.79p

-5.10p

1.55p

Ongoing Charge

Management, marketing and other expenses

(as a percentage of average Shareholders’ funds) 1.5% 1.5%

2023 Year’s Highs/Lows

Net asset value per share

High

130.3p

Low

110.1p

31 December 2023 31 December 2022

Net asset value per share

Share price

Discount (difference between share price and net asset value)

130.3p

127.0p

2.5%

114.1p

112.3p

1.6%

Performance Summary

AVI Japan Opportunity Trust plc / Annual Report 2023

* For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 73 and 74.

140

120

100

120

140

Oct 18 Apr 19 Oct 19 Apr 20 Oct 20

Apr 21 Oct 21 Apr 23 Oct 23Apr 22 Oct 22

Net Asset Value, Share Price* and Benchmark

Oct 18 Apr 19 Oct 19 Apr 20 Oct 20

Apr 21 Oct 21 Apr 23 Oct 23Apr 22 Oct 22

-5

-10

-15

-12

-9

-6

-3

Premium or Discount to Net Asset Value (%)

AVI Japan Opportunity Trust plc

Average Premium: 0.7%

AVI Japan Opportunity Trust NAV TR AVI Japan Opportunity Trust Share Price TR

MSCI Japan Small Cap Index (£ adjusted total return)

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

OUR PURPOSE

Discovering overlooked and

under-researched investment

opportunities, utilising

shareholder engagement to

unlock long-term value.

ABOUT ASSET

VALUE INVESTORS

The Company has appointed

Asset Value Investors Limited

(“AVI” or the “Investment

Manager”) as its Alternative

Investment Fund Manager.

Asset Value Investors (“AVI”) has been

investing in Japan for three decades.

AVI focuses on undervalued companies

with resilient and growing earnings, that

are overlooked by investors due to non-

fundamental factors.

By utilising nearly 40 years of capital

markets experience, having analysed and

met with hundreds of Japanese companies

across a wide variety of industries, AVI

works with management teams, making

suggestions on how to grow long-term

corporate value and address share price

undervaluation.

AVI’s engagement focuses on four main

areas of improvement: capital efficiency,

ESG, shareholder communication and

operational strategy. While AVI seeks to

work privately and collaboratively with

management teams, if progress is not

made, AVI will consider sharing its ideas

with other shareholders in a public forum.

Capital Structure

As at 31 December 2023, the Company’s

issued share capital comprised

140,836,702 Ordinary Shares of 1p each,

of which 400,000 were held in treasury and

therefore the total voting rights attached to

Ordinary Shares in issue were 140,436,702.

As at 13 March 2024 it comprised

140,836,702 Ordinary Shares, 400,000 of

which were held in treasury, and therefore

the total voting rights attached to Ordinary

Shares in issue were 140,436,702.

Finding compelling opportunities in Japan

Strategic Report / Company Overview

COMPANY OBJECTIVES AND STRATEGY

AJOT aims to provide Shareholders with total returns in excess

of the MSCI Japan Small Cap Index in GBP (“MSCI Japan

Small Cap”), through the active management of a focused

portfolio of equity investments listed or quoted in Japan,

which have been identified by Asset Value Investors Limited as

undervalued and typically have a significant proportion of their

market capitalisation held in cash, listed securities and/or other

realisable assets.

AVI seeks to unlock this value through proactive engagement with management and capitalising

on the increased focus on corporate governance, balance sheet efficiency, and returns to

shareholders in Japan.

The companies in the portfolio are selected for their high quality, whether having strong

prospects for profit growth or economically resilient earnings. By investing in companies whose

corporate value should grow overtime, AVI can be patient in its engagement to unlock value.

Benchmark

The MSCI Japan Small Cap Index.

The Association of Investment Companies (“The AIC”)

The Company is a member of The AIC.

WHAT DO WE INVEST IN?

AJOT aims to achieve long-term capital growth by engaging

with its concentrated portfolio of Japanese equities to unlock

value.

Sector Breakdown (% of Portfolio)

Materials 23%

Capital Goods 19%

Health Care Equipment and Services 16%

Software and Services 12%

Consumer Durables and Apparel 10%

Technology Hardware and Equipment 5%

Consumer Discretionary Distribution and Retail 5%

Banks 4%

Transportation 3%

Automobiles and Components 2%

Food, Beverage and Tobacco 1%

AVI Japan Opportunity Trust plc / Annual Report 2023

KEY PERFORMANCE INDICATORS (“KPIs”)

Annual General Meeting

The Company’s Annual General Meeting

(“AGM”) will be held at 11.30am on

Wednesday, 1 May 2024 at the offices of

the Association of Investment Companies

(the “AIC”), 9th Floor, 24 Chiswell Street,

London, EC1Y 4YY. Shareholders will be

able to submit questions to the Board and

AVI ahead of the AGM and answers to

these, as well as AVI’s presentation, will be

made available on the Company’s website.

Please refer to the Notice of AGM for further

information and the resolutions which will

be proposed at this meeting.

OUR CORE VALUES

Engaged

Building relationships with companies,

actively working together to improve

shareholder value.

Concentrated

Our portfolio of 15-25 stocks means we

devote ample resources to research and

engagement for every investment.

Long-term

A five-year horizon aligns our interests with

those of management.

Unique

Discovering overlooked and under

researched investment opportunities to

unlock long-term value.

Experienced

Investing in the Japanese market for over

two decades, with a dedicated team in

London and Tokyo.

RESPONSIBLE INVESTORS

What do we invest in?

We believe that the integration of ESG

and sustainability considerations into our

investment strategy is not only integral

to comprehensively understanding each

investment’s ability to create long-term

value, but is also aligned with our values as

responsible investors.

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NAV Performance (2023)

1 YEAR

15.8%

Since Inception ("SI") 40.5%

6.8%

Ongoing Charges (2023)

31 DECEMBER 2023

1.5%

2022 1.5%

Managed by AVI. Visit the website at:

www.assetvalueinvestors.com

Find more about AVI on page 4 of the

Annual Report

Japan Relative to Global

GDP

$4.2tn 4

largest

Population

125m 2%

Fortune Global 500 Companies 47 9%

1 Source: International Monetary Fund (2023).

2 World Bank Data (2022, USD).

SI Annualised

JAPAN ECONOMIC SNAPSHOT

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

The portfolio is well

positioned with a

concentrated, yet

diverse, collection of

high-quality, lowly valued

companies, with multiple

levers for re-ratings. As a

Board, we are confident

that AJOT can build

on its successful track

record of engagement

and will continue to

deliver attractive returns

for investors.

Norman Crighton

Chair

The preferred approach of private engagement

has led to notable successes, with detailed

letters or presentations sent to nine portfolio

companies over the year. Three portfolio

companies were the subject of public engagement,

including NC Holdings, where three of our

shareholder resolutions were successfully adopted.

Dividend

As provided for in the Prospectus at the IPO,

the Company intends to distribute substantially

all the net revenue arising from the portfolio.

The Company paid an interim dividend of 0.85p

per share in November 2023 and the Board

has elected to propose a final dividend of 0.85p

per share, bringing total dividends for the year

ended 31 December 2023 to 1.70p per share

(2022: 1.55p per share).

Investment Strategy

AJOT listed in October 2018 to take advantage

of the highly attractive opportunity to invest

in under-valued, over-capitalised Japanese

small-cap equities with strong underlying

business fundamentals. Active engagement

and corporate action are the key to unlocking

valuation anomalies and AJOT’s track-record has

demonstrated the potential absolute and relative

returns this approach can deliver.

Over five years since launch, your Company has

performed well in the face of multiple headwinds:

lacklustre performance of small-cap stocks

(MSCI Small Cap Japan has underperformed its

larger MSCI Japan brethren by almost 16%); a

marked depreciation of the Japanese Yen which

has detracted -33% from GBP returns, and a

turbulent global environment encompassing

a pandemic, rapidly rising interest rates and

multiple geopolitical events. The Board remains

confident that AVI is well placed to continue

executing on the strategy and that there are still

plenty of mis-priced investment opportunities.

Share Premium and Issuances

As at 31 December 2023, your Company’s

shares were trading at a discount of -2.5%

to NAV per share. The Board monitors the

premium/discount and carefully manages it

by periodically issuing or buying back shares.

During 2023, we employed the Company’s

authorised block listing facility to increase our

shares in issue by 3,375,000 while 985,000

shares were bought back during the period.

As of 31 December 2023, 140,436,702 shares

were in circulation, a pleasing increase from the

80,000,000 shares at AJOT’s launch.

The Directors believe that the performance of

the Company since IPO should be attractive

to a larger pool of investors and are constantly

exploring avenues to grow AJOT.

Overview of the Year

On behalf of the Board of Directors (“the Board”)

I am pleased to present the Annual Report

for 2023 for AVI Japan Opportunity Trust plc.

The Company was launched in 2018 to take

advantage of the rich opportunity set in Japan,

believing that the corporate governance reform

agenda first espoused in 2013 had gained

critical momentum, and that a sea change

was imminent. This was not a consensus

view, with Japan considered by most to be a

perennially cheap and largely irrelevant market

for global investors.

2023 then was a year in which (other) investors’

enthusiasm for Japanese equities grew and

scepticism waned. The strong economic

backdrop, ultra-loose monetary policy, low

relative valuations, weak yen, and unabated

progress on corporate governance reform drew

global attention. Notably, at the start of the year

the Tokyo Stock Exchange (“TSE”) announced

it would require companies to disclose capital

efficiency improvement plans, particularly by

those trading below 1x book value.

Japanese equity markets were buoyant, with

the MSCI Japan returning +28.6% over 2023

(in JPY) and the Nikkei seeing its largest one-

year rise since 1989, up +31.0%. This rally,

however, was mostly limited to larger cap names,

which outperformed their small-cap counterparts

by +7.5%.

In this context, it is pleasing to report that your

Company ended the year +15.8% in GBP terms,

outperforming its official comparator benchmark,

the MSCI Japan Small Cap Index, which

returned +6.9%. Since its inception, AJOT has

delivered returns of +40.5% versus +16.2% for

the benchmark. In JPY terms, since inception,

returns are significantly higher, at +73.7% vs

+43.6% for the benchmark.

Your manager, AVI, has continued constructively

engaging with portfolio companies to unlock

value. The Board got a first-hand look at their

efforts this year, as 2023 marked the first

time that we travelled together to Japan. The

enthusiastic response from market participants

and investee companies alike to our visit was

testament to the high regard in which AVI is

held and coupled with the unique benefits of the

investment trust structure that your Company

enjoys, we are more positive than ever on our

future prospects. AVI’s investment team builds

deep relationships with the management of

every portfolio company, holding a great number

of meetings with senior executives and board

directors. This approach has led to numerous

shareholder-friendly measures being introduced

across multiple companies without requiring

public campaigns which has delivered strong

results for our investors.

Strategic Report / Chairman’s Statement

AVI Japan Opportunity Trust plc / Annual Report 2023

Debt Structure and Gearing

As described in the Prospectus, the Board

supports the use of gearing to enhance portfolio

performance. The Company has in place a

¥2.9 billion debt facility, which was renewed on

2 February 2022 and subsequently extended to

5 April 2024 on the same terms while renewal

terms are being agreed. As at 31 December

2023, ¥2.93 billion (£16.3 million) of the facility

had been drawn and net gearing stood at 1.6%.

Board Trip to Japan

In September the Board travelled to Japan for

its first visit. Meeting with a variety of advisors,

market participants, lawyers and the Tokyo Stock

Exchange, it provided Directors with a deeper

understanding of the opportunity set and of how

the Company can be best positioned to benefit.

The Board had the opportunity to meet with six

portfolio companies, including a laboratory tour

and tasting experience at T Hasegawa’s R&D

facilities outside Tokyo. In Osaka, it was a great

privilege when Konishi, your Company’s 4th

largest position, invited the Board to their historic

headquarters built in 1903. This was the first time

a foreign company had been invited to the site

and it was pleasing to see the depth of the ties

AVI has built with the company.

The Board left encouraged with the changes

underway in Japan and the evident success of

AVI’s engagement efforts. Overall, it was a highly

fruitful visit, which confirmed that this time really

is different in Japan.

Outlook

At the end of November, news broke that

Toyota Motors – one of Japan’s last holdouts

to reform its balance sheet – will partially

unwind its cross shareholding in parts maker

Denso. In December, the TSE announced that

it will add further pressure by calling on 1,000

plus companies that have parent-subsidiary

relationships or that have listed or equity affiliates

to increase disclosure around their rationale for

having listed subsidiaries and their efforts to

ensure their independence. Just after the end

of the year in January, the TSE then released

the names of 1,115 companies that disclosed

information regarding actions to implement

policies conscious of cost of capital and share

price, shaming the 2,160 that did not.

The mounting pressure for corporate reform

will not subside in 2024. AJOT’s focus on

finding attractively valued, durable companies

and using active engagement to unlock value

holds it in good stead to benefit from the

changing tide. The portfolio is well positioned

with a concentrated, yet diverse, collection

of high-quality, lowly valued companies, with

multiple levers for re-ratings. As a Board, we are

confident that AJOT can build on its successful

track record of engagement and will continue

to deliver attractive returns for investors. The

portfolio as at the year end had 49% of its

market cap covered by net cash and investment

securities and traded at an 8.7x EV/EBIT

multiple.

In the coming weeks I shall be meeting any

institutional investors who would like to sit

down with me, and I hope to see as many

Shareholders as possible at our AGM in May.

The Board and I remain available to all our

Shareholders – institutional and retail – who

may wish to discuss an issue or ask a question.

As always, please feel free to reach out to me

directly (norman.crighton@ajot.co.uk) or contact

our broker, Singer Capital Markets, to arrange

a meeting.

Norman Crighton

Chairman

13 March 2024

AVI Japan Opportunity Trust plc / Annual Report 2023

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Five years of change in Japan

Strategic Report / Case Study

WHAT HAS HAPPENED

IN FIVE YEARS?

It has been five years since

we launched the AVI Japan

Opportunity Trust (“AJOT”).

In Japan, five years is the

blink of an eye, Japanese

companies tend to think in

decades or generations.

However, a lot has happened

in five years.

In 2012, Shinzo Abe’s economic legacy,

known as Abenomics, marked the start of

corporate reform in Japan. The first two

arrows – monetary policy and increased

government spending, were quick to

implement while early signs of the third –

economic structural reform – were starting

to emerge. At AVI, it seemed the right time

to seize the opportunity in Japan.

Governmental and regulatory

bodies pressed ahead with

reform measures, encouraging

shareholder engagement.

Increase in the quantum and

success of shareholder activism.

Changing corporate governance

environment prompted increased

interest from private equity

investors in Japan.

Severe economic shock

following COVID-19 highlighted

the advantage of investing in

resilient companies.

Improvement in management

awareness of shareholders.

Visit the website at:

www.assetvalueinvestors.com/insight/

five-years-of-change-in-japan/

AVI Japan Opportunity Trust plc / Annual Report 2023

What is your current

sentiment to the macro

environment?

We are optimistic about the macro

environment in Japan. The weak

Yen makes Japan highly cost-

competitive, benefiting both tourism and

manufacturing. Inflation has continued

to creep higher, having returned after a

30-year absence. In combination with

wage growth and increased spending,

we anticipate a more rational allocation

of capital and improved productivity.

This bodes well for the companies we

invest in. The Bank of Japan’s (“BoJ”)

expansionary monetary policy over the

past five years has weighed heavily on

the Yen. As a result, on an effective

real exchange rate basis, the Yen is

currently at its cheapest level since the

early 1970s. Even a slight adjustment

in monetary policy could potentially

strengthen the Yen. Such a shift could

serve as a driver for attractive absolute

returns.

Could you share any

closing thoughts?

A famous Japanese proverb is an

apt one: “fall seven times and stand

up eight”. We may need to write

numerous letters and presentations

to the management and boards of

companies before receiving a positive

response, but perseverance ultimately

pays off. The environment has become

more supportive for our approach, and

we remain steadfast in our belief that

our strategy is effective. The regulatory

improvements over the past five

years have led to the opportunity to

unlock vast amounts of value trapped

in Japanese companies and we see

enormous upside potential from

shareholder engagement.

Co-head of Japan Research

Over the past five years, the

Japanese environment has

become more supportive for

our approach, reinforcing our

conviction in the strategy. The

opportunity within our portfolio

to outperform is huge, and we

view these developments as a

tailwind to our performance.

How do you think the shift

in favour of shareholder

activism in Japan was

beneficial to AJOT?

The changing corporate governance

environment meant that private equity

companies were quickly opening offices

in Japan. The type of companies that

AJOT held were ripe for acquisition –

they had no debt, copious excess cash,

and demonstrated consistent free cash

flow generation. For example, AJOT’s

first takeover target was Nitto FC which

was privatised at a 38% premium. Since

launch, the strategy has benefited from

five privatisation events, at average

premiums of +46%.

What events in the political

and economic landscape

drove this shift in perspective?

The profound economic shock caused

by unforeseen events such as COVID-19

underscored the benefits of investing

in resilient companies with strong

balance sheets. Throughout that period,

the message from governmental and

regulatory bodies was clear – they would

continually escalate guidelines and

regulations to ensure the continuity of

reform efforts.

By 2021, an updated Corporate

Governance Code had been released,

with the most salient points of this

focused on the appointment of

independent directors possessing

pertinent skills, as well as the mandate for

listed subsidiary companies to oversee

conflicts of interest. This scrutiny on listed

subsidiaries was beneficial for AJOT, as

we had exposure to six listed subsidiaries

at that time.

What other notable

corporate reforms have

had a positive impact on the

shifting investment landscape

in Japan?

In 2023, the Tokyo Stock Exchange

followed through on their announcement

calling on companies to address low

valuations. This was especially aimed

at the 1,800 companies in Japan that

trade on a price-to-book ratio of less

than 1x. It was an encouraging step,

highlighting the regulators’ ongoing

commitment to utilising their powers to

promote reform. Later in the year, the

Ministry of Economy, Trade and Industry

published its “Guidelines for Corporate

Takeover”. The guidelines contained

encouraging language, prompting us to

approach a portfolio company, with the

aim of acquiring a minority stake. The

option of putting forward tender offers

is not suitable for all our holdings, but

we believe the environment has evolved

in such a way that unsolicited tenders

are now a valuable tool to add to our

engagement repertoire.

Could you elaborate on AJOT’s

engagement campaigns?

Over the past five years, while most of our

engagement campaigns remained private,

we launched nine public campaigns,

submitted shareholder proposals to eight

portfolio companies, composed over

100 letters to managements and Boards

and conducted nearly 500 meetings.

Our public campaigns enabled us to

deepen the relationships with our portfolio

companies. The intent of our campaigns

was to raise awareness of issues

weighing on the share price, prompt

management to address them and

encourage other shareholders to exert

pressure on management to rectify these

issues. The responses, for the most part,

have been receptive, and increasingly so.

DANIEL LEE

Visit the website at:

www.assetvalueinvestors.com

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

6.5%

of portfolio

7.9x

EV/EBIT

7.4%

of portfolio

9.9x

EV/EBIT

The top ten equity investments

make up 72.8% of the net assets*,

with operating businesses spread

across a range of sectors.

* For definitions, see Glossary on pages 73 and 74.

** % of net assets.

Top 10 Share of Net Assets

Nihon Kohden is a medical equipment

manufacturer. It has compounded sales over

the past 20 years at 4.9%, with sales declining

in only four of the past 38 years, and has grown

its overseas business to just over a third of

sales. We expect this growth to continue as

the business benefits from increased global

healthcare expenditure and a shift to higher

value-add digital solutions.

DTS provides IT-related services to Japanese

corporations. Its business is expanding into

Digital transformation-related (“DX”) fields such

as cloud, robotics and IoT (“Internet of Things”).

Japanese companies have underinvested in their

IT infrastructure, with antiquated processes and

complex legacy systems. With encouragement

from the Government, we believe companies will

dramatically increase their IT expenditure – much

to the benefit of DTS.

TSI Holdings owns a portfolio of diversified

apparel brands. Its unique focus on athleisure

and outdoor wear sets it apart from competitors,

but it trades at a steep discount due to a bloated

balance sheet. Net cash, investment securities

and real estate account for 92% of TSI’s market

cap, obscuring the underlying business. Were

TSI to trade in line with peers, there would be a

+100% upside to the current share price.

Eiken Chemical is a manufacturer of medical

diagnostics equipment, operating a high-

quality business with a proven track record of

growing sales. Eiken Chemical holds a dominant

market position in Colon Cancer Screening,

with an overwhelming global market share in

excess of 70%. Furthermore, Eiken Chemical

is set to experience structural growth from the

ageing population and is a vulnerable takeover

target with an open shareholder register. Our

engagement will focus on capital allocation,

operational improvement, and shareholder

communication.

Source / Getty Images

Source / Eiken Chemical Co Ltd

Source / TSI Holdings Co Ltd

Visit our investment platforms:

www.assetvalueinvestors.com/ajot/

how-to-invest/platforms/

Focus on small and mid-cap businesses

Strategic Report / Our Top 10 Holdings

9.7%

of portfolio

15.3x

EV/EBIT

1. NIHON KOHDEN

8.7%

of portfolio

4.9x

EV/EBIT

2. TSI HOLDINGS

6. DTS CORP 7. EIKEN CHEMICAL

3 4 5

72.8%**

% of AJOT net assets

Top 10 72.8%

Other holdings

28.8%

101.6%

Incl. gearing

AVI Japan Opportunity Trust plc / Annual Report 2023

5.5%

of portfolio

13.1x

EV/EBIT

5.6%

of portfolio

20.0x

EV/EBIT

Takuma builds waste treatment plants for

municipalities in Japan, and with a labour

shortage, there is increasing demand for

companies to operate these plants after

construction. Our strong conviction lies in

Takuma’s shifting business model, towards

recurring maintenance and operation contracts,

which we don’t think is reflected in Takuma’s

3.9x EV/EBIT multiple at present.

Wacom is a global leader in digital pen solutions.

It is uniquely positioned to benefit from the

growing adoption of digital pens. Its dominant

market position allows Wacom to be at the

forefront of technological innovation, developing

solutions that utilise big data, artificial intelligence,

and virtual reality. Investors underappreciate

the growth potential of Wacom’s technology,

but under the leadership of the relatively

new President and with improved investor

communication, we think this will change.

Konishi is famed for its household glue

brand BOND. It has a dominant market

share across the domestic adhesives market

and successfully expanded its business into

infrastructure repair works. We believe Konishi

has potential to grow its adhesive offering into

more industrial applications and to establish itself

overseas, which is not reflected in the lowly

5.4x EV/EBIT valuation.

Shin-Etsu Polymer manufactures an assortment

of devices, but its main product is a container

used to carry semiconductor silicon wafers.

It is a listed subsidiary of Shin-Etsu Chemical,

and our base case is that Shin-Etsu Polymer is

taken over. The companies’ business operations

are intertwined, and the management of both

companies have made indications that they are

open to addressing the parent/child listing issue.

JADE GROUP (formerly LOCONDO) operates

a fast-growing, capital light, fashion

e-commerce business. In 2022, JADE GROUP

acquired a stake in Reebok Japan which it has

flawlessly integrated into its logistics network.

There is a long growth runway for e-commerce

in Japan and JADE GROUP is well positioned to

benefit.

NC Holdings owns an eclectic mix of businesses,

including solar panel consulting, conveyor belts

and – the most attractive – car parking systems.

Each standalone business has its merits, but

they have no synergies combined. This partly

explains why the business trades on 7.0x

EV/EBIT vs our fair value of over 10.0x.

Source / Wacom Co Ltd

Source / Takuma Co Ltd

Source / JADE GROUP Co Ltd

Source / Konishi Co Ltd

Source / iStock

Source / Shin-Etsu Polymer Co Ltd

8.6%

of portfolio

6.7x

EV/EBIT

8.5%

of portfolio

5.4x

EV/EBIT

7.4%

of portfolio

7.3x

EV/EBIT

5. SHIN-ETSU POLYMER4. KONISHI3. TAKUMA CO

4.9%

of portfolio

7.0x

EV/EBIT

10. NC HOLDINGS

9. JADE GROUP8. WACOM

6 7 8 9 10

28.8%

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

It was a pleasing end to your Company’s

fifth anniversary year. In a year that strongly

favoured large-cap value stocks, where

AJOT has little exposure, the continued

outperformance of the portfolio is testament to

the strategy of generating idiosyncratic returns

from a concentrated portfolio of high-quality,

overcapitalised, undervalued companies. Driving

returns were TSI Holdings (share price +68% in

Yen), Konishi (+65%) and JADE GROUP (+96%).

TSI Holdings saw its share price rerate following

the disclosure of management initiatives

to address the low valuation, while Konishi

benefitted from +35% earnings growth over the

past 12 months, with JADE GROUP on track to

grow its operating profits by +76% this year.

The Japanese Yen weakness was driven by a

more cautious approach to moderating Yield

Curve Control (“YCC”) from Kazuo Ueda, the

newly appointed Bank of Japan (“BoJ”) governor.

With core inflation expected to stabilise around

the BoJ’s 2% goal, the BoJ are in no rush to

adjust loose monetary policy. With the real

effective exchange rate of the Yen trading at the

cheapest level since the 1970s, on balance, we

believe the chances of Yen strength outweigh

the risk of further weakness. This, however,

is not a prediction, and it doesn’t factor into

our investment allocation. If the Yen were to

strengthen it could be a helpful reversal of the

headwind we have faced over the past years.

Setting aside the weak Yen, in local currency

terms, it was a remarkable period for the

Japanese stock market, as the TOPIX gained

+28.3% (JPY). This outpaced the S&P 500’s

+25.7% gain (USD), the MSCI Europe Index’s

+15.8% gain (EUR) and the FTSE All Share’s

+7.9% gain (GBP). Investors appeared buoyed

by the Tokyo Stock Exchange (“TSE”)’s

announcement requiring companies to disclose

actions aimed at improving corporate value,

particularly those trading at a price-to-book ratio

of less than 1x. This marked the first time the

TSE had explicitly focused on a valuation metric,

which clearly resonated with investors.

Adding further pressure on corporate reform,

the Ministry of Economy Trade & Industry

(“METI”) finalised its guidelines for corporate

takeovers. The guidelines contained encouraging

wording that we believe might pave the way

for more unsolicited takeover approaches. The

Financial Services Agency (“FSA”) is currently

reviewing the tender offer rule and concert party

regulation, aiming to simplify current regulation.

In December, the TSE announced its intention

to call on the over 1,000 companies in parent-

subsidiary relationships or that have listed equity-

affiliates to enhance disclosure regarding the

rationale for having listed subsidiaries. Although

not a regulatory change, Toyota Motors, one of

Japan’s last holdouts to reform its balance sheet,

announced in November that it will partially

unwind its cross shareholding in Denso.

The direction of travel is clear, with shareholders,

regulators and the Government all pushing in the

same direction.

In August, we welcomed Shuntaro Shimizu, our

newest addition to the Japan team. Shuntaro,

joined from Bain & Company’s Tokyo office,

brings valuable financial experience gained at the

Bank of Japan and holds an MBA from Stanford

School of Business. He concentrates on applying

his consulting expertise to engage with our

portfolio companies and research new ideas.

The EV/EBIT of the portfolio increased from 6.0x

to 8.7x over the year. This was in part driven by

the strong portfolio performance but also from

a conscious effort to invest in higher quality

companies where we discern greater opportunity

for business growth. Due to the concentrated

nature of the portfolio, Nihon Kohden and

Wacom, trading on EV/EBIT multiples of 15.3x

and 20.0x, respectively, had an outsized effect

on the aggregate portfolio valuation, with the

median EV/EBIT of the portfolio being a more

modest 6.9x.

The strong markets have not diminished the

opportunity set and there continue to be pockets

of deeply mispriced companies. At the time of

writing, we are building positions in five new

names, which, on average, trade on an EV/

EBIT multiple of 4.0x, with 106% of their market

cap covered by cash, securities and rental real

estate. In each of these positions, we see an

avenue to upsides in the order of 50-100%

and the potential for us to become large

shareholders.

AVI Shareholder Engagement

Shareholder engagement in Japan continues

its rise unabated, with one broker noting that

Japan is undergoing its third activist investor

boom. The number of shareholder proposals

from engagement funds grew from just under 60

last year to a record-high 82 this year and more

shareholders expressed their disappointment

with poor management, with support for

incumbent Presidents falling.

We contributed to the 82 shareholder proposals

this year by filing shareholder proposals at SK

Kaken and NC Holdings. In the case of SK

Kaken, this is the third consecutive year in which

we have submitted proposals to the AGM.

Although we have achieved some success,

such as the company disclosing Scope 1 and

2 greenhouse gas emissions, increasing the

number of outside directors, and conducting a

5-for-1 stock split, the company has refused to

improve shareholder returns. Despite gaining

35% support, which, considering the founding

family’s nearly 50% control, represents a majority

of minorities, SK Kaken persists in maintaining a

measly 12% dividend pay-out ratio, resulting in

cash accumulating each year. So long as we are

shareholders, we will continue to apply pressure

on the family to improve the situation.

At the time of writing,

we are building positions

in five new names,

which, on average,

trade on an EV/EBIT

multiple of 4.0x, with

106% of their market

cap covered by cash,

securities and rental

real estate. In each of

these positions, we see

an avenue to upsides in

the order of 50 - 100%

and the potential for

us to become large

shareholders.

Dear AJOT Shareholders,

During the period from 1 January to 31 December

2023, your Company returned +15.8% in GBP.

This compares with a return for the benchmark,

the MSCI Japan Small Cap Index, of +6.9%. Over

the course of the period, the Yen depreciated

by -11.5% against the Pound, which has been

a headwind to Sterling-based returns. In Yen,

AJOT’s NAV has increased by +31.0% over the

period and +73.7% since launch.

Strategic Report / Investment Manager's Report

JOE BAUERNFREUND

Portfolio Manager

Manager’s Commentary

AVI Japan Opportunity Trust plc / Annual Report 2023

At NC Holdings (“NCHD”), in a notable first for

AVI and a very rare occurrence at Japanese

AGMs in general, we had three shareholder

proposals successfully passed, with a further

three receiving majority shareholder support.

Two dividend-related resolutions were approved,

including an increase in the dividend pay-out

ratio to 70%, and the establishment of a stock-

compensation plan tied to achieving a three-year

total share price return of over 50% and an

average three-year ROIC of over 10%.

While we are pleased with this success, we are

disappointed that our shareholder proposals to

appoint two highly qualified outside directors

did not pass. In addition to largely ignoring

shareholder views for the past two years, the

board opposed six resolutions that achieved

majority shareholder support, engaged in

intimidation and baseless threats related to

purported concert party issues, targeted our

investment team members by name in both their

public and private rebuttals, and even attempted,

unsuccessfully, to claim that NCHD’s business

was of national interest to evade scrutiny at

the AGM. We will continue to engage with

management and seek solutions to improve

NCHD’s corporate value over the coming year.

Towards the end of the year, after almost five

years of private engagement, we released a

public statement expressing our opposition

to Digital Garage’s board of directors and

their misguided strategy. Critiquing the ill-

fated midterm plan released in May 2023, we

announced our intention to vote against all

directors at the upcoming AGM. We believe our

statement was well received and contributed to

raising awareness among other investors about

the necessary actions Digital Garage needs to

take to address its undervaluation.

Our private engagement accounts for most

of our work, and over the period, we sent

8 presentations and 17 letters to portfolio

companies. In our private engagements, we

cover more topics than shareholder proposals

allow, with a strong emphasis on operational

improvement, including strategies for margin

enhancement and growth. Our engagement

is tailored and specific to each company, with

our in-depth understanding highly appreciated

by management. We perceive ourselves

as providing a service akin to investment

consultants.

At the heart of our shareholder engagement is

a long-term approach, and while improvements

might not be reflected straight away, we believe

that through our suggestions we are helping

management create better businesses, ultimately

leading to higher returns for all shareholders.

In all cases, a track record demonstrating

our readiness to make our concerns public

significantly enhances our credibility in

interactions with boards and management.

While we can’t discuss all the details of our

private engagement, it was a busy period, and

there are several situations which we see coming

to a head in 2024, whether that be shareholder

proposals, mid-term plans or potential

privatisation events. We believe the potential for

alpha generation through engagement has never

been higher, and we are excited by the abundant

opportunities in the year ahead.

PORTFOLIO TRADING

Buying Activity

The largest purchase over the period was

Takuma, the waste treatment plant builder and

operator, which entered the portfolio in April.

Having observed Takuma from the sidelines

for several years, we witnessed the share price

boom +150% higher in an ESG-fuelled bubble

in 2021, only to decline by -46% to the price

at which we started buying. Given its open

shareholder register (32% foreign ownership), a

structural tailwind, and a shifting business model

to more recurring maintenance work (already

50%), we believe that Takuma’s lowly 6.7x EV/

EBIT valuation multiple is entirely unjustified.

Almost half of Takuma’s balance sheet assets

are held in cash and listed securities, accounting

for just over 60% of the market cap. We plan to

start engaging with management on solutions to

address the undervaluation in advance of next

year’s mid-term plan.

The second largest purchase was Eiken

Chemical, a diagnostics company specialising

in the manufacture of medical chemicals that

react with body samples to provide a diagnosis

for cancer, disease or infection. The market is

attractive, with high regulatory barriers to entry,

a razor/razor blade style business model and

stable growth driven by increased diagnostics

healthcare expenditure. Eiken Chemical has

produced a number of niche products, with the

most exciting being its Colon Cancer screening

test, called FIT (Faecal Immunochemical Test),

which accounts for around 40% of sales.

While generating low margins from the sale of

its analyser, Eiken Chemical earns high-margin

recurring income from the subsequent sales of

bottles and solutions, providing recurring sticky

income. Eiken Chemical’s global dominance is

driven by its testing accuracy and consistency,

proprietary technology in its buffer solution, and

the recognition of the OC-Sensor in over 100

journals, enhancing brand recognition and trust

with healthcare providers.

The appeal of the diagnostics business is not

lost on investors, with a set of peers, both

domestic and global, trading on an EV/EBIT of

26x vs Eiken’s 8x. We believe the disparity, in

part, is driven by a misunderstanding of its niche

business model, the roll-off from high margin

COVID-related reagents, and a bloated balance

sheet (32% of assets in net cash). We see almost

+100% upside to the current share price, and if

the company achieves its 2030 plan, possible

with the successful launch of a DNA based stool

test, over +200% upside.

Selling Activity

The largest sale was our long-standing position

Fujitec, where we generated a +111% ROI and

a +32% IRR over our almost five-year holding

period. This tremendous success was driven

by shareholder engagement, starting from the

release of our public presentation in May 2020,

and culminating with the recent overhaul of the

board of directors and ousting of the founding

family President. When we first invested in

Fujitec, it was trading on a 4.7x EV/EBIT multiple,

a significant discount compared to its peers

trading on 16.8x. Over the life of the investment,

that radically changed, and at the time of selling,

Fujitec was trading on a 23.3x EV/EBIT multiple,

a premium to peers’ 20.4x. We took the difficult

decision to sell the position based on valuation

grounds, believing that the exciting prospects

for value creation under the new board were

reflected in the higher valuation.

We sold our position in C Uyemura, which we

had been reducing for some time, generating

an 87% ROI and 21% IRR over the life of our

investment. We sold the last of our stake in

Teikoku Electric, following a strong appreciation

in the share price. Although it was only in the

portfolio for a year, we generated a 52% ROI,

amounting to a 92% IRR.

As has been the case for a few years, our

tolerance for companies with intransigent and

entrenched management who refuse to listen to

shareholder voices has diminished. This explains

our exits from Papyless, Pasona, Tokyo Radiator

and NS Solutions, as well as the reduction of

our stakes in two other small positions. AVI’s

approach is one of cooperative rather than

confrontational engagement, in contrast to some

other activist approaches. There are too many

well-run and undervalued companies in Japan,

with management teams who want to create

value for shareholders, to waste our time with

uncooperative companies that show little interest

in shareholder concerns.

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / Investment Manager's Report continued

Contribution (GBP)

3.3%

EV/EBIT

4.9x

% of net assets

8.7%

NFV/Market Cap

82%

TSI Holdings

CONTRIBUTORS

TSI Holdings

TSI Holdings owns a

portfolio of diversified

apparel brands. Its

unique focus on

athleisure and outdoor

wear sets it apart

from competitors, but

it trades at a steep

discount due to a

bloated balance sheet.

Net cash, investment

securities and real

estate account for

92% of TSI’s market

cap, obscuring the

underlying business.

Were TSI to trade in

line with peers, there

would be a +100%

upside to the current

share price.

Source / TSI Holdings Co Ltd

Contributors & Detractors

TSI Holdings (“TSI”), one of the largest listed apparel companies in Japan,

was the leading contributor in 2023, with its 68% share price increase

adding 335bps to performance. TSI entered the portfolio in July 2022,

and has generated a return on investment of 44%.

TSI’s strong performance can be partly attributed to the TSE’s initiative

to pressure companies to address poor capital efficiency. As a follow-up

to the 2022 TSE market classification review, in March 2023, the TSE

requested listed companies to raise awareness around their corporate

value, particularly if their shares were trading at a price-to-book ratio

(“PBR”) below 1.0x. TSI holds a large amount of non-core business assets

such as cash and deposits, investment securities and rental real estate,

and remarkably, its PBR remains at c. 0.5x

We believe the business side of TSI has also attracted investor interest.

TSI, along with other Japanese apparel companies, faced challenges

stemming from the impacts of COVID-19. Nevertheless, consumer

sentiment recovered strongly in 2023, with the economy further stimulated

by inbound demand from surrounding Asian countries acting as a tailwind.

In addition to the supportive macroeconomic trends, TSI is implementing

operational changes to improve its efficiency. Specifically, TSI focused on

revitalising its historically strong but currently underperforming brands,

such as nano universe, through a rebranding initiative and reform that

involved strengthening senior frontline members. Consequently, nano

universe, whose performance had been on a downward trend over the

past few years, began to exhibit signs of recovery in 2023. Furthermore,

the company has been working towards delivering higher margins,

targeting 4.3% operating margins by 2025 compared to the current

lowly 0.9%.

In terms of engagement, we have deepened our constructive dialogue

on operational improvement and capital policy. As highlighted earlier, TSI

remains significantly undervalued, with a PBR of 0.5x, and we believe

there is still substantial upside to be unlocked through our supportive

engagement efforts.

Indexed Share Price

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AVI Japan Opportunity Trust plc / Annual Report 2023

Konishi, a company engaged in manufacturing of adhesives and civil

engineering, achieved a share price return of +65% over the period,

adding 320bps to performance. Following intense private engagement

with Konishi’s senior management, the company released a mid-term plan

in May 2023, pledging to either invest or return to shareholders all cash

generated over the next three years. The plan also outlined a three-year

EBITDA growth target of +35% (of which +19% growth is forecast to be

achieved in the first year).

This marked the first time Konishi had disclosed a capital allocation plan

and its first commitment to buying back shares. A few weeks after the

mid-term plan, Konishi announced an 8.5% share buyback which sent

the share price +10% higher, and has been increasing further since. Aside

from greater market recognition following the mid-term plan, earnings

growth has buoyed the share price. Profits grew +71% over the six-month

period to 30 September 2023 (Konishi’s interim), driven by price increases

coupled with softening raw material prices.

Despite the +65% share price growth, Konishi’s EV/EBIT multiple

increased only modestly from 4.0x to 5.4x. While Konishi have shown

discipline in their capital allocation for the next three years, they have not

addressed the current large cash pile, which, including listed securities,

accounts for 47% of Konishi’s market cap. We will continue to engage with

the company on improving capital allocation, amongst other operational

measures, and foresee a bright future for the company and its share price.

JADE GROUP (formerly LOCONDO) (“JADE”), an apparel ecommerce

company, achieved a near doubling of its share price, up +96% and

adding 179bps to performance. Full-year profits in February 2023 came in

above forecasts (¥991m vs. ¥900m), but it was the company’s +33% sales

and +76% profit growth forecast for the year ending February 2024 that

propelled the share price. By the 9-month mark at the end of December,

operating profits had grown +99.9%.

JADE had been heavily investing in logistics infrastructure, leading to

ballooning fixed costs weighing on profits and resulting in unutilised

warehouse capacity. Last year it won the right to manage the Reebok

brand in Japan through a joint venture with Itochu. Having already made

the warehouse capacity investments, the company benefited from the

power of operating leverage, with Reebok’s incremental sales flowing

straight to the bottom line. This year’s profit guidance is in line with the

mid-term plan, and management estimate that with further accretive

acquisitions, they can grow profits by another 34% next year.

Alongside these results, JADE announced a 3.6% share buyback,

which was well received. CEO Yusuke Tanaka’s insightful 14-page

shareholder letter detailed the company’s history, what management

have learned and management’s growth strategy. He made a compelling

argument as to why JADE justifies a ¥30bn-50bn market cap, much higher

than the current ¥23bn market cap. While it will require flawless execution

of the plan to achieve the higher end of that range, we do not think it is

entirely unrealistic.

Across AVI funds, we are JADE’s largest shareholder, owning just under

10% of the shares, and have maintained regular engagement with the

company. We are optimistic about the company’s growth prospects,

which we don’t think are being fully reflected in its 13x EV/EBIT multiple.

After the year end in February 2024, JADE announced the acquisition of

Magaseek, which will see Gross Merchandise Value (“GMV”) double and,

although not yet confirmed by the Company, double its profits over the

coming years. At the time of writing, JADE’s share price is up +29% after

the year end.

Contribution (GBP)

3.2%

EV/EBIT

5.4x

% of net assets

8.5%

NFV/Market Cap

47%

Konishi

CONTRIBUTORS

Contribution (GBP)

3.1%

EV/EBIT

13.1x

% of net assets

5.5%

NFV/Market Cap

17%

JADE GROUP

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AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Nihon Kohden, was the 5th largest contributor, adding 200bps to

performance with a +42% share price return. Nihon Kohden is a global

leader in medical equipment manufacturing, renowned for launching the

world’s first AC-powered EEG machine. The company is now diversified

across patient monitors, ventilators and defibrillators.

Earnings over the year were respectable, with Nihon Kohden continuing

to benefit from overseas growth and increased healthcare expenditure.

As management work towards a refreshed strategy with their May 2024

mid-term plan, there has been a distinct absence of market moving

announcements from the company. Rather, it was the disclosure from

a well-known US activist fund that it had purchased 5% of Nihon Kohden’s

shares that drove the share price higher. We have admired this fund’s

engagement with Nihon Kohden’s peer, Olympus (a large-cap Japanese

company not held in the portfolio) and referenced the success of Olympus’

transformation plan in our engagement to Nihon Kohden.

Although Nihon Kohden’s discount to peers has narrowed since we

initiated our position, currently trading on an EV/EBIT multiple of 15x

compared to peers’ 20x, we believe this doesn’t fully capture the

substantial potential we envision for the business. Under the leadership

of President Ogino, the Grandson of Nihon Kohden’s founder, we see a

pathway for the business to improve operating margins from 10% to 15%

and transition its focus from lumpy medical equipment sales to recurring

digital services. Coupled with 5% projected annual sales growth, we

estimate that over the next five years operating profits have the potential to

nearly double.

Although the transformation is still in its early stages, we are confident

it can be achieved. It is encouraging to see another activist investor

recognise the potential, and we look forward to continuing our engagement

ahead of the May 2024 mid-term plan. We still see over +100% upside to

the prevailing share price.

Shin-Etsu Polymer, a semiconductor wafer case manufacturing company,

saw its share price increase by +53%, adding 220bps to performance.

The strong return was propelled by increased scrutiny from the TSE on

the archaic practice of listed parent/subsidiary structures. Despite the

challenging business environment this year for Shin-Etsu Polymer, with

wafer manufacturers adjusting their inventory weighing on the demand for

wafer carrier cases, the business performed resiliently and has forecast

modest sales and profit growth of +2.5% and +2.0% respectively.

Trading on an EV/EBIT of just 7.6x, with net cash amounting to about 33%

of the market cap at the year end, Shin-Etsu Polymer is still undervalued,

owing to its parent/subsidiary structure with Shin-Etsu Chemical, who own

over 50% of the shares. With Shin-Etsu Chemical being both a customer

and supplier of Shin-Etsu Polymer, there are potential conflicts of interest.

The absence of a majority independent board, coupled with the presence

of former Shin-Etsu Chemical employees as directors, raises governance

concerns. While we appreciate that management have made modest

improvements, we believe these measures do not adequately address key

issues enough to rectify the company’s undervaluation.

We have put forward proposals to both Shin-Etsu Polymer and Shin-Etsu

Chemical in private, seeking to achieve a majority independent board

and to dissolve the listed structure entirely. We hope both companies

will recognise the current shortcomings and take further action to grow

corporate value and protect shareholders’ interests. Pressure from the

TSE, shareholders and wider stakeholders to address conflicts from

parent/subsidiary structures will not wane.

Strategic Report / Investment Manager's Report continued

Contribution (GBP)

2.2%

EV/EBIT

7.3x

% of net assets

7.4%

NFV/Market Cap

37%

Contribution (GBP)

2.0%

EV/EBIT

15.3x

% of net assets

9.7%

NFV/Market Cap

17%

Shin-Etsu Polymer Nihon Kohden

CONTRIBUTORS

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AVI Japan Opportunity Trust plc / Annual Report 2023

Shin-Etsu Polymer

Shin-Etsu Polymer manufactures an assortment of

devices, but its main product is a container used

to carry semiconductor silicon wafers. It is a listed

subsidiary of Shin-Etsu Chemical, and our base

case is that Shin-Etsu Polymer is taken over. The

companies’ business operations are intertwined,

and the management of both companies have made

indications that they are open to addressing the

parent/child listing issue.

Source / Shin-Etsu Polymer Co Ltd

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Digital Garage, which operates one of Japan’s largest payment settlement

businesses, was the leading detractor from performance in 2023, with

a -19% fall in its share price reducing performance by 216bps.

The weak share price can be attributed, in no small part, to the release

of a profoundly disappointing mid-term plan in May. Leading up to

the release of the mid-term plan, AVI had been engaging with Digital

Garage extensively, having sent a letter to the Board advocating for all

strategic options to be considered. This year, we submitted a 72-page

presentation as part of our ongoing engagement, addressing matters

such as shareholder communication, group strategy and the inefficient

holding structure.

Rather than listening to our concerns, as well as those publicly raised by

another shareholder, management persisted with its suboptimal strategy.

The mid-term plan fell short of addressing the holding structure and the

questionable 20% stake in listed Kakaku.com, nor did it make a convincing

case as to how, without change, the performance of the payment business

would improve. The negative share price reaction demonstrated that we

were not alone in our disappointment.

After careful consideration, in November 2023 we issued a press release

aiming to spur management into action. The release conveyed concerns

regarding Digital Garage’s corporate governance and the credibility of its

directors, whilst also announcing our intention to vote against their re-

election at the June 2024 AGM.

Unfortunately, at the end of the year, defiant to the trend of reducing

cross-shareholdings, Digital Garage issued 5.25% of its treasury shares

to Resona HD, with Resona HD committed to purchasing an additional

4.75% in the market. In return, Digital Garage intends to hold discussions

regarding the acquisition of shares in a Resona HD subsidiary and setting

up a venture fund together. We are perplexed as to what led management

to believe that issuing deeply undervalued shares in such a convoluted

manner would create value for shareholders. The lack of concrete tie-ups

with Resona HD suggests a hastily executed deal, where it appears

the primary beneficiaries are the advisors and management focused on

protecting themselves from shareholder accountability.

Digital Garage has been in the portfolio since inception, and despite initially

being a strong performer, its returns have eroded, leading us with a rather

underwhelming return on investment of +6.2% and an IRR of +2.6% over

the holding period. Over the past three years, Digital Garage’s share price

has declined by -1.8%, in contrast to the TOPIX, which has returned

+41.1%. Over longer periods the relative performance has fared no better.

With the current leadership and status quo strategy, we would not be

surprised if Digital Garage continues to erode shareholder value. Despite

our lack of faith in management’s ability to drive shareholder value, the

shares do trade at a significant undervaluation. Overtime, we anticipate

reallocating the position to more attractive opportunities.

Strategic Report / Investment Manager's Report continued

Contribution (GBP)

-2.2%

EV/EBIT

10.3x

% of net assets

4.5%

NFV/Market Cap

60%

Digital Garage

DETRACTORS

Digital Garage

Digital Garage is a holding

company with a high-

quality payments’ platform

business, a portfolio of

fintech VC investments,

and a 20% stake in listed

Kakaku.com. The confusing

structure obfuscates the

strong payment business,

with the consolidation of

profits from its investment

portfolio diminishing its

perception by investors.

Source / Getty Images

Indexed Share Price

Dec 18 Dec 19 Dec 20 Dec 21 Dec 22 Dec 23

100

120

140

160

180

200

Since position in AJOT initiated (Jun 2021)

AVI Japan Opportunity Trust plc / Annual Report 2023

NC Holdings was the second largest detractor in 2023, reducing returns

by -151 bps. NC Holdings primarily operates multi-storey parking and

conveyor belt businesses in Japan. AJOT initiated its position in NC

Holdings in June 2021, and has experienced a total return of -3.5% in

GBP or +12.7% in Japanese Yen over the period.

During the AGM season in June 2023, we submitted shareholder

proposals to NC Holdings regarding the revision of stock-based

remuneration and dividends. Notably, three proposals were successfully

passed, including a special resolution.

NC Holdings had previously encountered challenges in adequately disclosing

the company’s mid-long-term management policy for enhancing corporate

value. NC Holdings neither conducts financial results briefing meetings nor

publishes supplemental IR presentations. However, following the period

of our public campaign, NC Holdings announced in June 2023 that it is

committed to disclosing information on the management direction that

the board of directors intends to pursue in order to improve its enterprise

value, including the specific measures that they plan to implement. We

await the disclosure with great interest, eager to see how NC Holdings will

communicate concrete growth strategies, investment plans, capital efficiency

improvement policy and business portfolio strategies in the near future.

In terms of business, we understand that potential growth areas include

the expansion of the free line conveyor business, which is the business

of conveying earth and sand by conveyor for civil engineering works

in general, and the expansion of sales to local municipalities. We have

engaged in constructive dialogue with management regarding the

implementation of a shift away from dependence on non-growth domains,

such as coal-fired power plants. We believe that the company’s medium-

to long-term commitment to growing these businesses will contribute to a

better understanding by the market of the potential value of the company.

We expect to realise the upside through ongoing constructive dialogue,

addressing business management, capital policy and investor relations

disclosure.

SK Kaken, a manufacturer of construction coating paints, was the third

largest detractor, reducing performance by 70bps as its share price drifted

-10% lower over the course of the year.

We continued our public engagement initiative, ‘Painting a better

SK Kaken’, and for the third consecutive year we submitted shareholder

proposals to SK Kaken’s AGM. Our engagement has broadly focused

on capital allocation, liquidity enhancement, corporate governance and

shareholder communications. At this year’s AGM, we campaigned for

the return of the excess cash accumulated on the balance sheet to

shareholders via dividends, along with the cancellation of treasury shares.

While we achieved majority support from minority shareholders, the

resolution was not passed, primarily due to the founding family’s significant

ownership stake.

On a more positive note, despite repeatedly resisting our suggestions for

the past four years, management finally took steps in the right direction,

as they conducted a 5-for-1 stock split, reduced the director tenure and

transitioned to a company with an audit and supervisory committee,

greater board independence and improved disclosure of ESG performance

and quarterly results. Although we are pleased with the progress on these

points, further action is needed to rectify the undervaluation, with SK

Kaken currently trading on a negative EV/EBIT multiple, underscored by

net cash covering 103% of the market cap.

SK Kaken has been in the portfolio since inception, and despite our

engagement efforts has been a poor performer, yielding a return on

investment of -18.4%, with an IRR of -4.4%. With a remarkably cheap

valuation and stable business, we still see significant upside, albeit the

timing of realising this upside is in the hands of the family.

Contribution (GBP)

-1.5%

EV/EBIT

7.0x

% of net assets

4.9%

NFV/Market Cap

65%

Contribution (GBP)

-0.7%

EV/EBIT

<0.0x

% of net assets

3.2%

NFV/Market Cap

105%

NC Holdings SK Kaken

DETRACTORS

Indexed Share Price

Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23

120

160

200

Since position in AJOT initiated (Jun 2021)

Indexed Share Price

Dec 18 Dec 19 Dec 21 Dec 22Dec 20 Dec 23

100

120

Since position in AJOT initiated (Inception: Oct 2018)

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

The objective of AVI’s portfolio construction is to

create a concentrated position in about 15-25

holdings, facilitating a clear monitoring process

of the entire portfolio.

Portfolio value by sector

Average voting ownership of portfolio companies

across all AVI funds

Equity portfolio value by market capitalisation

AVI picks stocks that meet our investment criteria and once we decide

to invest, a minimum position size of approximately 2% of the portfolio

is initiated. In determining position sizes, AVI is mindful of liquidity and

the likely timing of any catalysts to unlock value. A key consideration

is the make-up of the shareholder register, a proxy for how receptive

management might be to our suggestions. The portfolio is diverse in the

industries within it, however, we are sector agnostic and select investments

based on quality and value.

2023 2022

<£250m 17% 26%

£250m - £500m 21% 15%

£500m - £750m 21% 19%

£750m - £1bn 29% 17%

£1bn - £2.5bn 11% 23%

>£2.5bn

1% 0%

Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23

2.0%

3.0%

4.0%

5.0%

6.0%

Jun 21 Dec 21 Jun 22 Dec 22 Jun 23

Dec 23

2.0%

3.0%

4.0%

5.0%

6.0%

2023 2022

Materials 23% 29%

Capital Goods 19% 19%

Health Care Equipment and Services 16% 7%

Software and Services 12% 18%

Consumer Durables and Apparel

10% 6%

Technology Hardware and Equipment 5% 6%

Consumer Discretionary Distribution and Retail 5% 0%

Banks 4% 0%

Transportation 3% 2%

Automobiles and Components 2% 4%

Food, Beverage and Tobacco 1% 0%

Strategic Report / Portfolio Construction

Dec 18 Dec 19 Dec 20 Dec 21 Dec 23Dec 22

40%

50%

60%

70%

80%

Top 10 Concentration (% of Net Assets)

AVI Japan Opportunity Trust plc / Annual Report 2023

* Native Japanese speaker.

OUTLOOK

The cascade of regulatory improvements

in 2023 is, in our view, a seminal moment

in the long and winding road to unlocking

the enormous value trapped in Japanese

companies. We see abundant opportunities

to exploit mispriced companies in a highly

inefficient market. The concentrated nature

of our portfolio and large upsides leaves

us excited about the potential to generate

significant alpha. This was evidenced by

Alps Logistics and JADE GROUP, who, at

the time of writing have seen their share

prices appreciate by +51% and +29%

respectively in 2024.

Joe Bauernfreund

Asset Value Investors Limited

13 March 2024

Strategic Report / Japan Investment Team

JOE BAUERNFREUND

CEO, Portfolio Manager

JASON BELLAMY

Senior Engagement Consultant*

YUKI NICOLAS

Japan Team Assistant*

KAZ SAKAI

Co-Head of Japan Research*

SHUNTARO SHIMIZU

Senior Investment Analyst*

ESME MORTER

ESG Analyst

LUKE HUTCHERSON

Junior Investment Analyst

DANIEL LEE

Co-Head of Japan Research

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

* Please refer to Glossary on pages 73 and 74.

1 Estimates provided by AVI. For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 73 and 74.

Company

Stock Exchange

Identifer

% of

AJOT

net assets

Cost

£’000*

Market

value

£’000

% of

investee

company

NFV/Market

capitalisation

EV/EBIT

Nihon Kohden TSE: 6849 9.7% 14,230 17,735 0.8% 17% 15.3

TSI Holdings TSE: 3608 8.7% 11,146 15,983 4.5% 82% 4.9

Takuma TSE: 6013 8.6% 13,281 15,802 1.9% 51% 6.7

Konishi TSE: 4956 8.5% 11,065 15,600 3.0% 47% 5.4

Shin Etsu Polymer TSE: 7970 7.4% 10,298 13,555 1.8% 37% 7.3

DTS TSE: 9682 7.4% 11,452 13,488 1.5% 43% 9.9

Eiken Chemical TSE: 4549 6.5% 10,755 11,896 3.1% 40% 7.9

Wacom TSE: 6727 5.6% 13,911 10,254 1.8% 14% 20.0

JADE GROUP TSE: 3558 5.5% 7,013 10,005 7.4% 17% 13.1

NC Holdings TSE: 6236 4.9% 8,613 8,998 18.4% 65% 7.0

Top ten investments 72.8% 111,764 133,316

Digital Garage TSE: 4819 4.5% 9,982 8,176 0.8% 60% 10.3

T Hasegawa TSE: 4958 4.4% 6,799 7,942 1.1% 30% 10.5

SK Kaken TSE: 4628 3.2% 9,445 5,836 0.9% 105% <0.0

Aichi TSE: 6345 3.0% 4,728 5,580 1.2% 54% 5.1

A-One Seimitsu TSE: 6156 2.8% 4,571 5,189 9.1% 70% 15.1

Alps Logistics TSE: 9055 2.6% 3,067 4,787 1.5% 31% 6.1

Soft99 TSE: 4464 1.8% 2,811 3,249 1.9% 78% 2.2

Kyoto Financial Group TSE: 5844 1.5% 2,226 2,732 0.1% 85% 2.4

Shiga Bank TSE: 8366 1.5% 2,410 2,685 0.3% 110% <0.0

Hachijuni Bank TSE: 8359 1.4% 2,198 2,567 0.1% 82% 2.2

Top twenty investments 99.5% 160,001 182,059

Yaizu Suisankagaku Industry TSE: 2812 1.1% 1,806 1,918 2.5% 70% 17.3

Daidoh TSE: 3205 1.0% 1,602 1,880 2.3% 185% <0.0

Total investments 101.6% 163,409 185,857

Portfolio median 57% 6.9x

Portfolio weighted average 50% 8.7x

Other net assets and liabilities (1.6%) (2,914)

Net assets 100.0% 182,943

Strategic Report / Investment Portfolio

As at 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

Net Financial Value

Average daily traded value

EV / EBIT

Industry Focus

High Quality Businesses

Compounding Effect

Small-Cap Focused

Discount Tightening

Undervalued and Surplus Cash

Value Growth

HOW WE INVEST

Portfolio Characteristics

Defining our Universe

c.3,900

Listed Japanese Companies

c.800

Companies in the AJOT Universe

How we Generate Returns

At the core of all AVI’s investments are attractive businesses with durable

earnings growth.

Occurs when the share price rises more than the NAV.

When these two sources of returns occur simultaneously, an attractive

compounding effect enhances investment returns.

Company Status

The Company is registered as a public limited company under

the Companies Act 2006 and is an investment company

under Section 833 of the Companies Act 2006. It is a

member of The AIC.

The Company was incorporated on 27 July 2018 and listed

on the London Stock Exchange on 23 October 2018.

The Company has been approved as an investment trust

under Sections 1158/1159 of the Corporation Tax Act 2010.

The Directors are of the opinion, under advice, that the

Company continues to conduct its affairs as an Approved

Investment Trust under the Investment Trust (Approved

Company) (Tax) Regulations 2011.

The Company qualifies as an Alternative Investment Fund in

accordance with the Alternative Investment Fund Managers

Directive (“AIFMD”).

Investment Objective

The Company’s investment objective is to provide

Shareholders with a total return 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.

Investment Policy

The Company invests in a diversified portfolio of equities listed

or quoted in Japan which are considered by the Investment

Manager to be undervalued and where cash, listed securities

and/or realisable assets make up a significant proportion

of the market capitalisation. AVI seeks to unlock this value

through proactive engagement with management and taking

advantage of the increased focus on corporate governance

and returns to shareholders in Japan. The Board has not set

any limits on sector weightings or stock selection within the

portfolio. Whereas it is not expected that a single holding

(including any derivative instrument) will represent more than

10% of the Company’s gross assets at the time of investment,

the Company has discretion to invest up to 15% of its gross

assets in a single holding, if a suitable opportunity arises.

No restrictions are placed on the market capitalisation of

investee companies, but the portfolio is weighted towards

small and mid-cap companies. The portfolio normally consists

of between 15 and 25 holdings although it may contain a

lesser or greater number of holdings at any time.

The Company may invest in exchange traded funds, listed

anywhere in the world, in order to gain exposure to equities

listed or quoted in Japan. On acquisition, no more than 15%

of the Company’s gross assets will be invested in other UK

listed investment companies.

The Company may also use derivatives for gearing and

efficient portfolio management purposes.

The Company will not be constrained by any index

benchmark in its asset allocation.

Strategic Report / Business Model

Business Model

>30% market cap

>£25k

<10x

Excl. financial sector

1 Net Financial Value (“NFV”) = investment securities + cash + treasury share value - net debt -

net pension liabilities.

Theoretical example of how returns are generated in an AJOT investment.

-80%

-60%

-40%

-20%

100

140

Discount (% RHS)

NAV

Share Price

-80%

-60%

-40%

-20%

100

140

Discount (% RHS)

NAV

Share Price

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / Business Model continued

Borrowing Policy

The Company may use borrowings for

settlement of transactions, to meet ongoing

expenses and may be geared through

borrowings and/or by entering into long-only

contracts for difference or equity swaps that

have the effect of gearing the Company’s

portfolio to seek to enhance performance.

The aggregate of borrowings and long-only

contracts for difference and equity swap

exposure will not exceed 25% of NAV at the

time of drawdown of the relevant borrowings

or entering into the relevant transaction, as

appropriate. It is expected that any borrowings

entered into will principally be denominated

in JPY.

Hedging Policy

The Company does not currently intend to enter

into any arrangements to hedge its underlying

currency exposure to investments denominated

in JPY, although the Investment Manager and the

Board may review this from time to time.

Material Changes to the Investment Policy

No material change will be made to the

Company’s investment policy without

Shareholder approval. In the event of a breach of

the Company’s investment policy, the Directors

will announce through a Regulatory Information

Service the actions which have been taken to

rectify the breach.

Management Arrangements

The Company has an independent Board

of Directors which has appointed AVI, the

Company’s Investment Manager, as Alternative

Investment Fund Manager (“AIFM”) under the

terms of an Investment Management Agreement

(“IMA”) dated 6 September 2018. The IMA is

reviewed annually by the Board and may be

terminated by one year’s notice from either party

subject to the provisions for earlier termination as

stipulated therein.

The portfolio is managed by Joe Bauernfreund,

the Chief Executive Officer and Chief Investment

Officer of AVI. He also manages AVI Global Trust

PLC, and AVI’s open-ended and segregated

portfolios across Family Holding Companies

and Japan strategies. He conducts regular

visits to Japan, engaging with prospective

and current investments, which he has done

for over 15 years.

Management fees are charged in accordance

with the terms of the management agreement,

and provided for when due. The Investment

Manager is entitled to an annual fee of 1%

per annum of the lesser of the Company’s NAV

or the Company’s market capitalisation, invoiced

monthly in arrears. The IMA requires AVI to

invest not less than 25% of the management

fee in shares in the Company. Management fees

paid during the year were £1,613,000 and the

number of shares held by AVI is set out in

note 16.

J.P. Morgan Europe Limited was appointed

as Depositary under an agreement with the

Company and AVI dated 6 September 2018

(the “Depositary Agreement”). The Depositary

Agreement is terminable on 90 calendar days’

notice from either party.

JPMorgan Chase Bank, London Branch, has

been appointed as the Company’s Custodian

under an agreement dated 6 September 2018

(the “Custodian Agreement”). The Custodian

Agreement is terminable on 90 calendar days’

notice from the Company or 180 calendar days’

notice from the Custodian.

Link Company Matters Limited was appointed

as corporate Company Secretary on 27 July

2018. The current annual fee is £76,000,

which is subject to an annual RPI increase. The

agreement may be terminated by either party on

six months’ written notice.

Link Alternative Fund Administrators Limited

has been appointed to provide general

administrative functions to the Company.

The Administrator receives an annual fee of

£113,000. The agreement can be terminated by

either the Administrator or the Company on six

months’ written notice, subject to an initial term

of one year.

DIRECTORS’ DUTIES

Overview

The Directors’ overarching duty is to act in

good faith and in a way that is the most likely

to promote the success of the Company as

set out in Section 172 of the Companies Act

2006 (“Section 172”). In doing so, Directors

must take into consideration the interests of

the various stakeholders of the Company,

the impact the Company has on the community

and the environment, take a long-term view

on consequences of the decisions they make,

as well as aim to maintain a reputation for

high standards of business conduct and f

air treatment between the members of

the Company.

Fulfilling this duty naturally supports the

Company in achieving its investment objective

and helps to ensure that all decisions are

made in a responsible and sustainable way.

In accordance with the requirements of

the Companies (Miscellaneous Reporting)

Regulations 2018, the Company explains how

the Directors have discharged their duty under

Section 172 below.

To ensure that the Directors are aware of, and

understand, their duties, they are provided with

the pertinent information when they first join the

Board, as well as receive regular and ongoing

updates and training on the relevant matters.

They also have continued access to the advice

and services of the Company Secretary, and

when deemed necessary, the Directors can

seek independent professional advice. The

schedule of matters reserved for the Board, as

well as the terms of reference of its committees,

are reviewed on at least an annual basis and

further describe Directors’ responsibilities

and obligations and include any statutory and

regulatory duties. The Audit Committee has

the responsibility for the ongoing review of the

Company’s risk management systems and

internal controls and, to the extent that they are

applicable, risks related to the matters set out in

Section 172 are included in the Company’s risk

reviews and monitoring.

Decision-making

The importance of stakeholder considerations,

in particular in the context of decision-making,

is taken into account at every Board meeting.

All discussions involve careful consideration of

the longer-term consequences of any decisions

and their implications for stakeholders. Examples

of decisions made by the Board on this basis

include the buyback of 985,000 shares in order

to control the discount, as the Board believes

that this is in the interest of Shareholders as a

whole. The Board also decided that it would be

beneficial to visit Japan in person, to meet with

the Tokyo Stock Exchange, a variety of portfolio

companies, market participants, lawyers and

advisors and to appoint a Japanese PR firm.

This visit deepened the Directors’ understanding

of the opportunity set and of how the Company

can be best positioned to benefit and thereby

increased the Directors’ ability to fulfill their

responsibilities to stakeholders. In addition, in

line with increasing stakeholder attention to

Environmental, Social and Governance (“ESG”)

matters, the Board requests regular updates

from its main service providers on these topics.

Following feedback received from proxy advisers

in their reports on the 2022 Annual Report, the

Company has included more details on Board

effectiveness, succession planning and in the

Report from the Audit Committee.

AVI Japan Opportunity Trust plc / Annual Report 2023

The Board seeks to understand the needs

and priorities of the Company’s stakeholders

and these are taken into account during all its

discussions and as part of its decision-making.

The Board has discussed which parties should

be considered as stakeholders of the Company.

Following thorough review, it was concluded that, as the Company is

an externally managed investment company and does not have any

employees or customers, its key stakeholders comprise its Shareholders

and service providers. The section on the pages following discusses why

these stakeholders are considered of importance to the Company and the

actions taken to ensure that their interests are taken into account.

Stakeholders

Stakeholder Importance Board Engagement

Shareholders

Continued Shareholder support and

engagement are critical to the existence of

the Company and the delivery of the long-

term strategy of the Company.

The Company has over 200 Shareholders, including institutional and

retail investors. The Board is committed to maintaining open channels

of communication and to engaging with Shareholders in a manner

which they find most meaningful, in order to gain an understanding of

the views of Shareholders. These include:

Annual General Meeting – The Company welcomes and

encourages attendance and participation from Shareholders

at the AGM. Shareholders have the opportunity to meet the

Directors and Investment Manager and to address questions to

them directly. Shareholders who are unable to attend the AGM

in person are offered the opportunity to submit questions via

email. The Investment Manager attends the AGM and provides

a presentation on the Company’s performance and the future

outlook, which is made available on the Company’s website

following the meeting. The Company values any feedback and

questions it may receive from Shareholders ahead of and during

the AGM and will take action or make changes, when and as

appropriate;

Publications – The Annual Report and Half-Year results are made

available on the Company’s website and the Annual Report is

circulated to Shareholders. These reports provide Shareholders

with a clear understanding of the Company’s portfolio and

financial position. This information is supplemented by the daily

calculation and publication of the NAV per share and a monthly

factsheet and quarterly reports which are available on the

Company’s website and the publication of which is announced

via a Regulatory Information Service. Feedback and/or questions

the Company receives from the Shareholders help the Company

evolve its reporting, aiming to render the reports and updates

transparent and understandable;

Shareholder meetings – Unlike trading companies, Shareholder

meetings often take the form of meeting with the Investment

Manager rather than members of the Board. Shareholders

are able to meet with the Investment Manager throughout the

year and the Investment Manager provides information on the

Company and videos on the Company’s website and via various

social medial channels. Feedback from all meetings between the

Investment Manager and Shareholders is shared with the Board.

The Chairman, the Chairman of the Audit Committee or other

members of the Board are available to meet with Shareholders

to understand their views on governance and the Company’s

performance where they wish to do so. With assistance from

the Investment Manager, the Chairman seeks meetings with

Shareholders who might wish to meet with him and Shareholders

can contact him through our broker, Singer Capital Markets;

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / Business Model continued

Stakeholder Importance Board Engagement

Shareholders

continued

Shareholder concerns – in the event Shareholders wish to raise

issues or concerns with the Directors, they are welcome to do

so at any time by writing to the Chairman at the registered office.

Other members of the Board are also available to Shareholders

if they have concerns that have not been addressed through the

normal channels;

Exit opportunities – the Directors may, at their discretion,

offer Shareholders the opportunity to exit the Company at

close to NAV every two years. The Board and the Corporate

Broker carried out a consultation regarding the potential

exit opportunity in 2022 during the summer of 2022, with

Shareholders representing a significant majority of the shares

in issue. The Company established that Shareholders who

expressed an opinion were supportive of the Company forgoing

the administrative burden and expense of an exit opportunity

in October 2022. A similar consultation will take place in the

months leading up to future potential exit opportunities, with the

next consultation taking place in 2024; and

Investor Relations updates – at every Board meeting, the

Directors receive updates from the Company’s broker on

the share trading activity, share price performance and any

Shareholders’ feedback, as well as an update from the

Investment Manager on any publications or comments by

the press. To gain a deeper understanding of the views of its

Shareholders and potential investors, the Investment Manager

also undertakes regular Investor Roadshows. Any pertinent

feedback is taken into account when Directors discuss the

share capital, any possible fundraisings or the dividend policy

and actioned as and when appropriate. The willingness of the

Shareholders, including the partners and staff of the Investment

Manager, to maintain their holdings over the long-term period

is another way for the Board to gauge how the Company is

meeting its objectives and suggests a presence of a healthy

corporate culture.

AVI Japan Opportunity Trust plc / Annual Report 2023

Stakeholder Importance Board Engagement

Service Providers

The Investment

Manager

Holding the Company’s shares offers

investors an investment vehicle through

which they can obtain exposure to AJOT’s

diversified portfolio of small to mid-cap

Japanese equities. The Investment

Manager’s performance is critical for

the Company to successfully deliver its

investment strategy and meet its objective

to provide Shareholders with a total return

in excess of the MSCI Japan Small Cap

Index through active management of the

portfolio and engagement with portfolio

companies.

Maintaining a close and constructive working relationship with the

Investment Manager is crucial, as the Board and the Investment

Manager both aim to continue to achieve consistent, long-term

returns in line with the investment objective. Important components in

the collaboration with the Investment Manager, representative of the

Company’s culture, are:

• encouraging open discussion with the Investment Manager,

allowing time and space for original and innovative thinking;

• the Chairman has frequent conversations with the Investment

Manager to talk through any matters discussed by the Board

between scheduled meetings, as well as any matters raised by the

Investment Manager;

• the IMA requires AVI to invest not less than 25% of the

management fee in shares in the Company and to hold these

for a minimum of two years which ensures that the interests of

Shareholders and the Investment Manager are well aligned;

• recognising the alignment of interests mentioned above, adopting

a tone of constructive challenge, balanced with robust negotiation

of the Investment Manager’s terms of engagement if those interests

should not be fully congruent;

• drawing on Board Members’ individual experience and knowledge

to support the Investment Manager in its monitoring of and

engagement with portfolio companies; and

• willingness to make the Board Members’ experience available

to support the Investment Manager in the sound long-term

development of its business and resources, recognising that the

long-term health of the Investment Manager is in the interests of

Shareholders in the Company.

The Administrator,

the Company

Secretary, the

Registrar, the

Depositary, the

Custodian and the

Corporate Broker

In order to function as an investment trust

with a premium listing on the London

Stock Exchange, the Company relies on a

diverse range of reputable advisors

for support in meeting all relevant

obligations.

The Board maintains regular contact with its key external providers

and receives regular reporting from them, both through the Board

and committee meetings, as well as outside of the regular meeting

cycle. Their advice, as well as their needs and views are routinely

taken into account. The Board formally assesses their performance,

fees and continuing appointment at least annually, to ensure that the

key service providers continue to function at an acceptable level and

are appropriately remunerated to deliver the expected level of service.

During the year under review, the Board decided to appoint Equiniti

Limited as its Registar, replacing Link Group plc, to achieve a cost

saving. Each year, all key service providers are asked to complete a

questionnaire regarding the matters discussed above, the results of

which are discussed during a formal review of service providers at the

March Board meeting. The Audit Committee reviews and evaluates the

control environment in place at each service provider and also requests

confirmation that key service providers have the relevant policies in

place, including those on business continuity, cyber security and fraud

prevention.

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / Business Model continued

Stakeholder Importance Board Engagement

Other Stakeholders

Lender

Availability of funding and liquidity are

crucial to the Company’s ability to take

advantage of investment opportunities as

they arise.

Therefore, the Company aims to demonstrate to lenders that it is a

well-managed business, capable of consistently delivering long-term

returns.

Proxy Advisors

Where relevant, the evolving practice and

support (or lack thereof) of proxy adviser

agencies are considered by the Directors,

as the Company aims to build a good

reputation and maintain high standards

of corporate governance, which contribute

to the long-term sustainable success of

the Company.

When deemed relevant, the Company will engage with proxy advisers

regarding resolutions that will be proposed to the Company’s

Shareholders at AGMs and, based on feedback received, incorporate

changes to future Annual Reports to enhance disclosures.

This year, the Company has further expanded its disclosures on

Board effectiveness, succession planning and the Report from the

Audit Committee based on feedback received from proxy advisors in

their reports on the 2022 Annual Report.

Regulators

The Company can only operate with the

approval of its regulators who have a

legitimate interest in how the Company

operates in the market and treats its

Shareholders.

The Company follows voluntary and best-practice guidance, regularly

considers how it meets various regulatory and statutory obligations

and how any governance decisions it makes can have an impact on

its stakeholders, both in the shorter and in the longer-term.

The above mechanisms for engaging with stakeholders are kept under review by the Directors and are discussed on a regular basis at Board meetings,

to ensure that they remain effective.

AVI Japan Opportunity Trust plc / Annual Report 2023

CULTURE

The Directors agree that establishing and

maintaining a healthy corporate culture within

the Board and in its interaction with the

Investment Manager, Shareholders and other

stakeholders, will support the delivery of its

purpose, values and strategy. The Board seeks

to promote a culture of openness, debate

and integrity through ongoing dialogue and

engagement with its service providers,

principally the Investment Manager.

The Board strives to ensure that its culture is

in line with the Company’s purpose, values

and strategy. The Company has a number

of policies and procedures in place to assist

with maintaining good corporate governance,

including those relating to diversity, Directors’

conflicts of interest and Directors’ dealings in

the Company’s shares. The Board assesses and

monitors compliance with these policies, as well

as the general culture of the Board, regularly

through Board meetings and in particular

during the annual evaluation process (for more

information see the performance evaluation

section on page 44).

The Board seeks to appoint the best possible

service providers and evaluates their service on

a regular basis as described on page 27. The

Board considers the culture of the Investment

Manager and other service providers, including

their policies, practices and behaviour, through

regular reporting from these stakeholders and

in particular during the annual review of the

performance and continuing appointment of all

service providers.

ENVIRONMENTAL, SOCIAL

AND GOVERNANCE MATTERS

As an investment trust without employees, the

Company’s own direct environmental impact is

minimal and as such, the Company is also not

required to report against the TCFD framework.

The Company has minimal direct greenhouse

gas emissions to report from its operations

(2022: minimal), nor does it have responsibility

for any other emissions producing sources

under the Companies Act 2006 (Strategic

Report and Directors’ Reports) Regulations 2013

or the Companies (Directors’ Report) and Li

mited Liability Partnerships (Energy and Carbon

Report) Regulations 2018. Where a large

company does not consume more than 40,000

kWh of energy in a reporting period, it qualifies

as a low energy user and is exempt from

reporting under these regulations. This

exemption applies to the Company.

As institutional investors,

we have a duty to act in

the best long-term interests

of our beneficiaries. In this

fiduciary role, we believe that

ESG issues can affect the

performance of investment

portfolios (to varying degrees

across companies, sectors,

regions, asset classes and

through time).

We also recognise that applying these

Principles may better align investors with

broader objectives of society. Therefore,

where consistent with our fiduciary

responsibilities, Asset Value Investors

Limited commit to the following:

• to incorporate ESG issues into

investment analysis and decision-making

processes;

• to be an active owner and to incorporate

ESG issues into our ownership policies

and practices;

• to seek appropriate disclosure on ESG

issues by the entities in which we invest;

• to promote acceptance and

implementation of the Principles within

the investment industry;

• to work with the PRI Secretariat and other

signatories, to enhance their effectiveness

in implementing the Principles; and

• to report on our activities and progress

towards implementing

the Principles.

As the Directors traveled to Japan during the

year under review, they considered several

schemes available to offset the carbon footprint

of their visit. Following an in-depth review of the

schemes, the Board concluded that none of the

schemes was currently able to offer a solution

which could be considered the best use of

Shareholder's funds. Accordingly, the Directors

undertook to each review individually the best

way to offset the carbon footprint of this visit.

The Company’s operations are delegated to

third-party service providers, and the Company

has no employees. The Board seeks assurances,

at least annually, from its suppliers that they

comply with the provisions of the UK Modern

Slavery Act 2015 and maintain adequate

safeguards in keeping with the provisions of

the Bribery Act 2010 and Criminal Finances

Act 2017.

The Directors do not have service contracts.

There are four Directors, two male and two

female. Further information on the Board’s policy

on diversity and recruitment of new Directors is

contained on page 42.

Both the Board and AVI recognise that social,

human rights, community, governance and

environmental issues have an effect on its

investee companies. The Board supports AVI

in its belief that good corporate governance will

help to deliver sustainable long-term Shareholder

value. AVI is an investment management firm

that invests on behalf of its clients and its primary

duty is to produce returns for its clients. AVI

seeks to exercise the rights and responsibilities

attached to owning equity securities in line with

its investment strategy. A key component of AVI’s

investment strategy is to understand and engage

with the management of public companies. AVI’s

Stewardship Policy recognises that Shareholder

value can be enhanced and sustained through

the good stewardship of executives and boards.

It therefore follows that in pursuing Shareholder

value AVI will implement its investment strategy

through proxy voting and active engagement

with management and boards. Further details

on AVI’s environmental, social and governance

policy can be found on pages 32 and 33.

AVI became supporters of the Task Force on

Climate-related Financial Disclosures (“TCFD”) in

May 2021 and a signatory to the UN-supported

Principles for Responsible Investment (“PRI”)

on 9 April 2021. The PRI is the world’s leading

proponent of responsible investment which

entails the following commitments, developed by

an international group of institutional investors.

AVI became a signatory to the UN-supported

Principles for Responsible Investment (PRI)

on 9 April 2021.

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / Business Model continued

The Company’s Board meets regularly and at each meeting reviews

performance against a number of key measures. In selecting these

measures, the Directors considered the key objectives and expectations

of typical investors in an investment trust such as the Company. These

indicators are alternative performance measures (“APM”s).

NAV Total Return Performance

1 YEAR*

15.8%

Since Inception ("SI") 40.5%

6.8%

The Directors regard the Company’s NAV total return as being the overall

measure of value delivered to Shareholders by the Investment Manager

over the long term. Total return reflects both the NAV growth of the

Company and also dividends paid to Shareholders. Since the launch on

23 October 2018, the Company’s NAV has increased by 40.5%, resulting in

an annualised return of 6.8%. The Investment Manager’s investment style is

such that performance is likely to deviate materially from that of any broadly

based equity index. The Board considers the most useful comparator to be

the MSCI Japan Small Cap Index. Since the launch on 23 October 2018,

the benchmark has increased by 16.2%, resulting in an annualised return

of 3.0%. For the year ended 31 December 2023, the Company’s NAV

increased by 15.8%. The MSCI Japan Small Cap Index increased by 6.9%.

A full description of performance and the investment portfolio is contained in

the Investment Manager’s Report, commencing on page 12.

Discount/Premium

DISCOUNT, 31 DECEMBER 2023

-2.5%

The Board believes that an important driver of an investment trust’s

discount or premium over the long term is investment performance.

However, there can be volatility in the discount or premium. Therefore, the

Board seeks Shareholder approval each year to buy back and issue shares

with a view to limiting the volatility of the share price discount or premium.

During the period under review, 3,375,000 new shares were issued under

the authorisation granted at the AGM, using the Company’s Block Listing

Facility (as well as 985,000 previously bought back shares issued from

treasury). During the year, 985,000 shares were bought back into treasury

under the authorisation granted at the AGM.

As at 13 March 2024, the Company had 140,836,702 shares in issue.

The Company has a successful discount control policy whereby if, under

normal market conditions, the four-month average share price discount

to NAV is greater than -5%, the Company will buy back shares with the

intention of reducing the discount to a level no greater than -5%. Since

IPO, the Company has bought back shares on seven occasions under

this policy.

The Board is aware of other investment trusts in The AIC Japanese Smaller

Companies Sector. Each investment trust has its own focus and strategy

which will differ from the one implemented by AVI. The Company’s activist

approach is concurrent with the focus on corporate governance reform

taking place in Japan.

Ongoing Charges

31 DECEMBER 2023

1.5%

The Board continues to be conscious of expenses and aims to maintain a

sensible balance between good service and costs. In reviewing charges,

the Board reviews in detail each year the costs incurred and ongoing

commercial arrangements with each of the Company’s key suppliers. The

majority of the ongoing charges ratio is the cost of the fees paid to the

Investment Manager. This fee is reviewed annually and the Board believes

that the cost is reasonable, given the Investment Manager’s activist

approach to fund management and the resources required to provide the

level of service. The Company adheres to The AIC guidance in calculating

its ongoing charges ratio.

Going Concern

The Directors have made an assessment of the Company’s ability to

continue as a going concern based on detailed profit and loss and cash

flow forecasts, covering the period up to and including 31 December 2025.

These forecasts have been ‘stressed’ for inflation, as well as a severe and

sudden downturn in market conditions under which it is assumed that the

investment portfolio will lose 45% of its value. Even under this extreme

‘stress’ scenario, the Company has adequate resources to continue in

operational existence for the foreseeable future (being a period of at least

12 months from the date these financial statements were approved). The

Directors also regularly assess the resilience of key third-party service

providers, most notably the Investment Manager and Fund Administrator.

The Directors do not have any concerns about the financial viability of the

Company’s third-party service providers.

* Returns are for the year to 31 December 2023.

1 For all Alternative Performance Measures, please refer to the definitions in the

Glossary on pages 73 and 74.

SI Annualised

3.5%Premium, High for the period

Discount, Low for the period -7.4%

31 December 2022 1.5%

Peer Group NAV Performance Total Return AIC Japanese

Smaller Companies Sector*

AVI JAPAN OPPORTUNITY TRUST

15.8%

4.6% JP Morgan Japan Smaller Companies

-9.8% Baillie Gifford Shin Nippon

Nippon Active Value 23.1%

6.0% Average AIC peer group

Key Performance Indicators

AVI Japan Opportunity Trust plc / Annual Report 2023

Going Concern continued

Furthermore, the Directors are not aware of any material uncertainties

that may cast significant doubt upon the Company’s ability to continue

as a going concern, having taken into account 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) and the potential exit opportunity in October

2024 as discussed in the viability statement below. Therefore, the financial

statements have been prepared on a going concern basis.

Viability

The Directors consider viability as part of their continuing programme of

monitoring risk. The Directors believe five years to be a reasonable time

horizon to consider the continuing viability of the Company, reflecting

a balance between a longer-term investment horizon and the inherent

shorter-term uncertainties within equity. The Company is an investment

trust whose portfolio is invested in readily realisable listed securities and

with some short-term cash deposits.

The five-year time horizon takes into account that the Directors may offer

Shareholders a potential opportunity to exit the Company at close to NAV

in October 2024 and every two years thereafter. The Board, together with

its advisers, will canvass opinion from Shareholders in the months leading

up to October 2024 when making the decision in respect of any potential

Exit Opportunity. Such a consultation previously took place during the

year to 31 December 2022. Following consultation with Shareholders

representing a significant majority of the shares in issue during the summer

of 2022, the Company established that Shareholders who expressed

an opinion were supportive of the Company forgoing the administrative

burden and expense of an exit opportunity in October 2022. The Directors

have reviewed the Shareholders of the Company, Shareholder feedback,

the current market position and performance. Considering this, no

significant uptake by Shareholders of any potential exit opportunity in 2024

is expected. The investment strategy remains robust.

The following facts support the Directors’ view of the viability of the

Company:

• in the year under review, expenses (including finance costs and

taxation) were adequately covered by investment income and there is

no expectation that these expenses would significantly increase over

the next five years. In addition, cash flow forecasts have been prepared

and stress tested to simulate: a) inflation at 20% and b) a 45% fall in

the value of the investment portfolio. These forecasts illustrate that the

Company would continue to hold sufficient cash even under the most

severe stress scenarios;

• the Company’s investment portfolio is made up of listed equities;

• the Company has short-term debt of ¥2.9 billion (£16.3 million) via an

unsecured revolving credit facility (extended for two years to February

2024 during February 2022 and subsequently extended to 5 April 2024

on the same terms). The facility is to be extended for a further two years.

In the unlikely event that the facility could not be extended, the Board

has reviewed detailed liquidity analysis and is comfortable that the debt

could be repaid from available cash and liquid investments, should this

be necessary. This debt was covered over 12 times as at the end of

December 2023 by the Company’s total assets. The Directors are of the

view that, subject to unforeseen circumstances, the Company will have

sufficient resources to meet the costs of annual interest and eventual

repayment of principal on this debt; and

• the Company has a large margin of safety over the covenants on its debt.

The Company’s viability depends on the Japanese and the global economy

and markets continuing to function. The Directors also consider the

possibility of a wide-ranging collapse in corporate earnings and/or the

market value of listed securities. To the latter point, it should be borne

in mind that a significant proportion of the Company’s expenses are

investment management fees, which would reduce if the market value of

the Company’s assets were to fall. In arriving at its conclusion, the Board

has taken account of the potential effects of another global event (e.g.

similar to the COVID-19 pandemic or the invasion of Ukraine) on the value

of the Company’s assets, income from those assets and the ability of the

Company’s key suppliers to maintain effective and efficient operations.

In order to maintain viability, the Company has a robust risk control

framework which follows the FRC guidelines and has the objectives of

reducing the likelihood and impact of: poor judgement in decision-making,

risk-taking that exceeds the levels agreed by the Board, human error or

control processes being deliberately circumvented.

Taking the above into account, and the potential impact of the principal

risks as set out on pages 36 and 37, the Directors have a reasonable

expectation that the Company will be able to continue in operation and

meet its liabilities as they fall due for a period of five years from the date

of approval of this Annual Report.

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / ESG Policy

It is our view that a responsible approach to the environment,

society and governance is key to long-term sustainable

businesses. This guiding principle is embedded not only in

our investment philosophy but in how we manage Asset Value

Investors as a company.

OUR PURPOSE

Helping our clients to make the

most of their financial future.

The people at Asset Value Investors (“AVI”)

are committed to leveraging our long heritage,

stewardship, and expertise to make investing

responsible, accessible, and profitable for

everyone – individuals, families, institutions,

private companies, and listed companies.

Financial returns matter but we are in a unique

position to influence positive change by

questioning the practices of the companies

we invest in for a more sustainable future.

OUR PHILOSOPHY

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 integral to comprehensively

understanding each investment’s ability to create

long-term value, but aligned with our values as

responsible investors.

Our primary goal is to reduce emissions,

however we are also researching appropriate

methods to offset unavoidable emissions.

AVI'S 2023 EMISSIONS FROM

COMMUTING AND BUSINESS

TRAVEL

86 tonnes CO

* Calculated in accordance with GHG Protocol

Standards (distance-based method).

We believe that shareholders and stakeholders

need not be in conflict.

EMPLOYEES WITH EQUITY

OWNERSHIP IN AVI

39%

People are the most important asset at

AVI. We recognise that our industry has

traditionally been skewed towards a less

diverse workforce. We are actively

challenging this.

DIVERSITY OF WORKFORCE*

2023

Number

2023

Male

Female

ABOUT ASSET VALUE INVESTORS

ESG Perspective

* Data as at 31 December 2023.

‘

’

‘

’

‘

’

AVI Japan Opportunity Trust plc / Annual Report 2023

OUR PRINCIPLES

We are aligned with the PRI’s

belief that an economically

efficient, sustainable global

financial system is a necessity

for long-term value creation.

Such a system will reward long-term responsible

investment and better align investors with the

broader objectives of society. AVI became a

signatory to the UN-supported Principles for

Responsible Investment (“PRI”) on 9 April 2021.

In doing so, we have confirmed our belief in our

duty to act in the best long-term interests of our

beneficiaries.

DEFINING ‘E’, ‘S’ & ‘G’

Drawing on the World Economic Forum’s ‘21 core metrics’, AVI

has identified the factors that we believe are the most material

and relevant to our investments and developed a bespoke ESG

monitoring system to track the performance and progress of our

portfolio companies against defined ESG metrics.

Investment Period

ESG monitoring system built into our

proprietary database to ensure ESG factors

are considered alongside financial analysis.

Ongoing ESG assessments of portfolio

companies’ performance against defined

ESG metrics. A scoring system is used to

assess trends and highlight potential areas

for engagement.

Tailored questionnaires sent to all

companies based on our assessments to

request additional ESG information and

promote improved sustainability disclosure.

Ongoing controversy monitoring

following a clear engagement pathway if

companies are flagged.

Constructive engagement with boards

and management to help sustainably

increase corporate value by building

resilience to ESG risks and promoting

responsible business practices.

Pre-Investment

Exclusionary screening is not our guiding

framework, however there are certain

exceptions to this.

AVI will not invest in a company with direct

involvement* in:

• Tobacco

• Controversial Weapons

• Pornography

Or companies that engage in child labour

or human exploitation as defined by the

relevant ILO conventions.

Assess company’s exposure to ESG risks

and opportunities, including climate-

related risks and opportunities.

Identify whether the company is involved

in any actual or potential violations

of international norms and standards

supported by ISS

Norms-based

Research.

* whereby more than 5% of that company’s NAV is derived

from these activities.

Institutional Shareholders Services group of companies.

AVI became a signatory to the UN-supported

Principles for Responsible Investment (“PRI”)

on 9 April 2021.

OUR APPROACH

As research-driven value

investors, we seek to truly

understand each company in

our portfolio and the context

within which it operates on a

case-by-case basis.

AVI has built ESG factors into its proprietary

database and implemented a number of

processes to support the integration of ESG

considerations into each stage of the

investment process.

We define Environmental

sustainability within the

context of:

• Environmental Impact

• Tackling Climate Change

• Sustainable Management

We believe that there is a

collective duty to take urgent

and meaningful action in

tackling climate change, and

corporate transparency and

accountability is integral to this.

Our metrics enable us to track

a company’s environmental

impact and assess the extent

to which strategies to reduce

negative impacts and manage

climate-related risks and

opportunities are integrated into

business strategy.

These metrics are key to

highlighting unsustainable

business strategy and

assessing vulnerability in the

context of limited resources,

increasingly stringent

environmental regulations,

and a responsibility to embed

environmentally sustainable

business practices.

Our Social focus is divided

into:

• Dignity and Equality

• Wellbeing and Development

• Community Engagement

We believe that long-term value

is most effectively created

by serving the interests of all

stakeholders.

Promoting dignity and equality

and investing in the wellbeing

and development of employees

not only positively impacts

society but the sustainability of

a company.

Our metrics assess the

measures that our investee

companies have in place to

foster a work environment

that is inclusive, safe and

rewarding. Moreover, we track

the company’s approach to

community engagement and

the steps taken to ensure

responsible conduct throughout

their supply chain.

Our approach to

Governance includes:

• Quality of Governing Body

• Corporate Strategy

• Ethical Behaviour

We believe that the dynamism

and knowledge necessary for

strong governance is supported

by the presence of diverse

perspectives and skills.

Our metrics in this section

examine the composition,

representation and

independence of the governing

body, its integration of

sustainability, and the policies

and procedures in place to

ensure corporate integrity,

as well as the mechanisms

available to ensure misconduct

can be reported and remedied.

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Strategic Report / Our Approach to ESG

Incorporating ESG in our strategy

OUR STEWARDSHIP

Good stewardship should be

viewed as a continuous practice

and is essential to preserving

and enhancing long-term value.

Active engagement is at the core of our

investment strategy and our ESG monitoring

system plays an important role in helping us to

identify potential areas of engagement. As long-

term investors, our aim is to build constructive

relationships with the boards and management

of the companies in which we invest, addressing

issues and offering suggestions to sustainably

improve corporate value in consideration of all

stakeholders and in the best long-term interest

of our clients.

Controversy Monitoring

Supported by ISS Norms Based Research,

we also closely monitor any controversies

and potential violations of international norms

and standards associated with our universe.

Whilst our hope is that controversies do not

occur, they can be a marker of how well a

company’s policies are integrated into business

operations and culture, highlighting vulnerabilities

or structural problems and indicating where

improvements can be made.

PROXY VOTING

As responsible, active stewards

of capital, we vote carefully and

thoughtfully at every AGM.

AJOT 2023 Proxy Voting Record

100%

TOTAL VOTED

100%

WITH MANAGEMENT

55%

AGAINST MANAGEMENT

45%

AGAINST ISS*

26%

WITH ISS*

74%

We believe that a responsible

approach to the environment,

society and governance is key

to the long-term sustainability

of our companies.

We are committed to actively engaging

with our portfolio companies to help build

resilience to long-term financially relevant

ESG risks, and to promote sustainable

attitudes.

During 2023:

• We conducted ESG assessments on

100% of portfolio companies, helping us

to identify and address ESG-related issues

with our portfolio companies.

• We sent tailored questionnaires to our

portfolio companies helping us to better

understand their progress and approach

to ESG issues. This has proven to be a

useful starting point in engaging with our

companies on sustainability themes.

BESPOKE ENGAGEMENT

Our engagement is highly

bespoke and takes a holistic

approach, covering a wide range

of topics including ESG themes.

We identify ESG engagement topics on a case-

by-case basis and avoid generic guidance,

instead carefully analysing issues within the

company’s particular context and offering

detailed analysis and specific suggestions.

During 2023, we engaged a total of 124 times

with 23 portfolio companies. Each engagement

may address multiple topics at once.

We engaged on environmental themes with 5

companies a total of 17 times.

We engaged on social themes with 7

companies a total of 23 times.

We engaged on governance themes with 20

companies a total of 78 times.

No two engagements are the same; we do not

believe that a ‘one-size-fits-all approach is the

optimal way to achieve results. We do not have

a prescriptive escalation process, however there

is a natural evolution to our engagement. The

majority of our engagement takes place behind

the scenes. However, if necessary, we will take

our concerns public to raise awareness and

compel change.

In 2022 we submitted shareholder resolutions

at SK Kaken’s AGM, one of which addressed

its failure to transparently report and address its

environmental impact. This resulted in SK Kaken

publicly disclosing its annual emissions for the

first time in 2023. We continue to engage with

the company and in 2023 submitted further

shareholder proposals addressing other matters.

* ISS (Institutional Shareholder Services) is an

organisation that provides proxy advisory services.

While AVI utilises ISS’ research, it has different

voting policies and is not bound to vote in line

with ISS guidance where it feels the guidance

is not in shareholders’ best interests.

AVI Japan Opportunity Trust plc / Annual Report 2023

THREE PUBLIC CAMPAIGNS IN 2023

Nine Public campaigns since our strategy launch in 2018

Company Campaign Name AVI Engagement

NC Holdings Enhancing the Common Interests

of NCHD’s Shareholders

Shareholder

proposals

Digital Garage Voicing Concerns over Digital

Garage’s Corporate Governance

Public

statement

SK Kaken

Painting a Better SK Kaken Shareholder

proposals

1 Public campaign started in 2021. New shareholder proposals were

submitted in 2022 and 2023, along with further public engagement.

TSI HOLDINGS

We are encouraged by TSI Holdings’ progress

in weaving sustainable practices into the fabric

of the company.

AVI first invested in TSI Holdings, which owns a collection of

diversified apparel brands including PEARLY GATES, Margaret

Howell, HUF and Stüssy, in July 2022 and we are now the largest

shareholder with c. 8% stake across all AVI funds. We have built

a strong relationship and constructive dialogue with the company,

holding 16 meetings, visiting its HQ in Japan, and sending a 43-

page presentation, offering detailed suggestions to address its

undervaluation and build sustainable corporate value.

Our approach to engagement is highly bespoke, looking at the

company as a whole and considering all drivers relevant to its

long-term success. Companies operating in the apparel sector are

exposed to heightened environmental and social risks. As part of

wider analysis on both financial and operational enhancements,

our presentation identified a number of ESG-related improvements

regarding the visualisation and management of GHG emissions,

responsible supply chain management, diversity, employee training

and development, and sustainability performance linked pay.

TSI Holdings recognises that the majority of its impact on

the environment and society occurs in its value chain and is

demonstrating its commitment to managing this. The company has

partnered with Boost Technologies to develop a centralised mapping

and managing tool, covering all of the company’s more than 50

apparel brands, to monitor emissions and drive decarbonisation

across the entire supply chain. This commitment is bolstered by

TSI Holdings having its emission reduction targets approved by the

Science Based Targets initiative (“SBTi”) in October 2023.

The board and management continue to be receptive to our

suggestions and we are encouraged by their proactive mindset. TSI

Holdings’ share price has increased by 126% since we initiated our

investment*. We continue to engage with the company on a wide

range of themes, and we see significant opportunities to unlock

further value.

* Including dividends on JPY term gross of fees, as at the end of 2023.

Source / TSI Holdings Co Ltd

HIGHLIGHTS FROM 2023

Increasing transparency and

stakeholder understanding.

AVI reported through the PRI

for the first time.

We scored comfortably above the median

PRI score throughout, receiving a four- or

five-star rating in each module.

AVI published its Stewardship

and Voting Policy.

This outlines our approach and process

as actively engaged investors as well as

defining our ESG voting guidelines.

AVI published its first

ESG Report.

This includes further insights into our

approach and quantitative details of ESG

matters in AJOT companies.

All policies and reports can be found on our

website:

www.assetvalueinvestors.com/

responsible-investing/esg-reporting/

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

The Board has a robust ongoing process for

identifying, evaluating and managing the emerging

and principal risks and uncertainties faced by the

Company, including those that could threaten its

business model, future performance, solvency

or liquidity.

The Board considers the following as the principal risks faced by

the Company and the following controls are in place to manage or

mitigate these risks:

Risk Area Controls and Mitigation

Investment Objective

The Company may be unsuccessful in

achieving its investment objective, leading to a

potential loss of demand for its shares.

The Company has a clearly defined strategy and investment remit. The portfolio

is managed by a highly experienced Investment Manager backed by a strong

team. The Board relies on the Investment Manager’s skills and judgement to make

investment decisions based on research and analysis of individual stocks and

sectors.

The Board reviews the performance of the portfolio against the Company’s

Benchmark Index, that of its competitors and the outlook of the markets on a

regular basis.

The Board ensures that there is regular dialogue with major investors, primarily

through the Company’s broker and the Investment Manager; it follows up on any

concerns and regularly reviews the discount control policy.

Investment opportunities matching the criteria

encapsulated in the investment objective may

become less available in the future.

The Board monitors the portfolio’s composition, performance and development.

Should appropriate opportunities diminish, the Board will consider the future of

the Company and may recommend that the Company’s investments are sold, it is

wound up and cash returned to Shareholders.

Gearing

The use of borrowings by the Company has

the effect of amplifying the gains or losses the

Company experiences.

A significant fall in portfolio value could cause

gearing levels to exceed pre-set limits, requiring

the Company to sell investments at short

notice.

The Board and the Investment Manager regularly review gearing, as well as the

effect of interest rate movements on the Company’s finances and the Company’s

ongoing compliance with the loan covenants. Aggregate borrowings may not

exceed 25% of net assets.

The Company has in place a two-year ¥2.9 billion (£16.3 million) unsecured

revolving facility agreement which was renewed in February 2022 and extended

to 5 April 2024 on the same terms while renewal terms are being agreed. As at

31 December 2024, ¥2.9 billion (£16.3 million) of the facility had been drawn.

Interest is payable at a rate equal to TONAR plus 1.15%. As at 31 December

2023, gearing stood at 1.6%.

Reliance on the Investment Manager and

Other Service Providers

The Company has no employees and relies

on a number of third-party service providers,

principally the Investment Manager, Registrar,

Administrator and Custodian / Depositary. It

is dependent on the effective operation of its

service providers’ control systems with regard

to the security of the Company’s assets,

dealing procedures, accounting records

and the maintenance of regulatory and legal

requirements.

The Board carries out regular reviews of the delegated services to ensure their

continued competitiveness and effectiveness, which include assessment of the

providers’ control systems, whistleblowing, anti-bribery and corruption policies and

business continuity plans.

The likelihood of this risk occurring has reduced during the year as the

relationships with service providers have been proven over the years since launch

and the monitoring processes utilised by the Board are well established.

The Company is heavily reliant on the

Investment Manager’s processes, both in

terms of making investment decisions and

compliance with the investment policy.

The Investment Manager has an established investment process which has proven

to be successful within the AVI Global Trust plc portfolio. The Board evaluates

the investment process and compliance with investment limits and restrictions in

conjunction with its portfolio review at every Board meeting.

Increased

Decreased

tu No change

Strategic Report / Principal Risks and Uncertainties

AVI Japan Opportunity Trust plc / Annual Report 2023

Risk Area Controls and Mitigation

Cyber Security

The Company has limited direct exposure to

cyber risk. However, the Company’s operations

or reputation could be affected if any of its

service providers suffered a major cyber

security breach.

The Board monitors the preparedness of its service providers in general and

requests and reviews updates from key service providers on cyber security and

other matters. Following this review, the Board remained satisfied that the risk is

given due priority.

Portfolio Liquidity

The market for smaller Japanese stocks can

be illiquid. The Company is exposed to the risk

that it will not be able to sell its investments at

the current market value or on a timely basis,

when the Investment Manager chooses or is

required to do so to meet financial liabilities.

The Investment Manager monitors trading volumes and prices, and looks to

ensure that a proportion of the portfolio is invested in readily realisable assets.

The Board also receives updates on the liquidity of the portfolio and the current

level of liquidity of the Company on a regular basis. Following review of the liquidity

analysis, the Board considered that this risk has reduced during the year.

Foreign Exchange

The functional and presentation currency of the

Company is Pounds Sterling. All investments

held and income derived from these

investments are denominated in Japanese Yen.

Certain costs of the Company are impacted

by the underlying value of the investments

denominated in Japanese Yen and converted

to Pounds Sterling. The Company is subject

to currency risk on exchange rate movements

between Pounds Sterling and Japanese Yen.

It is the Company’s current policy not to hedge against currency risk, however the

Investment Manager and the Board continuously monitor currency movements

and exposure.

The revolving credit facility is denominated in Yen and therefore the effect of Yen

exchange rate movements on the drawn down facility will be offset against the

assets.

Global/Climate/Systemic

Unforeseen global disruption, such as a

pandemic, climate and nature change-

related event, geopolitical conflict or systemic

technology failure, could lead to dramatically

increased market and Company share price

volatility. Fraud and cyber security vulnerability

could increase for key service providers.

The Board continuously monitors global developments and their potential impact

on the Company; it scrutinises the performance of the Investment Manager and

is aware of emerging risks and has a robust process for addressing them. All key

service providers are asked to provide updates on business continuity, anti-bribery

and corruption, and information security processes on an annual basis.

Concentrated Share Register

A substantial portion (around 36%) of the

Company’s shares are held by two major

Shareholders, City of London Investment

Management and Finda Oy. A concentrated

share register can potentially present issues

with regards to voting or liquidity.

The Investment Manager, the Corporate Broker and the Board have a good

understanding of the investor base and have good lines of communication

with investors in general and a direct communication channel with the major

Shareholders in particular.

Approval of Strategic Report

The Strategic Report has been approved by the Board and is signed on its behalf by:

Norman Crighton

Chairman

13 March 2024

AVI Japan Opportunity Trust plc / Annual Report 2023

IR G FS SI

Governance / Directors

Your Board

NORMAN CRIGHTON

Chairman, Non-Executive

Director

Date of Appointment:

27 July 2018

External Appointments:

RM Infrastructure Income plc and

Harmony Energy Income Trust plc.

Experience and Contribution:

Norman Crighton is an experienced

public company director, having

served on the boards of nine

closed-end funds and one

operating company. Presently,

Norman is also non-executive chair

of RM Infrastructure Income plc and

Harmony Energy Income Trust plc.

Norman has extensive fund

experience, having previously been

Head of Closed-end Funds at

Jefferies International and Investment

Manager at Metage Capital Limited,

leveraging his 32 years of experience

in investment trusts. His career

in investment banking covered

research, sales, market making and

proprietary trading, servicing major

international institutional clients over

15 years. His work in many countries

included restructuring closed-end

funds, as well as several IPOs. As

a fund manager, Norman managed

portfolios of closed-end funds on

a hedged and unhedged basis

covering developed and emerging

markets.

Following on from his long-term

promotion of best corporate

governance practice, Norman has

more recently been focusing on

expanding his work into Environmental

and Social issues. His work in the

investment trust industry is backed

up with a master’s degree from the

University of Exeter in Finance and

Investment. Norman is British and

resident in the United Kingdom.

EKATERINA THOMSON

Chairperson of the

Audit Committee,

Non-Executive Director

Date of Appointment:

5 September 2018

External Appointments:

Allianz Technology Trust PLC and

Henderson EuroTrust plc.

Experience and Contribution:

Katya is Chairperson of the Audit

Committee. She is a corporate

finance, strategy and business

development professional, with over

25 years of experience with UK and

European blue-chip companies.

Katya is a non-executive director

and audit committee chairman of

Allianz Technology Trust PLC and

Henderson EuroTrust plc. She is a

member of the Institute of Chartered

Accountants in England and Wales.

Katya is British and resident in the

United Kingdom.

YOSHI NISHIO

Non-Executive Director

Date of Appointment:

27 July 2018

External Appointments:

–

Experience and Contribution:

Yoshi began his career at Goldman

Sachs International, where he

had overall responsibility for the

trading of Japanese equities and

equity derivative products. Since

then, he has combined his twin

specialisations of finance and

media as an investor, advisor and

consultant. Much of his work has

had a Japanese focus, with clients

ranging from family offices to the

office of the chairman of Columbia

Pictures in Hollywood in the period

following the studio’s acquisition

by the Sony Corporation, to the

Ministry of Finance of the Russian

Federation. Yoshi is fluent in

Japanese and in English. He was

born in Japan but now holds

dual British/American citizenship

and lives in the United States of

America.

MARGARET STEPHENS

Chairperson of the

Nomination and

Remuneration Committee,

Non-Executive Director

Date of Appointment:

5 September 2018

External Appointments:

VH Global Sustainable Energy

Opportunities plc and Sequoia

Economic Infrastructure Income

Fund Limited.

Experience and Contribution:

Margaret is a non-executive board

member and chair of the audit

and risk committee of VH Global

Sustainable Energy Opportunities

plc and a non-executive director of

Sequoia Economic Infrastructure

Income Fund Limited. She was a

partner of KPMG until 2016, having

qualified as a Chartered Accountant

in 1988. From 2007, she played a

key role in building KPMG’s Global

Infrastructure Practice, also leading

UK and international due diligence

and structuring services on major

merger and acquisition transactions

and public private partnerships.

Margaret was a trustee director

of the Nuclear Liabilities Fund and

chair of the audit committee until

January 2024, non-executive board

member and chair of the audit

and risk assurance committee

of the Department for Exiting the

European Union and was also a

board trustee of the London School

of Architecture. Margaret is British

and resident in the United Kingdom.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

The Directors present their report and the

audited financial statements for the year ended

31 December 2023.

The Investment Portfolio on page 22, the Corporate Governance

Statement on pages 41 to 45, Report from the Audit Committee on pages

50 and 51 and the Shareholder Information on pages 72 to 76 form part of

the Report of the Directors.

Directors

The Directors of the Company are listed on page 38. All served throughout

the year under review. The Directors will retire at the forthcoming AGM and

offer themselves for re-election.

As set out on page 44, the Board carries out an annual review of

each Director and of the Board as a whole. The Board considers that

all Directors contribute effectively, possess the necessary skills and

experience, and continue to demonstrate commitment to their roles as

non-executive Directors of the Company. Following the performance

review, it was agreed that all Directors should stand for re-election,

and the re-election of each of the Directors is recommended by the Board.

The Company has provided indemnities to the Directors in respect of

costs or other liabilities which they may incur in connection with any claims

relating to their performance or the performance of the Company whilst

they are Directors.

The beneficial interests of the current Directors and their connected

persons in the securities of the Company as at 31 December 2023

are set out in the Directors’ Remuneration Report on page 48.

Share Capital

The Company’s share capital comprises Ordinary Shares with a nominal

value of 1p each. The voting rights of the shares on a poll are one vote for

each share held. There are no restrictions on the transfer of the Company’s

Ordinary Shares or voting rights, no shares which carry specific rights

with regard to the control of the Company and no agreement which the

Company is party to that affects its control following a takeover bid. To

the extent that they exist, the revenue profits of the Company (including

accumulated revenue reserves) are available for distribution by way of

dividends to the holders of the Ordinary Shares. Upon a winding-up,

after meeting the liabilities of the Company, the surplus assets would be

distributed to the Shareholders pro rata to their holding of Ordinary Shares.

At 31 December 2023, there were 140,836,702 Ordinary Shares of 1p

each in issue, of which 400,000 were held in treasury, and therefore the

total voting rights attaching to Ordinary Shares in issue were 140,436,702.

In the period from 1 January 2024 to 13 March 2024 there were no

changes to the number of issued shares or shares held in treasury and

therefore the voting rights attaching to Ordinary Shares as at 13 March

2024 were 140,436,702.

The Directors intend to seek annual authority from Shareholders to

allot new Ordinary Shares, to disapply pre-emption rights of existing

Shareholders and to buy back Ordinary Shares for cancellation or to be

held in treasury.

Issues of Shares

At the AGM held on 2 May 2023, the Company was granted authority

to allot up to 28,072,300 Ordinary Shares on a non-pre-emptive basis.

This authority is due to expire at the Company’s forthcoming AGM on

1 May 2024. As at 31 December 2023, the remaining authority to allot

Ordinary Shares under the authority granted at the AGM held on 2 May

2023 was 27,012,300 Shares and this remained the same as at 13 March

2024.

The Company has a block listing of Ordinary Shares to be listed to the

premium segment of the Official List of the FCA and admitted to trading

on the premium segment of the LSE’s main market. During the year, the

Company issued 3,375,000 shares utilising the block listing, details of

which are provided in the schedule below. As at 31 December 2023, the

remaining authority under the block listing facility was 18,008,140 Ordinary

Shares and this remained the same as at 13 March 2024.

Including issuance of shares from treasury, 4,360,000 Ordinary Shares

were issued during the year to 31 December 2023, with an aggregate

nominal value of 43,600 and a total net consideration of £5,258,000 was

received for these allotments.

Shares issued during the year

Date No of shares

Price paid

per share

Mid-market

price

16/02/2023 650,000* £1.2200 £1.2175

17/02/2023 1,900,000 £1.2200 £1.2200

21/02/2023 750,000 £1.2200 £1.2100

23/05/2023 250,000** £1.2775 £1.2700

30/05/2023 335,000*** £1.2475 £1.2400

31/05/2023 475,000 £1.2525 £1.2400

Total 4,360,000

* This issue is comprised of 400,000 treasury shares and 250,000 shares under

the block listing.

** This issue is comprised of 250,000 treasury shares.

*** This issue is comprised of 335,000 treasury shares.

Purchase of Shares

At the general meeting held on 2 May 2023, the Company was

granted authority to purchase up to 14.99% of the Company’s Ordinary

Shares in issue as at the close of business on 10 March 2023, such

authority to expire on conclusion of the 2024 AGM. During the year,

985,000 Ordinary Shares were bought back for an aggregate amount

of £1,134,000 (nominal value £9,850, representing 0.7% of the called up

share capital as at the start of the period) under this authority in order to

control the discount. As at 31 December 2023, authority to buy back a

further 20,640,219 Ordinary Shares remained.

Governance / Directors' Report

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

Sale of Shares from Treasury

At the AGM held on 2 May 2023, the Company was authorised to waive

pre-emption rights in respect of treasury shares, such authority to expire

on conclusion of the 2024 AGM. At the start of the year, 400,000 Ordinary

Shares were held in treasury, which were sold on 16 February 2023 for

an aggregate amount of £488,000. Following share buybacks carried out

in April 2023, the Company held 585,000 shares in treasury, which were

subsequently sold on 23 and 30 May 2023 (250,000 and 335,000 shares

respectively). The Company then carried out further share buybacks,

resulting in 400,000 shares being held in treasury as at 31 December 2023

and as at the date of this report.

Related Party Transactions

The Company’s related parties in the year were its Directors, the

Investment Manager and City of London Investment Management and

Finda Oy as the Company’s largest Shareholders.

There have been no material transactions between the Company and its

Directors during the year and the only amounts paid to them were in respect

of expenses and remuneration for which there were no outstanding amounts

payable. Directors’ shareholdings are disclosed on page 48.

In relation to the provision of services by the Investment Manager, other

than fees payable by the Company in the ordinary course of business and

the facilitation of marketing activities with third parties, there have been no

material transactions with the Investment Manager affecting the financial

position of the Company during the year under review. More details on

transactions with the Investment Manager, including amounts outstanding

at 31 December 2023 and shares held by AVI, are given in note 16 on

page 71.

Finda Oy and City of London Investment Management Company Limited

(“City of London”), significant Shareholders of the Company, are deemed

to be related parties of the Company for the purposes of the Listing Rules

by virtue of their holding in the Company’s issued share capital. During the

year under review, no transactions took place between the Company and

Finda Oy or City of London.

Interests in Share Capital

At 31 December 2023, the following holdings representing more than

3% of the Company’s voting rights had been reported to the Company

in accordance with the Disclosure Guidance and Transparency Rules.

This information was correct at the date of notification, however it should

be noted that these holdings may have changed since notified to the

Company and may not therefore be wholly accurate statements of actual

holdings as at 31 December 2023. However, notification of any change is

not required until the next applicable threshold is crossed. For the sake of

completeness, other holdings which exceed 3% but where no notification

has been received, are also included.

Number of

Ordinary

Percentage of

voting rights

Finda Telecoms Oy* 30,000,000 21.36

City of London Investment Management

Company Limited 21,008,661 14.96

Hargreaves Lansdown 7,502,344 5.34

Investec Wealth & Investment Limited 4,320,570 3.08

Charles Stanley 4,863,419 3.46

Interactive Investor 4,805,455 3.42

* During the year, Finda Oy notified the Company that its holding had been

transferred to Finda Telecoms Oy, a subsidiary of Finda Oy.

During the period between 31 December 2023 and 13 March 2024, no

further notifications have been received.

As at 31 December 2023, AVI Ltd & AVI employees owned 2.7m shares.

Dividends

The Directors are proposing a final dividend of 0.85p per Share for the

year to 31 December 2023. Subject to the approval of Shareholders at the

forthcoming AGM, the proposed final ordinary dividend will be payable on

24 May 2024 to Shareholders on the register at the close of business on

26 April 2024. The ex-dividend date will be 25 April 2024.

Financial Instruments

The Company utilises financial instruments, which comprise equity

investments, cash balances, receivables, payables and borrowings.

The risks identified arising from the financial instruments are market risk

(which comprises market price risk, interest rate risk and foreign currency

risk), liquidity risk and credit and counterparty risk. The Company may

also enter into derivative transactions to manage risk. The Board and

Investment Manager consider and review the risks inherent in managing

the Company’s assets which are detailed in note 15.

Annual General Meeting (“AGM”)

The AGM will be held on Wednesday 1 May 2024 at the offices of

the Association of Investment Companies (the “AIC”), 9th Floor, 24

Chiswell Street, London, EC1Y 4YY. The Notice of Meeting and details of

the resolutions to be put to the AGM are contained in the circular sent to

Shareholders with this report.

Directors’ Statement as to Disclosure of Information to Auditor

Each of the Directors, who were all members of the Board at the date of

approval of this Report, confirms that to the best of his or her knowledge

and belief, there is no information relevant to the preparation of the Annual

Report of which the Company’s Auditors are unaware and he or she

has taken all the steps a Director might reasonably be expected to have

taken to be aware of relevant audit information and to establish that the

Company’s Auditors are aware of that information.

Listing Rule 9.8.4

Listing Rule 9.8.4 requires the Company to include certain information

in a single identifiable section of the Annual Report or a cross reference

table indicating where the information is set out. The information required

under Listing Rule 9.8.4(7) in relation to Shares issued by the Company is

set out on page 39.

Other Information

Information on future developments and financial risks is detailed in the

Strategic Report. There are no post balance sheet events to report.

By order of the Board

For and on behalf of Link Company Matters Limited

Company Secretary

13 March 2024

Governance / Directors' Report continued

AVI Japan Opportunity Trust plc / Annual Report 2023

The Corporate Governance Statement forms part

of the Report of the Directors.

Applicable Corporate Governance Codes

The Company is committed to high standards of corporate governance.

This statement, together with the Statement of Directors’ Responsibilities

on page 49, indicates how the Company has applied the principles of

recommended governance of the Financial Reporting Council’s (“FRC”)

2018 UK Corporate Governance Code (the “UK Code”) and The AIC’s

Code of Corporate Governance issued in 2019, (the “AIC Code”), which

complements the UK Code and provides a framework of best practice for

investment trusts.

The Board considers that reporting against the principles and provisions

of the AIC Code, which has been endorsed by the FRC, provides more

relevant information to Shareholders and that by reporting against the

AIC Code the Company has met its obligations in relation to the UK Code

and associated disclosure requirements under paragraph 9.8.6 of the

Listing Rules.

The UK Code is available on the FRC website (www.frc.org.uk). The AIC

Code is available on the AIC website (www.theaic.co.uk) and includes an

explanation of how the AIC Code adapts the principles and provisions set

out in the UK Code to make them relevant for investment companies.

Statement of Compliance

The UK Code includes provisions relating to:

• the role of the chief executive;

• executive directors’ remuneration;

• management performance;

• remuneration and succession planning;

• workforce policies (including remuneration) and practices; and

• the need for an internal audit function.

For the reasons explained in the AIC Code, the Board considers that

these provisions are not relevant to the Company, being an externally

managed investment company with no employees. The Company has

therefore not reported further in respect of these provisions. The Board

is responsible for ensuring the appropriate level of corporate governance

and considers that the Company has complied with the principles and

provisions of the AIC Code during the year under review except as

disclosed below:

• provision 14: No senior independent director has been appointed.

All the Directors have different qualities and areas of expertise on

which they lead, and concerns can be conveyed to another Director

if Shareholders do not wish to raise concerns with the Chairman or

the Chairman of the Audit Committee. Any other Director will chair the

Board or Nomination and Remuneration Committee meeting when the

annual evaluation of the Chairman’s performance, his re-election, or the

recruitment of his successor, is discussed;

• provision 17: As all of the Directors are independent of the Investment

Manager, the Board is of the view that there is no requirement for a

separate management engagement committee. The Board as a whole

will review the terms of appointment and performance of the Investment

Manager and the Company’s other third-party service providers (other

than the Auditor who is reviewed by the Audit Committee);

• provision 23: Directors are not appointed for a specified term, as all

Directors are non-executive and the Board believes that a Director’s

performance and their continued contribution to the running of the

Company is of greater importance and relevance to Shareholders

than the length of time for which they have served as a Director of

the Company. Each Director is subject to the election and re-election

provisions set out in the Articles, which provide that a Director appointed

during the year is required to retire and seek election by Shareholders at

the next AGM following their appointment. Thereafter the Directors intend

to offer themselves for re-election annually but, under the Articles, are only

required to submit themselves for re-election at least once every three

years. Directors who have served for more than nine years will be subject

to annual re-election, provided that the Nomination and Remuneration

Committee and the Board remain satisfied that the relevant Director’s

independence is not impaired by their length of service.

Role of the Board

A management agreement between the Company and the Investment

Manager sets out the matters over which the Investment Manager has

authority. This includes management of the Company’s assets and some

marketing services. The Board is collectively responsible for the success

of the Company and a formal schedule of matters reserved to the Board

for decision has been approved, which is available on the Company’s

website: www.ajot.co.uk. This includes strategy and management,

Board and committee membership and other appointments, appointment

and oversight of delegates, corporate structure and share capital,

remuneration, financial reporting and controls, company contracts, internal

controls, corporate governance and policies.

The Board is responsible for the approval of annual and half-year results

and other public documents and for ensuring that such documents

provide a fair, balanced and understandable assessment of the Company’s

position and prospects.

The Board’s role is to provide leadership within a framework of prudent

and effective controls that enable risk to be assessed and managed. It

is responsible for setting the Company’s standards and values and for

ensuring that its obligations to its Shareholders and other stakeholders

are understood and met. The Board sets the Company’s strategic aims

(subject to the Company’s Articles of Association, and to such approval

of the Shareholders in General Meeting as may be required from time to

time) and ensures that the necessary resources are in place to enable the

Company’s objectives to be met. The Articles of Association may only be

amended by way of a special resolution of shareholders.

The Board meets formally at least four times a year, with additional ad hoc

Board or Committee meetings arranged when required. The Directors have

regular contact with the Investment Manager and Company Secretary

between formal meetings. Full and timely information is provided to the

Board to enable it to function effectively and to allow Directors to discharge

their responsibilities.

At each meeting the Directors follow a formal agenda, which includes a

review of the Company’s NAV, share price, premium, financial position,

gearing levels, peer group performance, investment performance, asset

allocation and transactions and any other relevant business matters to

ensure that control is maintained over the affairs of the Company. The

Board monitors compliance with the investment restrictions required by the

FCA and s1158 of the Corporation Tax Act 2010, the Company’s objective,

investment, borrowing and hedging policies and reviews the investment

strategy. The Board regularly receives reports from the Investment

Manager on marketing and investor relations. The proceedings at all Board

and Committee meetings are fully recorded through a process that allows

any Director’s concerns to be recorded in the minutes.

Governance / Corporate Governance Statement

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

There is an agreed procedure for Directors to take independent

professional advice if necessary and at the Company’s expense.

This is in addition to the access that every Director has to the advice

and services of the Company Secretary, Link Company Matters Limited,

which is responsible to the Board for ensuring that Board procedures are

followed, and that applicable rules and regulations are complied with.

Board Composition

The Board is chaired by Norman Crighton, and consists of four

non-executive Directors who have all served throughout the year. All of

the Board are regarded as independent of the Company’s Investment

Manager, including the Chairman. The Directors have a breadth of

investment, financial and professional experience relevant to the

Company’s business and brief biographical details of each Director

are set out on page 38.

A review of Board composition and balance is included as part of the

annual performance evaluation of the Board, details of which may be

found below.

The Directors acknowledge the benefits of Board diversity and continual

review of the Board’s and individual Directors’ effectiveness, while

seeking to retain a balance of knowledge of the Company, diversity and

continuity in the relationship with the Investment Manager. The Board has

adopted a Diversity Policy in line with its commitment to ensuring that the

Company’s Directors bring a wide range of skills, knowledge, experience,

backgrounds and perspectives to the Board. The Board does not feel that

it would be appropriate to set targets as all appointments must be made

on merit. However, diversity generally will be taken into consideration when

evaluating the skills, knowledge and experience desirable to fill each Board

vacancy. The Board has established the following objectives for achieving

diversity on the Board:

• all Board appointments will be made on merit, in the context of the skills,

background, knowledge and experience that are needed for the Board

to be effective; and

• long lists of potential non-executive directors should include diverse

candidates of appropriate merit.

The terms and conditions of Directors’ appointments are set out in formal

letters of appointment, copies of which are available for inspection on

request at the Company’s registered office during normal business hours

and at the Company’s AGM.

The Board notes the FCA’s rules on diversity and inclusion on company

boards included in Listing Rule 9.8.6 (9-11), namely that from accounting

periods commencing on or after 1 April 2022:

• At least 40% of individuals on the Board to be women;

• At least one senior Board position to be held by a woman; and

• At least one individual on the Board to be from a minority ethnic

background.

In accordance with Listing Rule 9 Annex 2.1, the below tables, in

prescribed format, show the gender and ethnic background of the

Directors at the year end, demonstrating that the Company has met

the targets set in Listing Rule 9.8.6 (9-11).

Gender identity or sex

Number of

Board

members

Percentage

on the Board

Number of

senior positions

on the Board*

Men 2 50% 1

Women 2 50% 1

Not specified/

prefer not to say – – –

Ethnic background

Number of

Board

members

Percentage

on the Board

Number of

senior positions

on the Board*

White British or other White

(including minority white groups) 3 75% 2

Mixed/Multiple Ethnic Groups – – –

Asian/Asian British 1 25% –

Black/African/Caribbean/

Black British – – –

Other ethnic group,

including Arab – – –

Not specified/ prefer not to say – – –

* Listing Rule 9.8.6(9) includes only the positions of chair, chief executive, senior

independent director and chief financial officer in this category. Other than the

Chairman of the Board, the Company does not have these roles, as it is an

externally managed investment trust without employees and therefore this target

is not applicable. The Company has chosen to report against this target by

including the position of Audit Committee Chairperson as a senior position.

The data in the above tables was collected through self-reporting by the

Directors, who were asked to indicate which of the categories specified

in the prescribed tables were most applicable to them.

Responsibilities of the Chairman, the Board and its Committees

The Chairman leads the Board and is responsible for its overall

effectiveness in directing the affairs of the Company. The Company has

adopted a document setting out the responsibilities of the Chairman,

which is available on the website: www.ajot.co.uk.

Tenure

Directors are generally initially appointed by the Board, until the following

AGM when, as required by the Company’s Articles of Association, they will

stand for re-election by Shareholders. Thereafter, a Director’s appointment

is subject to an annual performance evaluation and the approval of

Shareholders at each AGM, in accordance with corporate governance

best practice.

Under the Articles of Association, Shareholders may remove a Director

before the end of his or her term by passing a special resolution at a

meeting, and may by ordinary resolution appoint another person who is

willing to act to be a Director in his or her place. A special resolution is

passed if more than 75% and an ordinary resolution if more than 50% of

the votes cast, in person or by proxy, are in favour of the resolution.

In accordance with the above and the AIC Code, all Directors will stand

for re-election at the 2024 AGM. The contribution and performance

of the Directors seeking re-election was reviewed by the Nomination

and Remuneration Committee at its meeting in March 2024, which

recommended to the Board their continuing appointment.

Governance / Corporate Governance Statement continued

AVI Japan Opportunity Trust plc / Annual Report 2023

Tenure continued

The Board has adopted a formal tenure policy for Directors based on

a continual review of performance. The Board does not believe that

length of service in itself necessarily disqualifies a Director from seeking

reappointment but, when making a recommendation, the Board takes

into account the ongoing requirements of the UK Corporate Governance

Code, including the need to refresh the Board and its Committees.

It is not anticipated that any of the Directors would normally serve in

excess of nine years. In exceptional circumstances, which would be fully

explained to Shareholders at the time, a one or two-year extension might

be appropriate.

Similarly, it is not anticipated that the Chairman will normally serve in

excess of nine years. However, in exceptional circumstances, which

would be fully explained at the time, a one- or two-year extension might

be appropriate, given the entirely non-executive nature of the Board and

in particular where the Chairman has not been appointed in his position

for the entire duration of his tenure as a Director. As with all Directors,

the continuing appointment of the Chairman is subject to ongoing review

of performance, including a satisfactory annual evaluation, annual re-

election by Shareholders and may be further subject to the particular

circumstances of the Company at the time he or she intends to retire

from the Board.

Board Independence

All Directors are non-executive, have a range of other interests and

are not dependent on the Company itself. At the Nomination and

Remuneration Committee meeting in March 2024, the Directors

reviewed their independence and confirmed that all Directors remain

wholly independent of the Investment Manager. During the year there

was a two-week period during which Katya Thomson was a director

of two companies managed by the same investment manager, as AVI

was appointed as the manager of MIGO Opportunities Trust plc with

effect from 15 December 2023. Katya stood down from her position as

director of MIGO Opportunities Trust plc with effect from 29 December

2023. Due to the brevity of the period during which Katya served on the

board of two companies managed by the same investment manager, the

Board continues to consider her independent. The Board has determined

that all Directors are independent in character and judgement and that

their individual skills, broad business experience and knowledge and

understanding of the Company are of great benefit to Shareholders.

There were no contracts subsisting during or at the end of the year in

which a Director of the Company is or was materially interested and which

is or was significant in relation to the Company’s business. No Director

has a contract of service with the Company and there are no agreements

between the Company and its Directors concerning compensation for loss

of office.

Directors’ Conflicts of Interest

The Company’s Articles of Association permit the Board to consider and,

if it sees fit, to authorise situations where a Director has an interest that

conflicts, or may possibly conflict, with the interests of the Company

(“situational conflicts”).

A schedule of interests for each Director is maintained by the Company

and reviewed at every Board meeting. The Board has a formal system

in place, in line with the Articles of Association for Directors, to declare

any new situational conflicts to be considered for authorisation by those

Directors who have no interest in the matter being considered. In deciding

whether to authorise a situational conflict, the non-conflicted Directors act

honestly and in good faith with a view to the best interests of the Company

and they may impose limits or conditions when giving the authorisation,

or subsequently, if they think this is appropriate. Any situational conflicts

considered, and any authorisations given, are recorded in the relevant

meetings’ minutes and the register of interests. The prescribed procedures

have been followed in deciding whether, and on what terms, to authorise

situational conflicts, and the Board believes that the system it has in place

for reporting and considering situational conflicts continues to operate

effectively. The Chairman has had no relationship that may have created

a conflict between his interests and those of the Company’s Shareholders.

Induction and Training

On appointment, the Company Secretary provides all Directors with

induction training. The training covers the Company’s investment strategy,

policies and practices. The Directors are also given regular briefings on

changes in law and regulatory requirements that affect the Company and

the Directors. It is the Chairman’s responsibility to ensure that the Directors

have sufficient knowledge to fulfil their role and Directors are encouraged

to attend industry and other seminars covering issues and developments

relevant to investment trust companies. Regular reviews of Directors’

training needs are carried out by the Chairman by means of the evaluation

process described below.

The Directors have access to the advice and services of the Company

Secretary through its appointed representative, who is responsible

for general secretarial functions and for assisting the Company with

compliance with its continuing obligations as a company listed on the

premium segment of the Official List. The Company Secretary is also

responsible for ensuring good information flows between all parties.

Directors’ Insurance and Indemnification

Directors’ and Officers’ liability insurance cover was in place throughout

the year and remains in place at the date of this report. The Company’s

Articles of Association provide, subject to the provisions of UK legislation,

an indemnity for Directors in respect of costs which they may incur relating

to the defence of any proceedings brought against them arising out of their

positions as Directors, in which they are acquitted or judgment is given in

their favour by the Court. The Company has granted indemnity to Directors

to the extent permitted by law in respect of liabilities that may attach to

them in their capacity as Directors of the Company.

Board Committees

The Board delegates certain responsibilities and functions to the Audit

Committee and the Nomination and Remuneration Committee. Both

Committees comprise all Directors. The terms of reference for these

Committees are available on the website www.ajot.co.uk or via the

Company Secretary.

A separate Management Engagement Committee has not been

established as the Board consists of only independent non-executive

Directors. The investment management agreement and performance

of the Investment Manager is reviewed by the Board as a whole on a

regular basis, ensuring that the terms are fair and reasonable and that

its continuance, given the Company’s performance over both short and

longer terms, is in the best interests of the Company and its Shareholders.

The Board as a whole also reviews the terms of appointment and

performance of the Company’s other service providers.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

Audit Committee

The Audit Committee comprises all Directors and is chaired by Katya

Thomson, who is a Chartered Accountant. The other Audit Committee

members have a combination of financial, investment and other experience

gained throughout their careers and the Board is satisfied that at least

one of the Audit Committee’s members has recent and relevant financial

experience. The Audit Committee as a whole is considered to have

competence relevant to the sector. All members of the Audit Committee

are independent. The Chairman of the Board is a member of the Audit

Committee but, in line with the AIC Code, does not chair it and was

considered independent on appointment. The Chairman’s membership

of the Audit Committee is considered appropriate given his extensive

knowledge of the Investment Trust sector.

The Report of the Audit Committee, which forms part of this Corporate

Governance Statement, can be found on pages 50 and 51.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee, consisting of all of the

Directors and chaired by Margaret Stephens, meets at least annually.

The Nomination and Remuneration Committee is responsible for setting

Directors’ fees in line with the Remuneration Policy set out on page 46,

which is subject to periodic Shareholder approval. The Nomination and

Remuneration Committee is also responsible for ensuring that the Board

has an appropriate balance of skills and experience to carry out its

duties, to select and propose suitable candidates for appointment when

necessary and for making recommendations regarding the re-election of

existing Directors.

When considering succession planning and tenure policy, the

Nomination and Remuneration Committee bears in mind the balance

of skills, knowledge, experience, gender and diversity of Directors, the

achievement of the Company’s investment objective and compliance with

the Company’s Articles of Association and the AIC Code. The Nomination

and Remuneration Committee keeps the Company’s needs under

continual review and will make recommendations when the recruitment of

additional non-executive Directors is required. Once a decision is made to

recruit additional Directors to the Board, a formal job description is drawn

up, based on a review of the skills required to complement those of the

remaining Directors. The Company may use external agencies as and

when recruitment becomes necessary.

The Nomination and Remuneration Committee also reviews and

recommends to the Board the Directors seeking re-election.

Recommendation is not automatic and will follow an annual performance

evaluation of the Board, its Committees and individual Directors and

consideration of the Director’s independence. The evaluation of individual

Directors takes into account whether they have devoted sufficient time

and contributed adequately to the work of the Board and its Committees.

The evaluation of the Board and its Committees considers the balance

of experience, skills, independence, corporate knowledge, its diversity,

including gender, and how it works together.

The Nomination and Remuneration Committee met in March 2024 to

carry out its annual review of the Board, its composition and size and

its Committees, the results of which are detailed in the Performance

Evaluation paragraph on this page. Notwithstanding the fact that all of

the current Directors have now served for five years and in order to

ensure an orderly transition, the Nomination and Remuneration Committee

has considered succession planning and agreed that a staggered

approach will be taken to replace the current Directors in due course and

refresh the Board.

The current intention is for recruitment for the first two new Directors to

commence in 2025, with appointments to follow in 2026. Further changes

will then take place in the following years to refresh the entire Board. The

Nomination and Remuneration Committee has scheduled these Board

changes in a manner which will at times result in the Board consisting of

five Directors, to ensure an orderly handover of in particular the functions

of the Chairman of the Audit Committee and the Chairman of the Board.

Further information on succession planning and recruitment will be

provided in future Annual Reports, as and when appropriate.

Board and Committee Meeting Attendance

The table details the number of scheduled Board and Committee meetings

held during the year under review and the number of meetings attended by

each Director.

Board

Audit

Committee

Nomination and

Remuneration

Committee

Norman Crighton 4(4) 2(2) 2(2)

Yoshi Nishio 4(4) 2(2) 2(2)

Margaret Stephens 4(4) 2(2) 2(2)

Katya Thomson 4(4) 2(2) 2(2)

The number in brackets denotes the number of meetings each Director

was entitled to attend.

The Directors also met on an ad hoc basis during the year to undertake

business, such as to review portfolio developments with the Investment

Manager.

Performance Evaluation

In February 2024, the Nomination and Remuneration Committee

conducted a review of the Board’s performance, together with that of its

Committees, the Chairman and each individual Director, as well as their

independence. This was conducted by way of individual discussions

between the Nomination and Remuneration Committee Chairman

and, separately, Chairman of the Board, with each Director, as well as

a discussion between the Chairman of the Board and the Nomination

and Remuneration Committee Chairman. A summary of the findings

was then discussed at the Nomination and Remuneration Committee

meeting held in March 2024. It was concluded that the performance of

the Board, its Committees, the Chairman and each individual Director was

satisfactory, and the Board has a good balance of skills, knowledge and

experience, and includes individuals from different social, geographical and

ethnic backgrounds. It is considered that each of the Directors remains

independent of the Investment Manager, makes a significant contribution

and devotes sufficient time to the affairs of the Company, the Chairman

continues to display effective leadership and all Directors seeking re-

election at the Company’s AGM merit re-election by Shareholders.

Internal Control

The Board has overall responsibility for the Company’s system of internal

control and for reviewing its effectiveness. The Audit Committee supports

the Board in the continuous monitoring of the internal control and risk

management framework. The Board has established an ongoing process

for identifying, evaluating and managing the principal and new or emerging

risks faced by the Company. The process accords with the FRC’s

guidance on Risk Management, Internal Control and Related Business and

Financial Reporting published in September 2014.

Governance / Corporate Governance Statement continued

AVI Japan Opportunity Trust plc / Annual Report 2023

Internal Control continued

The risk management process and system of internal control was in

operation throughout the year and up to the date of this report. The system

is designed to meet the specific risks faced by the Company and takes

account of the nature of the Company’s reliance on its service providers

and their internal controls. The system therefore manages rather than

eliminates the risk of failure to achieve the Company’s business objectives

and provides reasonable, but not absolute assurance against material

misstatement or loss.

In arriving at its judgement of what risks the Company faces, the Board,

through the Audit Committee, has considered the Company’s operations in

light of the following factors:

• the nature and extent of risks which it regards as acceptable for the

Company to bear within its overall business objective;

• the threat of such risks becoming reality;

• the Company’s ability to reduce the incidence and impact of risk on its

performance; and

• the extent to which third parties operate the relevant controls.

The Company maintains a risk matrix which identifies key risks faced by

the Company and has controls in place to mitigate those risks. The risks

are assessed on the basis of the likelihood of them happening, the impact

on the business if they were to occur and the effectiveness of the controls

in place to mitigate against them. This risk matrix is reviewed twice a year

by the Audit Committee and at other times as necessary.

The Directors confirm that they have carried out a robust assessment of

the Company’s emerging and principal risks as identified by the Board,

which are set out on pages 36 and 37, as well as the controls in place to

manage or mitigate those risks.

The Board reviews financial information produced by the Investment

Manager and the Administrator on a regular basis. Most functions

for the day-to-day management of the Company are subcontracted,

and the Directors therefore obtain assurances and information, including

internal control reports, from key third-party suppliers regarding the internal

systems and controls operated in their respective organisations. During

the year under review, the Board also requested and reviewed updates

from key service providers on business continuity, cyber security and

fraud prevention.

By the means of the procedures set out above, the Board confirms that

it has reviewed, and is satisfied with, the effectiveness of the Company’s

system of internal control for the year ended 31 December 2023, and to

the date of approval of this Annual Report and Financial Statements.

During the course of its review of the system of internal control, the Board

has not identified nor been advised of any failings or weaknesses which it

has determined to be significant. Therefore, a confirmation in respect

of necessary actions has not been considered appropriate.

Internal Audit Function

As the Company is an externally managed investment company

with day-to-day management and administrative functions being

outsourced to third parties, and as the Company does not have executive

Directors, employees or internal operations, the Board does not consider

it necessary to establish an internal audit function, as it believes the

existing system of monitoring and reporting by the third parties to be

appropriate and sufficient.

Accountability and Relationship with AVI

The Statement of Directors’ Responsibilities in respect of the Financial

Statements is set out on page 49, the Independent Auditors’ Report on

pages 52 to 55 and the Viability Statement on page 31.

The Board has delegated contractually to external third parties, including

the Investment Manager, the management of the investment portfolio,

the custodial services (including the safeguarding of the assets), the

day-to-day accounting and cash management, company secretarial

and administration requirements and registration services. Each of these

contracts was entered into after full and proper consideration by the

Board of the quality and cost of the services offered, including the control

systems in operation in so far as they relate to the affairs of the Company.

Further information on management arrangements can be found on

page 24.

The Board receives and considers regular reports from the Investment

Manager and ad hoc reports and information are supplied to the Board

as required. The Investment Manager takes decisions as to the purchase

and sale of individual investments. The Investment Manager also ensures

that all Directors receive, in a timely manner, all relevant management,

regulatory and financial information.

Representatives of AVI attend Board meetings, enabling the Directors

to probe further on matters of concern. The Board and the Investment

Manager operate in a supportive, co-operative and open environment.

Continued Appointment of the Investment Manager

The Board considers the arrangements for the provision of investment

management and other services to the Company on an ongoing basis.

In addition to the monitoring of investment performance at each Board

meeting, an annual review of the Company’s investment performance over

both the short and longer terms is undertaken.

Following an annual review, it is the Directors’ opinion that the continuing

appointment of AVI, the Investment Manager, on the existing terms, is in

the best interests of the Company and its Shareholders as a whole.

By order of the Board

For and on behalf of Link Company Matters Limited

Company Secretary

13 March 2024

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

Directors’ Remuneration Policy

The Remuneration Policy provides details of the remuneration policy

for the Directors of the Company. The Remuneration Policy was

approved by Shareholders at the AGM of the Company held on 3 May

2022. Remuneration Policy Provisions apply until they are next put to

Shareholders for approval at intervals of not more than three years, or if

the Remuneration Policy is varied, in which event Shareholder approval for

the new Remuneration Policy will be sought. The Remuneration Policy is

provided below, which remains as approved at the 2022 AGM.

The Company follows the recommendation of the AIC Code of

Corporate Governance that non-executive Directors’ remuneration

should reflect the time commitment and responsibilities of the role. The

Board’s policy is that the remuneration of non-executive Directors should

reflect the experience of the Board as a whole and be determined from

time to time at the Board’s discretion with reference to comparable

organisations and appointments.

All Directors are non-executive, appointed under the terms of letters of

appointment. There are no service contracts in place. The Company has

no employees. In line with the majority of investment trusts and the AIC

Code, there are no performance conditions attached to the remuneration

of the Directors as the Board does not consider such arrangements or

benefits necessary or appropriate for non-executive Directors.

The Board has set three levels of fees: one for a Director and additional

fees for the Chairman of the Audit Committee and the Chairman of

the Board. Fees are reviewed annually in accordance with the above

policy. Annual fees are pro-rated where a change takes place during a

financial year. The fee for any new Director appointed to the Board will be

determined on the same basis.

In addition to the annual fee, under the Company’s Articles of Association,

any Director who is requested to perform services which, in the opinion of

the Board, go beyond the ordinary duties of a director, may be paid such

extra remuneration as the Board may in its discretion decide in addition

to or in substitution for any other remuneration that they may be entitled

to receive. Should any extra remuneration be paid during the year, details

of the events, duties and responsibilities that gave rise to the additional

Directors’ fees would be disclosed in the Annual Report. Directors are also

entitled to reimbursement of reasonable fees and expenses incurred by

them in the performance of their duties.

The approval of Shareholders would be required to increase the aggregate

annual Directors’ Remuneration limit of £250,000, as set out in the

Company’s Articles of Association.

None of the Directors has any entitlement to pensions or pension related

benefits, medical or life insurance schemes, share options, long-term

incentive plans, or performance-related payments. No Director is entitled

to any other monetary payment or any assets of the Company, except

in their capacity (where applicable) as Shareholders of the Company.

Directors’ Letters of Appointment expressly prohibit any entitlement to

payment on loss of office.

Directors’ and Officers’ liability insurance cover is maintained by the

Company, at its expense, on behalf of the Directors. The Company has

also provided indemnities to the Directors in respect of costs or other

liabilities which they may incur in connection with any claims relating to

their performance or the performance of the Company whilst they

are Directors.

The Company is committed to ongoing Shareholder dialogue and any

views expressed by Shareholders on the fees being paid to Directors

would be taken into consideration by the Board when reviewing the

Directors’ Remuneration Policy and in the annual review of Directors’ fees.

Report on Implementation

This Report is prepared in accordance with Schedule 8 of the Large

and Medium-sized Companies and Groups (Accounts and Reports)

(Amendment) Regulations 2008 as amended in August 2013. The report

also meets the relevant requirements of the Companies Act 2006 (the “Act”)

and the Listing Rules of the FCA and describes how the Board has applied

the principles relating to Directors’ remuneration. The Company’s Auditors

are required to report on certain information contained within this report;

where information set out below has been audited it is indicated as such.

All Directors are non-executive, and the Company has no chief

executive officer or employees; as such some of the reporting requirements

contained in the Regulations are not applicable and have not been

reported on, including the requirement for a future policy table and an

illustrative representation of the level of remuneration that could be received

by each individual Director. It is believed that all relevant information is

disclosed within this report in an appropriate format.

The Board may amend the level of remuneration paid to individual Directors

within the parameters of the Remuneration Policy.

Statement from the Chairman of the Nomination and

Remuneration Committee

Directors’ remuneration is determined by the Nomination and

Remuneration Committee, at its discretion, within an aggregate set

amount per annum. This aggregate ceiling had been set at £250,000 in

the Company’s Articles of Association and in the Remuneration Policy as

approved on 2 May 2022.

The Nomination and Remuneration Committee comprises all Directors and

is chaired by Margaret Stephenson. Each Director abstains from voting

on their own individual remuneration. The Board has not been provided

with advice or services by any person in respect of its consideration of the

Directors’ remuneration.

During the year the Board carried out a review of the level of Directors’ fees

in accordance with the Remuneration Policy. As part of this review, the

Board considered the Company’s performance, the demands placed on

Directors’ time and the level of fees being paid to non-executive directors

in the Company’s peer group. Taking these matters into consideration, the

review concluded that the fees being paid to the Company’s Directors were

below the average. As a result, with effect from 1 January 2024, fees were

increased to £45,000 (previously £40,500) per annum for the Chairman,

£41,000 (previously £37,800) per annum for the Chairperson of the

Audit Committee and £38,000 (previously £35,100) per annum for other

Directors. The Board is satisfied that the changes to the remuneration of

the Directors are compliant with the Directors’ Remuneration Policy.

There have been no other major decisions on Directors’ remuneration or

any other changes to the remuneration paid to each individual Director in

the year under review.

Directors’ Emoluments (audited information)

Directors are only entitled to fixed fees at such rates as are determined

by the Board from time to time and in accordance with the Directors’

Remuneration Policy as approved by the Shareholders.

None of the Directors has any entitlement to pensions or pension-related

benefits, medical or life insurance schemes, share options, long-term

incentive plans, or performance-related payments. No Director is entitled

to any other monetary payment or any assets of the Company.

Accordingly, the Single Total Figure table below does not include columns

for any of these items or their monetary equivalents. Directors’ & Officers’

liability insurance is maintained and paid for by the Company on behalf

of the Directors.

Governance / Directors' Remuneration Report

AVI Japan Opportunity Trust plc / Annual Report 2023

Directors’ Emoluments (audited information) continued

In line with market practice, the Company has agreed to indemnify the Directors in respect of costs, charges, losses, liabilities, damages and expenses,

arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application

under Section 1157 of the Companies Act 2006, in connection with the performance of their duties as Directors of the Company. The indemnities would

also provide financial support from the Company should the level of cover provided by the Directors’ & Officers’ liability insurance maintained by the

Company be exhausted.

The Directors who served during the year received the following emoluments:

Single Total Figure Table (audited information)

Fees paid* Taxable benefits Total

% change

2022-2023

% change

2021-2022

% change

2020-2021Name of Director 2023 2022 2023 2022 2023 2022

Norman Crighton 40,500 37,500 – – 40,500 37,500 8.0% 5.3% 1.8%

Yoshi Nishio 35,100 32,500 – – 35,100 32,500 8.0% 6.1% 2.1%

Margaret Stephens 35,100 32,500 – – 35,100 32,500 8.0% 6.1% 2.1%

Katya Thomson 37,800 35,000 – – 37,800 35,000 8.0% 5.7% 1.9%

148,500 137,500 – – 148,500 137,500 8.0% 5.8% 2.0%

* Excluding Employer’s National Insurance Contribution.

Sums Paid to Third Parties (audited information)

None of the fees referred to in the above table were paid to any third party in respect of the services provided by any of the Directors.

Other Benefits

Taxable benefits – Article 105 of the Company’s Articles of Association provides that Directors are entitled to be reimbursed for reasonable expenses

incurred by them in connection with the performance of their duties and attendance at Board and General Meetings or any other meeting which they,

as Directors, are entitled to attend.

Pensions related benefits – Article 106 permits the Company to provide gratuities or pensions or similar benefits for Directors of the Company. However,

no pension schemes or other similar arrangements have been established and no Director is entitled to any pension or similar benefits.

Performance

The chart below illustrates the total Shareholder return for a holding in the Company’s shares, as compared to the MSCI Japan Small Cap (£ adjusted

total return), which the Board has adopted as the measure for both the Company’s performance and that of the Investment Manager for the year, over

the period since inception of the Company.

140

120

100

120

140

Oct 18 Apr 19 Oct 19 Apr 20 Oct 20

Apr 21 Oct 21 Apr 23 Oct 23Apr 22 Oct 22

Total Shareholder Return vs MSCI Japan Small Cap

AVI Japan Opportunity Trust NAV TR

MSCI Japan Small Cap Index (£ adjusted total return)

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

Relative Importance of Spend on Pay

The table below shows the proportion of the Company’s income spent

on pay.

2023

£’000

2022

£’000

Difference

£’000

Spend on Directors’ fees* 149 138 11

Distribution to

Shareholders 2,391 2,146 245

Management fee and

other expenses** 2,508 2,322 186

* As the Company has no employees the total spend on remuneration comprises

only the Directors’ fees.

** Note: the items listed in the table above are as required by the Large and

Medium sized Companies and Groups (Accounts and Reports) (Amendment)

Regulations 2013 s.20, with the exception of the management fee and other

expenses, which has been included because the Directors believe it will help

Shareholders’ understanding of the relative importance of the spend on pay. The

figures for this measure are the same as those shown in note 3 to the financial

statements.

Statement of Directors’ Shareholding and Share Interests

(audited information)

Neither the Company’s Articles of Association nor the Directors’ Letters

of Appointment require a Director to own shares in the Company. The

interests of the Directors and their connected persons in the equity and

debt securities of the Company at 31 December 2023 are shown in the

table below:

Name of Director Ordinary Shares

Norman Crighton 26,575

Yoshi Nishio –

Margaret Stephens 10,000

Katya Thomson 10,000

Total 46,575

There have been no changes to Directors’ interests between 31 December

2023 and the date of this Report.

Statement of Voting at AGM

At the 2023 AGM, 45,178,017 votes (99.73%) were received voting for

the resolution seeking approval of the Directors’ Remuneration Report,

122,511 (0.27%) were against, none were at the Chairman’s discretion

and 3,500 were withheld; the percentages of votes excludes votes

withheld. In relation to the approval of the Remuneration Policy which was

most recently approved at the 2022 AGM, 42,292,385 (99.33%) votes

were received for the resolution, 98,679 (0.23%) were against, 187,917

(0.44%) were at the Chairman’s discretion and 4,500 were withheld. The

percentages of votes excludes votes withheld.

Annual Statement

On behalf of the Board and in accordance with Part 2 of Schedule 8 of

the Large and Medium-sized Companies and Groups (Accounts and

Reports) (Amendment) Regulations 2013, I confirm that the above Report

on Remuneration Implementation summarises, as applicable, for the year

to 31 December 2023:

(a) the major decisions on Directors’ remuneration;

(b) any discretion which has been exercised in the award of Directors’

remuneration;

during the year; and

(d) the context in which the changes occurred and decisions have

been taken.

A resolution to approve this Directors’ Remuneration Report will be

proposed at the AGM to be held on 1 May 2024.

Margaret Stephens

Chairman of the Nomination and Remuneration Committee

13 March 2024

Governance / Directors' Remuneration Report continued

AVI Japan Opportunity Trust plc / Annual Report 2023

The Directors are responsible for preparing the Annual Report and the

Financial Statements in accordance with UK adopted international

accounting standards and applicable law and regulations.

Company law requires the Directors to prepare financial statements for

each financial year. Under that law the Directors are required to prepare

the financial statements and have elected to prepare the company financial

statements in accordance with UK adopted international accounting

standards. Under company law the Directors must not approve the

financial statements, unless they are satisfied that they give a true and fair

view of the state of affairs of the Company and of the profit or loss for the

Company for that period.

In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and

prudent;

• state whether they have been prepared in accordance with UK adopted

international accounting standards, subject to any material departures

disclosed and explained in the financial statements;

• prepare the financial statements on the going concern basis, unless it

is inappropriate to presume that the Company will continue in business;

and

• prepare a Directors’ report, a strategic report and Directors’

remuneration report which comply with the requirements of the

Companies Act 2006.

The Directors are responsible for keeping adequate accounting records

that are sufficient to show and explain the Company’s transactions and

disclose with reasonable accuracy at any time the financial position of the

Company and enable them to ensure that the financial statements comply

with the Companies Act 2006.

They are also responsible for safeguarding the assets of the Company

and hence for taking reasonable steps for the prevention and detection

of fraud and other irregularities. The Directors are responsible for

ensuring that the Annual Report and Accounts, taken as a whole, are fair,

balanced, and understandable and provides the information necessary

for Shareholders to assess the Company’s position and performance,

business model and strategy.

Website Publication

The Directors are responsible for ensuring the Annual Report and

the Financial Statements are made available on a website. Financial

statements are published on the Company’s website in accordance

with legislation in the United Kingdom governing the preparation and

dissemination of financial statements, which may vary from legislation

in other jurisdictions. The maintenance and integrity of the Company’s

website is the responsibility of the Directors. The Directors’ responsibility

also extends to the ongoing integrity of the financial statements

contained therein.

Directors’ Responsibilities Pursuant to DTR4

The Directors confirm to the best of their knowledge:

• The Financial Statements have been prepared in accordance with the

applicable set of accounting standards, give a true and fair view of the

assets, liabilities, financial position and profit and loss of the Company.

• The Annual Report includes a fair review of the development and

performance of the business and the financial position of the Company,

together with a description of the principal risks and uncertainties that

they face.

In the opinion of the Board, the Annual Report and Financial Statements

taken as a whole, is fair, balanced and understandable and it provides the

information necessary to assess the Company’s position and performance,

business model and strategy.

Directors Statement as to the Disclosure of Information to Auditor

All of the current Directors have taken all the steps that they ought to

have taken to make themselves aware of any information needed by the

Company’s auditors for the purposes of their audit and to establish that the

auditors are aware of that information. The Directors are not aware of any

relevant audit information of which the auditors are unaware.

For and on behalf of the Board

Norman Crighton

Chairman

13 March 2024

Governance / Statement of Directors' Responsibilities in Relation to

the Annual Report and Financial Statements

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

I am pleased to present the Audit Committee Report for the year ended

31 December 2023.

The Audit Committee (the “Committee”) met twice during the year under

review and once following the year end. The Company’s Auditors are

invited to attend meetings as necessary. Representatives of the Investment

Manager may also be invited.

Details of the composition of the Committee are set out in the Corporate

Governance Statement on page 44.

Responsibilities of the Committee

The Committee’s responsibilities are set out in formal terms of reference

which are available on the Company’s website and are reviewed at least

annually. The Committee’s primary responsibilities are set as follows:

• to monitor the integrity of the financial statements of the Company,

including its Annual and Half-Yearly reports and any other formal

announcements of the Company relating to its financial performance,

and to review and report to the Board on significant financial reporting

issues and judgements which those statements contain, having regard

to matters communicated to it by the Auditor;

• to review the Half-Yearly and Annual Reports;

• to review the Company’s internal financial controls and the internal

control and risk management systems of the Company and its third-

party service providers;

• to make recommendations to the Board in relation to the appointment

of the external auditor and their remuneration;

• to review the scope, results, cost effectiveness, independence and

objectivity of the external auditor;

• to develop and implement policy on the engagement of the external

auditor to supply non-audit services and consider relevant guidance

regarding the provision of non-audit services by the external audit firm;

and

• to review circulars issued in respect of major non-routine and corporate

transactions.

Activities in the Year

During the year, the Committee has:

• conducted a detailed review of the internal controls and risk

management systems of the Company and its third-party service

providers;

• reviewed the service levels provided by the Company’s Custodian and

Depositary;

• considered the emerging and principal risks facing the Company and the

mitigating controls in place;

• carried out a detailed review of the external Auditor’s performance

during the 2022 audit;

• agreed the audit plan and fees with the Auditor in respect of the Annual

Report for the year ended 31 December 2023, including the principal

areas of focus;

• reviewed the Company’s Half-Yearly Report and financial statements,

discussed the appropriateness of the accounting policies adopted and

recommended these to the Board for approval;

• assessed whether it was appropriate to prepare the Company’s financial

statements on a going concern basis and made recommendations to

the Board. This review included challenging the assumptions on viability

of the Company and reviewing stress tests focused on its ability to

continue to meet its liabilities;

• considered the appropriate level of dividend to be paid by the Company

for recommendation to the Board; and

• examined in detail the methodology and assumptions applied in valuing

the assets of the Company.

Following the year end, the Committee has received and discussed

with the Auditor their report on the results of the audit and reviewed this

Annual Report and Financial Statements, discussed the appropriateness

of the accounting policies adopted and recommended these to the Board

for approval.

Significant Issues

The Committee considered the following key issues in relation to

the Company’s financial statements during the year. A more detailed

explanation of the consideration of the issues set out below, and the steps

taken to manage them, is set out in the principal risks and uncertainties on

pages 36 and 37.

Valuation of Investments

The Committee considered the valuation of the investment portfolio.

The Company’s portfolio currently consists of quoted investments,

which are valued by reference to their bid prices on the relevant exchange.

Any future unquoted or illiquid investments will be valued by the Directors

based on recommendations from the Investment Manager’s pricing

committee.

Maintaining Internal Controls

The Committee has considered carefully the internal control systems.

As the Company relies heavily on third-party suppliers, the Committee

monitors the services and control levels of all of its suppliers on an ongoing

basis, as explained below.

Going Concern and Long-term Viability of the Company

The Committee considered the Company’s financial requirements

for the next 12 months and concluded that it has sufficient resources to

meet its commitments. Consequently, the financial statements have been

prepared on a going concern basis. The Committee also considered the

longer-term viability statement within the Annual Report for the year ended

31 December 2023, covering a five-year period, and the underlying factors

and assumptions which contributed to the Committee deciding that this

was an appropriate length of time to consider the Company’s long-term

viability. The Company’s viability statement can be found on page 31.

Internal Controls

The Committee carefully considers the internal control systems by

continually monitoring the services and controls of its third-party

service providers.

The Committee reviewed the risk matrix at both of its meetings held during

the year under review and where appropriate it was updated. The results of

this ongoing process, as well as the principal risks identified, and controls

put in place to manage or mitigate these risks are detailed on pages 36

and 37 of this Report. The Committee received a report on internal control

and compliance from the Investment Manager and the Company’s other

service providers and no significant matters of concern were identified.

The Company does not have an internal audit function. During the

year, the Committee reviewed whether an internal audit function would

be of value and concluded that this would provide minimal additional

comfort at considerable extra cost to the Company. While the Committee

believes that the existing systems of monitoring and reporting by third

parties remain appropriate and adequate, it will continue, on an annual

basis, to actively consider possible areas within the Company’s controls

environment which may need to be reviewed in detail.

Governance / Report from the Audit Committee

AVI Japan Opportunity Trust plc / Annual Report 2023

External Auditor

BDO LLP has been the Auditor to the Company since launch in 2018. No

tender for the audit of the Company has been undertaken. In accordance

with the Competitions and Markets Authority Order, a competitive audit

tender must be carried out at least every ten years. The Company is

therefore required to carry out a tender no later than in respect of the

financial year ending 31 December 2029. The Committee reviews the

continuing appointment of the Auditor on an annual basis and gives regular

consideration to the Auditor’s fees and independence, along with matters

raised during each audit.

The Audit Partner is due to rotate every five years. This is the third year the

current Audit Partner is in place.

The Audit Committee specifically considered and discussed with the

Auditor the tax treatment of foreign exchange gains/losses on the revolving

credit facility and the presentation of the revolving loan facility in the 2022

Annual Report, as well as the disclosures regarding the renewal of the

facility in this report. The Committee further discussed the disclosures in

this report around the potential exit opportunity in 2024 and made some

changes to these at the Auditor’s recommendation. Key audit matters

raised by the Auditor are detailed in their report on pages 52 to 55, as well

as the materiality threshold.

Audit fees and Non-audit Services provided by the Auditor

In accordance with the Company’s non-audit services policy, the Audit

Committee reviews the scope and nature of all proposed non-audit

services before engagement, to ensure that auditor independence and

objectivity are safeguarded. The policy includes a list of non-audit services

which may be provided by the Auditor provided there is no apparent threat

to independence, as well as a list of services which are prohibited.

Non-audit services are capped at 70.0% of the average of the statutory

audit fees for the preceding three years.

Information on the fees paid to the Auditor is set out in note 3 to the

Financial Statements on page 63.

Effectiveness of the External Audit

The Audit Committee monitors and reviews the effectiveness of the

external audit carried out by the Auditor, including a detailed review

of the audit plan and the audit results report, and makes recommendations

to the Board on the re-appointment, remuneration and terms of

engagement of the Auditor. This review takes into account the experience

and tenure of the audit partner and team, the nature and level of

services provided, and confirmation that the Auditor has complied with

independence standards. During the year to 31 December 2023, the

Committee carried out a detailed review of the quality and effectiveness

of the 2022 audit. The review was based on feedback requested from the

Investment Manager, the Administrator and the Company Secretary and

discussions with the Auditor. No issues were identified with regards to the

effectiveness of the external audit. Any concerns with effectiveness of the

external audit process would be reported to the Board.

Independence and Objectivity of the Auditor

The Committee has considered the independence and objectivity

of the Auditor. £nil non-audit fees were paid to BDO LLP during the year

to 31 December 2023 (2022: £nil). The Committee is satisfied that the

Auditor has fulfilled its obligations to the Company and its Shareholders

and remains independent and objective.

Appointment of the Auditor

Following consideration of the performance of the Auditor, the services

provided during the year and a review of its independence and objectivity,

the Committee has recommended to the Board the reappointment of

BDO LLP as Auditor to the Company.

Ekaterina Thomson

Chairperson of the Audit Committee

13 March 2024

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

Opinion on the financial statements

In our opinion the financial statements:

• give a true and fair view of the state of the Company’s affairs as at 31

December 2023 and of its profit for the year then ended; and

• have been properly prepared in accordance with UK adopted

international accounting standards.

We have audited the financial statements of AVI Japan Opportunity Trust

plc (the ‘Company’) for the year ended 31 December 2023 which comprise

the Statement of Comprehensive Income, Statement of Changes in

Equity, Balance Sheet, Statement of Cash Flows and notes to the financial

statements, including a summary of significant accounting policies. The

financial reporting framework that has been applied in their preparation is

applicable law and UK adopted international accounting standards.

Basis for opinion

We conducted our audit in accordance with International Standards on

Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under

those standards are further described in the Auditor’s responsibilities for

the audit of the financial statements section of our report. We believe

that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion. Our audit opinion is consistent with the

additional report to the Audit Committee.

Independence

Following the recommendation of the Audit Committee, we were appointed

by the Board of Directors on on 8 October 2018 to audit the financial

statements for the year ended 31 December 2019 and subsequent

financial periods. The period of total uninterrupted engagement including

retenders and reappointments is five years, covering the years ended 31

December 2019 to 31 December 2023. We remain independent of the

Company in accordance with the ethical requirements that are relevant to

our audit of the financial statements in the UK, including the FRC’s Ethical

Standard as applied to listed public interest entities, and we have fulfilled

our other ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by that standard were not provided to

the Company.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Directors’

use of the going concern basis of accounting in the preparation of the

financial statements is appropriate. Our evaluation of the Directors’

assessment of the Company’s ability to continue to adopt the going

concern basis of accounting included:

• Evaluating the appropriateness of the Directors’ method of assessing the

going concern in light of economic and market conditions by reviewing

the information used by the Directors in completing their assessment;

• Assessing the appropriateness of the Directors’ assumptions and

judgements made by comparing the prior year forecasted costs to the

actual costs incurred to check that the projected costs are reasonable;

Reviewing loan arrangements with the bank for covenants in place,

recalculating the year end covenant compliance and assessing future

covenant compliance and headroom under market downturn scenarios;

• Assessing the appropriateness of the Directors’ assumptions and

judgements made in their base case and stress tested forecasts

including consideration of the available cash resources relative to

forecast expenditure and committments; and

• Challenging the Directors’ assumptions and judgements made in their

forecasts by performing an independent analysis of the liquidity of the

portfolio.

Based on the work we have performed, we have not identified any material

uncertainties relating to events or conditions that, individually or collectively,

may cast significant doubt on the Company’s ability to continue as a going

concern for a period of at least twelve months from when the financial

statements are authorised for issue.

In relation to the Company’s reporting on how it has applied the UK

Corporate Governance Code, we have nothing material to add or

draw attention to in relation to the Directors’ statement in the financial

statements about whether the Directors considered it appropriate to adopt

the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with respect to

going concern are described in the relevant sections of this report.

Overview

Key audit

matters

2023 2022

Valuation and ownership of quoted investments

Materiality Company fnancial statements as a whole

£1.8m based on 1% of net assets (£1.5m based on 1%

of net assets)

An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the Company and

its environment, including the Company’s system of internal control, and

assessing the risks of material misstatement in the financial statements.

We also addressed the risk of management override of internal controls,

including assessing whether there was evidence of bias by the Directors

that may have represented a risk of material misstatement.

Key audit matters

Key audit matters are those matters that, in our professional judgement,

were of most significance in our audit of the financial statements of the

current period and include the most significant assessed risks of material

misstatement (whether or not due to fraud) that we identified, including

those which had the greatest effect on: the overall audit strategy, the

allocation of resources in the audit, and directing the efforts of the

engagement team. These matters were addressed in the context of our

audit of the financial statements as a whole, and in forming our opinion

thereon, and we do not provide a separate opinion on these matters.

Governance / Independent Auditor's Report

to the Members of AVI Japan Opportunities Trust plc

AVI Japan Opportunity Trust plc / Annual Report 2023

Key audit matter

How the scope of our audit addressed

the key audit matter

Valuation and ownership of

quoted investments

(Note 8 on page 66)

The investment portfolio at the year-end comprised of

quoted equity investments held at fair value through

profit or loss.

We considered the valuation and ownership

of investments to be a significant audit area as

investments represent the most significant balance in

the financial statements and underpins the principal

activity of the Company.

Given the nature of the portfolio is such that it

comprises solely of level 1 investments, we do

not consider the use of bid price to be subject to

significant estimation uncertainty. However, there is a

risk that the bid price used as a proxy for fair value of

investments held at the reporting date is inappropriate.

There is also a risk of error in the recognition of

investment holdings such that those recognised

do not appropriately reflect the ownership of the

Company.

For these reasons and the materiality to the financial

statements as a whole, they are considered to be a

key area of our overall audit strategy and allocation of

our resources and hence a Key Audit Matter.

We responded to this matter by testing the valuation

and ownership of the entire portfolio of investments.

We performed the following procedures:

• Confirmed the year-end bid price was used by

agreeing to externally quoted prices;

• Assessed if there were contra indicators, such

as liquidity considerations, to suggest bid price is

not the most appropriate indication of fair value

by considering the realisation period for individual

holdings;

• Recalculated the valuation by multiplying the

number of shares held per the statement obtained

from the custodian by the valuation per share; and

• Obtained direct confirmation of the number

of shares held per equity investment from the

custodian regarding all investments held at the

balance sheet date.

Key observations:

Based on our procedures performed we did not

identify any matters to suggest the valuation or

ownership of the quoted equity investments was not

appropriate.

Based on our professional judgement, we determined materiality for the

financial statements as a whole and performance materiality as follows:

Company financial statements

2023 2022

Materiality £1,820,000 £1,500,000

Basis for

determining

materiality

1% of Net assets

Rationale for

the benchmark

applied

As an investment trust, the net asset value is

the key measure of performance for users of the

financial statements.

Performance

materiality

£1,360,000 £1,120,00

Basis for

determining

performance

materiality

75% of materiality

Rationale for

the percentage

applied for

performance

materiality

The level of performance materiality applied was

set after having considered a number of factors

including the expected total value of known and

likely misstatements and the level of transactions in

the year.

Reporting threshold

We agreed with the Audit Committee that we would report to them all

individual audit differences in excess of £36,000 (2022: £30,000). We

also agreed to report differences below this threshold that, in our view,

warranted reporting on qualitative grounds.

Our application of materiality

We apply the concept of materiality both in planning and performing

our audit, and in evaluating the effect of misstatements. We consider

materiality to be the magnitude by which misstatements, including

omissions, could influence the economic decisions of reasonable users

that are taken on the basis of the financial statements.

In order to reduce to an appropriately low level the probability that any

misstatements exceed materiality, we use a lower materiality level,

performance materiality, to determine the extent of testing needed.

Importantly, misstatements below these levels will not necessarily be

evaluated as immaterial as we also take account of the nature of identified

misstatements, and the particular circumstances of their occurrence, when

evaluating their effect on the financial statements as a whole.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

Other information

The Directors are responsible for the other information. The other

information comprises the information included in the Annual Report

other than the financial statements and our auditor’s report thereon. Our

opinion on the financial statements does not cover the other information

and, except to the extent otherwise explicitly stated in our report, we do

not express any form of assurance conclusion thereon. Our responsibility

is to read the other information and, in doing so, consider whether the

other information is materially inconsistent with the financial statements or

our knowledge obtained in the course of the audit, or otherwise appears

to be materially misstated. If we identify such material inconsistencies or

apparent material misstatements, we are required to determine whether

this gives rise to a material misstatement in the financial statements

themselves. If, based on the work we have performed, we conclude that

there is a material misstatement of this other information, we are required

to report that fact.

We have nothing to report in this regard.

Corporate governance statement

The Listing Rules require us to review the Directors’ statement in relation

to going concern, longer-term viability and that part of the Corporate

Governance Statement relating to the Company’s compliance with the

provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded

that each of the following elements of the Corporate Governance

Statement is materially consistent with the financial statements or our

knowledge obtained during the audit.

Going

concern and

longer-term

viability

• The Directors’ statement with regards to

the appropriateness of adopting the going

concern basis of accounting and any material

uncertainties identified set out on page 49; and

• The Directors’ explanation as to their

assessment of the Company’s prospects, the

period this assessment covers and why the

period is appropriate set out on page 49.

Other Code

provisions

• Directors’ statement on fair, balanced and

understandable set out on page 49;

• Board’s confirmation that it has carried out a

robust assessment of the emerging and principal

risks set out on page 36 and 37;

• The section of the annual report that describes

the review of effectiveness of risk management

and internal control systems set out on page 44

and 45; and

• The section describing the work of the audit

committee set out on page 44.

Governance / Independent Auditor's Report continued

to the Members of AVI Japan Opportunities Trust plc

Other Companies Act 2006 reporting

Based on the responsibilities described below and our work performed

during the course of the audit, we are required by the Companies Act

2006 and ISAs (UK) to report on certain opinions and matters as described

below.

Strategic

report and

Directors’

report

In our opinion, based on the work undertaken in the

course of the audit:

• the information given in the Strategic report and

the Directors’ Report for the financial year for

which the financial statements are prepared is

consistent with the financial statements; and

• the Strategic report and the Directors’ Report

have been prepared in accordance with

applicable legal requirements.

In the light of the knowledge and understanding of

the Company and its environment obtained in the

course of the audit, we have not identified material

misstatements in the strategic report or the Directors’

Report.

Directors’

remuneration

In our opinion, the part of the Directors’ Remuneration

Report to be audited has been properly prepared in

accordance with the Companies Act 2006.

Matters on

which we

are required

to report by

exception

We have nothing to report in respect of the following

matters in relation to which the Companies Act 2006

requires us to report to you if, in our opinion:

• adequate accounting records have not been

kept, or returns adequate for our audit have not

been received from branches not visited by us; or

• the financial statements and the part of the

Directors’ Remuneration Report to be audited

are not in agreement with the accounting records

and returns; or

• certain disclosures of Directors’ remuneration

specified by law are not made; or

• we have not received all the information and

explanations we require for our audit.

Responsibilities of Directors

As explained more fully in the Statement of Directors’ Responsibilities, the

Directors are responsible for the preparation of the financial statements and

for being satisfied that they give a true and fair view, and for such internal

control as the Directors determine is necessary to enable the preparation

of financial statements that are free from material misstatement, whether

due to fraud or error.

In preparing the financial statements, the Directors are responsible

for assessing the Company’s ability to continue as a going concern,

disclosing, as applicable, matters related to going concern and using

the going concern basis of accounting unless the Directors either intend

to liquidate the Company or to cease operations, or have no realistic

alternative but to do so.

AVI Japan Opportunity Trust plc / Annual Report 2023

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the

financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditor’s report that includes

our opinion. Reasonable assurance is a high level of assurance, but is not

a guarantee that an audit conducted in accordance with ISAs (UK) will

always detect a material misstatement when it exists. Misstatements can

arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic

decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities,

including fraud

Irregularities, including fraud, are instances of non-compliance with laws

and regulations. We design procedures in line with our responsibilities,

outlined above, to detect material misstatements in respect of irregularities,

including fraud. The extent to which our procedures are capable of

detecting irregularities, including fraud is detailed below:

Non-compliance with laws and regulations

Based on:

• Our understanding of the Company and the industry in which it

operates;

• Discussion with the Investment Manager and Administrator and those

charged with governance; and

• Obtaining and understanding of the Company’s policies and

procedures regarding compliance with laws and regulations;

we considered the significant laws and regulations to be Companies Act

2006, the FCA listing and DTR rules, the principles of the AIC Code of

Corporate Governance, industry practice represented by the AIC SORP,

the applicable accounting framework, and the Company’s qualification as

an Investment Trust under UK tax legislation as any non-compliance of this

would lead to the Company losing various deductions and exemptions

from corporation tax.

Our procedures in respect of the above included:

• Agreement of the financial statement disclosures to underlying

supporting documentation;

• Enquiries of management and those charged with governance relating

to the existence of any non-compliance with laws and regulations;

• Reviewing minutes of meetings of those charged with governance

throughout the period for instances of non-compliance with laws and

regulations; and

• Reviewing the calculation in relation to Investment Trust compliance to

check that the Company was meeting its requirements to retain their

Investment Trust Status.

Fraud

We assessed the susceptibility of the financial statement to material

misstatement including fraud.

Our risk assessment procedures included:

• Enquiry with the Investment Manager, the Administrator and those

charged with governance regarding any known or suspected instances

of fraud;

• Review of minutes of meetings of those charged with governance for

any known or suspected instances of fraud; and

• Discussion amongst the engagement team as to how and where fraud

might occur in the financial statements.

Based on our risk assessment, we considered the areas most susceptible

to be management override of controls.

Our procedures in respect of the above included:

• In addressing the risk of management override of control, we:

– Performed a review of estimates and judgements applied

by management in the financial statements to assess their

appropriateness and the existence of any systematic bias;

– Considered the opportunity and incentive to manipulate accounting

entries and tested relevant adjustments made in the period end

financial reporting process;

– To include an element of unpredictability we tested a sample of low

value items;

– Considered if there were any significant transactions outside the

normal course of business and found none; and

– Performed a review of unadjusted audit differences, for indications

of bias or deliberate misstatement.

We also communicated relevant identified laws and regulations and

potential fraud risks to all engagement team members, who were deemed

to have the appropriate competence and capabilities, and remained alert

to any indications of fraud or non-compliance with laws and regulations

throughout the audit.

Our audit procedures were designed to respond to risks of material

misstatement in the financial statements, recognising that the risk of not

detecting a material misstatement due to fraud is higher than the risk of

not detecting one resulting from error, as fraud may involve deliberate

concealment by, for example, forgery, misrepresentations or through

collusion. There are inherent limitations in the audit procedures performed

and the further removed non-compliance with laws and regulations is from

the events and transactions reflected in the financial statements, the less

likely we are to become aware of it.

A further description of our responsibilities is available on the

Financial Reporting Council’s website at: www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditor’s

report.

Use of our report

This report is made solely to the Company’s members, as a body, in

accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our

audit work has been undertaken so that we might state to the Company’s

members those matters we are required to state to them in an auditor’s

report and for no other purpose. To the fullest extent permitted by law, we

do not accept or assume responsibility to anyone other than the Company

and the Company’s members as a body, for our audit work, for this report,

or for the opinions we have formed.

Chris Meyrick (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London

13 March 2024

BDO LLP is a limited liability partnership registered in England and Wales

(with registered number OC305127).

AVI Japan Opportunity Trust plc / Annual Report 2023

SR FS SI

For the year ended 31 December 2023 For the year ended 31 December 2022

Notes

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Income

Investment income 2 3,956 – 3,956 3,667 – 3,667

Gains/(losses) on investments held at fair value 8 – 23,115 23,115 – (7,657) (7,657)

Exchange (losses)/gains on currency balances – (1,158) (1,158) – 950 950

3,956 21,957 25,913 3,667 (6,707) (3,040)

Expenses

Investment management fee 3 (162) (1,460) (1,622) (152) (1,364) (1,516)

Other expenses 3 (886) – (886) (806) – (806)

Profit/(loss) before finance costs and tax 2,908 20,497 23,405 2,709 (8,071) (5,362)

Finance costs 4 (18) (163) (181) (21) (187) (208)

Exchange gains/(losses) on revolving credit facility 4 – 1,933 1,933 – (1,044) (1,044)

Profit/(loss) before taxation 2,890 22,267 25,157 2,688 (9,302) (6,614)

Taxation 5 (418) – (418) (377) – (377)

Profit/(loss) for the year 2,472 22,267 24,739 2,311 (9,302) (6,991)

Earnings per Ordinary Share – basic and diluted (pence) 7 1.76 15.89 17.65 1.69 (6.79) (5.10)

The total column of this statement is the Income Statement of the Company prepared in accordance with UK-adopted international accounting

standards. 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 year.

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

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

Financial Statements / Statement of Comprehensive Income

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

Ordinary

Share capital

£’000

premium

£’000

Special

reserve*

£’000

Capital

reserve*

£’000

Revenue

reserve**

£’000

Total

£’000

For the year ended 31 December 2023

Balance as at 31 December 2022 1,375 60,155 77,153 15,928 1,784 156,395

Issue of Ordinary Shares 33 4,099 – – – 4,132

Expenses of share issues – (76) – – – (76)

Ordinary Shares issued from treasury – 77 1,125 – – 1,202

Ordinary Shares bought back and held in treasury – – (1,134) – – (1,134)

Total comprehensive income for the year – – – 22,267 2,472 24,739

Ordinary dividends paid – – – – (2,315) (2,315)

Balance as at 31 December 2023 1,408 64,255 77,144 38,195 1,941 182,943

For the year ended 31 December 2022

Balance as at 31 December 2021 1,332 55,374 77,324 25,230 1,461 160,721

Issue of Ordinary Shares 43 4,849 – – – 4,892

Expenses of share issues – (93) (6) – – (99)

Ordinary Shares issued from treasury – 25 270 – – 295

Ordinary Shares bought back and held in treasury – – (435) – – (435)

Total comprehensive income for the year – – – (9,302) 2,311 (6,991)

Ordinary dividends paid – – – – (1,988) (1,988)

Balance as at 31 December 2022 1,375 60,155 77,153 15,928 1,784 156,395

* Distributable reserves. Within the balance of the capital reserve, £15,452,000 (31 December 2022: £12,705,000) relates to realised gains which is distributable.

The remaining £22,743,000 (31 December 2022: £3,223,000) relates to unrealised gains on investments and is non-distributable.

** Revenue reserve is fully distributable.

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

Financial Statements / Statement of Changes in Equity

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

Notes

As at

31 December

2023

£’000

As at

31 December

2022

£’000

Non-current assets

Investments held at fair value through profit or loss 8 185,857 164,323

185,857 164,323

Current assets

Receivables 9 388 196

Cash and cash equivalents 13,430 7,792

13,818 7,988

Total assets 199,675 172,311

Current liabilities

Revolving credit facility 11 (16,301) –

Payables 10 (431) (384)

(16,732) (384)

Total assets less current liabilities 182,943 171,927

Non-current liabilities

Revolving credit facility 12 – (15,532)

Net assets 182,943 156,395

Equity attributable to equity Shareholders

Ordinary Share capital 13 1,408 1,375

Share premium 64,255 60,155

Special reserve 77,144 77,153

Capital reserve 38,195 15,928

Revenue reserve 1,941 1,784

Total equity 182,943 156,395

Net asset value per Ordinary Share –basic and diluted 14 130.27p 114.11p

Number of shares in issue excluding treasury 13 140,436,702 137,061,702

These financial statements were approved and authorised for issue by the Board of AVI Japan Opportunity Trust plc on 13 March 2024 and were signed

on its behalf by:

Norman Crighton

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

Registered in England & Wales No. 11487703

Financial Statements / Balance Sheet

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

31 December

2023

£’000

31 December

2022

£’000

Reconciliation of profit/(loss) before taxation to net cash inflow from operating activities

Profit/(loss) before taxation 25,157 (6,614)

(Gains)/losses on investments held at fair value through profit or loss (23,115) 7,657

Decrease in other receivables 132 71

Exchange (gains)/losses on revolving credit facility (1,933) 1,044

Exchange losses/(gains) on currency balances 1,162 (737)

Interest paid 200 190

(Decrease)/increase in other payables (30) 74

Taxation paid (418) (377)

Net cash inflow from operating activities 1,155 1,308

Investing activities

Purchases of investments (55,633) (55,223)

Sales of investments 56,966 54,628

Net cash inflow/(outflow) from investing activities 1,333 (595)

Financing activities

Dividends paid (2,315) (1,988)

Issue of shares 4,132 4,923

Issue of Ordinary Shares from treasury 1,202 264

Cost of share issues (76) (99)

Payments for Ordinary Shares bought back and held in treasury (1,134) (435)

Drawdown of revolving credit facility 2,703 5,999

Repayment of revolving credit facility – (9,013)

Interest paid (200) (190)

Cash inflow/(outflow) from financing activities 4,312 (539)

Increase in cash and cash equivalents 6,800 174

Reconciliation of net cash flow movement

Cash and cash equivalents at beginning of year 7,792 8,165

Exchange losses on currency balances (1,162) (547)

Increase in cash and cash equivalents 6,800 174

Cash and cash equivalents at end of year 13,430 7,792

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

Financial Statements / Statement of Cash Flows

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

1. General Information and Accounting Policies

AVI Japan Opportunity Trust plc is a public limited company incorporated on 27 July 2018 and registered in England and Wales. The principal activity

of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and its investment

approach is detailed in the Strategic Report.

The Company commenced trading and was listed on the London Stock Exchange on 23 October 2018.

The Company’s financial statements have been prepared in accordance with UK-adopted international accounting standards and the AIC SORP.

Basis of Preparation

The financial statements of the Company have been prepared for the year ended 31 December 2023.

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by The AIC, supplementary information

which analyses the Statement of Comprehensive Income between items of revenue and a 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 Pounds Sterling as the Shares of the Company are listed on the London Stock Exchange,

it is regulated in the United Kingdom, principally having 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.

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 the assessment, the Directors of the Company have considered the likely impacts of international and economic uncertainties on the

Company, operations and the investment portfolio. The Directors also regularly assess the resilience of key third-party service providers, most notably the

Investment Manager and Fund Administrator. In making their assessment, the Directors have considered the likely impacts of international and economic

uncertainties on the Company, operations and the investment portfolio. These include, but are not limited to, geopolitical events, the war in Ukraine, the

ongoing Israel/Palestine conflict, political and economic instability in the UK, and inflationary pressures.

The Directors noted that the Company, with the current cash balance and holding a portfolio of listed investments, is able to meet the obligations

of the Company as they fall due. The surplus cash enables the Company to meet any funding requirements and finance future additional investments.

The revolving credit facility (extended to 5 April 2024) is fully utilised at year end and the facility is to be extended for a further two years. The Company

is able to repay the facility at its own discretion from available cash and liquid investments. The Investment Manager assesses the exposure to risk when

making each investment decision, monitors cash flows and the performance of the portfolio on a daily basis. The Company is a closed-ended fund,

where assets are not required to be liquidated to meet day-to-day redemptions.

The Directors have completed stress tests assessing the impact of changes in market value, inflation and income with associated cash flows. In making

this assessment, they have considered severe but plausible downside scenarios and simulated a 50% reduction in NAV during April 2024, the impact

on future cash flows as a result of this through to December 2028. The conclusion was that in a severe but 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, and changes in expenses, 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 Company’s IPO Prospectus stated that the Directors may, at their discretion, deliver a full or a partial exit opportunity to Shareholders every two

years, from October 2022 onwards. The mechanism would be dependent on various factors including the number of Shareholders seeking to participate

in the exit opportunity, the liquidity of the underlying market and/or the demand for Shares from other investors.

In 2022, the Company consulted with Shareholders representing a significant majority of the shares in issue and, in line with the opinion expressed

by the consulted Shareholders, the Company did not offer an exit opportunity at that time. The Company intends to follow a similar consultation

process ahead of October 2024. The Directors have reviewed the Shareholders of the Company, Shareholder feedback, the current market position

and performance. It is anticipated there will be no significant uptake by Shareholders of any potential exit opportunity in 2024 and the Company will

continue as a going concern.

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.

Segmental Reporting

The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

The Company invests in companies listed in Japan on recognised exchanges.

Financial Statements / Notes to the Financial Statements

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

1. General Information and Accounting Policies continued

Accounting Developments

New and amended IAS Standards that are effective for the current year.

In the current year, the Company has applied a number of amendments to UK-adopted international standards that are mandatorily effective for an

accounting period that begins on or after 1 January 2023. Their adoption has not had any material impact on the disclosures or on the accounts

reported in these financial statements. In accordance with an amendment to IAS1, Presentation of Financial Statements, the Company now discloses its

material accounting policy information instead of significant accounting policies. The updates incorporated:

• Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2;

• Definition of Accounting Estimates – Amendments to IAS 8;

• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12; and

• IFRS 17 Insurance Contracts.

There are amendments to IAS/IFRS that will apply from 1 January 2024 as follows:

• Classification of liabilities as current or non-current – Amendments to IAS 1;

• Non-current liabilities with Covenants – Amendments to IAS 1; and

• Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7.

The Directors do not anticipate the adoption of these will have a material impact on the financial statements.

Critical Accounting Judgements and Key Sources of Estimation Uncertainty

The preparation of financial statements in conformity with UK-adopted international accounting standards requires management to make judgements,

estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Statement of Comprehensive

Income and the disclosure of contingent assets at the date of the financial statements. The estimates and associated assumptions are based on

historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making

judgements about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The areas requiring judgement and estimation in the preparation of the financial statements are: recognising and classifying unusual or special dividends

received as either revenue or capital in nature; allocation of expenses between capital and income, and setting of the level of dividends paid and

proposed.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which

the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future

periods. There are no further significant judgements or estimates in these financial statements.

Investments

The investment objective of the Company is to provide Shareholders with a total return in excess of the MSCI Japan Small Cap Index in GBP, through

the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by the Investment Manager as

undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or realisable assets.

The investments held by the Company are measured ‘at fair value through profit or loss’. All gains and losses are allocated to the capital return within the

Statement of Comprehensive Income as ‘Gains or losses on investments held through profit or loss’. Also included within this heading are transaction

costs in relation to the purchase or sale of investments. When a purchase or sale is made under a contract, the terms of which require delivery within the

timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair

value, which is the bid price. The Company derecognises a financial asset only when the contractual right to the cash flows from the asset expire, or

when it transfers the financial asset and subsequently all the risks and rewards of ownership to another entity. On derecognition of a financial asset, the

difference between the asset’s carrying amount and the sum of the consideration received and receivable, and the cumulative gain or loss that had been

accumulated is recognised in profit or loss.

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 15.

Foreign currency

Transactions denominated in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the date of transaction. Items

which are denominated in foreign currencies are translated at the rates prevailing on the Balance Sheet date. Any gain or loss arising from a change in

exchange rate subsequent to the date of the transaction is included as exchange gain or loss in the capital reserve or revenue reserve depending on

whether the gain or loss is capital or revenue in nature.

Cash and Cash Equivalents

Cash comprises cash in hand and balances held in interest bearing accounts revalued for exchange rate movements.

For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

1. General Information and Accounting Policies continued

Revolving Credit Facility

The revolving credit facility is shown at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange

rates is included in the capital reserve and shown in the capital column of the Statement of Comprehensive Income.

Income

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend

date is quoted are brought into account when the Company’s right to receive payment is established. Dividends from overseas companies are shown

gross of any withholding taxes. Irrecoverable withholding taxes are disclosed within taxation in the Statement of Comprehensive Income.

Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital

or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis.

When the Company has elected to receive scrip dividends in the form of additional shares, rather than cash, the amount of the cash dividend forgone

is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

All other income is accounted for on a time-apportioned accruals basis and is recognised in the Statement of Comprehensive Income.

Expenses and Finance Costs

Expenses incurred directly in relation to arranging debt finance are amortised over the term of the finance. All expenses and finance costs are accounted

for on an accruals basis. On the basis of the Board’s expected long-term split of total returns the Company charges 90% of its management fee and

finance costs to capital.

Taxation

The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary

differences between the treatment of certain items for accounting and taxation purposes.

The tax charge consists of overseas tax not recoverable.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for

financial reporting purposes at the reporting date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable

profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used

to calculate the tax relief on expenses charged to capital is the ‘marginal’ basis. Under this basis, if taxable income is capable of being offset entirely by

expenses charged through the revenue account, then no tax relief is transferred to the capital account.

Dividends Payable to Shareholders

Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the

Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability

of the Company at the Balance Sheet date.

Share Premium

The share premium account represents the accumulated premium paid for shares issued above their nominal value less issue expenses. This is a reserve

forming part of the non-distributable reserves. The following items are taken to this reserve:

• costs associated with the issue of equity; and

• premium on the issue of shares.

Special Reserve

The special reserve was created by the cancellation of the share premium account by order of the court and forms part of the distributable reserves.

The following items are taken to this reserve:

• costs of share buybacks; and

• crediting the cost of share buybacks for shares reissued.

Capital Reserve

The following are taken to the capital reserve through the capital column in the Statement of Comprehensive Income:

Capital reserve – other, forming part of the distributable reserves:

• gains and losses on the disposal of investments;

• issue expenses on revolving credit facility;

• exchange differences of a capital nature; and

• expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Capital reserve – investment holding gains, not distributable:

• increase and decrease in the valuation of investments held at the year end.

Revenue Reserve

The revenue reserve represents the surplus of accumulated profits and is distributable by way of dividends.

Financial Statements / Notes to the Financial Statements continued

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

2. Income

31 December

2023

£’000

31 December

2022

£’000

Income from investments

Overseas dividends 4,179 3,772

Bank and deposit interest (16) (24)

Exchange losses on receipt of income* (207) (81)

Total income 3,956 3,667

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

3. Investment Management Fee and Other Expenses

Year ended 31 December 2023 Year ended 31 December 2022

Revenue

£’000

Capital

£’000

Total

£’000

Revenue

£’000

Capital

£’000

Total

£’000

Management fee 162 1,460 1,622 152 1,364 1,516

Other expenses:

Directors’ emoluments – fees 149 – 149 138 – 138

Directors’ insurances and other expenses 18 – 18 12 – 12

Directors’ National Insurance Contributions 16 – 16 15 – 15

Auditor’s remuneration – audit services 51 – 51 47 – 47

Marketing 190 – 190 212 – 212

Printing and postage costs 32 – 32 27 – 27

Registrar fees 28 – 28 18 – 18

Custodian fees 22 – 22 28 – 28

Depositary fees 33 – 33 32 – 32

Advisory and professional fees 296 – 296 240 – 240

Regulatory fees 33 – 33 29 – 29

Irrecoverable VAT (11) – (11) 8 – 8

Sundry expenses 29 – 29 – – –

Total other expenses 886 – 886 806 – 806

The management fee of 1% per annum is calculated on the lesser of the Company’s NAV or Market Capitalisation at each quarter end. The Investment

Manager will invest 25% of the management fee it receives in shares of the Company (through open market purchases) and will hold these for

a minimum of two years.

At AVI’s request, the Board agreed in September 2023 to temporarily reduce the investment to 10% of the management fee, to bolster AVI’s cash

reserves for an acquisition on the basis that the Investment Manager would increase the reinvestment level subsequently, in order to ensure that 25% of

the management fees were reinvested by 31 December 2024.

4. Finance Costs

Year ended 31 December 2023 Year ended 31 December 2022

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Revenue

return

£’000

Capital

return

£’000

Total

£’000

JPY revolving credit facility (18) (163) (181) (21) (187) (208)

Exchange gain/(loss) on JPY revolving credit facility* – 1,933 1,933 – (1,044) (1,044)

* Revaluation of revolving credit facility.

Details of the revolving credit facility are set out in notes 10, 11 and 12.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

5. Taxation

Year ended 31 December 2023 Year ended 31 December 2022

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Analysis of charge for the year

Overseas tax not recoverable* 418 – 418 377 – 377

Tax charge for the year 418 – 418 377 – 377

* Tax deducted on payment of overseas dividends by local tax authorities.

The tax assessed for the year is the standard rate of corporation tax in the United Kingdom of 19%. The differences are explained below:

Year ended 31 December 2023 Year ended 31 December 2022

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Revenue

return

£’000

Capital

return

£’000

Total

£’000

Return on ordinary activities after interest payable

but before appropriations 2,890 22,267 25,157 2,688 (9,302) (6,614)

Profit/(loss) before taxation multiplied by the standard

rate of corporation tax of 23.5% (2022: 19%) 549 4,231 4,780 511 (1,767) (1,256)

Effects of:

– Tax – exempt overseas investment income (794) – (794) (717) – (717)

– Foreign exchange (gains)/losses not taxable 39 (147) (108) 15 18 33

– (Losses)/gains on investments and exchange

losses on capital items – (4,392) (4,392) – 1,455 1,455

– Excess management expenses carried forward 203 277 480 182 259 441

– Movement in non-trading loan relationship deficit

not utilised 3 31 34 9 35 44

– Overseas tax not recoverable 418 – 418 377 – 377

Tax charge for the year 418 – 418 377 – 377

At 31 December 2023, the Company had unrelieved tax losses of £11,463,000 (31 December 2022: £8,758,000) that are available to offset future

taxable revenue. A deferred tax asset of £2,866,000 (31 December 2022: £2,189,000), which has been calculated using a corporation tax rate of

25% (2022: 25%), has not been recognised because the Company is not expected to generate sufficient taxable income in future periods to utilise

these tax losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends

to continue for the foreseeable future to meet) the conditions for approval as an investment trust company.

6. Dividends

31 December

2023

£’000

31 December

2022

£’000

Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 December 2022 of 0.80p (2021: 0.70p) per Ordinary Share 1,118 960

Interim dividend for the year ended 31 December 2023 of 0.85p (2022: 0.75p) per Ordinary Share 1,197 1,028

2,315 1,988

Financial Statements / Notes to the Financial Statements continued

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

6. Dividends continued

Set out below are the interim and final dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the

requirements of Section 1159 of the Corporation Tax Act 2010 are considered:

31 December

2023

£’000

31 December

2022

£’000

Interim dividend for the year ended 31 December 2023: 0.85p (2022: 0.75p) per Ordinary Share 1,197 1,028

Proposed final dividend for the year ended 31 December 2023 of 0.85p (2022: 0.80p) per Ordinary Share 1,194* 1,118

2,391 2,146

* Based on shares in circulation on 13 March 2024.

7. Earnings per Ordinary Share – basic and diluted

The earnings per Ordinary Share is based on the Company’s net profit after tax of £24,739,000 (year ended 31 December 2022: loss of £6,991,000) and

on 140,094,621 (year ended 31 December 2022: 136,908,472) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during

the year.

The earnings per Ordinary Share detailed above can be further analysed between revenue and capital as follows:

Year ended 31 December 2023 Year ended 31 December 2022

Revenue Capital Total Revenue Capital Total

Net profit/(loss) (£’000) 2,472 22,267 24,739 2,311 (9,302) (6,991)

Weighted average number of Ordinary Shares 140,094,621 136,908,472

Earnings per Ordinary Share –

basic and diluted (pence) 1.76 15.89 17.65 1.69 (6.79) (5.10)

There are no dilutive instruments issued by the Company.

8. Investments Held at Fair Value Through Profit or Loss

31 December

2023

£’000

31 December

2022

£’000

Financial assets held at fair value

Opening book cost 160,623 152,677

Opening investment holding gains 3,700 18,572

Opening fair value 164,323 171,249

Movement in the year:

Purchases at cost: Equities 55,710 55,224

Sales proceeds: Equities (57,291) (54,493)

– realised gains on equity sales 4,367 7,215

Increase/(decrease) in investment holding gains 18,748 (14,872)

Closing fair value 185,857 164,323

Closing book cost 163,409 160,623

Closing investment holding gains 22,448 3,700

Closing fair value 185,857 164,323

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

8. Investments Held at Fair Value Through Profit or Loss continued

Year ended

31 December

2023

£’000

Year ended

31 December

2022

£’000

Transaction costs

Cost on acquisition 32 32

Cost on disposals 33 30

65 62

Analysis of capital gains

Gains on sales of financial assets based on historical cost 4,367 7,215

Movement in investment holding gains/(losses) for the year 18,748 (14,872)

Net gains/(losses) on investments held at fair value 23,115 (7,657)

The Company received £57,291,000 (year ended 31 December 2022: £54,493,000) from investments sold in the year. The book cost of these

investments when they were purchased was £52,924,000 (year ended 31 December 2022: £47,278,000). These investments have been revalued over

time and until they were sold any unrealised gains or losses were included in the fair value of the investments.

The Company has six investments of 3% or more of the equity capital of the investee companies, which are set out in the Investment Portfolio on

page 22.

9. Receivables

2023

£’000

2022

£’000

Due from brokers 324 –

Other receivables and prepayments 64 196

388 196

No receivables are past due or impaired.

10. Current Liabilities

2023

£’000

2022

£’000

Revolving credit facility 16,301 –

Payables:

Management fees 133 124

Interest payable 70 51

Due to brokers 79 1

Accrued expenses 149 208

431 384

Total current liabilities 16,732 384

Financial Statements / Notes to the Financial Statements continued

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

11. Revolving Credit Facility

Year ended 31 December 2023 Year ended 31 December 2022

¥’000 £’000 ¥’000 £’000

Opening balance 2,465,000 15,532 2,930,000 18,787

Proceeds from amounts drawn 465,000 2,703 1,000,000 5,999

Proceeds from amounts repaid – – (1,465,000) (9,013)

Exchange rate movement – (1,934) – (241)

Closing balance 2,930,000 16,301 2,465,000 15,532

Maximum facility available 2,930,000 16,301 2,930,000 18,462

Effective 2 February 2022, the Company extended the revolving credit facility (“the facility”) for a further two years to 2 February 2024, with the ¥1.4 billion

option removed to leave a facility size of ¥2.9 billion. The facility was subsequently extended to 5 April 2024 on the same terms, while renewal terms are

being agreed. Interest is charged at the Tokyo Overnight Average Rate (“TONAR”) (if TONAR – the reference rate is less than zero this shall be deemed to

be zero). The interest is payable bi-annually, and the current interest rate (and also the effective rate) is 1.15%.

When less than 50% of the facility is utilised, commitment fees of 0.375% are charged on undrawn balances. If over 50% is drawn down, 0.325% is

payable on the undrawn amount. As at the date of this report, the Company has drawn down ¥2.465 billion of the facility and the commitment fee is

payable. The commitment fees are payable quarterly.

Under the terms of the facility, the net assets shall not be less than £75 million and the adjusted total net assets to borrowing ratio shall not be less

than 4.5:1.

The facility is shown at amortised cost and revalued for exchange rate movements. Costs of £20,000 were incurred in relation to the extension of the

facility. Any gain or loss arising from changes in exchange rates are included in the capital reserves and shown in the capital column of the Statement of

Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company’s accounting policies.

12. Non-Current Liabilities

2023

£’000

2022

£’000

Revolving credit facility – 15,532

Total – 15,532

13. Share Capital

As at 31 December 2023

Ordinary Shares of 1p each

Allotted, called up and fully paid

Number

of shares

Nominal

value

£’000

Balance at beginning of year 137,461,702 1,375

Issue of Ordinary Shares 3,375,000 33

140,836,702 1,408

Treasury shares:

Balance at beginning of year

400,000

Issue of Ordinary Shares from treasury (985,000)

Buyback of Ordinary Shares into treasury 985,000

Balance at end of year 400,000

Total Ordinary Share capital excluding treasury shares 140,436,702

During the year ended 31 December 2023, 4,360,000 (31 December 2022: 4,491,000) Ordinary Shares were issued for a net consideration of

£5,258,000 (31 December 2022: £4,824,000), including 985,000 Ordinary Shares issued from treasury (31 December 2022: 250,000).

During the year, 985,000 Ordinary Shares (31 December 2022: 400,000) were bought back and placed in treasury for an aggregate consideration

of £1,134,000 (31 December 2022: £171,000).

AVI Japan Opportunity Trust plc / Annual Report 2023

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14. NAV per Ordinary Share

The NAV per Ordinary Share is based on net assets of £182,943,000 (31 December 2022: £156,395,000) and on 140,436,702 (31 December 2022:

137,061,702) Ordinary Shares, being the number of Ordinary Shares in issue at the year end.

15. Financial Instruments and Capital Disclosures

Investment Objective and Policy

The investment objective of the Company is to achieve a total return through a focused portfolio of investments, particularly in companies whose share

prices stand at a discount to estimated underlying NAV.

The Company’s investment objective and policy are detailed on page 23.

The Company’s financial instruments comprise equity investments, cash balances, receivables, payables and borrowings. The Company makes use of

borrowings to achieve improved performance in rising markets.

Risks

The risks identified arising from the financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency risk),

liquidity risk and credit and counterparty risk. The Company may also enter into derivative transactions to manage risk.

The Board and Investment Manager consider and review the risks inherent in managing the Company’s assets which are detailed below.

Market Risk

Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss

which the Company might suffer through holding market positions by way of price movements, interest rate movements, exchange rate movements and

systematic risk (risk inherent to the market, reflecting economic and geopolitical factors). The Investment Manager assesses the exposure to market risk

when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings

with the Investment Manager.

Market Price Risk

Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments.

Adherence to investment policies mitigates the risk of excessive exposure to any particular type of security or issuer. The portfolio is managed with

an awareness of the effects of adverse price movements through detailed and continuing analysis, with the objective of maximising overall returns to

shareholders. The assessment of market risk is based on the Company’s portfolio as held at the year end. The Company has experienced volatility in

the fair value of investments during recent years due to geopolitical events. Further additional volatility during the year has resulted from the Russian

invasion of Ukraine, the ongoing Israel/Palestine conflict, UK political instability, and inflation. The Company has used 10% to demonstrate the impact of

a reduction/increase in the fair value of the investments and the impact upon the Company that might arise from future events.

The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with the objective

of maximising overall returns to Shareholders. If the fair value of the Company’s investments at the year end increased or decreased by 10%, then it

would have had an impact on the Company’s capital return through (losses)/gains on investments held at fair value, impacting profit/(loss) and the NAV,

by 18,586,000 (31 December 2022: £16,432,000).

Foreign Currency

The value of the Company’s assets and the total return earned by the Company’s Shareholders can be significantly affected by foreign exchange

rate movements as most of the Company’s assets are denominated in currencies other than Pounds Sterling, the currency in which the Company’s

financial statements are prepared. Income denominated in foreign currencies is converted to Pounds Sterling upon receipt. The JPY exchange rate

at 31 December 2023 was ¥179.74:£1 (31 December 2022: ¥158.705:£1).

Currency Risk

GBP

£’000

JPY

£’000

Total

£’000

At 31 December 2023

Receivables 64 324 388

Cash and cash equivalents 311 13,119 13,430

JPY revolving credit facility – (16,301) (16,301)

Payables (282) (149) (431)

Currency exposure on net monetary items 93 (3,007) (2,914)

Investments held at fair value through profit or loss – 185,857 185,857

Total net currency exposure 93 182,850 182,943

Financial Statements / Notes to the Financial Statements continued

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

15. Financial Instruments and Capital Disclosures continued

Currency Risk continued

GBP

£’000

JPY

£’000

Total

£’000

At 31 December 2022

Receivables 37 159 196

Cash and cash equivalents 1,066 6,726 7,792

JPY revolving credit facility – (15,532) (15,532)

Payables (332) (52) (384)

Currency exposure on net monetary items 771 (8,699) (7,928)

Investments held at fair value through profit or loss – 164,323 164,323

Total net currency exposure 771 155,624 156,395

A 5% decline in Sterling against foreign currency denominated (i.e. non Pounds Sterling) assets and liabilities held at the year end would have

increased the net assets and exchange gains and losses, impacting profit/(loss), by £9,143,000 (31 December 2022: £7,781,000). A 5% rise in Sterling

against foreign currency denominated assets and liabilities held at the year end would have decreased the net assets and exchange gains and losses,

impacting profit/(loss) by £9,143,000 (31 December 2022: £7,781,000).

Interest Rate Risk

Interest rate movements may affect:

• the level of income receivable on cash deposits; and

• the interest payable on variable rate borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment

decisions.

The exposure at 31 December of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates.

31 December

2023

£’000

31 December

2022

£’000

Exposure to floating interest rates

Cash and cash equivalents 13,430 7,792

JPY revolving credit facility (16,301) (15,532)

If the above level of cash was maintained for a year, a 1% increase in interest rates would decrease the revenue return and net assets by £134,000

(31 December 2022: £77,000). Management proactively manages cash balances. If there was a fall of 1% in interest rates, it would potentially impact the

Company by turning positive interest to negative interest. The total effect would be a change in profit/(loss) and the NAV, through a cost increase/revenue

reduction, of £134,000 (31 December 2022: £77,000).

The current interest rate chargeable on the revolving credit facility (the “facility”) is 1.15% and the effective interest rate 1.15%. The effective rate

chargeable for a year on the current drawn down balance of ¥2,930,000,000 is £187,000. The facility has been extended to 5 April 2024, after which

it will be renewed when terms have been agreed.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

15. Financial Instruments and Capital Disclosures continued

Liquidity Risk

Liquidity risk is mitigated by the fact that the Company has £13,430,000 (2022: £7,792,000) cash at bank, the assets are readily realisable, which can

be easily sold to meet funding commitments and further short-term flexibility is available through the use of bank borrowings. The current revolving credit

facility is repayable on 5 April 2024, or prior to that date. Repayment may be completed through cash repayments, further borrowings and/or

disposal of investments. Unlisted investments, if any, in the portfolio are subject to liquidity risk which is taken into account by the Directors when arriving

at their valuation.

The Company is a closed-ended fund, assets do not need to be liquidated to meet redemptions, and sufficient liquidity is maintained to meet obligations

as they fall due.

The remaining contractual payments on the Company’s financial liabilities at 31 December 2023, based on the earliest date on which payment can be

required and current exchange rates at the Balance Sheet date undiscounted amounts, were as follows:

In one year

or less

£’000

Total

£’000

At 31 December 2023

Revolving credit facility (16,301) (16,301)

Payables (431) (431)

(16,732) (16,732)

In one year

or less

£’000

In more

than 1 year

but not more

than 2 years

£’000

Total

£’000

At 31 December 2022

Revolving credit facility (173) (15,617) (15,790)

Payables (384) – (384)

(557) (15,617) (16,174)

Credit Risk

Credit risk is mitigated by diversifying the counterparties through which the Investment Manager conducts investment transactions. The credit standing

of all counterparties is reviewed periodically, with limits set on amounts due from any one counterparty. As at 31 December 2022, cash was held with

J.P. Morgan Chase Bank (A2* Moody’s credit rating).

The total credit exposure represents the carrying value of cash and receivable balances and totals £13,818,000 (31 December 2022: £7,988,000).

Fair Values of Financial Assets

The Company measures fair values using the following fair value 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 within 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.

The table below sets out fair value measurements of financial instruments as at the year end, by the level in the fair value hierarchy into which the fair

value measurement is categorised.

Financial Statements / Notes to the Financial Statements continued

For the year ended 31 December 2023

AVI Japan Opportunity Trust plc / Annual Report 2023

15. Financial Instruments and Capital Disclosures continued

Fair values of Financial Assets continued

Financial assets at fair value through profit or loss at 31 December 2023

Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Equity investments 185,857 – – 185,857

185,857 – – 185,857

Financial assets at fair value through profit or loss at 31 December 2022

Level 1

£’000

Level 2

£’000

Level 3

£’000

Total

£’000

Equity investments 164,323 – – 164,323

164,323 – – 164,323

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

Capital Management Policies and Procedures

The structure of the Company’s capital is described on page 39 and details of the Company’s reserves are shown in the Statement of Changes in Equity

on page 57.

The Company’s capital management objectives are:

• to ensure that it will be able to continue as a going concern;

• to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated

underlying NAV, through an appropriate balance of equity capital and debt; and

• to maximise the return to Shareholders while maintaining a capital base to allow the Company to operate effectively and meet obligations as they

fall due.

The Board, with the assistance of the Investment Manager, regularly monitors and reviews the broad structure of the Company’s capital on an ongoing

basis. These reviews include:

• the level of gearing, which takes account of the Company’s position and the Investment Manager’s views on the market; and

• the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company’s objectives, policies and processes for managing capital are set out in the Strategic Report. The Company is subject to externally

imposed capital requirements:

• as a public company, the Company is required to have a minimum share capital of £50,000; and

• in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company, as an investment company:

– is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities

after the dividend payment has been made; and

– is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from shares

and securities.

These requirements are unchanged since last year and the Company has complied with these requirements at all times since commencing trading

on 23 October 2018.

16.

Related Party Disclosures and Investment Management Fees

Fees paid to the Company’s Directors are disclosed in the Directors’ Remuneration Report on page 47 and in note 3 on page 63.

The Company paid management fees to AVI during the year amounting to £1,613,000 (2022: £1,525,000). As at the year end, £133,000 remained

outstanding in respect of management fees (2022: £124,000). At 31 December 2023, AVI held 1,500,000 Ordinary Shares (2022: 1,275,000 Ordinary

Shares) of the Company.

Finda Oy and City of London Investment Management Company Limited (“City of London”), significant Shareholders of the Company, are deemed to

be related parties of the Company for the purposes of the Listing Rules by virtue of their holding in the Company’s issued share capital. During the year

under review, no material transactions took place between the Company and Finda Oy or City of London. As at 31 December 2023, the Company had

not been notified of any change to Finda Oy’s holding, apart from a small reduction in the percentage held by Finda Oy due to an increase in the issued

share capital during the year. At the date of the latest notification, on 5 May 2023, Finda Oy’s holding represented 21.5% of the voting rights. City of

London informed the Company on 23 February 2023 that its holding had reduced to 15.9% of the voting rights and on 26 September 2023 that its

holding had reduced to 14.9%. As at 13 March 2024, no further notifications have been received from either of the significant Shareholders.

17. Post Balance Sheet Events

There are no post balance sheet events to report.

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS SI

The Company’s AIFM is Asset Value Investors Limited.

The AIFMD requires certain information to be made available to

investors in AIFs before they invest and requires that material changes

to this information be disclosed in the annual report of each AIF. Those

disclosures that are required to be made pre-investment are included

within an AIFMD Investor Disclosure Document. This, together with

other necessary disclosures required under AIFMD, can be found on the

Company’s website www.ajot.co.uk. All authorised AIFMs are required

to comply with the AIFMD Remuneration Code. The AIFM’s remuneration

disclosures can be found on the Company’s website www.ajot.co.uk.

Shareholder Information / AIFMD Disclosures

AVI Japan Opportunity Trust plc / Annual Report 2023

Alternative Performance Measure (“APM”)

An APM is a numerical measure of the Company’s current, historical or

future financial performance, financial position or cash flows, other than a

financial measure defined or specified in the applicable financial framework.

The definitions below are utilised for the measures of the Company, the

investment portfolio and underlying individual investments held by the

Company. Certain of the metrics are to look through to 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

The Company’s Comparator Benchmark is the MSCI Japan Small Cap

Index, expressed in Sterling terms. The benchmark is an index which

measures the performance of the Japan Small-Cap equity market. The

weighting of index constituents is based on their market capitalisation.

Dividends paid by index constituents are assumed to be reinvested in the

relevant securities at the prevailing market price. The Investment Manager’s

investment 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 yardstick to compare investment performance.

Cost

The book cost of each investment is the total acquisition value,

including transaction costs, less the value of any disposals or capitalised

distributions allocated on a weighted average cost basis.

Discount/Premium

If the share price is lower than the NAV per share it is said to be trading at

a discount. The size of the discount is calculated by subtracting the share

price of 127.0p (2022: 112.3p) from the NAV per share of 130.3p (2022:

114.1p) and is usually expressed as a percentage of the NAV per share,

2.5% (2022: 1.6%). If the share price 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.

Earnings Before Interest and Taxes (“EBIT”)

EBIT is equivalent to profit before finance costs and tax set out in the

statement of comprehensive income.

Enterprise Value (“EV”)

Enterprise Value reflects the economic value of the business by taking

the market capitalisation less cash, investment securities and the value of

treasury shares plus debt and net pension liabilities.

Enterprise Value (“EV”)/Earnings Before Interest and Taxes (“EBIT”)

A multiple based valuation metric that takes account of 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), and had a market capitalisation of 100 and EBIT of 10, the

EV/EBIT would be 2x, (100-80)/10.

Enterprise Value (“EV”) Free Cash Flow Yield (“EV FCF Yield”)

A similar calculation to free cash flow yield, except the free cash flow

excludes interest and dividend income and is divided by enterprise value.

This gives a representation for how overcapitalised and undervalued a

company is. If a company were to pay out of all of its NFV (defined under

Net Financial Value/Market Capitalisation) and the share price remained

the same, the 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

Free cash flow is the amount of cash profits that a business generates,

adjusted for the minimum level of capital expenditure required to maintain

the company in a steady state. It measures how much a business could

pay out to equity investors without impairing the core business. When free

cash flow is divided by the market value, we obtain the free cash flow yield.

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 8.9% (31 December 2022: 9.9%) represents borrowings

of £16,301,000 (31 December 2022: £15,532,000) expressed as a

percentage of Shareholders’ funds of £182,943,000 (31 December

2022: £156,395,000). The gearing of 1.6% (31 December 2022: -5.1%)

represents borrowings net of cash of (£2,915,000) (31 December 2022:

£7,928,000) expressed as a percentage of Shareholders’ funds of

£182,943,000 (31 December 2022: £156,395,000).

Net Asset Value (“NAV”)

The NAV is Shareholders’ funds expressed as an amount per individual

share. Shareholders’ funds are the total value of all of the Company’s

assets, at their current market value, having deducted all liabilities and prior

charges at their par value, or at their asset value as appropriate. The total

NAV per share is calculated by dividing the NAV by the number of Ordinary

Shares in issue.

Net Cash/Market Capitalisation

Net cash consists of cash and the value of treasury shares less debt and

net pension liabilities. It is 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 net cash/market

capitalisation of 100% is zero.

Net Financial Value (“NFV”)/Market Capitalisation

Net Financial Value consists of cash, investment securities (less capital

gains tax) and the value of treasury shares less debt and net pension

liabilities. 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.

Shareholder Information / Glossary

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS

Ongoing Charges Ratio

The Company’s Expense Ratio is its annualised expenses (excluding

finance costs and certain non-recurring items) of £2,485,000 (2022:

£2,322,000) (being investment management fees of £1,622,000

(2022: £1,516,000) and other expenses of £886,000 (2022: £806,000)

less non-recurring expenses of £23,000 (2022: £nil)) expressed as a

percentage of the average daily net assets of £166,887,000 (2022:

£154,813,000) of the Company during the year.

Portfolio Discount

A proprietary estimate of how far below fair value a given company is

trading. For example, if a company with a market capitalisation of 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).

Portfolio Yield

The weighted-average dividend yield of each underlying company in

AJOT’s portfolio.

Return on Equity (“ROE”)

A measure of performance calculated by dividing net income by

Shareholder equity.

ROE ex Non-Core Financial Assets

Non-core financial assets consists of cash and investment securities

(less capital gains tax) less debt and net pension liabilities. The ROE is

calculated as if non-core financial assets were paid out to Shareholders.

Companies with high balance sheet allocations to non-core, low yielding

financial assets have depressed ROEs. The exclusion of non-core financial

assets gives a fairer representation of the true ROE of the underlying

business.

Total Return – NAV and Share Price Returns

The combined effect of any dividends paid, together with the rise or fall

in the share price or NAV. Total return statistics enable the investor to

make performance comparisons between investment trusts with different

dividend policies. Any dividends received by a Shareholder are assumed to

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.

Shareholder Information / Glossary continued

AVI Japan Opportunity Trust plc / Annual Report 2023

The Company’s Ordinary Shares are listed on the London Stock Exchange

and can be bought directly on the London Stock Exchange or through the

platforms listed on www.ajot.co.uk/how-to-invest/platforms/.

Share Prices

The share price is published daily in The Financial Times, as well as on the

Company’s website: www.ajot.co.uk.

Dividends

Shareholders who wish to have dividends paid directly into a bank

account, rather than by cheque to their registered address, can complete

a mandate form for the purpose. Mandate forms may be obtained from

Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex

BN99 6DA on request or downloaded from Equiniti’s website

www.shareview.com. The Company operates the BACS system for the

payment of dividends. Where dividends are paid directly into Shareholders’

bank accounts, dividend tax vouchers are sent to Shareholders’ registered

addresses.

Change of Address

Communications with Shareholders are mailed to the last address held on

the share register. Any change or amendment should be notified to Equiniti

Limited using the contact details given above, under the signature of the

registered holder.

Daily NAV

The daily NAV of the Company’s shares can be obtained from the London

Stock Exchange or via the website: www.ajot.co.uk

Shareholder Information / Investing in the Company

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS

Shareholder Information / Company Information

AVI Japan Opportunity Trust plc / Annual Report 2023

Directors

Norman Crighton (Chairman)

Ekaterina (Katya) Thomson

Yoshi Nishio

Margaret Stephens

Administrator

Link Alternative Fund Administrators

Limited

A Waystone Group Company

Broadwalk House

Southernhay West

Exeter

EX1 1TS

Auditor

BDO LLP

55 Baker Street

London

W1U 7EU

Corporate Broker

Singer Capital Markets

1 Bartholomew Lane

London

EC2N 2AX

Custodian

J.P. Morgan Chase Bank

National Association

London Branch

25 Bank Street

Canary Wharf

London

E14 5JP

Depositary

J.P. Morgan Europe Limited

25 Bank Street

Canary Wharf

London

E14 5JP

Investment Manager and AIFM

Asset Value Investors Limited

2 Cavendish Square

London

W1G 0PU

Registered Office

Link Company Matters Limited

6th Floor

Gresham Street

London

EC2V 7NQ

Registrar and Transfer Office

Equiniti Limited

Aspect House

Spencer Road

Lancing

West Sussex

BN99 6DA

Registrar’s Online Platform

www.shareview.co.uk

Registrar’s Shareholder Helpline

Tel. 0371 384 2030

Lines are open 8.30am to 5.30pm,

Monday to Friday.

Registrar’s Broker Helpline

Tel. 0906 559 6025

Calls to this number cost £1 per

minute from a BT landline, other

providers’ costs may vary. Lines are

open 8.30am to 5.30pm, Monday

to Friday.

Secretary

Link Company Matters Limited

6th Floor

65 Gresham Street

London

EC2V 7NQ

Solicitors

Stephenson Harwood LLP

1 Finsbury Circus

London

EC2M 7SH

AVI Japan Opportunity Trust plc / Annual Report 2023

SR G FS

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