Engage.
Improve.
Transform.
Annual Report 2024
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.
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:
£212 million*
Launch date:
23 October 2018
Annualised return:
8.9%*
Ongoing Charges Ratio
†
:
1.5%*
† For all Alternative Performance Measures, please refer
to the definitions in the Glossary on pages 74 and 75.
* Annualised return net of fees (in GBP) as at
31 December 2024.
Annual Report / Welcome
Annual Report 2024
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Read more about our ESG Perspective on pages 34
and 35 of the Annual Report
AVI Japan Opportunity Trust plc / Annual Report 2024
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Oct 18
Apr 19
Oct 19
Apr 20
Oct 20
Apr 21
Oct 21
Apr 23
Oct 24
Apr 24
+70%
+63%
+23%
Oct 23
Apr 22
Oct 22
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Strategic Report
Overview of the Year
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Strategic Report
A New Wave in Japan
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Strategic Report
Our Performance
CONTENTS
Strategic Report:
Company Performance 02
Company Overview 04
Chairman’s Statement 06
Case Study 08
Our Top 10 Holdings 10
Investment Manager’s Report 12
Portfolio Construction 22
AVI Japan Investment Team 23
Investment Portfolio 24
Business Model 25
Stakeholders 27
Key Performance Indicators 32
ESG Policy 34
Principal Risks and Uncertainties 36
Governance:
Directors 38
Directors’ Report 39
Corporate Governance Statement 41
Directors’ Remuneration Report 46
Statement of Directors’ Responsibilities 49
in Relation to the Annual Report and
Financial Statements
Report from the Audit Committee 50
Independent Auditor’s Report 52
Financial Statements:
Statement of Comprehensive Income 56
Statement of Changes in Equity 57
Balance Sheet 58
Statement of Cash Flows 59
Notes to the Financial Statements 60
Shareholder Information:
AIFMD Disclosures 73
Glossary 74
Investing in the Company 76
Company Information 77
The Company’s website, which can be found
at 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
AVI takes a unique
approach to engagement
by focusing on driving
operational improvements
in addition to the typical
engagement areas of
capital efficiency,
corporate governance
and investor relations.
Norman Crighton, Chairman
AVI Japan Opportunity Trust NAV TR
AVI Japan Opportunity Trust Share Price TR
MSCI Japan Small Cap Index (£ adjusted total return)
Net Asset Value, Share Price
and Benchmark
AVI Japan Opportunity Trust plc / Annual Report 2024
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* For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75.
Strategic Report / Company Performance
31 December 2024 31 December 2023
Net Asset Value £211,981,000 £182,943,000
Net Asset Value per Share (total return) for the year* 20.9% 15.8%
Share price total return for the year* 19.9% 14.8%
Comparator Benchmark
MSCI Japan Small-Cap Index (£ adjusted total return)
6.2% 6.9%
Portfolio Valuation*
Net Cash as % of Market Cap
Net Financial Value as % of Market Cap
EV/EBIT
FCF Yield
21.2%
48.4%
8.7x
6.7%
35.8%
49.6%
8.7x
4.4%
Year to 31 December 2024 Year to 31 December 2023
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
£38.6m
£4.8m
2.21p
25.00p
27.21p
2.20p
£25.2m
£4.0m
1.76p
15.89p
17.65p
1.70p
Ongoing Charge*
Management, marketing and other expenses
(as a percentage of average Shareholders’ funds) 1.5% 1.5%
31 December 2024 31 December 2023
Net asset value per share
Share price
Discount (difference between share price and net asset value)*
155.4p
152.3p
2.1%
130.3p
127.0p
2.5%
2024 Year’s Highs/Lows High Low
Net asset value per share 158.6p 122.3p
Performance Summary
NAV TR (GBP)
Since
inception 2024 2023 2022 2021 2020 2019 2018
1
AJOT 69.9% 20.9% 15.8% -4.3% 12.3% -1.4% 19.0% -4.0%
MSCI Japan Small Cap 23.5% 6.2% 6.9% -1.0% -1.4% 3.2% 14.7% -6.0%
Relative 47.9% 14.7% 8.8% -3.4% 13.7% -4.6% 4.3% 2.0%
1 Since inception on 23 October 2018.
AVI Japan Opportunity Trust plc / Annual Report 2024
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* For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75.
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Oct 18
Apr 19
Oct 19
Apr 20
Oct 20
Apr 21
Oct 21
Apr 23
Oct 24
Apr 24
+70%
+63%
+23%
Oct 23
Apr 22
Oct 22
50
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200
Net Asset Value, Share Price* and Benchmark
Oct 18 Apr 19 Oct 19 Apr 20 Oct 20
Apr 21 Oct 21 Apr 23 Apr 24 Oct 24 Oct 23Apr 22 Oct 22
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Premium or Discount to Net Asset Value (%)
AVI Japan Opportunity Trust plc
Average Premium: 0.1%
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 2024
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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 over time, 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.
Finding Compelling Opportunities in Japan
Strategic Report / Company Overview
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 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 2024, the Company’s issued
share capital comprised 137,198,943 Ordinary
Shares of 1p each, of which 825,716 were held in
treasury and therefore total voting rights attached
to Ordinary Shares in issue were 136,373,227. As
at 1 April 2025 it comprised 137,198,943 Ordinary
Shares, 1,075,716 of which were held in treasury,
and therefore total voting rights attached to
Ordinary Shares in issue were 136,123,227.
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.
From left to right: Shuntaro Shimizu, Luke Hutcherson, Nicola Takada Wood, Kaz Sakai
Japan Economic Snapshot:
Japan
Relative to
Global
GDP
1
$4.1tn 4
th
largest
Population
2
125m 1.5%
Fortune Global 500
Companies 41 8.2%
KEY PERFORMANCE INDICATORS (“KPIs”)
NAV Performance* (2024), 1 Year:
20.9% (2023: 15.8%)
Since Inception ("SI") 69.9%
8.9%
Ongoing Charges* (2024),
31 December 24:
1.5% (2023: 1.5%)
Discount/Premium* (2024):
(2.1)%
Range during the period:
(6.7)% 1.2%
Peer Group NAV Performance
(2024):
(9.6)% Baillie Gifford Shin Nippon
Nippon Active Value
AVI Japan Opportunity 20.9%
15.2%
1 World Bank Data (2023).
2 Source: International Monetary Fund (2024).
* For definitions, see Glossary on pages 74 to 75
SI Annualised
AVI Japan Opportunity Trust plc / Annual Report 2024
04
OUR CORE VALUES
Engaged
Building relationships with companies, actively
working together to improve shareholder value.
Concentrated
Our portfolio of 15-25 holdings means we devote
ample resources to research and engagement for
every investment.
Long-term
A three to 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.
Annual General Meeting
The Company’s Annual General Meeting (“AGM”)
will be held at 11.30 a.m. on Tuesday, 20 May
2025 at the offices of the Association of Investment
Companies, 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.
Managed at AVI. Visit the website at:
www.assetvalueinvestors.com
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.
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):
Consumer Durables and Apparel 22%
Capital Goods 15%
Materials 15%
Consumer Discretionary, Distribution and Retail 12%
Health Care Equipment and Services 11%
Software and Services
7%
Real Estate Management and Development 6%
Media and Entertainment 4%
Technology Hardware and Equipment 3%
Telecommunication Services 3%
Household and Personal Products 2%
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RESPONSIBLE INVESTORS
AVI Japan Opportunity Trust plc / Annual Report 2024
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AVI takes a unique
approach to
engagement by focusing
on driving operational
improvements in
addition to the typical
engagement areas
of capital efficiency,
corporate governance
and investor relations.
Your Manager, AVI, has continued its constructive
approach to active engagement with portfolio
companies to unlock value. AVI takes a unique
approach to engagement by focusing on driving
operational improvements in addition to the typical
engagement areas of capital efficiency, corporate
governance and investor relations. AVI’s investment
team builds constructive relationships with the
management of every portfolio company, holding
numerous meetings with senior executives and
board directors every year. Private engagement
remains AVI’s preferred approach to driving
reform; however, public engagement is also an
important element of the strategy, with two portfolio
companies, Aichi Corporation and SK Kaken,
the subject of public engagement in 2024. The
preferred approach of private engagement has
led to notable successes, with detailed letters or
presentations sent to 17 portfolio companies over
the year.
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 1.00p per share in
November 2024, and the Board has elected to
propose a final dividend of 1.20p per share, bringing
total dividends for the year ended 31 December
2024 to 2.20p per share (2023: 1.70p 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 keys to unlocking
valuation anomalies, and AJOT’s track record has
demonstrated the potential absolute and relative
returns this approach can deliver.
Over six 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 over 30% in JPY); a
marked depreciation of the Japanese Yen which
has detracted -60% 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 the
strategy and that there are still plenty of mispriced
investment opportunities to discover.
Overview of the Year
On behalf of the Board of Directors (“the Board”),
I am pleased to present the Annual Report for 2024
for AVI Japan Opportunity Trust Plc (“AJOT” or
“Company”). Since AJOT was launched in October
2018, market-wide reform in Japan has continued
to advance, which is supportive of your Manager’s
constructive engagement strategy. In 2024,
regulators stepped up the pressure on companies
to improve key issues that are depressing
valuations in Japan, such as poor corporate
governance, capital efficiency and shareholder
communication. Faced with evidence of undeniable
change afoot, foreign investors’ views are shifting
from Japan being a perennially cheap market to
one with not only room for rapid growth but with
the means to catalyse it.
2024 was an eventful year in Japan, during which
the Liberal Democratic Party relinquished its
majority in the House of Representatives, the Bank
of Japan (“BoJ”) ended its ultra-loose monetary
policy by symbolically increasing its benchmark
rate to 0.25% (increased to 0.50% post-period
end), and the Tokyo Stock Exchange (“TSE”)
piled pressure on underperforming companies by
publishing its monthly “name and shame” list.
It was another buoyant year for Japanese equity
markets, with the MSCI Japan returning +20.7%
over 2024 in Japanese Yen (“JPY”). Large names
again outperformed their smaller counterparts,
with the MSCI Japan Small Cap index rising a still
respectable +16.4% in JPY.
AJOT’s performance in 2024 continued the
impressive outperformance seen in 2023. AJOT
returned +20.9% in GBP and +32.4% in JPY.
It outperformed its benchmark over the calendar
year by 14.7% in GBP and +16.2% in JPY. The
weak Yen, which fell by -8.8% relative to the
Pound over 2024, continued to be a headwind to
sterling-based returns. Since its inception, AJOT
has delivered returns of +69.9% in GBP versus
+23.5% in GBP for the benchmark. In JPY terms,
the since inception returns are significantly higher,
at +130.0% vs +67.1% for the benchmark.
It is particularly encouraging in terms of returns
and the investment manager’s strategy that four
portfolio companies received tender offer bids
during the year, as well as one receiving advance
notice of a tender offer bid.
Strategic Report / Chairman’s Statement
NORMAN CRIGHTON
Chairman, Non-Executive Director
Joined the Board in 2018
AVI Japan Opportunity Trust plc / Annual Report 2024
06
In June, Yoshi Nishio and I attended the AGM of
SK Kaken, becoming the first foreign investors
to do so. We were likely the first shareholders to
ask questions at the AGM. It is hoped that this
increased level of direct interaction with a company
that had previously been reluctant to meet with AVI
will bear fruit in the future. The Directors also took
the opportunity to meet with several other portfolio
companies as well as our PR agents in Japan.
Share Premium and Issuances
As at 31 December 2024, your Company’s
shares were trading at a discount of -2.1% to Net
Asset Value (“NAV”) per share. The Board monitors
the premium/discount and carefully manages it by
periodically issuing or buying back shares. During
2024, no new shares were issued, while
4,063,475 shares were bought back during the
year. As of 31 December 2024, 137,198,943
shares were in issue, 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 exploring avenues to
grow AJOT.
Realisation Opportunities
At the launch of the Company in October 2018,
the Prospectus published at that time stated that
the Directors may, at their discretion, offer a full
or a partial Exit Opportunity to Shareholders in
October 2022 and every two years thereafter. The
rationale behind including the Exit Opportunity in
the Prospectus was to ensure that if the original
investment thesis did not generate the expected
returns, or if circumstances had changed to make
Japan unattractive, then Shareholders would be
offered the opportunity to exit at close to NAV if
they wished.
In light of its keen focus on corporate governance,
the Board announced its intention to offer the
Exit Opportunity on an annual basis (rather than
biennially), on that same discretionary basis, from
October 2024. The Board therefore expects to
offer another Exit Opportunity to Shareholders in
October 2025 and every twelve months thereafter.
The Exit Opportunity was structured as a full
Tender Offer in 2024, allowing eligible Shareholders
to sell 100% of their share capital at a two per
cent. discount to NAV. This resulted in 2.58%
of the issued share capital being tendered by
Shareholders choosing to exercise the opportunity
to exit.
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
¥2.93 billion debt facility, which was renewed
on 2 April 2024. As at 31 December 2024,
¥2.93 billion of the facility had been drawn and net
gearing stood at +4.5%. On 28 March 2025, the
facility size was increased to ¥6.6 billion.
Outlook
The TSE has continued to disclose a list of
companies on a monthly basis that have provided
information regarding actions to implement
policies conscious of the cost of capital and
share price. In 2024, the TSE increase the level
of accountability for companies by critiquing the
quality of disclosures and highlighting key points for
foreign investors, such as the availability of English
disclosures.
There are several other tailwinds for the strategy,
including the unwinding of cross-shareholdings,
increasing shareholder activism, private equity
firms targeting the Japanese market, and the
Japanese government encouraging unsolicited
acquisition offers.
The mounting pressure for corporate reform will
not subside in 2025. 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. AJOT’s portfolio companies currently
have 48% of their market cap covered by net cash
and investment securities and trade at a weighted
average 8.7x EV/EBIT multiple.
During the year, Yoshi Nishio and Katya Thomson
resigned from the Board to be replaced by Andrew
Rose and Tom Yoritaka. I would like to take this
opportunity to welcome both Andrew and Tom to
the Board, as well as thank Yoshi and Katya for
their contribution to the success of the Company
since the IPO.
In the coming weeks, I will 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 at norman.
crighton@ajot.co.uk or contact our broker, Singer
Capital Markets, to arrange a meeting.
Norman Crighton
Chairman
4 April 2025
Source / Araya Industrial Co Ltd
AVI Japan Opportunity Trust plc / Annual Report 2024
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Strategic Report / Case Study
A NEW WAVE
Evidence of corporate reform’s
impact is mounting, and we
would argue that Japan is
not only already irrevocably
transformed, but that we are also
at the beginning of a sea change
in corporate culture which will
have a long-term and far-reaching
impact on the Japanese market.
Tailwinds for Shareholder
Constructive Engagement
The market environment in Japan is more
attractive and supportive of a constructive
engagement strategy than previously, with
several key tailwinds, including the following:
01.
Further pressure from the TSE
requesting improved disclosure
around capital efficiency.
02.
Unwinding of cross-shareholdings.
03.
Increasing shareholder activism
impact.
04.
Private equity firms targeting the
Japanese market with dry powder.
05.
The Japanese government
encouraging unsolicited acquisition
offers.
2012
Abenomics
Introduced
2014
Stewardship Code
2018
Revised Corporate
Governance Code
2021
TSE Market
Structure Reform
2023
METI revises
guidelines for
Corporate Takeovers
2024
TSE published a
list of companies
disclosing plans
2015
Introduced
Corporate
Governance Code
2020
METI M&A
Guidelines
2022
Transition from
First Section
to Prime
2023
TSE enhanced
disclosure for
companies in parent-
subsidiary relationships
Recent Governance Reform:
Read more at:
www.assetvalueinvestors.com/insight/the-corporate-governance-wave-in-japan-capitalising-on-change/
A New Wave in Japan
AVI Japan Opportunity Trust plc / Annual Report 2024
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Can you share with us AVI’s
outlook towards the Japanese
market?
Historically, small-caps in Japan have
consistently outperformed their larger
counterparts, but that pattern was
disrupted two years ago when the Yen
dramatically weakened by over 30%.
The Bank of Japan is under increasing
pressure from domestic consumers
and companies to ease imported
inflation resulting from the weak Yen and
has committed to a slow and steady
normalisation of monetary policy. The
question is how long a weak Yen will weigh
on small-caps, and what will happen when
we see that pressure start to be released.
How does AVI’s approach create
value amid this wave of change?
We believe that our engagement
and constructive activist approach is
particularly suited to Japanese companies.
The idea of self-help has percolated
slowly through the market over the past
ten years, and there is a growing subset
of companies who want to improve their
valuations, but are not sure how. This is
again especially pertinent in the small to
mid-cap space.
Thoroughly assessing management
prior to investment is a key part of our
process. Our team meets with directors,
non-executive directors, employees,
and industry experts to garner as
comprehensive a picture as possible of
a company’s “engageability”. Building
strong relationships with the company
and maintaining an intense pace of
engagement are key pillars of our
approach. The team meets each company
on average 2-3 times a quarter and
conducting approximately 200 meetings
in total per year. The Japan strategy’s
idiosyncratic returns and outperformance
over both the small-cap index and the
net cash universe are testament to the
thoroughness of our process and our
efforts to avoid low-quality companies that,
even with a push, will likely continue to
stagnate.
What are the main driving forces
for the corporate governance
reform in Japan?
Abe’s lasting legacy has been supported
and cemented by a truly extraordinary
coordinated and orchestrated effort from
the Tokyo Stock Exchange (“TSE”), the
Government, the Bank of Japan, and large
domestic asset owners to drive change.
The TSE’s “name and shame”
1
list of
companies who are and, more importantly,
who are not taking measures to improve
their valuations, is all the more astonishing
because it was implemented by a
Japanese regulator. This measure alone
brought 50% of Japan’s c.4,000 listed
companies who are trading below
1x PBR
2
firmly into the TSE’s crosshairs.
In another power move, the Ministry of
Economy, Trade and Industry (“METI”)
released guidelines in 2023 to promote
corporate takeovers. These guidelines
emphasise that credible takeover offers
must be considered and cannot simply be
dismissed. Since then, a number of high-
profile unsolicited takeover bids have been
launched (e.g. Nidec and Makino Milling,
Bain and KKR for Fuji Soft).
Q
A
Are there any particular structures
the reforms address?
Parent-subsidiaries are an area of focus
for the TSE where they are making solid
progress. Listed subsidiaries often exist
purely for the convenience of the parent
company, and will have limited, if any, pricing
power or real agency over business strategy.
The number of parent-child subsidiaries
peaked at 407 in 2006 and has since steadily
dropped to 219 in 2024. The Alps Logistics
buyout in 2024
3
at a 194% TOB premium is
an example of the opportunities presented by
the existence of parent-subsidiaries.
Is private equity playing a part in
Japan?
Over the last few years, large global private
equity players have opened offices in
Tokyo, actively researching and assessing
the market. They have been waiting for the
corporate governance seeds sown over a
decade ago to bear fruit. Meanwhile, smaller
domestic firms have emerged, contributing
to an increasingly healthy and sophisticated
private equity industry. In 2024, takeover
bids in Japan hit an 18-year high, reflecting
a significant uptick in activity at a strategy
level. Four of our portfolio companies were
acquired out over the year. This acceleration
in private equity is a direct result of
engagement and activism, which has driven
change at corporate management level
across the market.
What is your view towards small-
cap companies in this wave
of change?
Small-cap companies in Japan are often
known for their weak or utterly lacking
shareholder communication in Japanese,
let alone English. Alongside their infamously
overcapitalised balance sheets, this lack of
coverage, knowledge, and access to the
small-cap universe is part of the reason
why these companies trade at a significant
discount to their Japanese and global peers.
This makes them an attractive hunting
ground for market inefficiencies for those that
do the work.
Q
Q
Q
Q
Q
A
A
A
A
A
NICOLA TAKADA WOOD
Managing Director Japan
Although corporate governance reform
famously formed late Prime Minister
Abe’s third arrow, the initial rumblings
of change have taken over a decade to
not only gain momentum, but to begin
to be recognised by foreign investors.
1 On March 2023, Tokyo Stock Exchange, Inc. (“TSE”) requested that all listed companies on the Prime and Standard Markets
take “action to implement management that is conscious of cost of capital and stock price”.
2 Tokyo Stock Exchange website, as of 19 February 2025.
3 Toyo Keizai newspaper, April 2024.
AVI Japan Opportunity Trust plc / Annual Report 2024
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1 2 3 4 5 6
67.8%
The top ten equity investments make
up 67.8% of the net assets*, with
operating businesses spread across
a range of sectors.
* For definitions, see Glossary on pages 74 and 75.
01.
TSI Holdings is an apparel holding company
with a diversified collection of brands including
Pearly Gates, HUF and Margaret Howell. 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. Substantial asset backing of net cash,
investment securities and real estate obscure
the quality of the underlying business.
02.
Takuma builds and operates waste treatment
plants for local municipalities in Japan, and
with a tight labour market, there is a trend of
outsourcing the operation of these plants to
the constructor on decade-long contracts.
Our strong conviction lies in Takuma’s shifting
business model, towards recurring revenue
streams from maintenance and operation
contracts. Almost half of Takuma’s balance sheet
assets are held in cash and listed securities,
accounting for just over 60% of the market cap.
06.
Araya Industrial is engaged in the manufacturing
and selling of high-quality, high-performance
iron, stainless steel pipes, and other products
using metal processing technology Roll Forming.
Araya Industrial’s customer base is diversified,
with significant exposure to stable growth
sectors such as semiconductors and public
sector construction, particularly for stainless
products, which are major contributors to
the company’s profits. Net cash, investment
securities, and real estate cover over 85% of the
market cap.
07.
Beenos
Takuma Araya Industrial
TSI Holdings
% of net assets
10.6%
EV/EBIT
12.5x
% of net assets
5.4%
EV/EBIT
5.1x
% of net assets
5.3%
EV/EBIT
2.5x
% of net assets
10.3%
EV/EBIT
9.4x
Source /
BEENOS Inc.
Source /
Takuma Co Ltd
Source / Araya
Industrial Co Ltd
Source /
TSI Holdings Co Ltd
Strategic Report / Our Top 10 Holdings
Focus on Small and Mid-cap Businesses
Visit our investment platforms:
www.assetvalueinvestors.com/ajot/
how-to-invest/platforms/
Top 10 Share of Net Assets
% of AJOT net assets
Top 10 67.8%
Other holdings 36.4%
104.2%
104.2%
Incl. gearing
Beenos operates e-commerce platforms
allowing overseas consumers to purchase
Japanese products. A significant portion of
Beenos’ profits is derived from its global
e-commerce platform, primarily centred
around a service called “Buyee”, which enables
overseas customers to purchase from popular
e-commerce sites in Japan, such as Yahoo!
Japan and Rakuten. In December 2024,
Beenos received advance notice of a tender
offer bid at a +19% premium.
AVI Japan Opportunity Trust plc / Annual Report 2024
10
6 7 8 9 10
36.4%
Kurabo Industries is a diversified conglomerate
with significant real estate and investment
securities, which accounted for 106% of its
market cap at the time of investment in early
2024, which has subsequently fallen to 86%
following +47% share price growth. Engaged
in the textile, chemical, advanced technology,
food & service, and real estate businesses,
Kurabo has achieved stable revenues, while its
operating margin has doubled in recent years.
03. 04.
AZN is a wealth management consultancy with
a specialist focus on areas such as property,
succession planning, corporate finance, and
strategic management of individual assets.
AZN is set to benefit from the ageing Japanese
population, as the need for inheritance and
business succession consulting is on the rise.
AZN has successfully maintained an operating
margin of over 30% and a double-digit annual
profit growth rate.
05.
Konishi specialises in the manufacture and sale
of synthetic adhesives and sealants, primarily
serving the civil engineering construction sector.
Konishi manufactures the No.1 household
adhesive brand in Japan, “Bond”. The company
also produces adhesives and repair materials for
civil engineering infrastructure projects, as well
as industrial chemicals and synthetic resins. The
company has substantial asset backing, with
net cash, investment securities, and real estate
covering more than 30% of the market cap.
08.
Aichi Corporation is a manufacturer of
construction machinery such as aerial work
platforms, digger derricks, and other special-
purpose vehicles. In addition to the sale of
specialised machinery, Aichi Corporation also
provides maintenance services, which account
for nearly a quarter of total sales and offer
higher profit margins. The company is a listed
subsidiary of Toyota Industries, which owns over
50% of the shares.
09.
Sharingtechnology operates one of the largest
life service matching platforms in Japan,
connecting a variety of user needs with high-
quality services. With nearly 200 specialised
websites and over 6,000 external service
providers, the most frequent services catered
for include lost keys, lawn mowing, and termite
control. There are several tailwinds to support
continued growth, including the declining
Japanese population and the projected increase
in the number of single-person households.
10.
Konishi
Aichi
Corporation
Sharing-
technology
Kurabo
Industries Eiken Chemical
Aoyama Zaisan
Networks
% of net assets
4 .9%
EV/EBIT
5.8x
% of net assets
4.6%
EV/EBIT
8.7x
% of net assets
4.4%
EV/EBIT
9.6x
% of net assets
8.5%
EV/EBIT
1.2x
% of net assets
7.6%
EV/EBIT
21.0x
% of net assets
6.2%
EV/EBIT
8.7x
Source /
Konishi Co Ltd
Source / gilaxia via
Getty Images
Source / SHARING-
TECHNOLOGY INC
Source / Kurabo
Industries Ltd
Source / Eiken
Chemical Co Ltd
Source / Aoyama
Zaisan Networks
Company Ltd
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%. Eiken Chemical is set to experience
structural growth from the ageing population,
and with an open shareholder register, the
company is a potential takeover target.
AVI Japan Opportunity Trust plc / Annual Report 2024
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1 ¥10 trillion in 1H2024, Morningstar Research, July 2024.
2 Bank of Japan quarterly survey, 18 December 2024.
Last year’s Manager’s Commentary concluded with
the assertion that “the potential for alpha generation
has never been higher, and we are excited by the
abundant opportunities in the year ahead”. Given
your Company’s strong performance in 2023, this
statement required a certain level of confidence in
our ability to capitalise on the opportunities of 2024.
We are pleased to report that this optimism proved
to be warranted. In 2024, AJOT’s NAV rose by an
impressive +20.9% (in GBP), significantly outpacing
the benchmark, which returned +6.2%.
It was a year full of activity, both within the portfolio
and in the broader Japanese market. Following
their impressive returns in 2023, Japanese indices
booked another buoyant year, with the MSCI
Japan Small Cap Index and MSCI Japan Index up
+16.4% and +20.7% respectively (in JPY). As with
last year, headline performance favoured large-cap
value stocks, mainly attributable to the continued
depreciation of the Japanese Yen. Over the last
two years, the persistent devaluation of the Yen
has driven earnings at large multinational exporters,
with Topix Core 30 companies outperforming the
Topix Small Cap section by +27% during that
period. Despite this formidable headwind for our
predominantly domestically oriented companies,
the portfolio managed to deliver an impressive
+32.4% return (in JPY).
The volatility seen across the equity, bond and
foreign exchange markets in late July and early
August reinforced our conviction in the resilience
of the strategy, and 2024 proved to be a year
in which keeping your head was paramount.
In the market turmoil that followed the Bank of
Japan’s (“BoJ”) benchmark rate hike (by 15bps),
the managers increased some positions into the
weakness and were reassured when the portfolio
recovered to pre-hike levels within a month. Given
the corresponding currency volatility that ensued,
it is important to remind shareholders that around
80% of AJOT portfolio company revenues derive
from the domestic market and are therefore
positioned to benefit from a stronger Yen. Given
the changing macroeconomic environment in
Japan and the BoJ’s slowly-but-surely approach
to policy tightening, we believe there is potential for
foreign investors to shift their focus toward smaller
companies that are shielded from the possibility of
further Yen strength.
An additional tailwind for small-cap names could
be reforms brought into the NISA (Japanese
ISA) programme in January. The original NISA
programme was introduced in 2014 to encourage
a shift from Japanese households’ cash assets into
securities. The Government has proposed plans to
double NISA purchases over five years, by more
than doubling the amount of tax-free investment
that can be made by individuals and extending their
period of use. NISA purchases enjoyed a strong
start in 2024
1
, but with Japanese households still
holding cash assets of over a quadrillion
2
Yen
(£5 trillion), this trend is likely to unfold over years
rather than months.
In late September, the revolving door of Japanese
leadership swung once again, with Shigeru Ishiba
being appointed as the new Prime Minister and
leader of the Liberal Democratic Party (“LDP”).
Since the election, Ishiba has demonstrated a clear
commitment to fiscal stimulus, emphasising the
need for greater investment over to savings. We
anticipate that the Ishiba administration will follow a
path similar to that of former Prime Minister Kishida.
Consequently, we do not foresee this leadership
transition disrupting Japan’s ongoing corporate
governance reforms or our engagement strategies
with portfolio companies.
Down the road at the Tokyo Stock Exchange
(“TSE”), CEO Yamaji-san seems to have the
proverbial bit between his teeth, as he continues to
implement truly ground-breaking reforms for listed
companies. In January, the TSE began publishing
on its website the now infamous “name and
shame” list of corporates who are taking measures
to improve their share prices, and crucially, those
who are not. Later in the year, that list was refined
to scrutinise the quality of disclosures and improve
accountability of companies who say they will
implement measures, even listing examples of
company “bad practices”.
The TSE has also focused its attention on the
characteristically Japanese structures of parent-
child listed subsidiaries and cross-shareholdings.
We are witnessing subsidiaries being acquired or
subsumed, with the opportunities for such moves
amplified by the unwinding of cross-shareholdings.
The Tokyo bourse is keen to untangle the web
of cross-shareholdings that have developed
over decades among parent-child subsidiaries,
suppliers, clients, business affiliates and in some
cases, even personal relationships. These cross-
shareholdings can lock a meaningful percentage of
voting stock into shareholders allied with company
management, effectively creating a de facto poison
pill and disadvantaging minority shareholders.
Looking ahead, we
remain confident in
the potential for further
outperformance, as
we continue to focus
on high-conviction
investments in
undervalued companies
and drive the catalyst
for change.
Strategic Report / Investment Manager's Report
Manager’s Commentary
JOE BAUERNFREUND
Portfolio Manager
AVI Japan Opportunity Trust plc / Annual Report 2024
12
We are invested in a number of situations where
cross-shareholdings make up at least part of the
Notional Vendor Finance (“NVF”) on the balance
sheet, and selling down those cross shareholdings
and using proceeds to buy back shares is often
a first port of call when engaging with boards on
capital efficiency. The TSE have promised further
measures in 2025, and we eagerly anticipate the
unveiling of their plans.
Meanwhile, private equity interest in Japan
continues to grow, with global funds further
expanding their Japanese presence and levels
of activity. In October, KKR founder Henry Kravis
famously cited his co-founder George Roberts in a
Nikkei op-ed, saying “If I were 30 years old today
and I could speak Japanese, I’d go to Japan” and
we would agree. The overlooked, asset-backed,
quality small-cap companies that AJOT typically
invests in have proven to be an attractive universe
for private equity to deploy their burgeoning keg of
“dry powder”. We exited four positions during the
year through tender offer bids at average premiums
of +83% to the undisturbed share prices.
In parallel with the developing constructive
backdrop, your Company’s stock selection and
active, constructive engagement with portfolio
companies continued to bear fruit. Throughout
the year, we continued to identify compelling
opportunities in Japan’s small-cap market, which
remains under-researched and underperforming
relative to large caps. This presented us with
abundant opportunities to selectively add promising
companies to the portfolio. Over the course of
2024, AJOT added 13 new positions, which
collectively contributed +16.1% to performance.
These companies are typically undervalued
and offer significant upside potential, with each
positioned for improvements in governance,
capital allocation and operational efficiency.
We also engaged extensively on shareholder
communication, board independence, tenure,
and diversity, as well as environmental and social
issues.
Our engagement with portfolio companies remains
a core part of our strategy. We filed shareholder
proposals with several companies, including
SK Kaken, where we have now filed proposals
for four consecutive years. Our investment team’s
focus and commitment to active engagement
remain resolute, as evidenced by over 150
meetings with corporate management in 2024
on top of extensive presentations and letters.
These efforts and improvements have not gone
unnoticed by the market, and we have seen share
price appreciation in accordance with engagement
successes. Moreover, we are pleased to report
that four portfolio companies received tender offer
bids in 2024. Conveyor belt and parking system
provider NC Holdings, held by AJOT since 2021,
was bought out by domestic private equity firm and
large shareholder Miri Capital in June.
This was followed by food seasonings maker
Yaizu Suisan Kagaku and a listed subsidiary,
Alps Logistics, in May, as well as entertainment
company Sun Corporation with a partial tender
offer bid. Alps had been in the portfolio since
inception in 2018 and was another private equity
buyout at a 194% premium to the undisturbed
pre-rumour share price. Finally, e-commerce
player Beenos received an advanced notice of a
tender offer from strategic buyer LY Corporation
in December. Corporate action and private equity
activity are clearly gaining momentum in Japan,
which should continue to be a boon for our
strategy next year and beyond.
At the end of 2024, the portfolio’s EV/EBIT ratio
stood at 8.7x versus 14.7x for the MSCI Small
Cap benchmark, with net-financial value (NFV)
accounting for 48% of the portfolio’s weighted
market cap. These metrics underscore the
significant discounts at which AJOT’s portfolio
companies trade relative to their peers, largely
due to issues such as over-capitalised balance
sheets, poor IR disclosure and poor governance.
This dislocation creates a fertile environment for
our activist approach, which seeks to unlock
value through engagement and operational
improvements.
Looking ahead, we remain confident in the potential
for further outperformance, as we continue to focus
on high-conviction investments in undervalued
companies and drive the catalyst for change. The
lack of research coverage of small-caps and their
relative underperformance to large-caps continue
to present us with abundant opportunities. We
remain committed to selectively adding the most
promising companies to our concentrated portfolio
of 15-25 holdings.
AVI Japan Opportunity Trust plc / Annual Report 2024
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Strategic Report / Investment Manager's Report continued
BEENOS Inc
Following AVI’s initial
5% stake declaration,
several other activists
followed suit. With
activists owning a
combined 40% of
the company,
LY Corporation placed
a tender offer bid for
the company at a
19% premium to the
share price.
Source / BEENOS Inc
Beenos, an operator of e-commerce platforms allowing overseas consumers
to purchase Japanese products, was the largest contributor in 2024, adding
+754bps to performance as its share price rose +178%.
A significant portion of Beenos’ profits is derived from its Global E-commerce
platform. This is primarily centred around a service called “Buyee”, which
enables overseas customers to purchase items from popular e-commerce
sites in Japan, such as Yahoo! Japan, Mercari, and Rakuten. Buyee’s gross
merchandise value has experienced robust growth at an annual rate of +31%.
Beenos’ strong performance over the year was capped off by the
announcement on 18 December that it had received advanced notice of a
tender offer bid of ¥4,000 per share at a +19% premium to the previous day’s
closing price. Beenos’ performance was supported by the weakening of
the Yen, however, a reversal of this trend could harm the company’s profits.
AJOT’s performance will not be impacted, assuming the aforementioned
tender offer is successfully completed.
We initiated our position in Beenos in January 2024, with several other
constructive engagement funds and other investors joining AVI on the
shareholder register following AVI’s first large ownership declaration in
February. As a large shareholder owning about 10% of the voting rights
of Beenos, we have engaged extensively with the board of Beenos on ways
to enhance sustainable long-term corporate value. Beenos serves as another
example of how AJOT’s concentrated portfolio of asset-backed small to
mid-caps can benefit from AVI’s active engagement strategy against a
backdrop of rapidly increasing corporate activity in Japan.
At year end, Beenos is the largest holding in the portfolio, accounting for
10.6% of AJOT’s NAV. The investment has generated an ROI of +125%
for an IRR of +188%.
Indexed Share Price
Jan 24 Mar 24 May 24 Jul 24 Sep 24 Nov 24
50
100
150
200
250
300
Since position in AJOT initiated (Jan 2024)
Beenos
Contribution (GBP)
7.5%
EV/EBIT
12.5x
% of net assets
10.6%
NFV/Market Cap
44%
01
C
Contributors
AVI Japan Opportunity Trust plc / Annual Report 2024
14
Alps Logistics, a provider of logistics services such as warehousing and
distribution, was the second largest contributor, adding +438bps to
performance, having received a tender offer bid in February 2024.
News first broke in Q1 2024 that parent Alps Alpine was considering selling
its 49% stake, due to a deterioration in its business. To address the cash flow
gap in their mid-term plan, they announced earlier in the year their intention to
explore asset sales.
In a takeover bid that reflects the true underlying value of the company
and showcases the stark valuation differential between listed and private
companies in Japan, KKR-controlled Logisteed paid a 194% premium to the
undisturbed, pre-rumour price in February to privatise Alps Logistics.
We believe this premium was reflective of the true value of the company, with
Alps Logistics being one of eight portfolio companies to be privatised since
AJOT’s inception. Alps Logistics was held in the portfolio since AJOT inception
in 2018, and during this time, AVI’s engagement with management focused
on ways to enhance corporate value and address the parent/child subsidiary
relationship with Alps Alpine.
Over the more than five-year holding period, the investment in Alps Logistics
generated an ROI of +332% for an IRR of +39%.
Kurabo Industries, a diversified conglomerate, was another significant
contributor to performance, adding +298bps as its share price increased
+105%.
Initially founded as a textiles business, the company is now also engaged in
chemical, advanced technology, food & service, and real estate businesses.
Kurabo Industries has a history of stable revenues, while it has doubled its
operating margin in recent years.
The company has significant real estate and investment securities backing,
which accounted for 106% of its market cap at the time of investment in
early 2024, subsequently falling to 89% due to share price growth. During the
year, Kurabo made improvements in the chemical and advanced technology
segment, leading to improved profit margins especially for its semiconductor
business.
Much of our engagement to date has focused on encouraging management
to address its asset-heavy balance sheet, improve capital efficiency, and focus
resources on the successful advanced technology and chemicals segments,
rather than laggards such as the textiles business. We have been pleased
to see the early results of the company’s transformation in November 2024,
when Kurabo announced an increase in dividends to a 35% payout ratio and
share buybacks amounting to 5.3% of its shares outstanding.
Since initiating our position in January 2024, the investment has generated an
ROI of +40% for an IRR of +81%. We see substantial upside remaining to the
current share price, and accordingly, Kurabo Industries accounted for 8.5% of
AJOT’s NAV at year end as the third largest position.
Indexed Share Price
Oct 18 Oct 19 Oct 20 Oct 21 Oct 22 Oct 23
0
100
200
300
400
500
600
700
800
Since position in AJOT initiated (Oct 2018 at inception)
Indexed Share Price
Jan 24 Mar 24 Jul 24May 24 Sep 24 Nov 24
100
150
200
250
Since position in AJOT initiated (Jan 2024)
Alps Logistics
Kurabo
Industries
Contribution (GBP)
4.4%
EV/EBIT
N/A
% of net assets
N/A
NFV/Market Cap
N/A
Contribution (GBP)
3.0%
EV/EBIT
1.2x
% of net assets
8.5%
NFV/Market Cap
89%
02 03
C C
AVI Japan Opportunity Trust plc / Annual Report 2024
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Aoyama Zaisan Networks (“AZN”) was the fifth largest contributor during the
year, adding 200bps to performance as its share price rose by 89%.
AZN specialises in providing wealth management consulting services across
areas such as property, succession planning, corporate finance, and strategic
management of individual assets. AZN is set to benefit from the ageing
Japanese population as the need for inheritance and business succession
consulting is on the rise.
In November, AZN disclosed favourable earnings, with EBIT and revenue
increasing year-over-year by 39% and 24%, respectively. Importantly, for the
first time, the company also announced a buyback programme, equal to 6%
of the market cap, aiming to prevent dilution caused by the most recent share
exchange deal with audit firm Chester Group. This aligns with AZN’s belief that
its capital allocation policy should be a core focus of the company.
At the time we initiated our investment in March 2024, AZN’s stock price had
been flat for the past five years, despite operating income continuing to grow
steadily and non-operating assets expanding to approximately 47% of market
cap as of the end of December 2023.
Since initiating our position in AZN, the investment has generated an ROI
of +34% for an IRR of +75%. We anticipate unlocking substantial upside to
the current share price through our constructive engagement initiatives with
management. At year end, AZN accounted for 6.2% of AJOT’s NAV as the
fifth largest holding.
TSI Holdings (“TSI”), the apparel holding company and second largest position
in AJOT, saw its share price rise by +47% in 2024, contributing 255bps to
performance as the fourth largest contributor.
As noted in our Q2 newsletter, TSI announced a new mid-term plan in April,
which, for the first time, disclosed a quantified shareholder return. The plan
aims for a 4% dividend on equity target by FY27/3, coupled with an ambitious
business optimisation plan to elevate operating margins to 6% (from the
current 1%).
As TSI’s largest shareholder, holding 10% of the vote across AVI funds, we
were pleased to see that the company had actioned many of our suggestions.
TSI has received substantial constructive and private engagement from us this
year, and we commend management for their proactive approach in listening
to shareholders.
With net cash and investment securities accounting for more than 70% of
the market cap, capital efficiency has been a key focus of our engagement
with the company. After period-end, TSI sold its former headquarters building,
located in central Tokyo, for a price higher than the company’s appraisal value
and equivalent to approximately 30% of its market cap.
At year end, TSI Holdings accounted for 10.3% of NAV, reflecting our
conviction in the potential upside to be unlocked through AVI’s constructive
engagement with management. TSI Holdings was added to the portfolio in
July 2022, and the investment has so far generated an ROI of +114% for an
IRR of +51%.
Strategic Report / Investment Manager's Report continued
Indexed Share Price
Jul 22 Oct 22 Jan 23 Jul 23 Oct 23 Jan 24 Jul 24 Oct 24
100
150
200
250
300
350
Since position in AJOT initiated (Jul 2022)
Indexed Share Price
Mar 24 Apr 24 Jul 24 Aug 24 Sep 24 Oct 24 Nov 24May 24 Jun 24 Dec 24
100
150
200
Since position in AJOT initiated (Mar 2024)
TSI Holdings
Aoyama
Zaisan
Networks
Contribution (GBP)
2.6%
EV/EBIT
9.4x
% of net assets
10.3%
NFV/Market Cap
70%
Contribution (GBP)
2.0%
EV/EBIT
8.7x
% of net assets
6.2%
NFV/Market Cap
29%
04 05
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Contributors continued
AVI Japan Opportunity Trust plc / Annual Report 2024
16
TSI HOLDINGS
AVIREX is one of TSI Holdings’
diverse range of apparel brands.
Source / TSI Holdings Co Ltd
AVI Japan Opportunity Trust plc / Annual Report 2024
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Nihon Kohden, a manufacturer of medical electronics, was the largest
detractor over the year, reducing performance by -145bps as its share price
fell -2%.
Nihon Kohden released its much-anticipated mid-term plan in May 2024,
which we had been engaging on behind the scenes. It was a comprehensive
and ambitious plan that caught the market by surprise; a 70-year-old,
conservative medical company putting forward a transformation plan was
certainly unexpected. While we were pleased, it was less surprising for us, as
we have been in regular dialogue with the founder’s grandson and President,
whom we identified as both motivated and possessing sufficient power to
drive corporate reform.
Towards the summer of 2024, however, Nihon Kohden saw its operating
margin decline due to headwinds to the hospital sector in Japan. Having
previously been a top five holding, by year end, Nihon Kohden accounted
for 3.6% of AJOT’s NAV. We trimmed the longstanding position, noting the
change in the hospital sector environment. AVI has engaged successfully
with Nihon Kohden throughout the holding period on matters such as capital
efficiency and corporate governance, with the ambitious mid-term plan
disclosed in May 2024 as the culmination of our engagement. During
Q4 2024, we strategically reallocated capital to more promising opportunities,
which have greater scope for improvements through our constructive
engagement with management.
We have; held Nihon Kohden in the portfolio since September 2022,
generating an ROI of +35% for an IRR of +17% to date. Post-period end, we
exited the position fully in February 2025.
Strategic Report / Investment Manager's Report continued
NIHON KOHDEN
Over the two-year holding
period, AVI engaged
extensively with the
manufacturer of medical
equipment.
Source / ozgurdonmaz via Getty Images
Indexed Share Price
Sep 22 Dec 22 Sep 23 Dec 23 Mar 24 Sep 24Jun 24Mar 23 Jun 23 Dec 24
180
160
140
120
100
Since position in AJOT initiated (Sep 2022)
Nihon
Kohden
Contribution (GBP)
-1.4%
EV/EBIT
17.6x
% of net assets
3.6%
NFV/Market Cap
15%
06
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Detractors continued
AVI Japan Opportunity Trust plc / Annual Report 2024
18
Jade Group (“JADE”), an operator of apparel e-commerce sites, was the
second largest detractor over the year, detracting -126bps from performance
as its share price declined -28% amidst uncertainty surrounding the post-
merger integration (PMI) of Magaseek, which it acquired in early 2024.
Investor relations and adequate communication with investors is one of the
core agendas of the corporate reform occurring in Japan. The TSE is pushing
for companies to improve their disclosure, particularly to foreign investors, with
substantial discounts applied to the valuations of companies failing to meet the
rising expectations. After making an acquisition as pivotal as Magaseek, which
JADE initially expected to double gross merchandise value and operating
profits within two financial years, JADE left the market disappointed by the lack
of consistent disclosure.
During Q2 2024, JADE’s share price was strong on the back of a press release
made in July, which showed signs of successful post-merger integration of
Magaseek in a demonstration of improved IR communications, an area in
which much of our recent engagement had focused. Unfortunately, since
the announcement in July 2024, JADE has not made adequate disclosures
around the significant acquisition, leaving shareholders and prospective
investors in the dark on its progress. In its FY25 Q2 presentation material
released in October 2024, rather than provide a clear timeline for
cost-cutting measures, management alluded to cross-sales as the likely
method to revitalise sales to meet the FY25 forecast. This sent the share price
down nearly -15% in the week that followed, and it drifted a further -11%
lower to year end. Operating income guidance was revised downward
post-period end.
Since we initiated our position in November 2021, JADE has made several
acquisitions in pursuit of its ambitious growth path to cement itself as the
No.2 player in Japan’s ¥2.4 trillion fashion e-commerce market. We have
supported management in pursuing this growth. However, with the market-
wide reform occurring in Japan, the importance of investor relations cannot be
understated, and we believe JADE needs to make immediate improvements
to meet the market’s rising expectations.
We maintain consistent sell discipline with each of our investments as the
situation changes since our initial investment thesis. Accordingly, with net
cash reduced following several M&A transactions, uncertainty around plans
for margin improvement through PMI, and management’s apparent lack of
urgency to enhance IR disclosure, we have reduced our position in JADE
to 1.7% of NAV at year end. We will closely monitor the situation, as JADE
maintains potential for strong earnings growth in the coming years.
To date, the investment has been successful, supported by our engagement
strategy and timing, and we have generated an ROI of +32% for an IRR of
+14% over the more than three-year holding period.
Indexed Share Price
Dec 21 Dec 23 Jun 24Jun 22 Dec 22 Jun 23 Dec 24
50
100
150
200
250
Since position in AJOT initiated (Nov 2021)
Jade Group
Contribution (GBP)
-1.3%
EV/EBIT
10.8x
% of net assets
1.7%
NFV/Market Cap
3%
07
D
AVI Japan Opportunity Trust plc / Annual Report 2024
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Takuma, a waste treatment plant engineering company for local municipalities,
reduced performance by -106bps, as the third largest detractor saw its share
price decline by -4% over the year.
Takuma has built 120 waste treatment facilities in Japan, 60% of which
already have operating contracts, leaving further room for expansion over the
coming years. With a tight labour market, there is a trend of outsourcing the
operation of these plants to the constructor on decade-long contracts. This
trend underpins our investment thesis for Takuma, with the business gradually
shifting towards recurring maintenance and operation contracts.
In May 2024, the market was left disappointed by the announcement of
Takuma’s underwhelming mid-term plan, with the share price declining by
-12.0% in the subsequent day of trading.
Positively, the mid-term plan demonstrated improved transparency around
quantitative targets (such as orders intake and ROE targets), and, for the
first time, disclosed a disciplined shareholder returns policy. This included a
50% payout policy, a 4% dividend on equity target, and the intention to buy
back 3.8% of shares outstanding this year, with a similar amount during the
following two years. However, the next three years’ profit guidance left much
to be desired, with next year’s conservative operating profit guidance of
¥11.2 billion falling short of the consensus estimate of ¥13.4 billion.
Having faced much criticism from the stock market and with AVI’s patient,
constructive engagement, Takuma decided to upgrade its mid-term plan in
November 2024, increasing the ROE target and shareholder returns.
Having so far achieved an ROI of +18% and an IRR of +13% in our near two-
year holding period, we will continue engaging with management on methods
to enhance capital policy and improve operating efficiency. We see substantial
upside to the current share price, with Takuma’s 5.4% weight as the sixth
largest position in AJOT reflective of our conviction.
Strategic Report / Investment Manager's Report continued
TAKUMA
AVI’s strong conviction
lies in Takuma’s
business model shift
towards recurring
maintenance and
operation contracts.
Source / Takuma Co Ltd
Indexed Share Price
Apr 23 Jul 24Oct 23Jul 23 Jan 24 Apr 24 Oct 24
80
120
160
Since position in AJOT initiated (Apr 2023)
Takuma
Contribution (GBP)
-1.1%
EV/EBIT
5.1x
% of net assets
5.4%
NFV/Market Cap
53%
08
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Detractors continued
AVI Japan Opportunity Trust plc / Annual Report 2024
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Shin-Etsu Polymer, a manufacturer of moulded plastics and a listed subsidiary
of Shin-Etsu Chemical, reduced performance by -98bps as we reduced our
position, although its share price rose modestly by +1%.
The companies’ business operations are intertwined, and the management
of both companies have indicated that they are aware of some of the key
parent-subsidiary listing issues. Beyond the prospect of a buyout by
Shin-Etsu Chemical, our interest in Shin-Etsu Polymer stems from its
discounted valuation and its growing wafer carrier cases business.
Much of AVI’s engagement with Shin-Etsu Polymer has focused on ways to
rectify its poor corporate governance and low valuation. After meeting with
the company in 2024, we lost some conviction in management’s ambition to
grow corporate value and in the company taking adequate steps to address
the conflicts and corporate governance shortcomings of its parent-subsidiary
relationship. We continue to believe that the parent-subsidiary relationship
is harming Shin-Etsu Polymer’s corporate value and that, as many listed
subsidiaries in Japan have done already, it should be eliminated.
With abundant opportunities in our under-research investment universe,
we reduced our position in Shin-Etsu Polymer to 2.0% of AJOT’s NAV by
year end. This is in line with our commitment to focus our engagement
efforts on companies where we see potential for immediate improvements
through implementing our suggestions, as we drive catalysts to unlock
substantial value.
To date, the investment has generated an ROI of +56% for an IRR of +19%.
Portfolio Trading Activity
In a busy year of trading, which saw 13 new names enter the portfolio,
turnover was an elevated 68% due to four portfolio companies receiving
tender offer bids, as well as one receiving an advance notice of a tender offer
bid. On an adjusted basis for these buyouts, as well as trades in three regional
banks, turnover was in line with the historical average (35%) at 38%. The
approximate holding period for our strategy is three to five years, however, this
may be shortened by catalysts such as tender offers, as a result of our active
engagement approach.
The largest purchases over the period were in new positions to the portfolio in
2024, namely Kurabo Industries, Aoyama Zaisan Networks, Beenos,
Araya Industrial and Raito Kogyo. Four of these names were top 10 positions
by year end.
The largest sale during 2024 was Alps Logistics, which, as discussed above,
received a tender offer in February at a +194% premium to the undisturbed
share price. NC Holdings, which also received a tender offer during the year,
was the second largest sale. Outside of these, the largest sales were in
longstanding positions such as Nihon Kohden, Digital Garage and Shin-Etsu
Polymer.
Indexed Share Price
Dec 21 Jun 22 Dec 23 Jun 24Dec 22 Jun 23 Dec 24
200
180
160
140
120
100
80
Since position in AJOT initiated (Dec 2021)
Shin-Etsu
Polymer
Contribution (GBP)
-1.0%
EV/EBIT
7.2x
% of net assets
2.0%
NFV/Market Cap
34%
09
D
AVI Japan Opportunity Trust plc / Annual Report 2024
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Strategic Report / Portfolio Construction
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.
2024
2023
<£250mn 29% 17%
£250mn - £500mn 32% 21%
£500mn - £750mn 30% 21%
£750mn - £1bn 3% 29%
1bn - £2.5bn 4% 11%
>£2.5bn
2% 1%
Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Jun 24 Dec 24Dec 23
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2024
2023
Consumer Durables and Apparel
22%
23%
Capital Goods
15%
19%
Materials
15%
16%
Consumer Discretionary, Distribution and Retail
12%
12%
Health Care Equipment and Services
11% 10%
Software and Services
7%
5%
Real Estate Management and Development
6%
5%
Media and Entertainment
4%
4%
Technology Hardware and Equipment
3%
3%
Telecommunication Services
3%
2%
Household and Personal Products
2%
1%
Dec 18 Dec 19 Dec 20 Dec 21 Dec 24Dec 23Dec 22
40%
50%
60%
70%
80%
TOP 10 CONCENTRATION
(% OF NET ASSETS)
AVI Japan Opportunity Trust plc / Annual Report 2024
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Strategic Report / AVI Japan Investment Team
Outlook
The combination of rising pressure from regulators
and activists in 2024 presents a compelling
opportunity to unlock substantial value in small
to mid-cap Japanese companies in 2025 and
beyond. With several key tailwinds and a deeply
under researched market, our conviction in
the strategy remains as high as ever. We look
forward to continuing our active engagement with
companies to drive the catalysts needed to grow
long-term corporate value and generate
significant alpha.
Joe Bauernfreund
Asset Value Investors Limited
4 April 2025
AVI JAPAN INVESTMENT TEAM
From left to right: Kaz Sakai (Head of Japan Research),
Joe Bauernfreund (Portfolio Manager), Luke Hutcherson
(Investment Analyst), Nicola Takada Wood (Managing Director
Japan), Shuntaro Shimizu (Senior Investment Analyst)
AVI Japan Opportunity Trust plc / Annual Report 2024
23
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* Please refer to Glossary on pages 74 and 75.
1 Estimates provided by AVI. For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75.
Company
Stock Exchange
Identifer
% of
investee
company
Cost
£’000*
Market
value
£’000
% of
AJOT
net assets
NFV/Market
capitalisation
1
EV/EBIT
1
Beenos TSE: 3328 8.2% 10,002 22,445 10.6% 44% 12.5
TSI Holdings TSE: 3608 5.3% 11,866 21,894 10.3% 70% 9.4
Kurabo Industries TSE: 3106 3.5% 13,265 18,043 8.5% 89% 1.2
Eiken Chemical TSE:4549 3.8% 13,355 16,100 7.6% 20% 21.0
Aoyama Zaisan Networks TSE: 8929 5.4% 10,016 13,062 6.2% 29% 8.7
Takuma TSE: 6013 1.6% 11,378 11,390 5.4% 53% 5.1
Araya Industrial TSE: 7305 7.1% 9,781 11,182 5.3% 85% 2.5
Konishi TSE: 4956 2.2% 8,393 10,400 4.9% 32% 5.8
Aichi Corporation TSE: 6345 1.8% 7,291 9,789 4.6% 47% 8.7
Sharingtechnology TSE: 3989 8.9% 8,556 9,451 4.4% 18% 9.6
Top 10 investments 103,903 143,756 67.8%
Atsugi TSE: 3529 10.5% 7,162 8,913 4.2% 123%
Raito Kogyo TSE: 1926 1.6% 8,128 8,635 4.1% 49% 4.6
Wacom TSE: 6727 1.5% 10,548 7,857 3.7% 14% 8.6
Nihon Kohden TSE: 6849 0.4% 6,868 7,533 3.6% 15% 17.6
DTS TSE: 9682 0.8% 5,752 7,371 3.5% 21% 10.7
Tecnos Japan TSE: 3666 8.8% 6,408 7,322 3.5% 29% 6.7
SK Kaken TSE: 4628 0.9% 9,445 6,738 3.2% 80% 2.0
Broadmedia TSE: 4347 10.2% 6,018 6,547 3.1% 40% 12.0
Rohto Pharmaceutical TSE: 4527 0.1% 5,291 4,340 2.0% 7% 16.6
Shin Etsu Polymer TSE: 7970 0.6% 3,669 4,340 2.0% 34% 7.2
Top 20 investments 173,192 213,352 100.7%
Jade Group TSE: 3558 4.1% 3,822 3,674 1.7% 3% 10.8
Helios Techno Holding TSE: 6927 3.0% 3,093 3,363 1.6% 62% 3.7
A-One Seimitsu TSE: 6156 1.0% 517 476 0.2% 57% 31.6
Total investments 180,624 220,865 104.2%
Other net assets and liabilities (8,884) (4.2%)
Net assets 211,981 100.0%
Strategic Report / Investment Portfolio
As at 31 December 2024
AVI Japan Opportunity Trust plc / Annual Report 2024
24
Over-capitalised, with signifcant net fnancial value
1
Suffcient average daily traded value
Low EV/EBIT relative to peers, typically <10x
Sector agnostic, typically excl. fnancial sector
High Quality Businesses
Engagement Prospects
Compounding Effect
Small to Mid-Cap Focused with suffcient liquidity
Discount Tightening
Undervalued and Surplus Cash
Value Growth
HOW WE INVEST
Portfolio Characteristics
1
2
3
4
Defining our Universe
c.3,900
Listed Japanese Companies
1
2
3
4
c.800
Companies in the AJOT Universe
How we Generate Returns
1
At the core of all AVI’s investments are attractive businesses with durable
earnings growth.
2
Occurs when the share price rises more than the NAV.
3
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
1 Net Financial Value (“NFV”) = cash + investment securities – net debt – minority interest.
Theoretical example of how returns are generated in an AJOT investment.
-80%
-60%
-40%
-20%
60
100
140
0%
-80%
-60%
-40%
-20%
60
100
140
0%
Discount (% RHS)
NAV
Share Price
Business Model
AVI Japan Opportunity Trust plc / Annual Report 2024
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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 hedge its currency
exposure using financial instruments such as
derivatives, forward contracts, or options. Although
there are no current plans to hedge investments
denominated in JPY, the Investment Manager and
the Board will periodically review this policy.
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
£1,835,000 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.
MUFG Corporate Governance Limited was
appointed as corporate Company Secretary on
27 July 2018. The current annual fee is £79,000,
which is subject to an annual RPI increase. The
agreement may be terminated by either party on six
months’ written notice.
Waystone Administration Solutions (UK)
Limited has been appointed to provide general
administrative functions to the Company.
The Administrator receives an annual fee of
£119,000. 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
fair 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 register and are subject to periodic
and regular 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 425,716 shares during the year
under review in order to control the discount, as
the Board believes that this is in the interest of
Shareholders as a whole. Norman Crighton and
Yoshi Nishio visited Japan in June 2024, primarily
to attend and ask questions at the AGM of
SK Kaken, one of the investee companies. They
also took the opportunity to meet with several
portfolio companies and our Japanese PR
firm. These meetings contributed to a deeper
understanding between the Company and those
visited. Additionally, the decision to offer the
realisation opportunity annually was based on
the Investment Manager’s recommendation, and
accepted after extensive discussions with the
Broker and shareholders.
AVI Japan Opportunity Trust plc / Annual Report 2024
26
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.
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;
Stakeholders
Strategic Report / Stakeholders
AVI Japan Opportunity Trust plc / Annual Report 2024
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Strategic Report / Stakeholders 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 on a regular basis.
In October 2024, the Company offered Shareholders the chance to
tender some or all of their shares for sale at a two per cent. discount
to NAV. At the general meeting held in December 2024, Shareholders
approved the Exit Opportunity, with approximately 2.6% of
Shareholders electing to tender their shares. Given the Board’s strong
commitment to corporate governance, the Directors intend to offer the
Exit Opportunity annually, instead of every two years. Consequently,
the Board expects to offer another Exit Opportunity to Shareholders in
October 2025 and every 12 months thereafter;
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 the presence of a
healthy corporate culture.
AVI Japan Opportunity Trust plc / Annual Report 2024
28
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 advisers 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. 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 2024
29
G
FS
SI
SR
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 Advisers
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.
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, and 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.
Strategic Report / Stakeholders continued
AVI Japan Opportunity Trust plc / Annual Report 2024
30
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 29. 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
(2023: 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 Limited
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 commits 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.
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. For
the majority of the year, the Board comprised four
Directors, two males and two females. However,
one Director tendered their resignation at the end of
September 2024 and a second Director tendered
their resignation post year end. To facilitate the
search for a new Director, the Company engaged
the services of an external search consultant,
Nurole. At the time of writing this report, the Board
had successfully recruited two new Directors.
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 34 and 35. AVI became a supporter 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 2024
31
G
FS
SI
SR
Strategic Report / Key Performance Indicators
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 (“APMs”).
NAV Total Return Performance
1
1 Year*:
20.9%
Since Inception ("SI") 69.9%
8.9%
The Directors regard the Company’s NAV total return as 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 69.9%, resulting in an annualised
return of 8.9%. 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 23.5%, resulting in an annualised return
of 3.5%. For the year ended 31 December 2024, the Company’s NAV
increased by 20.9% while the MSCI Japan Small Cap Index increased
by 6.2%. A full description of performance and the investment portfolio is
contained in the Investment Manager’s Report, commencing on page 12.
Discount/Premium
1
Discount, 31 December 2024:
-2.1%
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, nil new shares were issued under the authorisation granted at
the AGM. During the year, 425,716 shares were bought back into treasury
under the authorisation granted at the AGM.
As at 1 April 2025, the Company had 137,198,943 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 12 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 aligns with the focus on corporate governance reform taking place
in Japan.
Ongoing Charges
1
31 December 2024:
1.5%
The Board continues to be conscious of expenses and aims to maintain a
sensible balance between good service and costs. Each year, the Board
reviews in detail the costs incurred and ongoing commercial arrangements
with each of the Company’s key suppliers. The majority of the ongoing
charges ratio is attributed to 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 assessed 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 2024.
1 For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages
74 and 75.
SI Annualised
1.2%Premium, High for the period
Discount, Low for the period -6.7%
31 December 2023 1.5%
Peer Group NAV Performance Total Return
AIC Japanese Smaller Companies Sector*
(9.6)% Baillie Gifford Shin Nippon
Nippon Active Value 15.2%
AVI Japan Opportunity 20.9%
Key Performance Indicators
AVI Japan Opportunity Trust plc / Annual Report 2024
32
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 Exit Opportunity in October 2025 as discussed in
the viability statement below. Therefore, the financial statements have been
prepared on a going concern basis.
Viability
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, at the
Board’s discretion, offer Shareholders an opportunity to exit the Company at
close to NAV in October 2025 and every year thereafter under a revised policy
as announced in October 2024 (previously, every two years). In November
2024, the Company announced it would offer Shareholders the opportunity to
tender some or all of their shares for sale. The Company received applications
from eligible shareholders to tender an aggregate of 3,637,759 shares,
equivalent to 2.58% of the Company’s issued share capital at that time.
The Board, together with its advisers, intends to canvass opinion from
Shareholders in the months leading up to October 2025 when making
the decision regarding any potential Exit Opportunity. However, the Board
does not currently expect a significantly higher percentage of Shareholders
to exercise this option to exit in 2025. The Directors have reviewed the
Shareholders of the Company, Shareholder feedback, the current market
position, and performance, in forming this expectation.
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 (£14.9 million) through
an unsecured revolving credit facility. Following an extension for two
years and two months to 5 April 2024 on the same terms, the facility
was further renewed for another two years to 2 April 2026. In the unlikely
event that the facility cannot be extended beyond 2 April 2026, 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 15 times as at the end of
December 2024 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 2024
33
G
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SI
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ABOUT ASSET VALUE INVESTORS
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 primary goal is to reduce emissions,
however we are also researching appropriate
methods to offset unavoidable emissions.
AVI's 2024 emissions from commuting
and business travel:
164.5 tonnes CO
2
e*
* 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:
29.2%
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:
2024
Number
2024
%
Male
15 62.5
Female
9 37.5
Strategic Report / ESG Policy
ESG Perspective
OUR PURPOSE
Helping our clients to make the most of
their financial future.
The people at Asset Value Investors 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 and we
recognise our position of influence in 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 integral to comprehensively
understanding each investment’s ability
to create long-term value.
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.
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.
* Data as at 31 December 2024.
AVI Japan Opportunity Trust plc / Annual Report 2024
34
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.
E
We define Environmental sustainability within the
context of:
• Environmental Impact
• Tackling Climate Change
• Sustainable Management
S
Our Social focus is divided into:
• Dignity and Equality
• Wellbeing and Development
• Community Engagement
G
Our approach to Governance includes:
• Quality of Governing Body
• Corporate Strategy
• Ethical Behaviour
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.
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
International Labour Organisation conventions.
Prior to investment we:
Assess a 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 EGG’s Norm-Based Research.
AVI became a signatory to the UN-supported
Principles for Responsible Investment (“PRI”)
on 9 April 2021.
$
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 2024 Proxy Voting Record
100%
Total voted
100%
With management
76%
76%
Against management
24%
24%
Against ISS*
19%
19%
With ISS*
81%
81%
* 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 2024
35
G
FS
SI
SR
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 Risk Level
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, supported by a strong
team. The Board relies on the Investment Manager’s skills and judgement to make
investment decisions based on thorough research and analysis of individual stocks
and sectors.
The Board regularly reviews the portfolio’s performance against the Company’s
Benchmark Index, its competitors, and market outlooks.
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 extended in February 2024 to 5 April 2024 on the same
terms while renewal terms were being agreed. The facility was renewed for two years
on 2 April 2024. As at 31 December 2024, ¥2.9 billion (£14.8 million) of the facility
had been drawn. Interest is payable at a rate equal to TONAR plus 1.55%. As at
31 December 2024, gearing stood at 4.5%.
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.
Strategic Report / Principal Risks and Uncertainties
Risk Level Key:
Increased
Decreased
No Change
AVI Japan Opportunity Trust plc / Annual Report 2024
36
Risk Area Controls and Mitigation Risk Level
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.
The Company does not hedge its currency exposure using financial instruments such
as derivatives, forward contracts, or options. 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 Telecoms Oy.
A concentrated share register can potentially
present issues with regards to voting or liquidity.
The Investment Manager, the Company’s 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
4 April 2025
AVI Japan Opportunity Trust plc / Annual Report 2024
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Governance / Directors
Your Board
NORMAN CRIGHTON
Chairman,
Non-Executive Director
TOM YORITAKA
Non-Executive Director
ANDREW ROSE
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.
Date of Appointment:
12 February 2025
External Appointments:
–
Experience and Contribution:
Andrew retired from Schroders in
2019 after a distinguished 38-year
career specialising in Japanese
equities. His career included
11 years in Tokyo over three separate
secondments, where he was
involved in various research and fund
management responsibilities across
the market capitalisation spectrum.
His specific responsibilities included
managing several open and closed-
end Japanese equity funds, as well
as institutional portfolios.
After retirement from full-time fund
management, Andrew served as a
non-executive director and member
of the Audit and Supervisory
Committee at Uhuru Corporation in
Tokyo for three years.
Andrew is a British citizen, fluent in
reading and speaking Japanese, and
resides in the United Kingdom.
Date of Appointment:
5 September 2018
External Appointments:
VH Global Energy Infrastructure 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
Energy Infrastructure 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.
MARGARET STEPHENS
Non-Executive Director
Committee membership
Committee Chair
A
Audit Committee
N
Nomination and Remuneration Committee
Date of Appointment:
12 February 2025
External Appointments:
–
Experience and Contribution:
Tom is a venture capital investor,
software executive, and board
member with over 30 years of
experience in the technology industry
in the UK, North America and Japan.
He invests in early-stage technology
and science-backed startups, and
working closely with founders and
co-investors, many of whom are
leading venture capital funds or
C-suite executives of multinational
companies. He also sits on the
Board of Trustees of SOAS University
of London, as well as on boards
of various technology industry
organisations in the UK.
Previously, Tom served in software
product and corporate development
executive roles at Cisco Systems,
Yahoo! and Microsoft in the US. Early
in his career, he worked as a strategy
consultant at The Boston Consulting
Group in the US and Japan.
Tom is fluent in English and
Japanese. He holds dual British/
American citizenship and resides in
the United Kingdom.
A NA N A AN N
AVI Japan Opportunity Trust plc / Annual Report 2024
38
The Directors present their report and the audited financial
statements for the year ended 31 December 2024.
The Investment Portfolio on page 24, the Corporate Governance Statement
on pages 41 to 42, Report from the Audit Committee on pages 50 and 51
and the Shareholder Information on pages 74 to 76 form part of the Report of
the Directors.
Directors
The current Directors of the Company are listed on page 38. Norman and
Margaret served throughout the review period. During the period, Yoshi Nishio
and Katya Thomson also served as Directors, with the former resigning on
30 September 2024 and the latter after the year end, on 21 January 2025.
Andrew Rose and Tom Yoritaka were appointed as Directors with effect from
12 February 2025.
As set out on page 44, the Board conducts an annual review of each
Director and of the Board as a whole. The Board considers all Directors to
contribute effectively, possess the necessary skills and experience, and remain
committed to their roles as non-executive Directors of the Company. Following
the performance review, it was agreed that Norman and Margaret would stand
for re-election, and Tom and Andrew would stand for election. The Board
recommends the re-election and election of each Director.
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 2024 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 2024, there were 137,198,943 Ordinary Shares of 1p each
in issue, of which 825,716 were held in treasury, and therefore the total voting
rights attaching to Ordinary Shares in issue were 136,373,227. In the period
from 1 January 2025 to 1 April 2025 250,000 Ordinary Shares were bought
back and held in treasury and therefore the voting rights attaching to Ordinary
Shares as at 1 April 2025 were 136,123,227.
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 1 May 2024, the Company was granted authority
to allot up to 28,167,340 Ordinary Shares on a non-pre-emptive basis. This
authority is due to expire at the Company’s forthcoming AGM on 20 May
2025. As at 31 December 2024, the remaining authority to allot Ordinary
Shares under the authority granted at the AGM held on 1 May 2024 was
28,167,340 Ordinary Shares and this remained the same as at 1 April 2025.
The Company has a block listing of Ordinary Shares to be listed to the Official
List of the FCA and admitted to trading on the equity shares in commercial
companies category.
Shares Buybacks Carried out During the Year
Date No of shares
Price paid
per share
(pence)
Total value
(£m)
% of total
SO
12/12/2024 3,637,759* 152 5.54 2.58%
19/11/2024 290,716 140 0.41 0.21%
15/03/2024 100,000 128 0.13 0.07%
14/03/2024 35,000 127 0.04 0.02%
Total 4,063,475
* Relating to shares bought back and cancelled as part of the tender offer, discussed below.
Purchase of Shares
At the general meeting held on 1 May 2024, 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 13 March 2024, such authority to expire on
conclusion of the 2025 AGM. During the year, 425,716 Ordinary Shares were
bought back for an aggregate amount of £584,000 (nominal value £4,257,
representing 0.3% 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 2024,
authority to buy back a further 28,176,340 Ordinary Shares remained.
Sale of Shares from Treasury
At the AGM held on 1 May 2024, the Company was authorised to waive
pre-emption rights in respect of treasury shares, such authority to expire on
conclusion of the 2025 AGM. At the start of the year, 400,000 Ordinary Shares
were held in treasury. The Company bought back 425,716 shares during the
year, resulting in 825,716 shares being held in treasury as at 31 December
2024. Following the year end, a further 250,000 shares were bought back and
as at the date of this report, 1,075,716 shares were held in treasury.
Exit Opportunity
At a General Meeting held on 10 December 2024 the Company was granted
authority to purchase up to 100% of the Company’s Ordinary Shares in issue
at the close of business on 15 November 2024, or such other number as
shall be equal to the number of Ordinary Shares in issue immediately prior
to the commencement of the General Meeting on 10 December 2024. The
Company received applications from eligible Shareholders to tender an
aggregate of 3,637,759 shares, representing 2.58% of the issued Ordinary
Share capital, at a price of 152.37 pence. The Ordinary Shares bought back
were cancelled. For more information on the Exit Opportunity please see
page 7.
Governance / Directors' Report
AVI Japan Opportunity Trust plc / Annual Report 2024
39
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Related Party Transactions
The Company’s related parties in the year were its Directors, the Investment
Manager and Finda Telecoms 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 2024 and shares held by AVI, are given in note 16 on
page 72.
Finda Telecoms Oy is deemed to be a significant shareholder holding in the
Company’s issued share capital. During the year under review, no transactions
took place between the Company and Finda Telecoms Oy.
Interests in Share Capital
At 31 December 2024, 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 2024. However, notification of any change is not required until
the next applicable threshold is crossed. For the sake of completeness, other
holdings which exceed three per cent. but where no notification has been
received, are also included.
Number of
Ordinary
Shares
Percentage of
voting rights
Finda Telecoms Oy 30,000,000 22.00%
City of London Investment Management
Company Limited 18,072,623 13.25%
Hargreaves Lansdown 7,319,448 5.37%
Investec Wealth & Investment Limited 6,590,086 4.83%
Charles Stanley 5,714,712 4.19%
1607 Capital Partners 5,455,260 4.00%
Between 31 December 2024 and 4 April 2025, Finda Telecoms Oy notified
the Company of an increase in their voting rights to 22.04%, while City of
London Investment Management Company Limited’s voting rights decreased
to 12.76%.
As at 31 December 2024, AVI Ltd & AVI employees owned 3 million shares.
Dividends
The Directors are proposing a final dividend of 1.20p per share for the year
to 31 December 2024. Subject to the approval of Shareholders at the
forthcoming AGM, the proposed final ordinary dividend will be payable on
23 May 2025 to Shareholders on the register at the close of business on
25 April 2025. The ex-dividend date will be 24 April 2025.
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 Tuesday 20 May 2025 at the offices of the
Association of Investment Companies, 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 6.6.4
Listing Rule 6.6.4 requires the Company to include certain information
specified in Listing Rule 6.6.1R in a single identifiable section of the Annual
Report or a cross reference table indicating where the information is set out.
The Directors confirm that no disclosures are required in relation to
Listing Rule 6.6.1R.
Other Information
Information on future developments and financial risks is detailed in the
Strategic Report. On 28 March 2025, the Company formally agreed with
the Bank of Nova Scotia to increase the notional size of the Revolving Credit
Facility to JPY 6.6 billion, representing approximately 15% of the NAV based
on end-of-February figures. The Company released an announcement
regarding a proposed transaction with Fidelity Japan Trust plc (“FJV”) on 3
April 2025, setting out a written proposal for an acqusition of assets submitted
to the FJV Board during 2024, such that FJV shareholders can independently
assess FJV’s performance and consider the alternative solution presented
to their board. Under the proposal, FJV shareholders would be offered the
choice of (i) rolling their investment into new shares to be issued by AJOT and/
or (ii) electing for a cash exit, capped at 25 per cent. of FJV’s shares in issue
(excluding treasury shares). At the time of writing, there can be no certainty
that engagement will progress, that heads of terms will be agreed, or whether
this proposed transaction will take place. Further details of post balance sheet
events can be found in note 17.
By order of the Board
For and on behalf of MUFG Corporate Governance Limited
Company Secretary
4 April 2025
Governance / Directors' Report continued
AVI Japan Opportunity Trust plc / Annual Report 2024
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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, for the year under review,
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 welcomed the 2024 AIC Code
published in August 2024 following the publication of the 2024 UK Code. The
Company will report against the 2024 AIC Code for the year ending 2025 with
the exception of provision 34, which relates to internal controls and will be
reported against in the Annual Report for the year ending 2026.
The Board considers that reporting against the principles and provisions of the
AIC Code, which includes the UK Code, offers Shareholders comprehensive
information about the Company’s Corporate Governance compliance.
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 Chair 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 2024
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Role of the Board continued
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, MUFG Corporate Governance 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. All members of the Board are regarded as
independent of the Investment Manager and 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 recognise the benefits of Board diversity and continually review
the Board’s and individual Directors’ effectiveness. They aim to balance
knowledge of the Company, diversity and continuity in their relationship with
the Investment Manager. The Board has adopted a Diversity Policy to ensure
Directors bring a wide range of skills, knowledge, experience, backgrounds,
and perspectives. While the Board does not set specific targets, diversity is
considered when evaluating the skills, knowledge and experience needed
for each Board vacancy. The Board has established objectives to achieve
diversity:
• 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 6.6.6 (9-11), which are as follows:
• 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 6 Annex 1R, the below tables, in prescribed
format, show the gender and ethnic background of the Directors at the
year end.
Gender identity
Number of
Board
members
Percentage
on the Board
Number
of senior
positions on
the Board*
Men 1 33.33% 1
Women 2 66.67% 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) 3 100% 2
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British – – –
Black/African/Caribbean/
Black British – – –
Other ethnic group,
including Arab – – –
Not specified/prefer not to say – – –
* Listing Rule 6.6.6(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 Chair 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.
On 30 September 2024, the number of Directors was reduced to three.
Since the period end, one additional Director resigned, and two non-executive
Directors were appointed, effective 12 February 2025. The Board has
consistently met the target of having at least one individual from a minority
ethnic background, except between October 2024 and early February 2025.
At the time of this report, the Board comprised four members, including one
individual from a minority ethnic background. As at the date of this report, the
gender breakdown is as follows: one female (25%) and three males (75%).
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.
Governance / Corporate Governance Statement continued
AVI Japan Opportunity Trust plc / Annual Report 2024
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Tenure continued
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 and or election at the 2025 AGM. The contribution and
performance of the Directors seeking re-election was reviewed by the
Nomination and Remuneration Committee at its meeting in March 2025,
which recommended to the Board their continuing appointment.
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 2025, the Directors reviewed their independence
and confirmed that all Directors remain wholly independent of the Investment
Manager. 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 that falls under the Equity
Shares (Commercial Companies) category. The Company Secretary is also
responsible for ensuring good information flows between all parties.
Directors’ Insurance and Indemnifcation
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 2024
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Audit Committee
The Audit Committee comprises all Directors. Throughout the year under
review, the Audit Committee was chaired by Katya Thomson and following
her resignation after the year end, Margaret Stephens succeeded her in
this role. Both Katya and Margaret are chartered accountants. The other
Audit Committee members bring a combination of financial, investment and
other experience gained throughout their careers. The Board is satisfied
that at least one of the Audit Committee 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 upon 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. At the time of this
report, the Company had engaged the services of an independent external
consultancy with no connection to the Company, Nurole, and successfully
recruited two non-executive Directors: Andrew Rose and Tom Yoritaka. We
warmly welcome them on board.
The Nomination and Remuneration Committee also reviews and recommends
to the Board the Directors seeking re-election and 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 2025 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. Two of the current Directors have served for a period of six years.
Their tenure is considered by the Nomination and Remuneration Committee as
part of the review of succession planning.
With the appointment of Andrew and Tom, further changes are planned in the
coming 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 Chair 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.
Names Board
Audit
Committee
Nomination and
Remuneration
Committee
Norman Crighton 4(4) 2(2) 2(2)
Margaret Stephens 4(4) 2(2) 2(2)
Katya Thomson* 4(4) 2(2) 2(2)
Yoshi Nishio* 3(3) 2(2) 1(1)
* Ms Thomson resigned on 21 January 2025, while Mr Nishio resigned on 30 September 2024.
Since the period end, two non-executive Directors, Andrew Rose and Tom
Yoritaka have been appointed, effective 12 February 2025.
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 discussing the renewal of the Company’s loan facility,
the tender offer, and approving the tender offer circular. They also reviewed
portfolio developments with the Investment Manager.
Performance Evaluation
In January 2025, the Nomination and Remuneration Committee conducted an
internal performance review of the effectiveness of the Board, its Committees,
the Chairman and the Directors.
The review was carried out by way of questionnaires completed by the
Directors. The results were collated and a report detailing the responses was
considered by the Committee along with considering areas of focus and
improvement for 2026.
This process was facilitated by the Company Secretary, MUFG Corporate
Governance Limited. The scope of the questionnaire was designed to cover
all aspects of the Board’s operation, including the management of meetings,
the strengths and independence of the Board and the Chairman, individual
Directors and the performance of its Committees, each Director’s perspective
on the Board’s future priorities, training requirements and the way the Board
works as a team.
The Committee concluded that the evaluation demonstrated that the
composition of the Board and its Committees continued to be appropriate and
it provided adequate supervision, oversight and challenge.
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 continuously 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 2024
44
Internal Control continued
The risk management process and system of internal control were 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, considering its reliance on its
service providers and their internal controls. Therefore, the system manages
rather than eliminates the risk of failure to achieve the Company’s business
objectives providing reasonable but not absolute assurance against material
misstatement or loss.
In arriving at its judgement of the 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 based on their likelihood, the impact on the business if they occur
and the effectiveness of the controls in place to mitigate them. This risk matrix
is reviewed twice a year by the Audit Committee and as necessary at other
times.
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 regularly. 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 2024, 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 33.
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 26.
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 MUFG Corporate Governance Limited
Company Secretary
4 April 2025
AVI Japan Opportunity Trust plc / Annual Report 2024
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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. The
Remuneration Policy is provided below and will be put to Shareholders at the
2025 AGM as an ordinary resolution. The Directors consider the Remuneration
Policy to remain fit for purpose and are proposing no amendments.
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 Chair 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 they may incur
in connection with any claims relating to their performance or the performance
of the Company while they are Directors.
The Company is committed to ongoing Shareholder dialogue. Any views
expressed by Shareholders on the fees paid to Directors will be taken into
consideration by the Board when reviewing the Directors’ Remuneration Policy
and during 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 Chair 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 and
being put to shareholders for approval at the 2025 AGM.
The Nomination and Remuneration Committee comprises all Directors and
is chaired by Margaret Stephens. 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. The review concluded that the fees being paid
were consistent with the market rates for the work performed. Consequently,
effective 1 January 2025, fees were adjusted in line with the Consumer Price
Index (“CPI”). Fees were increased to £45,800 (previously £45,000) per annum
for the Chairman, £41,700 (previously £41,000) per annum for the Chairperson
of the Audit Committee and £38,600 (previously £38,000) 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’ and 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 2024
46
180
160
140
80
100
120
80
100
120
140
160
180
Oct 18 Apr 19 Oct 19 Apr 20 Oct 20
Apr 21 Oct 21 Apr 23 Oct 24Apr 24
+70%
+23%
Oct 23Apr 22 Oct 22
50
100
150
200
180
160
140
80
100
120
Oct 18 Oct 19 Oct 20
Oct 21 Oct 24Oct 23Oct 22
AVI Japan Opportunity Trust NAV TR MSCI Japan Small Cap Index (£ adjusted total return)
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’ and 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
2023-2024
% change
2022-2023
% change
2021-2022
% change
2020-2021
% change
2019-2020Name of Director 2024 2023 2024 2023 2024 2023
Norman Crighton
1
55,000 40,500 – – 55,000 40,500 35.8% 8.0% 5.3% 1.8% 12.7%
Margaret Stephens 38,000 35,100 – – 38,000 35,100 8.3% 8.0% 6.1% 2.1% 15.2%
Katya Thomson
2
41,000 37,800 – – 41,000 37,800 8.5% 8.0% 5.7% 1.9% 15.2%
Yoshi Nishio
1, 2
38,500 35,100 – – 38,500 35,100 9.7% 8.0% 6.1% 2.1% 13.9%
172,500 148,500 – – 172,500 148,500 16.2% 8.0% 5.8% 2.0% 14.2%
* Excluding employer’s National Insurance Contribution.
1 Received an additional, non-recurring remuneration of £10,000 in respect of meetings attended in Japan.
2 Ms Thomson resigned on 21 January 2025, while Mr Nishio resigned on 30 September 2024.
Since the period end, two non-executive Directors have been appointed, effective 12 February 2025.
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 Benefts
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
Total Shareholder Return vs MSCI Japan Small Cap
AVI Japan Opportunity Trust plc / Annual Report 2024
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since inception of the Company.
Relative Importance of Spend on Pay
The table below shows the proportion of the Company’s income spent
on pay.
2024
£’000
2023
£’000
Difference
£’000
Spend on Directors’ fees* 173 149 24
Distribution to Shareholders 3,036 2,390 646
Management fee and
other expenses** 2,830 2,508 322
* 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 2024 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
* Ms Thomson resigned on 21 January 2025, while Mr Nishio resigned on 30 September 2024.
Andrew Rose, who was appointed as a Director following the year end,
holds 60,000 shares as at the date of this report. There have been no other
changes to Directors’ interests between 31 December 2024 and the date of
this Report.
Statement of Voting at AGM
At the 2024 AGM, 49,994,647 votes (99.78%) were received voting for the
resolution seeking approval of the Directors’ Remuneration Report, 110,120
(0.22%%) were against, none were at the Chairman’s discretion and 200 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, A total of 42,292,385 votes (99.33%) were received in favor of the
resolution, 98,679 votes (0.23%) were against, 187,917 votes (0.44%) were at
the Chairman’s discretion, and 4,500 votes 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 2024:
(a) the major decisions on Directors’ remuneration;
(b) any discretion which has been exercised in the award of Directors’
remuneration;
(c) any substantial changes relating to Directors’ remuneration made 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 20 May 2025.
Margaret Stephens
Chair of the Nomination and Remuneration Committee
4 April 2025
Governance / Directors' Remuneration Report continued
AVI Japan Opportunity Trust plc / Annual Report 2024
48
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 provide 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, and 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
4 April 2025
Governance / Statement of Directors' Responsibilities in Relation to
the Annual Report and Financial Statements
AVI Japan Opportunity Trust plc / Annual Report 2024
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I am pleased to present the Audit Committee Report for the year ended 31
December 2024. During this period, Katya Thomson served as the Chair of
the Audit Committee (the “Committee”). We would like to extend our heartfelt
thanks to her for her leadership and dedication from the IPO in 2018 until
January 2025.
We met twice during the year and once following the year-end. The
Company’s Auditors are invited to attend meetings as necessary, and
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 43.
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 2023 audit;
• agreed the audit plan and fees with the Auditor in respect of the Annual
Report for the year ended 31 December 2024, 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.
Signifcant 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 carefully considered 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
2024, 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 33.
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, updating it where appropriate. 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 that may need a detailed
review.
Governance / Report from the Audit Committee
AVI Japan Opportunity Trust plc / Annual Report 2024
50
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 fourth year the
current Audit Partner is in place.
The Audit Committee specifically considered and discussed with the Auditor
the impact of the Exit Opportunity as well as the outstanding renewal of the
revolving credit facility and confirmed that the Company had the necessary
liquidity to repay the revolving credit facility in the unlikely event that this could
not be renewed. Key audit matters raised by the Auditor are detailed in their
report on pages 52 and 53, 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 2024, the Committee carried out a detailed review of the quality
and effectiveness of the 2023 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 2024 (2023: £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.
Margaret Stephens
Chair of the Audit Committee
4 April 2025
AVI Japan Opportunity Trust plc / Annual Report 2024
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Opinion on the fnancial 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 2024 and of its profit for the year then ended;
• have been properly prepared in accordance with UK adopted international
accounting standards; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of AVI Japan Opportunity Trust
plc (the ‘Company’) for the year ended 31 December 2024 which comprise
Statement of Comprehensive Income, Statement of Changes in Equity,
Balance Sheet, Statement of Cash Flows and Notes to the Financial
Statements, including material accounting policy information. 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 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 six years, covering the years ended 31 December 2019 to
31 December 2024. 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;
• 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 commitments;
• Challenging the Directors’ assumptions and judgements made in their
forecasts by performing an independent analysis of the liquidity of the
portfolio;
• Reviewing the loan agreements to identify the covenants and assessing
the likelihood of them being breached based on the Directors’ forecasts
and our sensitivity analyses; and
• We reviewed the Directors’ assessment of the potential impact of the ‘exit
opportunity’ as well as the related disclosures presented.
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
2024 2023
N N
Valuation and ownership of quoted investments
Materiality Company fnancial statements as a whole
£2.12m (2023: £1.8m) based on 1% (2023: 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 2024
52
Key audit matter
How the scope of our audit addressed the
key audit matter
Valuation and ownership of
quoted investments
(Note 8 on page 65)
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 underpin the principal activity of the
Company.
Given the nature of the portfolio is such that it comprises
solely 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 whole portfolio of quoted investments.
We performed the following procedures:
• Confirmed the year-end bid price was used by
agreeing to independently obtained 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 fnancial statements 2024 2023
Materiality £2,120,000 £1,820,000
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 £1,590,00 £1,360,000
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 £106,000 (2023: £36,000). 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 2024
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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 UK 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 50; 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 50.
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 pages 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 pages 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 2024
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Auditor’s responsibilities for the audit of the fnancial 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 those charged with
governance; and
• Obtaining an 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 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 meeting 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;
• Obtaining an understanding of the Company’s policies and procedures
relating to:
– Detecting and responding to the risks of fraud; and
– Internal controls established to mitigate risks related to fraud.
• Review of minutes of meeting 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:
• 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;
• We considered the opportunity and incentive to manipulate accounting
entries and tested the relevant adjustments made in the period end
financial reporting process;
• We considered if there were any significant transactions outside the
normal course of business and found none; and
• We performed a review of unadjusted 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 all deemed to have
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, UK
4 April 2025
BDO LLP is a limited liability partnership registered in England and Wales (with
registered number OC305127).
AVI Japan Opportunity Trust plc / Annual Report 2024
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For the year ended 31 December 2024 For the year ended 31 December 2023
Notes
Revenue
return
£’000
Capital
return
£’000
Total
£’000
Revenue
return
£’000
Capital
return
£’000
Total
£’000
Income
Investment income 2 4,761 – 4,761 3,956 – 3,956
Gains on investments held at fair value 8 – 36,663 36,663 – 23,115 23,115
Exchange losses on currency balances – (1,106) (1,106) – (1,158) (1,158)
4,761 35,557 40,318 3,956 21,957 25,913
Expenses
Investment management fee 3 (187) (1,684) (1,871) (162) (1,460) (1,622)
Other expenses 3 (959) – (959) (886) – (886)
Proft before fnance costs and tax 3,615 33,873 37,488 2,908 20,497 23,405
Finance costs 4 (30) (267) (297) (18) (163) (181)
Exchange gains on revolving credit facility 4 – 1,422 1,422 – 1,933 1,933
Proft before taxation 3,585 35,028 38,613 2,890 22,267 25,157
Taxation 5 (488) – (488) (418) – (418)
Proft for the year 3,097 35,028 38,125 2,472 22,267 24,739
Earnings per Ordinary Share (pence) 7 2.21 25.00 27.21 1.76 15.89 17.65
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 2024
AVI Japan Opportunity Trust plc / Annual Report 2024
56
Ordinary
Share
capital
£’000
Capital
redemption
reserve
£’000
Share
premium
£’000
Special
reserve*
£’000
Capital
reserve*
£’000
Revenue
reserve**
£’000
Total
£’000
For the year ended 31 December 2024
Balance as at 31 December 2023 1,408 – 64,255 77,144 38,195 1,941 182,943
Tender Offer Ordinary Shares bought back
and cancelled (36) 36 – (5,543) – – (5,543)
Tender Offer costs – – – (364) – – (364)
Ordinary Shares bought back and held in Treasury – – – (584) – – (584)
Total comprehensive income for the period – – – – 35,028 3,097 38,125
Ordinary dividends paid – – – – – (2,596) (2,596)
Balance as at 31 December 2024 1,372 36 64,255 70,653 73,223 2,442 211,981
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
* Distributable reserves. Within the balance of the capital reserve, £32,411,000 (31 December 2023: £15,452,000) relates to realised gains which is distributable.
The remaining £40,812,000 (31 December 2023: £22,743,000) 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 2024
AVI Japan Opportunity Trust plc / Annual Report 2024
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Notes
As at
31 December
2024
£’000
As at
31 December
2023
£’000
Non-current assets
Investments held at fair value through profit or loss 8 220,865 185,857
220,865 185,857
Current assets
Receivables 9 1,256 388
Cash and cash equivalents 5,403 13,430
6,659 13,818
Total assets 227,524 199,675
Current liabilities
Revolving credit facility 11 – (16,301)
Other payables 10 (664) (431)
(664) (16,732)
Total assets less current liabilities 226,860 182,943
Non-current liabilities
Revolving credit facility 11, 12 (14,879) –
Net assets 211,981 182,943
Equity attributable to equity Shareholders
Ordinary Share capital 13 1,372 1,408
Capital redemption reserve 36 –
Share premium 64,255 64,255
Special reserve 70,653 77,144
Capital reserve 73,223 38,195
Revenue reserve 2,442 1,941
Total equity 211,981 182,943
Net asset value per Ordinary Share –basic and diluted (pence) 14 155.44 130.27
Number of shares in issue excluding treasury 13 136,373,227 140,436,702
These financial statements were approved and authorised for issue by the Board of AVI Japan Opportunity Trust plc on 4 April 2025 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 2024
AVI Japan Opportunity Trust plc / Annual Report 2024
58
31 December
2024
£’000
31 December
2023
£’000
Reconciliation of proft before taxation to net cash inflow from operating activities
Profit before taxation 38,613 25,157
Gains on investments held at fair value through profit or loss (36,663) (23,115)
(Increase)/decrease in other receivables (434) 132
Exchange gains on revolving credit facility (1,422) (1,933)
Exchange losses on currency balances 1,147 1,162
Interest paid 283 200
Increase/(decrease) in other payables 25 (30)
Taxation paid (488) (418)
Net cash inflow from operating activities 1,061 1,155
Investing activities
Purchases of investments (121,417) (55,633)
Sales of investments 122,846 56,966
Net cash inflow from investing activities 1,429 1,333
Financing activities
Dividends paid (2,596) (2,315)
Issue of Ordinary Shares – 4,132
Issue of Ordinary Shares from treasury – 1,202
Cost of share issues – (76)
Payments for Ordinary Shares bought back and held in treasury (584) (1,134)
Payments for Tender Offer Ordinary Shares bought back and cancelled (5,543) –
Tender Offer costs (364) –
Drawdown of revolving credit facility – 2,703
Interest paid (283) (200)
Cash (outflow)/inflow from fnancing activities (9,370) 4,312
(Decrease)/increase in cash and cash equivalents (6,880) 6,800
Reconciliation of net cash flow movement
Cash and cash equivalents at beginning of year 13,430 7,792
Exchange losses on currency balances (1,147) (1,162)
(Decrease)/increase in cash and cash equivalents (6,880) 6,800
Cash and cash equivalents at end of year 5,403 13,430
Dividends received 4,388 4,131
Interest paid 303 149
The accompanying notes are an integral part of these financial statements.
Financial Statements / Statement of Cash Flows
For the year ended 31 December 2024
AVI Japan Opportunity Trust plc / Annual Report 2024
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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 2024.
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. These include, but are not limited to, geopolitical events, the conflicts in Ukraine and the Middle East and global economic
uncertainties.
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 2 April 2026) is fully utilised at year end. 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, and 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 (including the Tender Offer) and simulated a 50% reduction in NAV during April
2025, the impact on future cash flows as a result of this through to December 2029. 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 Directors may, at their discretion, offer an Exit Opportunity to Shareholders on an annual basis, with the next Exit Opportunity expected to made available to
Shareholders in October 2025, and every 12 months thereafter. The Board may, in its total discretion, elect not to operate the Exit Opportunity in whole or in part
if, in its reasonable opinion, it has become impractical or inappropriate without materially harming the interests of Shareholders as a whole.
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.
Accounting Developments
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 2024.
The updates incorporated:
• 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 adoption of the changes in accounting standards has had no material impact on these or prior years’ financial statements.
Financial Statements / Notes to the Financial Statements
For the year ended 31 December 2024
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60
1. General Information and Accounting Policies continued
Accounting Developments continued
There are amendments to IAS/IFRS that will apply from 1 January 2025 as follows:
• Lack of Exchangeability – Amendments to IAS21.
There are amendments to IAS/IFRS that will apply from 1 January 2026 as follows:
• Classification and Measurement of Financial Instruments – Amendments to IFRS 9 and IFRS 7; and
• Annual Improvements to IFRS Accounting Standards.
There are amendments to IAS/IFRS that will apply from 1 January 2027 as follows:
• IFRS 18 Presentation and Disclosure in Financial Statements.
The Company intends to adopt the standards in the reporting period when they become effective. The adoption of these standards impacts the Company’s
accounting policy disclosure to 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.
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.
1
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1. General Information and Accounting Policies continued
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.
Capital redemption reserve
The capital redemption reserve represents non-distributable reserves that arise from the cancellation of shares.
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:
• Tender Offer costs and Tender Offer shares cancelled; and
• 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.
Derivatives
Derivatives, including Total Return Swaps, are classified as financial instruments at fair value with open positions included in current assets/liabilities. Derivatives
are derecognised when the contract expires or on the trade on which the contract is sold. Changes in fair value of derivative instruments are recognised as they
arise in the capital column of the Statement of Comprehensive Income. The fair value is calculated by either the quoted price (if listed) or a broker using models
with inputs from market prices. On disposal or expiry, realised gains and losses are also recognised in the Statement of Comprehensive Income as capital items.
Cash flows relating to the derivatives underlying security are reflected within the revenue account. Cost of financing derivatives is allocated in accordance with
the Company’s accounting policy, with 90% charged to capital and 10% charged to revenue.
Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2024
1
AVI Japan Opportunity Trust plc / Annual Report 2024
62
2. Income
31 December
2024
£’000
31 December
2023
£’000
Income from investments
Overseas dividends* 4,880 4,179
Bank and deposit interest (3) (16)
Exchange losses on receipt of income** (116) (207)
Total income 4,761 3,956
* Overseas dividends are shown gross.
** Exchange movements arise from ex-dividend date to payment date.
3. Investment Management Fee and Other Expenses
Year ended 31 December 2024 Year ended 31 December 2023
Revenue
£’000
Capital
£’000
Total
£’000
Revenue
£’000
Capital
£’000
Total
£’000
Management fee 187 1,684 1,871 162 1,460 1,622
Other expenses:
Directors’ emoluments – fees 173 – 173 149 – 149
Directors’ insurances and other expenses 20 – 20 18 – 18
Directors’ National Insurance Contributions 19 – 19 16 – 16
Auditor’s remuneration – audit services 58 – 58 51 – 51
Marketing 210 – 210 190 – 190
Printing and postage costs 29 – 29 32 – 32
Registrar fees 20 – 20 28 – 28
Custodian fees 26 – 26 22 – 22
Depositary fees 33 – 33 33 – 33
Advisory and professional fees 311 – 311 296 – 296
Regulatory fees 39 – 39 33 – 33
Irrecoverable VAT – – – (11) – (11)
Sundry expenses 21 – 21 29 – 29
Total other expenses 959 – 959 886 – 886
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.
4. Finance Costs
Year ended 31 December 2024 Year ended 31 December 2023
Revenue
return
£’000
Capital
return
£’000
Total
£’000
Revenue
return
£’000
Capital
return
£’000
Total
£’000
JPY revolving credit facility (30) (267) (297) (18) (163) (181)
Exchange gains on JPY revolving credit facility* – 1,422 1,422 – 1,933 1,933
* Revaluation of revolving credit facility.
Details of the revolving credit facility are set out in notes 10, 11 and 12.
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5. Taxation
Year ended 31 December 2024 Year ended 31 December 2023
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* 488 – 488 418 – 418
Tax charge for the year 488 – 488 418 – 418
The tax assessed for the year is the standard rate of corporation tax in the United Kingdom of 25%. The differences are explained below:
Year ended 31 December 2024 Year ended 31 December 2023
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 3,585 34,987 38,572 2,890 22,267 25,157
Profit before taxation multiplied by the standard rate of
corporation tax of 25% (2023: 23.5%) 896 8,747 9,643 680 5,237 5,917
Effects of:
– Tax – exempt overseas investment income (1,192) – (1,192) (983) – (983)
– Foreign exchange losses/(gains) not taxable 1 (69) (68) 49 (182) (133)
– Losses on investments and exchange losses
on capital items – (9,166) (9,166) – (5,437) (5,437)
– Excess management expenses carried forward 287 421 708 246 344 590
– Movement in non-trading loan relationship deficit
not utilised 8 67 75 8 38 46
– Overseas tax not recoverable 488 – 488 418 – 418
Tax charge for the year 488 – 488 418 – 418
At 31 December 2024, the Company had unrelieved tax losses of £14,594,000 (31 December 2023: £11,463,000) that are available to offset future taxable
revenue. A deferred tax asset of £3,649,000 (31 December 2023: £2,866,000), which has been calculated using a corporation tax rate of 25% (2023: 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
2024
£’000
31 December
2023
£’000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2023 of 0.85p (2022: 0.80p) per Ordinary Share 1,193 1,118
Interim dividend for the year ended 31 December 2024 of 1.00p (2023: 0.85p) per Ordinary Share 1,403 1,197
2,596 2,315
Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2024
5 6
AVI Japan Opportunity Trust plc / Annual Report 2024
64
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
2024
£’000
31 December
2023
£’000
Interim dividend for the year ended 31 December 2024: 1.00p (2023: 0.85p) per Ordinary Share 1,403 1,197
Proposed final dividend for the year ended 31 December 2024 of 1.20p (2023: 0.85p) per Ordinary Share 1,633* 1,193
3,036 2,390
* Based on shares in circulation on 1 April 2025.
7. Earnings per Ordinary Share – Basic and Diluted
The earnings per Ordinary Share is based on the Company’s net profit after tax of £38,125,000 (year ended 31 December 2023: profit of £24,739,000) and on
140,095,962 (year ended 31 December 2023: 140,094,621) 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 2024 Year ended 31 December 2023
Revenue Capital Total Revenue Capital Total
Net profit (£’000) 3,097 35,028 38,125 2,472 22,267 24,739
Weighted average number of Ordinary Shares 140,095,962 140,094,621
Earnings per Ordinary Share –
basic and diluted (pence) 2.21 25.00 27.21 1.76 15.89 17.65
There are no dilutive instruments issued by the Company.
8. Investments Held at Fair Value Through Profit or Loss
31 December 2024 31 December 2023
Equities
£’000
Unrealised
Derivatives
Liability
£’000
Total
£’000
Equities
£’000
Total
£’000
Financial assets held at fair value
Opening book cost 163,409 – 163,409 160,623 160,623
Opening investment holding gains 22,448 – 22,448 3,700 3,700
Opening fair value 185,857 – 185,857 164,323 164,323
Movement in the year:
Purchases at cost: Equities 121,626 – 121,626 55,710 55,710
Sales proceeds: Equities (123,420) 139 (123,281) (57,291) (57,291)
– realised gains/(losses) on equity sales and
close of total return swaps 19,009 (139) 18,870 4,367 4,367
Increase in investment holding gains 17,793 – 17,793 18,748 18,748
Closing fair value 220,865 – 220,865 185,857 185,857
Closing book cost 180,624 – 180,624 163,409 163,409
Closing investment holding gains 40,241 – 40,241 22,448 22,448
Closing fair value 220,865 – 220,865 185,857 185,857
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8. Investments Held at Fair Value Through Profit or Loss continued
Year ended
31 December
2024
£’000
Year ended
31 December
2023
£’000
Transaction costs
Cost on acquisition 69 32
Cost on disposals 65 33
134 65
Analysis of capital gains
Gains on sales of financial assets based on historical cost 18,870 4,367
Movement in investment holding gains for the year 17,793 18,748
Net gains on investments held at fair value 36,663 23,115
The Company received £123,281,000 (year ended 31 December 2023: £57,291,000) from investments sold in the year. The book cost of these investments
when they were purchased was £104,411,000 (year ended 31 December 2023: £52,924,000). 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 12 investments of 3% or more of the equity capital of the investee companies, which are set out in the table below.
Company
% of investee
company
Atsugi 10.5
Broadmedia 10.2
Sharingtechnology 8.9
Tecnos Japan 8.8
Beenos 8.2
Araya Industrial 7.1
Aoyama Zaisan Networks 5.4
TSI Holdings 5.3
Jade Group 4.1
Eiken Chemical 3.8
Kurabo Industries 3.5
Helios Techno Holding 3.0
9. Receivables
2024
£’000
2023
£’000
Trade receivables, prepayments and other debtors
Due from brokers 758 324
Other receivables and prepayments 498 64
1,256 388
No receivables are past due or impaired.
Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2024
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66
10. Current Liabilities
2024
£’000
2023
£’000
Revolving credit facility – 16,301
Trade payables, accruals and short-term borrowings
Management fees 170 133
Interest payable 61 70
Due to brokers 287 79
Accrued expenses 146 149
664 431
Total current liabilities 664 16,732
11. Revolving Credit Facility
Year ended 31 December 2024 Year ended 31 December 2023
¥’000 £’000 ¥’000 £’000
Opening balance 2,930,000 16,301 2,465,000 15,532
Proceeds from amounts drawn – – 465,000 2,703
Exchange rate movement – (1,422) – (1,934)
Closing balance 2,930,000 14,879 2,930,000 16,301
Maximum facility available 2,930,000 14,879 2,930,000 16,301
On 2 February 2024 the Company extended the revolving credit facility (“the facility”) on the same terms to 5 April 2024 while renewal terms were being agreed.
On 2 April 2024 the facility was renewed for a further two years to 2 April 2026, for a total facility size of ¥2.9 billion (the facility size was increased to ¥6.6 billion
on 28 March 2025). Interest charged is the aggregate of the Margin 1.55% (previously 1.15%) and the Daily Non Cumulative Compounded Risk Free Rate
(“RFR”) that day payable bi-annually. RFR being the Tokyo Overnight Average Rate (“TONAR”) (previously where TONAR – the reference rate was less than zero
it was deemed to be zero). The current estimated aggregate interest rate is 1.78% (previously 1.15%) and estimated effective rate 1.78% (previously 1.15%).
Commitment fees of 0.5% (previously 0.325% on undrawn balances if over 50% of the facility is drawn down, 0.375% if less than 50% is drawn down) are
charged on undrawn balances payable quarterly. As at the date of this report, the Company has fully utilised the facility.
Under the terms of the facility covenants, remaining the same, 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. 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.
Costs of £18,000 were incurred in relation to the extension of the facility.
12. Non-Current Liabilities
2024
£’000
2023
£’000
Revolving credit facility 14,879 –
Total 14,879 –
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13. Share Capital
As at 31 December 2024
Ordinary Shares of 1p each
As at 31 December 2023
Ordinary Shares of 1p each
Allotted, called up and fully paid
Number
of shares
Nominal
value
£’000
Number
of shares
Nominal
value
£’000
Balance at beginning of year 140,836,702 1,408 137,461,702 1,375
Ordinary Shares bought back – Tender Offer (3,637,759) (36) – –
Issue of Ordinary Shares – – 3,375,000 33
137,198,943 1,372 140,836,702 1,408
Treasury shares:
Balance at beginning of year 400,000 400,000
Issue of Ordinary Shares from treasury – (985,000)
Buyback of Ordinary Shares into treasury 425,716 985,000
Balance at end of year 825,716 400,000
Total Ordinary Share capital excluding treasury shares 136,373,227 140,436,702
During the year ended 31 December 2024, no Ordinary Shares (31 December 2023: 4,360,000) were issued for a net consideration of £nil (31 December 2023:
£5,258,000), including no Ordinary Shares issued from treasury (31 December 2023: 985,000).
During the year, 425,716 Ordinary Shares (31 December 2023: 985,000) were bought back and placed in treasury for an aggregate consideration
of £584,000 (31 December 2023: £1,134,000).
Exit Opportunity
During the year, the Company offered an Exit Opportunity, allowing eligible Shareholders to tender all or part of their holdings. The Board intends to offer this Exit
Opportunity to Shareholders annually, at its discretion.
In the 2024 Exit Opportunity, the Company received applications from eligible Shareholders to tender a total of 3,637,759 shares, representing 2.58% of the
issued Ordinary Share capital, at a price of 152.37 pence per share. These Ordinary Shares were bought back and cancelled for an aggregate consideration of
£5,907,000.
14. NAV per Ordinary Share
The NAV per Ordinary Share is based on net assets of £211,981,000 (31 December 2023: £182,943,000) and on 136,373,227 (31 December 2023:
140,436,702) Ordinary Shares, being the number of Ordinary Shares in issue excluding Treasury Shares at the year end.
31 December 2024 31 December 2023
NAV per
Ordinary
Share
Pence
Net asset
value
attributable
£’000
NAV per
Ordinary
Share
Pence
Net asset
value
attributable
£’000
Basic and diluted 155.44 211,981 130.27 182,943
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 25.
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.
Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2024
1413 15
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15. Financial Instruments and Capital Disclosures continued
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. 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 £22,086,000
(31 December 2023: £18,586,000).
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 2024 was ¥196.915:£1 (31 December 2023: ¥179.74:£1).
Currency Risk
GBP
£’000
JPY
£’000
Total
£’000
At 31 December 2024
Receivables 122 1,134 1,256
Cash and cash equivalents 13 5,390 5,403
JPY revolving credit facility – (14,879) (14,879)
Payables (316) (348) (664)
Currency exposure on net monetary items (181) (8,703) (8,884)
Investments held at fair value through profit or loss – 220,865 220,865
Total net currency exposure (181) 212,162 211,981
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
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 £10,608,000 (31 December 2023: £9,143,000). 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 £10,608,000 (31 December 2023: £9,143,000).
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.
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15. Financial Instruments and Capital Disclosures continued
Interest Rate Risk continued
31 December
2024
£’000
31 December
2023
£’000
Exposure to floating interest rates
Cash and cash equivalents 5,403 13,430
JPY revolving credit facility (14,879) (16,301)
If the above level of cash and JPY revolving credit facility was maintained for a year, a 1% increase in interest rates would decrease the revenue return and net
assets by £95,000 (£15,000). Management proactively manages cash balances. If there was a fall of 1% in interest rates. The total effect would be a change in
profit/(loss) and the NAV, through a cost increase/revenue reduction, of £95,000 (31 December 2023: £15,000).
The estimated current interest rate chargeable on the revolving credit facility (the “facility”) is 1.78% and the estimated effective interest rate 1.78%. The effective
rate chargeable for a year on the current drawn down balance of ¥2.9 billion is £265,000. The facility has been extended to 2 April 2026, after which it will be
renewed when terms have been agreed.
Liquidity Risk
Liquidity risk is mitigated by the fact that the Company has £5,403,000 (2023: £13,430,000) 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 2 April 2026, or prior to that date at the discretion of the Company. 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 2024, 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 1 year
or less
£’000
In more than
1 year but not
more than
2 years
£’000
Total
£’000
At 31 December 2024
Revolving credit facility – (14,879) (14,879)
Payables (664) – (664)
(664) (14,879) (15,543)
In 1 year
or less
£’000
In more than
1 year but not
more than
2 years
£’000
Total
£’000
At 31 December 2023
Revolving credit facility (16,301) – (16,301)
Payables (431) – (431)
(16,732) – (16,732)
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 2024, 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 £6,660,000 (31 December 2023: £13,818,000).
Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2024
15
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15. Financial Instruments and Capital Disclosures continued
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 assets at fair value through proft or loss at 31 December 2024
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Equity investments 220,865 – – 220,865
220,865 – – 220,865
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
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.
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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 £1,835,000 (2023: £1,613,000). As at the year end, £170,000 remained
outstanding in respect of management fees (2023: £133,000). At 31 December 2024, AVI held 1,890,000 Ordinary Shares (2023: 1,500,000 Ordinary Shares)
of the Company.
Finda Telecoms 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 Telecoms Oy or City of London. As at 31 December 2024, the Company had not
been notified of any change to Finda Telecoms Oy’s holding. At 31 December 2024, Finda Telecoms Oy’s holding represented 22% of the voting rights. City of
London informed the Company on 16 December 2024 that its holding had increased to 13.25% of the voting rights from 12.88% on 6 November 2024. As at
1 April 2025, no further notifications have been received from either of the significant Shareholders.
17. Post Balance Sheet Events
The Company on 28 March 2025 increased its unsecured revolving credit facility to ¥6.6 billion (£34.5 million) from ¥2.93 billion (£14.9 million).
The Company released an announcement regarding a proposed acquisition of assets from Fidelity Japan Trust plc (“FJV”) on 3 April 2025, setting out a written
proposal submitted to the FJV Board during 2024, such that FJV shareholders can independently assess FJV’s performance and consider the alternative
solution presented to their board. Under the proposal, FJV shareholders would be offered the choice of (i) rolling their investment into new shares to be issued
by AJOT and/ or (ii) electing for a cash exit, capped at 25 per cent. of FJV’s shares in issue (excluding treasury shares). At the time of writing, there can be no
certainty that engagement will progress, that heads of terms will be agreed, or whether this proposed transaction will take place.
Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2024
16 17
AVI Japan Opportunity Trust plc / Annual Report 2024
72
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 2024
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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.
Derivatives
The Company may use a variety of derivative contracts to gain long and short
exposure. This enables the Company to gain exposure to specific securities
and markets with reduced capital requirements enhancing returns where the
underlying asset grows in value (or losses if falls in value). Total Return Equity
Swaps (which are synthetic equities) are valued by reference to the market
values of the investments’ underlying securities. The sources of the return
under the Equity Swap contracts (e.g. notional dividends, financing costs,
interest returns and realised and unrealised gains and losses) are allocated to
the revenue and capital accounts in alignment with the nature of the underlying
source of income.
Discount/Premium (APM)
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 152.3p (2023: 127.0p) from the NAV per share of 155.4p (2023: 130.3p)
and is usually expressed as a percentage of the NAV per share, 2.1% (2023:
2.5%). 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 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 (APM)
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 7.0% (31 December 2023: 8.9%) represents borrowings of
£14,879,000 (31 December 2023: £16,301,000) expressed as a percentage
of Shareholders’ funds of £211,981,000 (31 December 2023: £182,943,000).
The gearing of 4.5% (31 December 2023: 1.6%) represents borrowings net
of cash of (£9,476,000) (31 December 2023: (£2,915,000)) expressed as a
percentage of Shareholders’ funds of £211,981,000 (31 December 2023:
£182,943,000).
Shareholder Information / Glossary
AVI Japan Opportunity Trust plc / Annual Report 2024
74
NAV/Share Price Total Return (APM)
NAV total return is calculated by assuming that dividends paid out are re-
invested into the NAV on the ex-dividend date. This is accounted for in the
“Effect of reinvesting dividends” line. The NAV used here includes debt marked
to fair value and is inclusive of accumulated income.
NAV total return over
1 year Page
31 December
2024
31 December
2023
Closing NAV per share (p) 155.4 130.3 a
Dividends paid out (p) 64 1.9 1.7 b
Effect of reinvesting
dividends (p) 9.2 5.8 c
Adjusted NAV per share (p) 166.5 137.7 d= a+b+c
Opening NAV per share (p) 137.7 119.0 e
NAV total return (%) 20.9% 15.8% +(d/e)-1
Share price total
return over 1 year Page
31 December
2024
31 December
2023
Closing price per share (p) 152.3 1.27 a
Dividends paid out (p) 64 1.9 1.7 b
Effect of reinvesting
dividends (p) 0.2 0.2 c
Adjusted price per share (p) 154.4 128.8 d= a+b+c
Opening price per share (p) 127.0 112.3 e
Share price total return (%) 21.5% 14.8% +(d/e)-1
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 is equal to cash less debt. 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. Net cash = cash – debt. 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 is equal to net cash, less minority interest, plus investment
securities (less capital gains tax) plus investment real estate assets (after tax).
Net Financial Value (“NFV”) = cash + investment securities – net debt – minority
interest. 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.
Ongoing Charges Ratio (APM)
The Company’s Ongoing Charges Ratio is its annualised expenses
(excluding finance costs and certain non-recurring items) of £2,810,000
(2023: £2,485,000) being investment management fees of £1,871,000
(2023: £1,622,000) and other expenses of £959,000 (2023: £886,000)
less non-recurring expenses of £20,000 (2023: £23,000) expressed as
a percentage of the average daily net assets of £193,417,000 (2023:
£166,887,000) 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.
Treasury Share
When a share is bought back it may be cancelled immediately or held (at zero
value) as a Treasury Share. Shares that are held in treasury can be reissued for
cash at minimal cost. The Company will only reissue shares from treasury at a
price at or above the prevailing NAV per share.
Weight
Weight is defined as being each position’s value as a percentage of net assets.
Weighted-average Discount (APM)
The weighted-average discount is calculated as being the sum of the products
of each holding’s weight in AJOT’s portfolio times its discount.
AVI calculates an estimated sum-of-the-parts NAV per share for each holding
in AJOT’s portfolio. This NAV is compared with the share price of the holding
in order to calculate a discount.
Weighted Average Shares (APM)
The weighted average shares outstanding is calculated by multiplying the
outstanding number of shares after each share issue and buy back of shares
during the year with the time weighted portion. The total of the weighted
average of shares in issue excluding Treasury shares during the year is
140,095,962.
AVI Japan Opportunity Trust plc / Annual Report 2024
75
GSR
FS
SI
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 2024
76
Shareholder Information / Company Information
AVI Japan Opportunity Trust plc / Annual Report 2024
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FS
SI
77
Directors
Norman Crighton (Chairman)
Andrew Rose
(Appointed 12 February 2025)
Margaret Stephens
Ekaterina (Katya) Thomson
(Resigned 21 January 2025)
Thomas (Tom) Yoritaka
(Appointed 12 February 2025)
Yoshi Nishio
(Resigned 30 September 2024)
Administrator
Waystone Administration Solutions
(UK) Limited
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 Offce
Central Square
29 Wellington Street
Leeds
United Kingdom
LS1 4DL
Registrar and Transfer Offce
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
MUFG Corporate Governance Limited
Central Square
29 Wellington Street
Leeds
United Kingdom
LS1 4DL
Solicitors
Stephenson Harwood LLP
1 Finsbury Circus
London
EC2M 7SH
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