Company search
FIDELITY JAPAN TRUST PLC
Half-Yearly Report for the six months ended 30 June 2021
Financial Highlights:
- The net asset value (“NAV”) of the Company increased by +2.3% for the six months ended 30 June 2021, outperforming the Reference Index, which returned +0.2%.
- The Company’s share price return was +2.5%. This reflects the fact that the discount narrowed marginally to 6.6% from 6.8% at the start of the period.
- The strong debut of one the Company’s unlisted securities, Coconala, was a significant contributor to performance. The Company continues to find new opportunities in unlisted shares.
- An upswing in global growth alongside rising inflation expectations and a weaker yen is a favourable combination for corporate profits in Japan.
Contacts
For further information, please contact:
Natalia de Sousa - Company Secretary
01737 837846
PORTFOLIO MANAGER’S REVIEW
MARKET REVIEW
After a strong first quarter, Japanese stocks struggled to make headway in the April–June period and trailed their global peers. US inflation concerns and gains in US Treasury yields initially weighed on technology and other growth stocks. With the Tokyo Olympics fast approaching, the Japanese government’s decision to extend the state of emergency and the slow start to the domestic COVID-19 vaccine rollout generated further headwinds. Shares rebounded from mid-May, supported by expectations for economic normalisation and a pullback in excessive inflationary fears. However, rising concerns over the spread of the Delta variant of COVID-19 weighed on reopening and economically sensitive names. At this time, the weakening of the yen to mid ¥150 levels against the pound also impacted sterling-based returns.
At a sector level, shipping, mining, metals and automobiles were among the standout performers over the six months to 30 June 2021, led by global cyclical stocks that benefited from a recovery in global trade and economic activity. Financials also outperformed, though most of the gains came early in the year, when US long-term interest rates were rising sharply. Conversely, pharmaceuticals and utilities suffered the steepest declines. In terms of style, mid-to-large-cap value stocks experienced strong return reversals, whereas high-valuation growth names were conspicuous laggards.
The fiscal 2020 reporting season concluded in May. Aggregate sales declined by around 7% and net profits increased by more than 20%, led by the manufacturing sector. SoftBank Group, Toyota Motor and Sony made a material contribution to the overall increase in earnings. Consensus forecasts point towards a further 20-30% increase in profits in the 12 months to March 2022. Shareholder returns declined by around 15% over the year, as the spread of COVID-19 led companies to keep cash on hand given the economic uncertainty caused by the pandemic and associated restrictions. However, dividend payments fell by just 5% and companies are expected to increase both dividends and buybacks as the improvement in earnings broadens out.
Following a strong recovery in the second half of 2020, the Japanese economy experienced negative growth in the first three months of 2021, with real GDP coming in at -3.9% annualised. Consumption and capital expenditure both declined due to COVID-19 restrictions. Meanwhile, exports gained for a third straight quarter. Subsequent data showed that industrial production had recovered to pre-COVID-19 levels, driven by a rebound in global trade and investment, but pulled back in May on near-term supply constraints. Meanwhile, the services sectors continued to struggle due to renewed state-of-emergency measures in Japan. The Bank of Japan maintained its highly accommodative monetary policy and extended its emergency funding support for businesses through to March 2022 (the Japanese government had already extended the provision of loans and credit guarantees for small and medium enterprises to the end of 2021). The central bank also outlined plans to introduce a new climate-related funding programme.
Although the vaccination rollout in Japan is progressing well and mortality rates are low, there remains a general sense of opposition to the Tokyo Olympics at a time when the spread of COVID-19, including the Delta variant of the virus, is accelerating in the capital. Reports of infections among Olympic athletes and staff/ contractors are fuelling concerns among the public, and playing out the Olympics in empty venues creates the impression that Japan is struggling to control the pandemic. A survey published by the Asahi newspaper just four days ahead of the opening ceremony showed that more than two thirds of respondents doubt that Olympic organisers will be able to control infections and 55% are opposed to the Games actually going ahead.
Against this backdrop, the ruling Liberal Democratic Party (“LDP”) fared poorly in the recent Tokyo Metropolitan Assembly election. This reflects a general dissatisfaction with the government’s COVID-19 policies and the decision to move ahead with the games amid the pandemic. This in turn has led to concerns within the LDP over the Lower House election that will be held in the autumn. To regain public support and mitigate the economic impact caused by renewed restrictions, Prime Minister Suga is expected to announce a supplementary budget, including measures to support consumption, ahead of the general election.
PORTFOLIO REVIEW
In the six months to 30 June 2021, the Company’s net asset value (“NAV”) increased by 2.3% in sterling terms, outperforming the Reference Index, which returned 0.2%. The share price return was 2.5% in the same period. The average peer group NAV performance was a return of 0.2% and that of the share price was -4.0%. As a result of the Company’s share price performance, the discount narrowed marginally to 6.6% from 6.8% at the start of the period. This compared favourably with the average of the peer group, which was 7.2%.
The Company continued to outperform its Reference Index in the first six months of 2021 despite a strong style rotation in favour of laggard value stocks. An underweight exposure to traditional value sectors (most notably banks and automobiles) constrained relative returns, and positions in mid/small-cap online services and software-as-a-service (“SaaS”) stocks succumbed to profit taking. Encouragingly, the strong debut of one the Company’s unlisted securities, Coconala, provided an alternative source of alpha.
In the internet space, Coconala, a unique online consumer-to-consumer freelancing platform that enables users to trade knowledge, skills and experience, was the standout contributor to performance. I first invested in the company as an unlisted security in 2019, recognising it as a beneficiary of the many structural changes occurring in Japan’s labour market, and attracted by its high and sustainable growth rates, as well as the high operating leverage of its business. Coconala had a strong debut on the Tokyo Stock Exchange in March 2021 and the value of the fund’s holding increased more than threefold. The success of this investment highlights the benefits of our on-the-ground research and our continued efforts to unearth the most attractive opportunities across corporate Japan.
In the pharmaceutical sector, a new holding in drug company Eisai advanced strongly towards the end of the review period. The US Food and Drug Administration granted accelerated approval for a new Alzheimer’s treatment that it developed with Biogen. The approval of this potential blockbuster drug – the first of its kind – is significant for Eisai given the impending patent expiry of its cancer treatment Lenvima. Not holding laggard large-cap names in the sector also supported relative returns.
Meanwhile, Mitsui High-tec, which dominates nearly 70% of the global motor core market, an essential component of power-train motors in electric vehicles and hybrid vehicles, added value. The company’s strength lies in its ultra-precision machining and die technology, which is used to create high-quality motor cores and machine tools. Mitsui High-tec is a dominant supplier to Japanese car makers and is expanding its motor core production capacity, a clear sign of confidence is its order backlog. Yet, with a market capitalisation of only around £1.5 billion and little street coverage, it is uniquely positioned with further upside potential.
Conversely, a number of positions in mid/small-cap online services and SaaS companies that were strong performers last year succumbed to profit taking as inflation concerns in the US triggered selling in IT-related names and the market rotated in favour of laggard value stocks. SaaS company Hennge, a provider of one-stop solutions for secure access to cloud-based services, was among the most significant detractors to performance. Although business conditions remain favourable, driven by rising cloud adoption and SaaS uptake, recent rates of revenue growth have come in below expectations despite increased promotional activity. This led to a reassessment of its mid-term earnings growth prospects and the position was reduced. Shares in JustSystems, a leading provider of educational and business software, fell sharply at the start of the year due to negative seasonality and style headwinds as the market rotated in favour of large-cap value stocks. Nevertheless, JustSystems remains a key beneficiary of the strong demand for distance-learning software in Japan and continues to be an overweight position. Another notable detractor was Medical Data Vision, a company that collects and processes anonymised patient data for clients across the health care sector. It was a strong performer last year, but faced selling pressure in the opening months of 2021. This was largely due to its overly conservative earnings guidance for fiscal 2021, as well as the broader market rotation into value stocks. Input from the analyst covering the stock showed that a decline in user numbers at its core business exceeded our expectations, thereby limiting further upside potential, and the position was sold.
SUSTAINABILITY AND ENGAGEMENT
In the first six months of 2021, the investment team in Tokyo, led by our Head of Engagement, conducted 80 engagement meetings (in addition to our fundamental research meetings), covering more than 30 names held by the Company. Themes that formed part of these Environmental, Social, and Governance (“ESG”) engagements include board composition and executive renumeration, climate change and environmental matters, and gender diversity. Factory automation (“FA”) supplier MISUMI Group is a good example of a company with which we have consistently engaged to help it improve its ESG rating. It ranks low on third-party ESG scores despite its business of delivering efficiency solutions. Through our discussions with the company, management understands that the rating gap comes from poor disclosure. Over time, we believe executives at Japanese companies such as MISUMI Group will treat the disclosure of sustainability issues as importantly as they do financial data. We believe that finding companies that will disclose sooner and better, and engaging with them, will create additional alpha opportunities for the Company.
Unlisted Positions
The Company remains active in the unlisted domain. Compared with five-to-ten years ago, we are seeing a lot more entrepreneurial activity in Japan and a lot of new growth companies are coming through, which is creating opportunities in the pre-initial public offering (“IPO”) market. At the end of the review period, three unlisted names were held, including Photosynth, a new position in a cloud-based security management and ID integration company that is helping to promote digital transformation in Japan. I continue to evaluate new opportunities, while maintaining a disciplined approach towards valuation.
PORTFOLIO POSITIONING
I reduced the exposure to technology-related companies in the electric appliances sector, taking profits in strong performers as we progress through the cycle and where relative valuations had become extended. Positions in FA-related names Yaskawa Electric and Fanuc were sold, while holdings in component makers TDK and Murata Manufacturing were reduced. The funds from these trades were recycled into new names across the services, chemicals, and pharmaceuticals sectors. I increased positions in reopening names, including Tokyo Disney Resort operator Oriental Land and HR technology company Recruit Holdings, both of which stand to benefit from economic normalisation. Drug company Eisai was added based on the expected approval of a new Alzheimer’s treatment, while existing positions in chemicals firms NOF and Kansai Paint were increased.
The level of gearing increased marginally over the review period, to 24.6% from 23.5%. The recent laggard performance of the Japanese market has created opportunities to add or increase positions in high conviction holdings, as well as services-related reopening names. The reasonably high level of gearing reflects the degree of growth opportunities I see in the market.
OUTLOOK
The virus situation in Japan is improving, albeit with differences in approach to tackling the problem on a regional basis. It is encouraging that the vaccine rollout has accelerated sharply in recent months. While the country is clearly moving in the right direction, the proliferation of new COVID-19 variants and the potential for renewed restrictions are near-term risk factors that we continue to monitor.
Manufacturing companies in Japan remain highly geared to a cyclical recovery in global trade and production, and COVID-19-sensitive services sectors are poised for a sharp rebound as the domestic economy normalises in the second half of the year. An upswing in global growth alongside rising inflation expectations and a weaker yen is a favourable combination for corporate profits in Japan. Against this backdrop, the market is entering a transitional phase, during which earnings growth and individual company fundamentals take over from multiple expansion and growth-at-any-cost as we saw last year.
As I start to see better earnings announcements in fiscal 2021, there will be an opportunity to pick up companies that are changing into or returning as growth names. A number of themes present themselves. Certainly, clean energy and environmental efficiency are areas where Japan has some very competitive companies that can supply solutions to meet the regulatory and productivity needs of customers globally. COVID-19 has also accelerated trends in e-commerce and digital transformation. As profits recover, companies will prioritise those areas. I am also looking to cast the net further and find companies with recovery potential in areas such as leisure and travel as the vaccination rollout in Japan accelerates.
Japan continues to offer a wealth of under-researched mid/small-cap growth companies, where I typically find better business models and higher returns on equity, and management is more incentivised in terms of shareholder returns. Active managers like me, based here in Japan, have the opportunity not only to invest in established global leaders, but also to unearth less well-known companies (including pre-IPO), where lower levels of analyst coverage can often create some great mispriced opportunities. In an uncertain environment, our in-depth research and on-the-ground knowledge is invaluable when looking at the micro level and speaking to company management to fully understand the current dynamics.
NICHOLAS PRICE
Portfolio Manager
30 July 2021
Twenty Largest Holdings as at 30 June 2021
The Portfolio Exposures shown below measure exposure to market price movements as a result of owning shares and derivative instruments. The Fair Value is the actual value of the portfolio and is the value shown on the Balance Sheet. Where a contract for difference (“CFD”) is held, the Fair Value reflects the profit or loss on the contract since it was opened and is based on how much the share price of the underlying share has moved.
Name and Sector |
Fair Value £’000 |
Portfolio £’000 |
Exposure %1 |
| Exposures – shares unless otherwise stated | |||
| NOF (shares and long CFD) | 13,211 | 23,316 | 7.4 |
| Chemicals | |||
| MISUMI Group | 18,923 | 18,923 | 6.0 |
| Wholesale Trade | |||
| Keyence (shares and long CFD) | 10,379 | 18,892 | 6.0 |
| Electric Appliances | |||
| Eisai (shares and long CFD) | 7,106 | 16,583 | 5.3 |
| Pharmaceutical | |||
| Recruit Holdings (shares and long CFD) | 6,639 | 14,737 | 4.7 |
| Services | |||
| Oriental Land (shares and long CFD) | 11,228 | 13,547 | 4.3 |
| Services | |||
| Ryohin Keikaku (shares and long CFD) | 7,061 | 12,055 | 3.8 |
| Retail Trade | |||
| Coconala | 11,970 | 11,970 | 3.8 |
| Information & Communication | |||
| Raksul | 10,714 | 10,714 | 3.4 |
| Information & Communication | |||
| Yamaha | 9,158 | 9,158 | 2.9 |
| Other Products | |||
| Koito Manufacturing (shares and long CFD) | 3,976 | 9,155 | 2.9 |
| Electric Appliances | |||
| Sansan | 9,139 | 9,139 | 2.9 |
| Information & Communication | |||
| JustSystems | 8,681 | 8,681 | 2.8 |
| Information & Communication | |||
| Kansai Paint | 8,439 | 8,439 | 2.7 |
| Chemicals | |||
| Mitsui High-tec | 7,874 | 7,874 | 2.5 |
| Electric Appliances | |||
| Kotobuki Spirits | 7,751 | 7,751 | 2.5 |
| Foods | |||
| UT Group | 6,981 | 6,981 | 2.2 |
| Services | |||
| Open House (shares and long CFD) | 2,432 | 6,128 | 2.0 |
| Real Estate | |||
| Olympus (shares and long CFD) | 440 | 5,787 | 1.8 |
| Precision Instruments | |||
| Fujitsu (long CFD) | 218 | 5,740 | 1.8 |
| Electric Appliances | |||
| ------------- | ------------- | ------------- | |
| Twenty largest exposures | 162,320 | 225,570 | 71.7 |
| Other exposures | 145,890 | 166,162 | 52.9 |
| ------------- | ------------- | ------------- | |
| Total Portfolio (including long CFDs)2 | 308,210 | 391,732 | 124.6 |
| ======== | ======== | ======== |
FAIR VALUE AND PORTFOLIO EXPOSURE OF INVESTMENTS AS AT 30 JUNE 2021
| Fair Value £’000 |
Portfolio £’000 |
Exposure %1 |
|
| Investments | 308,825 | 308,825 | 98.2 |
| Derivative instrument assets – long CFDs | 1,023 | 36,924 | 11.8 |
| Derivative instrument liabilities – long CFDs | (1,638) | 45,983 | 14.6 |
| ------------- | ------------- | ------------- | |
| 308,210 | 391,732 | 124.6 | |
| ======== | ======== | ======== | |
| Shareholders’ Funds | 314,371 | ||
| ======== | |||
| Gearing2 | 24.6% | ||
| ======== |
1 Portfolio Exposure is expressed as a percentage of Shareholders’ Funds.
2 Gearing is the amount by which the Portfolio Exposure exceeds Shareholders’ Funds expressed as a percentage of Shareholders’ Funds.
Interim Management Report
BOARD CHANGES
Philip Kay stepped down from the Board as a non-executive Director on 31 December 2020. As his successor, David Barron joined the Board on 20 October 2020 which allowed for a brief handover period before Mr Kay retired.
David Robins stepped down from the Board as Chairman and non-executive Director at the conclusion of the Annual General Meeting on 18 May 2021. At the same time, he was succeeded as Chairman by David Graham who then stepped down as Chairman of the Audit Committee. Mr Barron succeeded Mr Graham as Chairman of the Audit Committee.
The Chairman, on behalf of the Board, the Manager and all of the Company’s stakeholders, would like to thank Mr Robins for his tremendous dedication and contribution to the Fidelity Japan Trust over the ten years that he was on the Board.
DISCOUNT MANAGEMENT, SHARE REPURCHASES AND TREASURY SHARES
The Board has an active discount management policy, the primary purpose of which is to reduce discount volatility. It seeks to maintain the discount in single digits in normal market conditions. Buying shares at a discount also results in an enhancement to the NAV per share.
In order to assist in managing the discount, the Board has shareholder approval to hold ordinary shares repurchased by the Company in Treasury, rather than cancelling them. Shares in Treasury are then available to be re-issued at NAV per share or at a premium to NAV per share.
In the six months to 30 June 2021, the Company repurchased 678,032 ordinary shares into Treasury, keeping the discount stable. Since the end of the reporting period, no further ordinary shares have been repurchased.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board, with the assistance of the Alternative Investment Fund Manager (FIL Investments Services Limited/the “Manager”), has developed a risk matrix which, as part of the risk management and internal controls process, identifies the key existing and emerging risks and uncertainties faced by the Company.
The Board considers that the principal risks and uncertainties faced by the Company comprise market risk; performance risk; pandemic risk; economic, geopolitical and natural disaster risks; discount control risk; cybercrime risk; Environmental, Social and Governance (ESG) risk; key person risk; gearing risk; currency risk; tax and regulatory risks; and third party service providers operational risks. Information on each of these risks is given in the Strategic Report section of the Annual Report for the year ended 31 December 2020. A copy of the Annual Report can be found on the Company’s pages of the Manager’s website at www.fidelity.co.uk/japan.
These principal risks and uncertainties have not materially changed during the six months to 30 June 2021 and are equally applicable to the remaining six months of the Company’s financial year. Risks from emerging new variants of COVID-19 continue, including the availability of suitable vaccines to tackle the new variants.
Investors should be prepared for market fluctuations and remember that holding shares in the Company should be considered to be a long term investment. These risks are somewhat mitigated by the investment trust structure of the Company which means that no forced sales need to take place to deal with any redemptions. Therefore, investments can be held over a longer time horizon.
The Manager reviews its business continuity plans and operational resilience strategies on an ongoing basis and continues to take all reasonable steps in meeting its regulatory obligations and to assess operational risks, the ability to continue operating and the steps it needs to take to serve and support its clients, including the Board. The Manager continues to look after the safety of employees, and allows employees to work from home and had until recently, split team working for those staff whose work was deemed necessary to be carried out in an office. Return to the office is on a reduced occupancy and follows social distancing guidelines. The Manager will continue to follow Government recommendations and guidance for COVID-19 restrictions and self-isolation rules.
Investment team key activities, including those of portfolio managers, analysts and trading/ support functions, have continued to perform well despite the operational challenges posed by working from home or when split team arrangements have been in place.
The Company’s third party service providers have implemented similar measures to ensure business disruption can be kept to a minimum.
TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
The Manager has delegated the Company’s portfolio management and the role of Company Secretary to FIL Investments International. Transactions with the Manager and related party transactions with the Directors are disclosed in Note 12 to the Financial Statements on page 25.
GOING CONCERN STATEMENT
The Directors have considered the Company’s investment objective, risk management policies, liquidity risk, credit risk, capital management policies and procedures, the nature of its portfolio and its expenditure and cash flow projections. They have considered the liquidity of the Company’s portfolio of investments (being mainly securities which are readily realisable) and the projected income and expenditure. The Directors are satisfied that the Company is financially sound and has sufficient resources to meet all of its liabilities and ongoing expenses and can continue in operational existence for a period of at least twelve months from the date of this Half-Yearly Report. Accordingly, they continue to adopt the going concern basis in preparing these Financial Statements.
This conclusion also takes into account the Board’s assessment of the ongoing risks from COVID-19 and evolving variants as set out on the previous page and above.
Continuation votes are held every three years and the next continuation vote will be put to shareholders at the Annual General Meeting in 2022.
BY ORDER OF THE BOARD
FIL INVESTMENTS INTERNATIONAL
30 July 2021
DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.
The Directors confirm to the best of their knowledge that:
· the condensed set of Financial Statements contained within the Half-Yearly Report has been prepared in accordance with the Financial Reporting Council’s Standard FRS 104: Interim Financial Reporting; and
· the Portfolio Manager’s Half-Yearly Review on pages 4 to 8 and the Interim Management Report on pages 11 and 12 include a fair review of the information required by DTR 4.2.7R and 4.2.8R.
In line with previous years, the Half-Yearly Report has not been audited or reviewed by the Company’s Independent Auditor.
The Half-Yearly Report was approved by the Board on 30 July 2021 and the above responsibility statement was signed on its behalf by David Graham, Chairman.
FINANCIAL STATEMENTS
Income Statement for the six months ended 30 June 2021
| Six months ended 30 June 2021 unaudited |
Six months ended 30 June 2020 unaudited |
Year ended 31 December 2020 audited |
||||||||
Notes |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Gains/(losses) on investments | – | 3,095 | 3,095 | – | (373) | (373) | – | 38,535 | 38,535 | |
| Gains on derivative instruments | – | 4,419 | 4,419 | – | 4,988 | 4,988 | – | 22,360 | 22,360 | |
| Income | 4 | 1,960 | – | 1,960 | 1,867 | – | 1,867 | 3,287 | – | 3,287 |
| Investment management fees | 5 | (216) | (1,174) | (1,390) | (160) | (608) | (768) | (358) | (1,677) | (2,035) |
| Other expenses | (317) | – | (317) | (289) | – | (289) | (597) | (8) | (605) | |
| Foreign exchange losses | – | (458) | (458) | – | (169) | (169) | – | (475) | (475) | |
| ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ||
| Net return on ordinary activities before finance costs and taxation | 1,427 | 5,882 | 7,309 | 1,418 | 3,838 | 5,256 | 2,332 | 58,735 | 61,067 | |
| Finance costs | 6 | (17) | (68) | (85) | (10) | (38) | (48) | (26) | (104) | (130) |
| ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ||
| Net return on ordinary activities before taxation | 1,410 | 5,814 | 7,224 | 1,408 | 3,800 | 5,208 | 2,306 | 58,631 | 60,937 | |
| Taxation on return on ordinary activities | 7 | (160) | – | (160) | (144) | – | (144) | (252) | – | (252) |
| ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ||
| Net return on ordinary activities after taxation for the period | 1,250 | 5,814 | 7,064 | 1,264 | 3,800 | 5,064 | 2,054 | 58,631 | 60,685 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ||
| Return per ordinary share | 8 | 0.96p | 4.46p | 5.42p | 0.95p | 2.87p | 3.82p | 1.56p | 44.53p | 46.09p |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ======== | ||
The Company does not have any other comprehensive income. Accordingly the net return on ordinary activities after taxation for the period is also the total comprehensive income for the period and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement of the Company. The revenue and capital columns are supplementary and presented for information purposes as recommended by the Statement of Recommended Practice issued by the AIC.
No operations were acquired or discontinued in the period and all items in the above statement derive from continuing operations.
STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2021
Note |
Share capital £’000 |
Share premium account £’000 |
Capital redemption reserve £’000 |
Other reserve £’000 |
Capital reserve £’000 |
Revenue reserve £’000 |
Total shareholders’ funds £’000 |
|
| Six months ended 30 June 2021 (unaudited) | ||||||||
| Total shareholders’ funds at 31 December 2020 | 34,041 | 20,722 | 2,767 | 48,445 | 215,151 | (12,320) | 308,806 | |
| Repurchase of ordinary shares | 10 | – | – | – | (1,499) | – | – | (1,499) |
| Net return on ordinary activities after taxation for the period | – | – | – | – | 5,814 | 1,250 | 7,064 | |
| ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ||
| Total shareholders’ funds at 30 June 2021 | 34,041 | 20,722 | 2,767 | 46,946 | 220,965 | (11,070) | 314,371 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ||
| Six months ended 30 June 2020 (unaudited) | ||||||||
| Total shareholders’ funds at 31 December 2019 | 34,041 | 20,722 | 2,767 | 52,815 | 156,520 | (14,374) | 252,491 | |
| Repurchase of ordinary shares | 10 | – | – | – | (2,627) | – | – | (2,627) |
| Net return on ordinary activities after taxation for the period | – | – | – | – | 3,800 | 1,264 | 5,064 | |
| ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ||
| Total shareholders’ funds at 30 June 2020 | 34,041 | 20,722 | 2,767 | 50,188 | 160,320 | (13,110) | 254,928 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== | ||
| Year ended 31 December 2020 (audited) | ||||||||
| Total shareholders’ funds at 31 December 2019 | 34,041 | 20,722 | 2,767 | 52,815 | 156,520 | (14,374) | 252,491 | |
| Repurchase of ordinary shares | 10 | – | – | – | (4,370) | – | – | (4,370) |
| Net return on ordinary activities after taxation for the year | – | – | – | – | 58,631 | 2,054 | 60,685 | |
| ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ------------- | ||
| Total shareholders’ funds at 31 December 2020 | 34,041 | 20,722 | 2,767 | 48,445 | 215,151 | (12,320) | 308,806 | |
| ======== | ======== | ======== | ======== | ======== | ======== | ======== |
Balance Sheet AS AT 30 JUNE 2021
Company Number 2885584
Notes |
30.06.21 unaudited £’000 |
31.12.20 audited £’000 |
30.06.20 unaudited £’000 |
|
| Fixed assets | ||||
| Investments | 9 | 308,825 | 303,002 | 239,608 |
| ------------- | ------------- | ------------- | ||
| Current assets | ||||
| Derivative instruments | 9 | 1,023 | 1,932 | 12,562 |
| Debtors | 1,533 | 668 | 1,253 | |
| Cash collateral held with brokers | – | 21 | – | |
| Cash at bank | 6,535 | 4,336 | 4,175 | |
| ------------- | ------------- | ------------- | ||
| 9,091 | 6,957 | 17,990 | ||
| ======== | ======== | ======== | ||
| Current liabilities | ||||
| Derivative instruments | 9 | (1,638) | (91) | (1,063) |
| Other creditors | (1,907) | (1,062) | (1,607) | |
| ------------- | ------------- | ------------- | ||
| (3,545) | (1,153) | (2,670) | ||
| ======== | ======== | ======== | ||
| Net current assets | 5,546 | 5,804 | 15,320 | |
| ======== | ======== | ======== | ||
| Net assets | 314,371 | 308,806 | 254,928 | |
| ======== | ======== | ======== | ||
| Capital and reserves | ||||
| Share capital | 10 | 34,041 | 34,041 | 34,041 |
| Share premium account | 20,722 | 20,722 | 20,722 | |
| Capital redemption reserve | 2,767 | 2,767 | 2,767 | |
| Other reserve | 46,946 | 48,445 | 50,188 | |
| Capital reserve | 220,965 | 215,151 | 160,320 | |
| Revenue reserve | (11,070) | (12,320) | (13,110) | |
| ------------- | ------------- | ------------- | ||
| Total shareholders’ funds | 314,371 | 308,806 | 254,928 | |
| ======== | ======== | ======== | ||
| Net asset value per ordinary share | 11 | 242.05p | 236.53p | 193.86p |
| ======== | ======== | ======== |
NOTES TO THE FINANCIAL STATEMENTS
1 PRINCIPAL ACTIVITY
Fidelity Japan Trust PLC is an Investment Company incorporated in England and Wales with a premium listing on the London Stock Exchange. The Company’s registration number is 2885584, and its registered office is Beech Gate, Millfield Lane, Lower Kingswood, Tadworth, Surrey, KT20 6RP. The Company has been approved by HM Revenue & Customs as an Investment Trust under Section 1158 of the Corporation Tax Act 2010 and intends to conduct its affairs so as to continue to be approved.
2 PUBLICATION OF NON-STATUTORY ACCOUNTS
The Financial Statements in this Half-Yearly Report have not been audited by the Company’s Independent Auditor and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006 (the “Act”). The financial information for the year ended 31 December 2020 is extracted from the latest published Financial Statements of the Company. Those Financial Statements were delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Act.
3 ACCOUNTING POLICIES
(i) Basis of Preparation
The Company prepares its Financial Statements on a going concern basis and in accordance with UK Generally Accepted Accounting Practice (“UK GAAP”) and FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland, issued by the Financial Reporting Council. The Financial Statements are also prepared in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts (“SORP”) issued by the Association of Investment Companies (“AIC”), in October 2019. FRS 104: Interim Financial Reporting has also been applied in preparing this condensed set of Financial Statements. The accounting policies followed are consistent with those disclosed in the Company’s Annual Report and Financial Statements for the year ended 31 December 2020.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements. This conclusion also takes into account the Board’s assessment of the continuing risks arising from COVID-19 and evolving variants.
4 INCOME
| Six months ended 30.06.21 unaudited £’000 |
Six months ended 30.06.20 unaudited £’000 |
Year ended 31.12.20 audited £’000 |
|
| Investment income | |||
| Overseas dividends | 1,610 | 1,437 | 2,523 |
| Derivative income | |||
| Dividends received on long CFDs | 350 | 430 | 764 |
| ------------- | ------------- | ------------- | |
| Total income | 1,960 | 1,867 | 3,287 |
| ======== | ======== | ======== |
No special dividends have been recognised in capital during the period (six months ended 30 June 2020 and year ended 31 December 2020: £nil).
5 INVESTMENT MANAGEMENT FEES
| Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Six months ended 30 June 2021 (unaudited) | |||
| Investment management fees – base | 216 | 865 | 1,081 |
| Investment management fees – variable* | – | 309 | 309 |
| ------------- | ------------- | ------------- | |
| 216 | 1,174 | 1,390 | |
| ======== | ======== | ======== | |
| Six months ended 30 June 2020 (unaudited) | |||
| Investment management fees – base | 160 | 640 | 800 |
| Investment management fees – variable* | – | (32) | (32) |
| ------------- | ------------- | ------------- | |
| 160 | 608 | 768 | |
| ======== | ======== | ======== | |
| Year ended 31 December 2020 (audited) | |||
| Investment management fees – base | 358 | 1,429 | 1,787 |
| Investment management fees – variable* | – | 248 | 248 |
| ------------- | ------------- | ------------- | |
| 358 | 1,677 | 2,035 | |
| ======== | ======== | ======== |
* For the calculation of the variable management fee element, the Company’s NAV return was compared to the Reference Index return for the period from 1 July 2018 to the relevant reporting dates. The NAV has outperformed the Reference Index and therefore there is a charge to the Company for the current period.
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management to FIL Investments International (“FII”). Both companies are Fidelity group companies.
FII charges base investment management fees at an annual rate of 0.70% of net assets. In addition, there is a +/- 0.20% variation fee based on performance relative to the Reference Index. Fees are payable monthly in arrears and are calculated on a daily basis.
Investment management fees have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.
6 FINANCE COSTS
| Revenue £’000 |
Capital £’000 |
Total £’000 |
|
| Six months ended 30 June 2021 (unaudited) | |||
| Interest paid on long CFDs | 16 | 62 | 78 |
| Interest paid on collateral and bank overdrafts | 1 | 6 | 7 |
| ------------- | ------------- | ------------- | |
| 17 | 68 | 85 | |
| ======== | ======== | ======== | |
| Six months ended 30 June 2020 (unaudited) | |||
| Interest paid on long CFDs | 9 | 34 | 43 |
| Interest paid on collateral and bank overdrafts | 1 | 4 | 5 |
| ------------- | ------------- | ------------- | |
| 10 | 38 | 48 | |
| ======== | ======== | ======== | |
| Year ended 31 December 2020 (audited) | |||
| Interest paid on long CFDs | 20 | 79 | 99 |
| Interest paid on collateral and bank overdrafts | 6 | 25 | 31 |
| ------------- | ------------- | ------------- | |
| 26 | 104 | 130 | |
| ======== | ======== | ======== |
Finance costs have been allocated 80% to capital reserve in accordance with the Company’s accounting policies.
7 TAXATION ON RETURN ON ORDINARY ACTIVITIES
| Six months ended 30.06.21 unaudited £’000 |
Six months ended 30.06.20 unaudited £’000 |
Year ended 31.12.20 audited £’000 |
|
| Overseas taxation | 160 | 144 | 252 |
| ======== | ======== | ======== |
8 RETURN PER ORDINARY SHARE
| Six months ended 30.06.21 unaudited |
Six months ended 30.06.20 unaudited |
Year ended 31.12.20 audited |
|
| Revenue return per ordinary share | 0.96p | 0.95p | 1.56p |
| Capital return per ordinary share | 4.46p | 2.87p | 44.53p |
| ------------- | ------------- | ------------- | |
| Total return per ordinary share | 5.42p | 3.82p | 46.09p |
| ======== | ======== | ======== |
The return per ordinary share is based on the net return on ordinary activities after taxation for the period divided by the weighted average number of ordinary shares held outside of Treasury during the period, as shown below:
| £’000 | £’000 | £’000 | |
| Net revenue return on ordinary activities after taxation for the period | 1,250 | 1,264 | 2,054 |
| Net capital return on ordinary activities after taxation for the period | 5,814 | 3,800 | 58,631 |
| ------------- | ------------- | ------------- | |
| Net total return on ordinary activities after taxation for the period | 7,064 | 5,064 | 60,685 |
| ======== | ======== | ======== |
| Number | Number | Number | |
| Weighted average number of ordinary shares held outside of Treasury during the period | 130,322,142 | 132,533,464 | 131,658,973 |
| ========== | ========== | ========== |
9 FAIR VALUE HIERARCHY
The Company is required to disclose the fair value hierarchy that classifies its financial instruments measured at fair value at one of three levels, according to the relative reliability of the inputs used to estimate the fair values.
| Classification | Input |
| Level 1 | Valued using quoted prices in active markets for identical assets |
| Level 2 | Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly |
| Level 3 | Valued by reference to valuation techniques using inputs that are not based on observable market data |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. The table below sets out the Company’s fair value hierarchy:
30 June 2021 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Financial assets at fair value through profit or loss | ||||
| Investments | 301,804 | – | 7,021 | 308,825 |
| Derivative instrument assets | – | 1,023 | – | 1,023 |
| ------------- | ------------- | ------------- | ------------- | |
| 301,804 | 1,023 | 7,021 | 309,848 | |
| ======== | ======== | ======== | ======== | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (1,638) | – | (1,638) |
| ======== | ======== | ======== | ======== |
31 December 2020 (audited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Financial assets at fair value through profit or loss | ||||
| Investments | 297,505 | – | 5,497 | 303,002 |
| Derivative instrument assets | – | 1,932 | – | 1,932 |
| ------------- | ------------- | ------------- | ------------- | |
| 297,505 | 1,932 | 5,497 | 304,934 | |
| ======== | ======== | ======== | ======== | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (91) | – | (91) |
| ======== | ======== | ======== | ======== |
30 June 2020 (unaudited) |
Level 1 £’000 |
Level 2 £’000 |
Level 3 £’000 |
Total £’000 |
| Financial assets at fair value through profit or loss | ||||
| Investments | 233,946 | – | 5,662 | 239,608 |
| Derivative instrument assets | – | 12,562 | – | 12,562 |
| ------------- | ------------- | ------------- | ------------- | |
| 233,946 | 12,562 | 5,662 | 252,170 | |
| ======== | ======== | ======== | ======== | |
| Financial liabilities at fair value through profit or loss | ||||
| Derivative instrument liabilities | – | (1,063) | – | (1,063) |
| ======== | ======== | ======== | ======== |
10 SHARE CAPITAL
| 30 June 2021 unaudited |
31 December 2020 audited |
30 June 2020 unaudited |
||||
| Number of shares |
£’000 |
Number of shares |
£’000 |
Number of shares |
£’000 |
|
| Issued, allotted and fully paid | ||||||
| Ordinary shares of 25p each held outside of Treasury | ||||||
| Beginning of the period | 130,554,926 | 32,639 | 133,207,090 | 33,302 | 133,207,090 | 33,302 |
| Ordinary shares repurchased into Treasury | (678,032) | (170) | (2,652,164) | (663) | (1,704,845) | (426) |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | |
| End of the period | 129,876,894 | 32,469 | 130,554,926 | 32,639 | 131,502,245 | 32,876 |
| ========== | ========== | ========== | ========== | ========== | ========== | |
| Ordinary shares of 25p each held in Treasury* | ||||||
| Beginning of the period | 5,606,769 | 1,402 | 2,954,605 | 739 | 2,954,605 | 739 |
| Ordinary shares repurchased into Treasury | 678,032 | 170 | 2,652,164 | 663 | 1,704,845 | 426 |
| ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | ------------------ | |
| End of the period | 6,284,801 | 1,572 | 5,606,769 | 1,402 | 4,659,450 | 1,165 |
| ========== | ========== | ========== | ========== | ========== | ========== | |
| Total share capital | 34,041 | 34,041 | 34,041 | |||
| ========== | ========== | ========== | ||||
* Ordinary shares held in Treasury carry no rights to vote, to receive a dividend or to participate in a winding up of the Company.
The cost of ordinary shares repurchased into Treasury during the period was £1,499,000 (year ended 31 December 2020: £4,370,000 and six months ended 30 June 2020: £2,627,000). This amount was charged to the other reserve.
11 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is based on the following:
| 30.06.21 unaudited |
30.12.20 audited |
30.06.20 unaudited |
|
| Total shareholders’ funds | £314,371,000 | £308,806,000 | £254,928,000 |
| Ordinary shares held outside Treasury at period end | 129,876,894 | 130,554,926 | 131,502,245 |
| Net asset value per ordinary share | 242.05p | 236.53p | 193.86p |
| ========== | ========== | ========== |
It is the Company’s policy that shares held in Treasury will only be reissued at net asset value per ordinary share or at a premium to net asset value per ordinary share and, therefore, shares held in Treasury have no dilutive effect.
12 TRANSACTIONS WITH THE MANAGER AND RELATED PARTIES
FIL Investment Services (UK) Limited is the Company’s Alternative Investment Fund Manager and has delegated portfolio management services and the role of company secretary to FIL Investments International (“FII”), the Investment Manager. Both companies are Fidelity group companies. Details of the fee arrangements are given in Note 5 above.
During the period, fees for portfolio management services of £1,390,000 (six months ended 30 June 2020: £768,000 and year ended 31 December 2020: £2,035,000) and secretarial and administration fees of £25,000 (six months ended 30 June 2020: £25,000 and year ended 31 December 2020: £50,000) were payable to FII. At the Balance Sheet date, fees for portfolio management services of £227,000 (31 December 2020: £232,000 and 30 June 2020: £169,000) and secretarial and administration fees of £13,000 (31 December 2020: £13,000 and 30 June 2020: £13,000) were accrued and included in other creditors. FII also provides the Company with marketing services. The total amount payable for these services during the period was £63,000 (six months ended 30 June 2020: £52,000 and year ended 31 December 2020: £97,000). At the Balance Sheet date, fees for marketing services of £11,000 (31 December 2020: £6,000 and 30 June 2020: £11,000) were accrued and included in other creditors.
As at 30 June 2021, the Board consisted of four non-executive Directors (shown in the Directory on page 28), all of whom are considered to be independent by the Board. None of the Directors have a service contract with the Company. The Chairman receives an annual fee of £37,000, the Audit Committee Chairman an annual fee of £30,000 and each other Director an annual fee of £26,000. The following members of the Board hold ordinary shares in the Company: David Barron 19,366 shares, David Graham 78,489 shares, Sarah MacAulay 153,545 shares and Dominic Ziegler 16,000 shares.
The financial information contained in this Half-Yearly Results Announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 June 2021 and 30 June 2020 has not been audited or reviewed by the Company’s Independent Auditor.
The information for the year ended 31 December 2020 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies, unless otherwise stated. The report of the Auditor on those financial statements contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
A copy of the Half-Yearly Report will shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at www.fidelity.co.uk/japantrust where up to date information on the Company, including daily NAV and share prices, factsheets and other information can also be found.
