AVI Japan Opportunity Trust

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Annual Financial Report

RNS Number : 0570F

AVI Japan Opportunity Trust PLC

17 March 2022

AVI JAPAN OPPORTUNITY TRUST PLC

ANNUAL REPORT 2021

LEI: 894500IJ5QQD7FPT3J73

The Directors present the audited Annual Report for the year ended 31 December 2021.

Copies of the Annual Report can be obtained from the Company's website ("AJOT" or the "Company") www.ajot.co.uk or by contacting the Company Secretary by telephone on 01392 477500.

AVI Japan Opportunity Trust plc ("AJOT" or "the Company") invests in a focussed 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.

Portfolio Statistics as at 31 December 2021

	As at 31 December 2021	As at 31 December 2020
NAV Total Return*	12.3%	-1.4%
Share Price Total Return*	10.0%	-1.1%
Net Cash/Market Cap*	39.9%	46.1%
EV/ EBIT*	5.1x	4.3x
FCF Yield*	5.4%	5.3%
ROE*	10.9%	7.9%
Benchmark Total Return^†*	-1.4%	3.2%
Portfolio Discount*	-41.2%	-41.9%
Net Financial Value/Market Cap*	75.9%	82.1%
Portfolio Dividend Yield*	1.8%	2.1%
EV/ FCF Yield*	21.2%	18.1%
ROE ex non-core financial assets*	25.3%	21.3%

* For all Alternative Performance Measures, please refer to the definitions in the Glossary below.

^† MSCI Japan Small Cap Index (£ adjusted total return).

Performance Summary

Net asset value per share at 31 December 2021	120.87p
Share price at 31 December 2021	121.00p

Premium as at 31 December 2021
(difference between share price and net asset value)	0.11%

OVERVIEW

Discovering overlooked and under researched investment opportunities, utilising shareholder engagement to unlock long-term value.

Company Objective & 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 having a significant proportion of their market capitalisation held in cash, listed securities and/or other realisable assets.

AVI seeks to unlock this value through proactive engagement with management and taking advantage of the increased focus on corporate governance, balance sheet eﬃciency, and returns to shareholders in Japan.

The companies in the portfolio are selected for their high quality, whether having strong prospects for profit growth or economically resilient earnings. By investing in companies whose corporate value should grow overtime, AVI can be patient in its engagement to unlock value.

Benchmark

The MSCI Japan Small Cap Index.

Capital Structure

As at 31 December 2021, the Company's issued share capital comprised 133,220,702 Ordinary Shares of 1p each, of which 250,000 were held in treasury and therefore total voting rights attached to Ordinary Shares in issue were 132,970,702. As at 11 March 2022 it comprised 137,211,702 Ordinary Shares, none of which were held in treasury and therefore total voting rights attached to Ordinary Shares in issue were 137,211,702.

Annual General Meeting

The Company's Annual General Meeting ("AGM") will be held at 11.30am on Tuesday 3 May 2022 at the offices of Association of Investment Companies ("AIC"), 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.

Investment Manager

The Company has appointed Asset Value Investors Limited ("AVI" or the "Investment Manager") as its Alternative Investment Fund Manager.

Financial Conduct Authority ("FCA") regulation of 'non-mainstream pooled investments' and MiFID II 'complex instruments'

The Company currently conducts its aﬀairs so that its shares can be recommended by Independent Financial Advisers in the UK to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream investment products and intends to continue to do so. The shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an authorised investment trust.

The Company's ordinary shares are not classified as 'complex instruments' under the FCA's revised appropriateness criteria adopted in the implementation of MiFID II.

The Association of Investment Companies ("The AIC")

The Company is a member of The AIC.

Website

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.

CHAIRMAN'S STATEMENT

"Three and a half years from launch, the Company's strategy continues to deliver excellent results."

Overview of the Year

AVI Japan Opportunity Trust ('AJOT' or 'The Company') enjoyed a successful third full year of investing Japan on your behalf. As well as benefitting from a resumption in economic and corporate activity as we emerge from COVID-19 pandemic, we saw further evidence of the successful implementation of our strategy.

Continuing their ascent from the March 2020 lows, global equities performed well in 2021, with the MSCI AC World index returning +19.6% in GB Pounds. Japan has been a laggard, with our benchmark the MSCI Japan Small Cap Total Return Index realising -1.4%. As an asset class, Japanese equities did not benefit from the general rebound and remain underweight in most portfolios.

AJOT, however, has never been a Japan allocation story being focused instead on delivering attractive absolute and relative returns through stock selection, stake holding and corporate activity. AJOT's performance in 2021 reinforced the power of this strategy, with the largest contributors to returns, Secom Joshinetsu and Daibiru, both the result of take private offers at +66% and +50% premiums to their respective undisturbed share prices.

The resumption of corporate activity following a subdued 2020 has given your Investment Manager, Asset Value Investors ("AVI"), fresh opportunities to engage with its portfolio companies to unlock value for all shareholders. AVI see the potential for further change of control transactions, boding well for future returns. Over the last year AVI's investment team has grown substantially, with the addition of two experienced Japanese-speaking analysts, who have been busy building constructive and respectful relationships with portfolio company management teams.

Performance and Dividend

Three and a half years from launch, the Company's strategy continues to deliver excellent results. In 2021 your Company generated a net asset value ("NAV") per share total return of +12.3% in GBP, versus a -1.4% return for our benchmark, the MSCI Japan Small Cap Index (also in GBP). Although not relevant for relative performance comparisons, the Japanese Yen has depreciated 9.6% over the last year, acting as a headwind to returns.

Since the start of 2022, as at 11 March 2022 (the latest practicable date prior to publication of this document), AJOT's NAV and share price returned -8.0% and -8.0% in GBP, which compares to -6.4% for the benchmark. The closing share price was 111.00p, a discount of -0.4% to the NAV per share of 111.43p.

Consistent with the Prospectus at the Initial Public Offering ("IPO"), the Company intends to distribute substantially all the net revenue arising from the portfolio. The Company paid an interim dividend of 0.70p per share in October 2021 and the Board has elected to propose a final dividend of 0.70p per share, bringing total dividend for the year ended 31 December 2021 to 1.40p per share (2020: 1.30p per share).

Investment Strategy

AJOT listed in October 2018 to take advantage of the highly attractive opportunity to invest in under-valued, over-looked, under-researched Japanese small-cap equities with strong underlying business fundamentals. We believed - and still do - that activism and corporate activity allow for the unlocking of valuation anomalies unavailable in other global developed markets, with the potential for attractive absolute and relative returns. The investment opportunity remains as exciting today as it did at launch.

Share Premium and Issuance

As at 31 December 2021, your Company's shares were trading at a premium of 0.11% to NAV per share. The Board monitors this premium carefully and manages it by periodically issuing or buying back shares. During 2021, we utilised the Company's authorised block listing facility to increase our shares in issue by 3,623,637 and 12,107,323 shares were issued under the prospectus published in March 2020. 250,000 shares were bought back during the year, all of which have been sold from Treasury since the year end. As at 31 December 2021, 133,220,702 shares were in issue, a pleasing increase from the 80,000,000 shares at AJOT's launch. Since the year end, the Company issued further shares through the blocklisting facility as detailed below and as at 11 March 2022, the Company had 137,211,702 shares in issue.

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 ¥4.330 billion debt facility which was renewed on 2 February 2022. As at 31 December 2021, ¥2.930 billion (£18.8 million) of the facility had been drawn and gearing was 6.6%.

ESG

The Board and the AVI have continued to develop and refine our approach to ESG issues over the past 12 months. In particular, I would like to draw your attention to the work that AVI has done in this area with their ESG, Responsible Investor and Sustainability Policy, which can be found on their website.

I would urge all Shareholders and other stakeholders in AJOT to read this document. I believe AVI should be congratulated on their approach to these issues and the work they have done in communicating their solutions to the industry.

As the world returns to normal after COVID-19 we will address several ESG issues that have been less prevalent over the past two years. As Japan finally opens up to foreign visitors, your Investment Manager will again start to revisit companies in Japan to seek out new opportunities and encourage change at our investee companies to benefit all shareholders and the broader Japanese corporate world. This will of course require long-haul flights to Japan and the inevitable carbon emissions produced by these flights. The entire world will face these issues as travel returns to normal pre-pandemic levels. There are currently various mechanisms available to offset the carbon emissions produced by these flights but I am unaware of any in-depth research that has examined the cost-benefit analysis of each. This is something that all fund management houses, and boards, should be thinking about over the coming months.

I shall be contacting Shareholders and other stakeholders to continue the discussions on ESG issues if they wish. In the meantime if you have any questions on these or other issues please do not hesitate to contact me.

Exit Opportunity

As noted above, the Company's recent share price and NAV total return performance have been excellent and the shares are trading close to NAV. Furthermore, as explained in their report below, our Investment Manager believes the Company's investment case remains highly compelling and the construction of the current portfolio contains considerable future value.

The Company's IPO Prospectus stated that the Directors may, at their discretion, deliver a full or a partial exit opportunity to Shareholders in October 2022 and every two years thereafter (the "Exit Opportunity"). The Board together with its advisers will canvass opinion from Shareholders in the months leading up to October 2022 when making any decision in respect of any potential Exit Opportunity. In the event that an Exit Opportunity is offered, the mechanism will be dependent on various factors including the number of Shareholders seeking to participate, the liquidity of the underlying market, the demand for Shares from other investors and the most cost-efficient way of providing the Exit Opportunity. The Company will update the investors in due course.

Outlook

Looking ahead, the current portfolio is well positioned with a concentrated yet diverse collection of high quality, lowly valued companies, with multiple levers for re-ratings, including activism and increased corporate activity. AVI has increased its capacity for research and engagement on its pipeline of ideas to generate exceptional returns. As a board, we are confident that AJOT can build on its successful track record of engagement with companies and continue to deliver overall attractive returns for investors.

Closing remarks

The Board would like to thank Shareholders for their continued trust and support. If you have any queries, please do not hesitate to contact me personally ([email protected]) or alternatively speak to our broker Singer Capital Markets to arrange a meeting.

Norman Crighton

Chairman

16 March 2022

TOP 10 INVESTMENTS

1. Wacom Co Ltd (8.3% of portfolio, 9.9x EV/EBIT)

Wacom is a global leader in digital pen solutions. It is uniquely positioned to benefit from the growing adoption of digital pens, whether from movie studios, industrial designers, or schools. Its dominant market position allows Wacom to be at the forefront of technological innovation, developing solutions that utilise big data, artificial intelligence, and virtual reality. Investors underappreciate the growth potential of Wacom's technology, but under the leadership of the relatively new President and with improved investor communication, we think that will change.

2. T Hasegawa Co Ltd (7.9% of portfolio, 10.7x EV/EBIT)

T Hasegawa is a top ten global flavour and fragrance (F&F) manufacturer. Its products are used in a variety of products from tea to instant noodles. It prides itself on R&D, with 322 patents and 20% of its workforce involved in R&D. The Company motto is "a company founded on technology". The F&F industry is appealing because of its high barriers to entry and resilient pricing power, which explains why T Hasegawa's peers trade on an average EV/EBIT multiple of 28x.

3. Daibiru Corp (7.5% of portfolio, -*)

Daibiru owns a portfolio of high-quality commercial real estate in Tokyo and Osaka. While operating as a property development company, the lack of portfolio turnover means it is more akin to a Real Estate Investment Trust (REIT). Due to corporate governance failures and an inefficient holding structure, Daibiru traded at a 50% discount to its real estate market value. In November 2021, Daibiru was subject to a takeover offer from its parent company at a 50% premium.

4. C Uyemura & Co Ltd (7.0% of portfolio, 3.9x EV/EBIT)

C Uyemura produces plating and surface finishing related chemicals for electronic circuit boards. Although it has a long history of developing and manufacturing high-quality products, years of hoarding cash have unfairly depressed its valuation. Its business should be a beneficiary of strong trends in the increased adoption of electric vehicles, 5G-enabled devices and the Internet of Things ("IoT").

5. DTS Corp (6.8% of portfolio, 6.0x EV/EBIT)

DTS provides a variety of IT-related services to Japanese corporations. It is expanding its business in "DX-related" fields such as cloud, robotics and IoT. Japanese companies have underinvested in their IT infrastructure, with antiquated processes and complex legacy systems. With support from the Japanese government to digitalise processes we believe companies will dramatically increase their IT expenditure - much to the benefit of DTS.

6. Pasona Group Inc (6.6% of portfolio, <0.0 EV/EBIT)

A staffing company providing dispatch workers and outsource processing services throughout Japan. Pasona has a 51% stake in Benefit One, a provider of welfare agency services. Benefit One has grown rapidly in recent years and Pasona's stake in the company is worth 291% of its market cap. Investors underappreciate the value of Pasona's other businesses and including the value of the stake in Benefit One, Pasona trades at an astonishingly wide 73% discount.

7. Fujitec Co Ltd (6.1% of portfolio, 8.6x EV/EBIT)

Fujitec is a global leader in manufacturing and servicing elevators and escalators. It trades at a significant discount compared to global peers due to weak margins outside of Japan and a lower ROE exacerbated by a large cash pile on its balance sheet. In May 2020 we launched a public campaign highlighting Fujitec's underperformance and undervaluation. Management have started to address a number of these issues, and we believe there is considerable upside from an improving margin and higher valuation.

8. Digital Garage Inc (6.0% of portfolio, 12.6x EV/EBIT)

Digital Garage's three main business interests are card payment processing, online marketing, and venture investments. Digital Garage has a good track record of incubating young tech businesses and being at the front of digital innovation. Its incubation success has resulted in its 20% stake in the online price comparison site Kakaku.com, accounting for 56% of its market cap. However, the real crown jewel is its wholly-owned payment processing business, a beneficiary of an expected increase in online payment transactions. Digital Garage's complex holding structure leads to a large discount as investors cannot understand the Group strategy and overlook its growing payments business.

9. NS Solutions Corp (5.0% of portfolio, 7.0x EV/EBIT)

NS Solutions is one of Japan's leading IT system integrators. Investment in IT infrastructure is increasing in Japan, attempting to rectify years of underinvestment and a myriad of antiquated systems. This bodes well for NS Solutions, which we expect to have a long growth runway in the high single digits. Its valuation, however, reflects poor corporate governance, being a listed subsidiary of Nippon Steel, and an inefficient balance sheet. Both issues are rectifiable, and we think after that, investors will be able to value NS Solutions growing business more fairly.

10. SK Kaken Co Ltd (4.3% of portfolio, 0.3x EV/EBIT)

SK Kaken specialises in architectural paints, commanding more than 50% domestic market share. It is a stable business with consistent earnings and margins but a low payout ratio has led to cash ballooning on the balance sheet. This capital inefficiency masks an otherwise high-quality business, that trades on an EV/EBIT multiple of only 0.3x.

* AVI does not report a NFV/Market Capitalisation or EV/EBIT for Daibiru as it is a real estate company.

INVESTMENT MANAGER'S REPORT

"Our increased engagement capacity allowed us to build close relationships with our portfolio companies, and while in some cases the improvements might be subtle, managements are responding positively."

2021 was an excellent year for the strategy, with your Company's NAV returning +12.3% against its benchmark, the MSCI Japan Small Cap Index, which fell -1.4% (both in GBP). The performance of AVI Japan Opportunities Trust ('AJOT") benefited from the privatisation of Daibiru and Secom Joshinetsu at 50% and 66% premiums, respectively, which together added +6.5% to performance. Both were taken private by their parent companies, Secom and Mitsui O.S.K Lines, taking the total privatisation events since AJOT's launch to five. Performance was also aided by strong earnings growth, which propelled the share prices of C Uyemura, Pasona and T Hasegawa by +70%, +62% and +34%, respectively, adding +6.9% to performance. Finally, it was a year when the number of detractors was notably few. The top five largest detractors saw an average share price decline of only -5.2%, detracting a combined -3.4% from AJOT's NAV, much of this coming from Japanese Yen weakness.

Yen weakness against Sterling proved the most significant headwind to performance over the year, with the Yen declining by -9.6%. If not for the Yen weakness, AJOT's 2021 NAV would have increased by an impressive +24.1%. Surprisingly, given the strong performance, we suffered from weakening valuations. Adjusting for trading activity, the EV/EBIT of the portfolio fell from 3.8x to 3.2x, as share prices failed to keep up with earnings growth.

In 2021 Asset Value Investors ('AVI") welcomed Mr Kaz Sakai and Ms Makiko Shimada to its investment team, which significantly bolstered our research and engagement capacity. Kaz and Makiko bring their experience in management consultancy and investment banking, along with Japanese cultural knowledge, having grown up in Japan. Kaz's consultancy background allows us to put forward more proposals focused on business strategy, while Makiko's Investment Banking experience brings new thinking on possible engagement options.

With the expanded team, it was a busy year for our engagement. Although we subsequently withdrew four of them, we submitted shareholder proposals to seven companies and launched a public campaign highlighting flaws in the tender offer bid for Daibiru. In total, we sent 41 letters or presentations and held over 118 meetings with the 28 companies in our current portfolio.

Our increased engagement capacity allowed us to build close relationships with our portfolio companies, and while in some cases the improvements might be subtle, managements are responding positively. Our engagement extends beyond simply asking for cash to be returned to shareholders. While balance sheet efficiency is a common component of our suggestions, we have engaged on issues as detailed as suggesting a new colour scheme for DTS' earnings presentation (which was adopted) and our input was appreciated by Secom Joshinetsu, whose President thanked us after the company was taken over by its parent company just ¥50 below our recommended ¥6,400 fair valuation.

Our engagement activities are a source of future investment returns and should help accelerate the change our portfolio companies are undertaking. However, our businesses' underlying quality is of greater importance. While we are engaging or waiting for an event, it is the company's performance that matters. If the value of the business is not growing, time is against us, no matter the valuation or engagement success. Over 2021 we have made conscious efforts to improve the quality of the companies in the portfolio, building positions in Wacom, T Hasegawa and LOCONDO. The portfolio's weighted average operating profit margin increased from 10.7% to 12.5%, while the average Return on Equity ("ROE") excluding cash rose from 21.3% to 25.3%.

At the end of the year, the companies in our portfolio saw a strong rebound in earnings. Trailing twelve-months profits for the year ending 30 September 2021 (the latest available at the time of writing) grew +22% and, vs pre-COVID profits, are up +20%. Standout results were reported by Pasona, C Uyemura and T Hasegawa who saw trailing twelve-months profits grow by +481%, +58% and +47% vs their pre-COVID earnings.

AJOT's portfolio is constructed of undervalued, growing businesses, where through our engagement we believe there is the potential to unlock significant value. The performance over 2021 was driven strongly by two privatisation events, and while it is hard to predict the timing, we would not be surprised if we saw a similar number in 2022. Having suffered from a valuation headwind in 2021 and with a busy year of engagement ahead, we believe the portfolio is well positioned for continued strong performance.

Buyout activity in the portfolio
Company/buyer	Tender Offer Premium	AJOT Contribution to NAV (GBP)
Secom Joshinetsu / Secom (parent buyout)(2021)	+66%	+4.2%
Daibiru / Mitsui O.S.K. Lines (parent buyout)(2021)	+50%	+2.9%
NuFlare / Toshiba Corp (parent buyout)(2019)	+46%	+4.7%
Toshiba Plant / Toshiba Corp (parent buyout)(2019)	+28%	+1.8%
Nittofc / Integral Corporation (private equity buyout)(2018)	+38%	+1.6%

Source: AVI, CapitalIQ, 31/12/2021

Contributors

Secom Joshinetsu

Contribution (GBP)	3.7%
% of net assets	0.0%
EV/EBIT	-
NFV/Market Cap	-

At the end of May 2021, our 5% of NAV position in Secom Joshinetsu was taken private by its parent company, Secom, at a 66% premium to the prevailing share price. Given the concentrated nature of our portfolio, it had a meaningful impact on NAV. Over the life of the investment, it generated a total return of 94%, making it the most significant contributor to performance over the year, adding 366bps.

We commented in AJOT's 2020 annual report that, "given the multitude of potential conflicts of interest with minority investors ... our thesis is that Secom will buy in Secom Joshinetsu.... With a new President at Secom and some nudging from minority shareholders at Secom Joshinetsu, we think this process can be hastened." It was pleasing to see our thesis played out only five months later.

Although undertaken behind closed doors, we have been engaging with Secom Joshinetsu's senior management and directors since we initiated our position in January 2019, and towards the end with its parent company, Secom. We put forward several measures to address the glaringly low valuation, one of which was to be taken private by Secom. We built a healthy rapport with management and the President of Secom Joshinetsu took the time to thank us for our input after the acquisition. The outcome highlights that hands-on, persistent shareholder engagement can be effective, even with a controlling shareholder.

Pressure from regulatory and governmental bodies to improve corporate governance accelerated the buyout of Secom Joshinetsu. Secom Joshinetsu cited the Tokyo Stock Exchange ("TSE")'s upcoming market reform as a motivating factor for collapsing the parent/child structure, failing to meet both the minimum free float requirements for listing and stricter guidelines on listed subsidiaries in the newly revised Corporate Governance Code.

We expect that regulatory pressure will lead to the collapse of more listed subsidiary structures over the coming years. While it is difficult to identify which, we search for similar characteristics to Secom Joshinetsu's undervalued, high-quality businesses with a parent motivated to collapse the structure.

Daibiru

Contribution (GBP)	2.9%
% of net assets	7.5%
EV/EBIT	-*
NFV/Market Cap	-

The tender offer for Daibiru at a 50% premium added 289bps to returns, making it the largest contributor over the period. Daibiru was a relatively new position for AJOT, entering the portfolio at the end of 2020 following a COVID-induced sell-off in its share price. The company owns a collection of well-located office buildings in Tokyo and Osaka. While masquerading as a property developer, its lack of sales activity made the company more akin to a REIT (without the tax benefits). Poor corporate governance, an inefficient holding structure and the listed subsidiary relationship with Mitsui O.S.K. Lines ("MOL") meant Daibiru traded on a phenomenally wide (after-capital gains tax) discount of 50%. This was far wider than the single-digit discounts of listed office REITs with similar portfolios.

Changing TSE listing rules, new leadership at both Daibiru & MOL, and MOL's rolling management plan stating its intention to dispose of non-core business assets such as real estate, led us to believe that a privatisation event was a higher likelihood than assumed by the market. Confident in Daibiru's undervaluation, quality, and the potential for an event, we built a near 1% stake in the company and embarked on a private engagement campaign putting forward suggestions on how to address various issues, including corporate governance and the subsidiary listing structure.

While the quality of Daibiru's portfolio allowed us to be patient, it was pleasing that in just over a year of ownership, MOL and Daibiru decided to collapse the subsidiary structure, with MOL offering a 50% premium to buy 48% of the company it did not already own. The ¥2,200 offer price, however, came at a 30% discount to Daibiru's published real estate value and followed a flawed negotiation process by Daibiru's Board of directors. We launched a public campaign to raise awareness of MOL's exploitation, publishing our arguments on a dedicated website.

With MOL owning 52% of Daibiru and only needing 14% more shares to force a squeeze-out, the prospects for successfully pressuring MOL to raise the price were slim. However, we felt a responsibility to challenge such a flawed process and defend the rights of all minority shareholders. Our campaign gathered considerable attention, with several other shareholders voicing protest, both publicly and privately, and numerous articles published by the Japanese media sympathetic to our arguments. Even in the absence of a higher offer price, we expect the publicity to help our engagement at other portfolio companies. Daibiru has been an excellent investment for AJOT, generating a total return of +74%, and an IRR of +74%.

* AVI does not report a NFV/Market Capitalisation or EV/EBIT for Daibiru as it is a real estate company.

C Uyemura

Contribution (GBP)	2.7%
% of net assets	7.0%
EV/EBIT	3.9x
NFV/Market Cap	53%

C Uyemura, a manufacturer of chemicals used in the production of electronic devices, was the third-largest contributor adding 266bps to performance with its share price appreciating by +71%. The share price strength was driven by a string of positive shareholder-friendly actions in May 2021 followed by strong earnings growth, which propelled the shares higher towards the end of the year.

Along with the release of its first mid-term business plan, C Uyemura announced stock-based compensation for directors, a 2-for-1 stock split to improve liquidity, and a 9% buyback over the next three years. Also, the company enhanced its investor relations, increasing and improving the contents of its presentations and the number of investor meetings. That sent a powerful message to the market that C Uyemura was changing from a sleepy family-oriented company to a more progressive shareholder-friendly one.

We put in a significant amount of effort to engage with management behind closed doors, suggesting multiple ways C Uyemura could increase its corporate value. While we have had a consistent dialogue with management since the launch of AJOT, having an expanded team allowed us to step up the pressure earlier this year and we believe this was a contributing factor to C Uyemura's shareholder-friendly announcements.

On the earnings side, C Uyemura has benefited from increased electronic demand, most notably from its exposure to semiconductors. It supplies plating chemicals needed for surface treatment in chips and circuit boards, with the main end products being smartphones and automobiles. Given both the granularity and sensitivity of electronic circuits, C Uyemura's products are hard to replicate, which is why it has achieved operating margins of more than 20% in its chemicals segment.

In November 2021 C Uyemura reported H1 year on year profit growth of +64% and revised up its full-year guidance by +43% to a record high. Despite the announcement of shareholder-friendly measures and strong growth, C Uyemura's valuation has not rerated, trading on a 3.9x EV/EBIT multiple and 8% free-cash-flow yield, with 53% of its market cap covered by cash and listed securities. Considering the lowly valuation, strong earnings growth, and improved shareholder focus, we are optimistic about C Uyemura's prospects.

Pasona Group

Contribution (GBP)	2.5%
% of net assets	6.6%
EV/EBIT	<0.0
NFV/Market Cap	301%

Pasona was a meaningful contributor for the second year running, adding 254 bps to performance. The shares returned +62% over the period, largely driven by a +63% increase in Benefit One's share price and strong performance from Pasona's unlisted businesses. Pasona Group is one of Japan's largest recruitment and outsourcing companies, mainly operating through 3 business segments: HR, Life, and Public Solutions.

Our initial interest in Pasona came from its 50% stake in Benefit One, which accounts for 291% of Pasona's market cap. Benefit One is a market leader in providing outsourced HR services, from education and training to healthcare and employee benefit options. Benefit One has performed remarkably well this year, generating record-high profits. It has gained from the widespread labour shortage, as companies look to retain workers but lack the HR resources to develop incentive structures in-house.

Pasona's standalone businesses performed remarkably well over the period, reporting record-high operating profits and a transformation in operating margins. The strongest segments were Career Solutions and Business Process Outsourcing Services, profiting from the same labour shortage trends as Benefit One. Despite this, we still think that investors underappreciate the quality of Pasona's unlisted businesses, focusing instead on Pasona's stake in Benefit One and overlooking Pasona's improved profitability.

Pasona has been a large weight in the portfolio, and we took the opportunity to trim the position slightly following concerns over Benefit One's valuation. Still, considering the wide discount (73%) and upcoming potential IPO of Pasona's subsidiary Bewith (which we estimate could account for 20% of Pasona's market cap), we are comfortable with its 6.6% weight.

T Hasegawa

Contribution (GBP)	1.7%
% of net assets	7.9%
EV/EBIT	10.7x
NFV/Market Cap	29 %

We began building a position in T Hasegawa ("TH"), a global top-ten flavour and fragrance ("F&F") company in March 2021. By the end of the year, it was AJOT's second-largest position with a 7.9% weight. The investment merits of F&F companies are not lost on international investors - TH's global peers trade on an average EV/EBITA multiple of 28x. TH trades on 11x, and we do not think the reasons for this are attributable to inferior quality.

TH, founded in 1903, first expanded to the US in 1978 and now boasts over a third of sales overseas, mainly to the US and China. Flavours are a critical component of consumers' purchasing decisions while accounting for only a small portion of overall costs. This creates sticky customer contracts, strong barriers to entry, and pricing power. TH has consistently generated double-digit EBIT margins with little cyclicality, evidence of the appealing business model.

Where TH has failed, is converting its world-class technology into sales. Sales have grown at an annualised rate of just 1.1% over the past ten years, while peers have compounded at 6.8%. An employee summed up TH's issues on a job review site, stating that "top management tends to be conservative and too cautious and there is no active, enterprising spirits in them". That was the focus of our 13-page letter which we sent to the Company in June 2021, titled "a lost decade". We asked the Company to put behind its conservative, sedentary culture and embrace a new, bolder future.

The letter was well received by the President, Mr Takao Umino, who told us, that "the prudence and conservatism of management is exactly what I am trying to change". We are pushing on an open door and are extremely excited about the changes that are underway. Mr Umino has been hiring outside senior management to bring in fresh perspectives, formed a new marketing division to address the poor sales track record, and oversaw a $128m acquisition of a US-based flavouring company (at a perfectly reasonable valuation). While it is still early days (the flavour development process takes around 18 months) signs are positive. EBITA for the financial year ending 30 September 2021 grew +35% taking growth over the past two years to +48%. TH released a three-year mid-term plan forecasting continued growth, at an annualised compound rate of +10%.

While TH has long suffered a valuation discount to global peers, the current EV/EBITA disparity is wider than the 10-year average. Considering the positive steps that management have undertaken to improve operations, we believe the fair discount should be towards the lower end of the historical range (20-70%). A return to a 20% valuation discount from the current 63% amounts to an implied upside of +84%. While there is not an explicit catalyst, with +10% compound annual profit growth and an undemanding valuation, we are happy to be patient.

Detractors

The Bank of Kyoto

Contribution (GBP)	-0.8%
% of net assets	0.0%
EV/EBIT	-
NFV/Market Cap	-

The Bank of Kyoto was the largest detractor of performance over the year, reducing returns by 80bps.While classified as a bank, the Bank of Kyoto is more akin to a Japan Exchange Traded Fund ("ETF") with 80% of our estimated value and 217% of its market cap accounted for by a collection of listed companies.

The bank of Kyoto has long been known as a value trap for investors. However, following positive rhetoric from the FSA and government following the need to reform regional banks along with public shareholder criticism on capital efficiency, we decided to build a modest position in August 2021. Given the Bank of Kyoto's liquidity, we knew that this might be a temporary investment and way to gain market exposure while we built and engaged with our less liquid names. This proved to be the case as we exited the position in November 2021.

Our investment suffered a modest -5% loss, which was driven entirely by a widening discount from an already wide 60% to a remarkable 63%. While the Bank of Kyoto remains extremely undervalued, we felt there were better uses for our capital and we could not justify its position in an increasingly concentrated portfolio.

Kato Sangyo

Contribution (GBP)	-0.7%
% of net assets	3.9%
EV/EBIT	0.7x
NFV/Market Cap	94%

Kato Sangyo detracted 70bps from performance due to Yen weakness, as its share price actually fell by only -2%. Kato Sangyo is a wholesale distributor of food and drink, split into four business lines: room temperature, alcohol, low temperature and overseas. Given the stable demand for everyday food items, Kato Sangyo's business is resilient to economic fluctuations. Since listing in 2003, sales have grown every year and we were told by management that they have grown every year since its founding in 1947.

2021 continued Kato Sangyo's unbroken positive sales growth record with sales up +2.9%, although profits grew a more muted +0.3%. Kato Sangyo trades on an EV/EBIT multiple of 0.7x with listed securities and net cash accounting for 94% of its market cap. Therefore, it was encouraging that Kato Sangyo announced a tender offer to buy back 2.8% of its shares from Sumitomo Corp. This is not Kato Sangyo's first buyback, having repurchased 7.8% of shares outstanding over the past six years.

We have been engaging with management frequently throughout 2021 and sent a 20-page letter in July 2021 covering various issues including ESG disclosure, corporate governance, and capital efficiency. While the letter led to a healthy discussion with the President's office, we are not sure that the company feels the need to address the issues urgently. Considering the near 30% allegiant shareholding ratio and tepid company response, we will prioritise our engagement resources elsewhere. Given the weakness in Kato Sangyo's share price, the stable business and compelling valuation, we are happy to hold the position, but if more pressing uses for cash are needed, Kato Sangyo could be a source of capital.

Teikoky Sen-i

Contribution (GBP)	-0.7%
% of net assets	3.6%
EV/EBIT	4.2x
NFV/Market Cap	73%

Although Teikoku Sen-I's share price fell only -1%, Yen deprecation resulted in an -11% decline for sterling investors, making Teikoku Sen-I the 2nd largest detractor, reducing returns by 77bps.

Teikoku Sen-I is the leading manufacturer and distributor of disaster prevention equipment in Japan, from fire hoses to airport fast firefighting trucks. Geographically speaking, Japan is precariously placed, and each year suffers from typhoons, earthquakes, and flooding. The Government of Japan is devoting significant resources to disaster prevention infrastructure as have private companies (particularly nuclear power operators).

Teikoku Sen-I is well placed to benefit from this trend and has a fantastic track record of diversifying into new business lines. However, the market has difficulty understanding Teikoku Sen-I's business model as its earnings are extremely seasonal, with over 100% of profits coming in the first and last quarter of the calendar year. It means that investors must wait until the last quarter to get a good handle on the financial situation and during the year, less sophisticated investors tend to extrapolate the weak Q2 and Q3 earnings. This year was no different, with the share price lagging throughout the year, before jumping +13% at the end of December 2021 after the Company revised up profits by +33%, seeing full-year profit growth of +15%.

We have been reducing Teikoku Sen-I's weight in the portfolio from 6.9% at the end of 2019 to 3.6% at the end of 2021. While a portion of that is due to the weak share price, we sold 27% of our shares over the past two years. Teikoku Sen-I's business outlook is strong, and trading on a 4.2x EV/EBIT it is undervalued, but the shareholder register is littered with institutions that are allegiant to management, frustrating our engagement efforts. As we expect continued earnings growth, we are in no rush to exit the position. Still, we are unlikely to allocate further to the investment and it could be used as a source of capital for higher conviction ideas.

SK Kaken

Contribution (GBP)	-0.6%
% of net assets	4.3%
EV/EBIT	0.3x
NFV/Market Cap	97.0%

SK Kaken's share price fell by a modest -2%, with yen deprecation leading to the position detracting 62bps from performance. What is more notable than the lacklustre share price performance this year is that the share price has not recovered from its March 2020 lows. Since the market low on 16^th March 2020, SK Kaken's share price has fallen by -6%, remarkable considering that the MSCI Japan Small Cap Index is up +64% over the same period.

SK Kaken commands an over 50% market share of the domestic construction paint market, which is dominated by renewal works. By focusing on high-value products sold to professionals, who care more about quality and durability than price, SK Kaken has generated a 10-year average operating margin of 13% and an average ROIC of 32%.

Social restrictions and soft construction demand have not been kind to SK Kaken's earnings, but neither has it been disastrous. For the fiscal year ending March 2021 operating profits fell -12%, and although not back to pre-COVID levels, profits for the six months ending September 2021 rebounded +22%. We are confident that profits will make a full recovery.

Instead of idly waiting for this recovery, we have continuously engaged with SK Kaken's management over the past year to address its undervaluation. SK Kaken traded on a 0.3x EV/ EBIT multiple at the end of December 2021, with net cash covering 98% of its market cap. Such valuations are not unheard of in Japan, but they are unusual for a company of SK Kaken's size (£650m market cap) and quality. Our engagement has centred around SK Kaken's excess cash and prohibitively large minimum trading lot.

We submitted two intentionally modest shareholder proposals at the June 2021 AGM, seeking shareholder approval to require the company to undertake a 10-for-1 stock split and to cancel its outstanding treasury shares. Unsurprisingly, given that family-related entities own c.40% of the shares, the shareholder proposals were not passed, but they achieved 45% and 47% support from minority shareholders. We were told that the Board had not seriously discussed shareholder value or capital efficiency before our shareholder proposals. To the extent that we have forced a conversation around those issues, we count our shareholder proposals as a success.

In December 2021 SK Kaken released a plan to attract more shareholders in order to meet the criteria of a standard market listing on the TSE. To say we were disappointed is an understatement. SK Kaken announced that shareholders who own more than 100 shares are entitled to an annual ¥5,000 gift voucher - not an enticing proposition considering the purchase price for 100 shares is ¥3.8m (effectively 0.1% yield). We will continue to engage with the company to address the undervaluation and lagging share price.

SoftBank Group

Contribution (GBP)	-0.6%
% of net assets	0.0%
EV/EBIT	-
NFV/Market Cap	-

SoftBank Group detracted 55bps from returns over the period, with our investment suffering from a -15% share price decline before we exited in July 2021. We trimmed the position throughout the period as our original thesis had played out and the company became less compelling. This marked the end of what has been a successful investment, generating a Yen total return of +31%, compared to a TOPIX return of +12%.

We made our first investment in SoftBank in February 2020, predicated on the wide discount (48% at the time) and heightened pressure on both the founder and President to address that discount. We added to this pressure, sending letters to the Board in March and August 2020. SoftBank addressed several of the issues we raised, at least in part, and with the discount narrowing, we began reducing the position at the end of 2020. We held on to a small position at the start of the year, seeing further potential upside to the 41% discount.

However, our optimism waned when SoftBank continued to take outsized risks through its asset management arm, an entity which was riddled with conflicts of interest given 1/3 ownership by SoftBank's President, and after they ceased buying back shares. Along with a narrower discount than our average purchase price and exposure to China regulatory risk through their holding in Alibaba, we felt the investment case had deteriorated from when we first made our purchase and that SoftBank no longer warranted a position in the portfolio.

Outlook

As is well known, on 24 February 2022 Russia invaded Ukraine in what is first and foremost a humanitarian tragedy. We have no direct exposure to Russia or Ukraine, none of the portfolio companies have operations, material supply chains or revenues in Russia or Ukraine and any such exposures are de minimis in the context of their overall businesses and our investment thesis.

Regardless of the economic and political backdrop, we continue to engage with our portfolio companies and believe, given their quality, they will continue to grow corporate value over the long-term. With compelling valuations, COVID restrictions in the rear-view mirror and companies laden with cash, we believe AJOT is poised for a period of strong performance.

Joe Bauernfreund

Asset Value Investors Limited

16 March 2022

PORTFOLIO CONSTRUCTION

The objective of AVI's portfolio construction is to create a concentrated position in about 20-30 holdings, facilitating a clear monitoring process of the entire portfolio. 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 but we are sector agnostic and select investments based on quality and value.

Portfolio value by sector

	2021	2020
Materials	26%	20%
Capital Goods	20%	27%
Software and Services	17%	17%
Technology Hardware and Equipment	8%	10%
Real Estate	7%	2%
Commercial and Professional Services	6%	11%
Retailing	5%	3%
Transportation	4%	2%
Food and Staples Retailing	4%	4%
Automobiles and Components	3%	4%

Equity portfolio value by market capitalisation

	2021	2020
<£250mn	14%	15%
£250mn - £500mn	14%	27%
£500mn - £750mn	27%	21%
£750mn - £1bn	20%	8%
£1bn - £2.5bn	23%	23%
>£2.5bn	2%	6%

INVESTMENT PORTFOLIO

Investment Portfolio
At 31 December 2021
Company	Stock Exchange Identifier	% of AJOT net assets	% of investee company	Cost £'000*	Market value £'000	NFV/Market Capitalisation¹	EV/EBIT¹
Wacom	TSE: 6727	8.3	1.4	11,277	13,339	19%	9.9
T Hasegawa	TSE: 4958	7.9	1.7	10,694	12,651	29%	10.7
Daibiru	TSE: 8806	7.5	0.7	7,619	12,127	-*	-*
C Uyemura	TSE: 4966	7.0	1.4	7,076	11,262	53%	3.9
DTS	TSE: 9682	6.8	1.4	11,156	11,028	48%	6.0
Pasona	TSE: 2168	6.6	1.2	5,112	10,576	301%	-
Fujitec	TSE: 6406	6.1	0.7	6,053	9,821	40%	8.6
Digital Garage	TSE: 4819	6.0	0.6	7,427	9,617	73%	12.6
NS Solutions	TSE: 2327	5.0	0.4	7,657	8,006	40%	7.0
SK Kaken	JASDAQ: 4628	4.3	0.9	9,444	6,853	97%	0.3
Top ten investments		65.5		83,515	105,280
Konishi	TSE: 4956	4.1	1.5	6,781	6,593	65%	3.0
Kato Sangyo	TSE: 9869	3.9	0.8	7,151	6,271	94%	0.7
Teikoku Sen-i	TSE: 3302	3.6	1.4	6,232	5,817	73%	4.2
Toagosei	TSE: 4045	3.1	0.5	5,753	5,007	66%	2.9
Locondo	TSE: 3558	2.9	4.8	4,840	4,584	20%	8.5
A-One Seimitsu	JASDAQ: 6156	2.8	8.0	4,571	4,424	96%	0.6
NC Holdings	TSE: 6236	2.7	6.5	3,511	4,389	63%	5.3
Daiwa Industries	TSE: 6459	2.7	1.0	4,495	4,377	99%	0.1
Alps Logistics	TSE: 9055	2.3	1.4	2,989	3,663	43%	4.1
Soft99	TSE: 4464	2.2	1.9	2,811	3,563	86%	1.1
Top twenty investments		95.8		132,649	153,968
King	TSE: 8118	2.2	4.1	3,891	3,535	104%	-
Aichi	TSE: 6345	1.9	0.8	2,789	2,989	63%	5.3
Keisei Electric Railway	TSE: 9009	1.7	0.1	3,071	2,690	119%	-
Tokyo Radiator MFG	TSE: 7235	1.6	4.9	4,250	2,665	122%	-
Shin Etsu Polymer	TSE: 7970	1.5	0.4	2,511	2,406	56%	4.2
Sekisui Jushi	TSE: 4212	1.2	0.3	2,075	1,876	78%	1.7
Kanaden	TSE: 8081	0.7	0.5	1,384	1,064	104%	-
Teikoku Electric MFG	TSE: 6333	0.0	-	57	56	46%	6.3
Total investments		106.6		152,677	171,249

Other net assets and liabilities		(6.6)			(10,528)
Net assets		100.0			160,721

¹ Please refer to Glossary below.
* AVI does not report a NFV/Market Capitalisation or EV/EBIT for Daibiru as it is a real estate company. Daibiru was sold shortly after the end of the year as it was acquired by its parent company at a 50% premium to the prevailing share price.

BUSINESS MODEL

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 20 and 30 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.

Borrowing Policy

The Company may use borrowings for settlement of transactions, to meet on-going expenses and may be geared through borrowings and/or by entering into long-only contracts for difference or equity swaps that have the effect of gearing the Company's portfolio to seek to enhance performance.

The aggregate of borrowings and long-only contracts for difference and equity swap exposure will not exceed 25% of NAV at the time of drawdown of the relevant borrowings or entering into the relevant transaction, as appropriate. It is expected that any borrowings entered into will principally be denominated in JPY.

Hedging Policy

The Company does not currently intend to enter into any arrangements to hedge its underlying currency exposure to investments denominated in JPY, although the Investment Manager and the Board may review this from time to time.

Material Changes to the Investment Policy

No material change will be made to the Company's investment policy without Shareholder approval. In 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 is responsible for all investment decisions across the Investment Manager's strategies. Travel restrictions permitting, 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 capitalization, 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 £1,447,000 and the number of shares held by AVI is set out in note 14.

J.P. Morgan Europe Limited was appointed as Depositary under an agreement with the Company and AVI dated 6 September 2018 (the "Depositary Agreement"). The Depositary Agreement is terminable on 90 calendar days' notice from either party.

JPMorgan Chase Bank, London Branch, has been appointed as the Company's Custodian under an agreement dated 6 September 2018 (the "Custodian Agreement"). The Custodian Agreement is terminable on 90 calendar days' notice from the Company or 180 calendar days' notice from the Custodian.

Link Company Matters Limited was appointed as corporate Company Secretary on 27 July 2018. The current annual fee is £62,177, which is subject to an annual RPI increase. The agreement may be terminated by either party on six months' written notice.

Link Alternative Fund Administrators Limited has been appointed to provide general administrative functions to the Company. The Administrator receives an annual fee of £93,084. 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 the stakeholder considerations, in particular in the context of decision-making, is taken into account at every Board meeting. All discussions involve careful considerations 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 approval of the placing of 12.1 million new shares and the increase of the blocklisting facility, as the Board believes that growing the Company will benefit stakeholders. In addition, in line with increasing stakeholder attention on Environmental, Social and Governance ("ESG") matters, the Board has contacted all major stakeholders to establish their views and policies on ESG matters and requests regular updates from its main service providers on these matters.

Stakeholders

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 below discusses why these stakeholders are considered of importance to the Company and the actions taken to ensure that their interests are taken into account.

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 Directors may, at their discretion, offer shareholders the opportunity to exit the Company at close to NAV in October 2022 and every two years thereafter. The Board and Corporate Broker will canvass opinion from Shareholders in the months leading up to October 2022 (and at each appropriate interval thereafter) when making any decision in respect of any potential Exit Opportunity.	The Company has over 200 shareholders, including institutional and retail investors. The Board is committed to maintaining open channels of communication and to engage with Shareholders in a manner which they find most meaningful, in order to gain an understanding of the views of Shareholders. These include: • AGM - under normal circumstances, the Company welcomes and encourages attendance and participation from Shareholders at the AGM. Due to the restrictions relating to the COVID-19 pandemic, the Company's first two AGMs were held as closed meetings. Ahead of the 2020 and 2021 AGMs, the Company enabled Shareholders to put questions to the Board and Investment Manager via email. Similar arrangements will be made for the upcoming AGM and a presentation by the Investment Manager will also be made available on the Company's website. Please refer to the AGM notice for further details of the arrangements for this year's AGM. The Company is looking forward to be able to welcome Shareholders at this year's AGM, where they will have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Investment Manager attends the AGM and provides a presentation on the Company's performance and the future outlook. 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 of the Investment Manager 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 by emailing [email protected]; • 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 or emailing [email protected]. Other members of the Board are also available to Shareholders if they have concerns that have not been addressed through the normal channels; and • Investor Relations updates - at every Board meeting, the Directors receive updates from the Company's broker on the share trading activity, share price performance and any Shareholders' feedback, as well as an update from the Investment Manager on any publications or comments by press. To gain a deeper understanding of the views of its Shareholders and potential investors, the Investment Manager will also undertake regular Investor Roadshows. Any pertinent feedback is taken into account when Directors discuss the share capital, any possible fundraisings or the dividend policy and actioned as and when appropriate. The willingness of the Shareholders, including the partners and staff of the Investment Manager, to maintain their holdings over the long term period is another way for the Board to gauge how the Company is meeting its objectives and suggests a presence of a healthy corporate culture.
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 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 capital growth 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 weekly conversations with the Investment Manager to talk through any matters discussed by the Board between scheduled meetings, as well as any matters raised by the Investment Manager; • the IMA requires AVI to invest not less than 25% of the management fee in shares in the Company and to hold these for a minimum of two years, which ensures that the interests of Shareholders and the Investment Manager are well aligned; • recognising the alignment of interests mentioned above, adopting a tone of constructive challenge, balanced with robust negotiation of the Investment Manager's terms of engagement if those interests should not be fully congruent; • drawing on Board Members' individual experience and knowledge to support the Investment Manager in its monitoring of and engagement with portfolio companies; and • willingness to make the Board Members' experience available to support the Investment Manager in the sound long-term development of its business and resources, recognising that the long-term health of the Investment Manager is in the interests of Shareholders in the Company.
The Administrator, the Company Secretary, the Registrar, the Depositary, the Custodian and the Corporate Broker
In order to function as an investment trust with a premium listing on the London Stock Exchange, the Company relies on a diverse range of reputable advisors for support in meeting all relevant obligations.	The Board maintains regular contact with its key external providers and receives regular reporting from them, both through the Board and committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely taken into account. The Board formally assesses their performance, fees and continuing appointment at least annually to ensure that the key service providers continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. For the year under review all key service providers were asked to complete a questionnaire regarding the matters discussed above, the results of which were discussed during a formal review of service providers at the March 2022 Board meeting. The Audit Committee reviews and evaluates the control environment in place at each service provider. In the light of the exceptional circumstances caused by the COVID-19 pandemic during the year under review, the Audit Committee also requested and reviewed updates from key service providers on business continuity, cyber security and fraud prevention.
Other Stakeholders
Lender
Availability of funding and liquidity are crucial to the Company's ability to take advantage of investment opportunities as they arise.	Therefore, the Company aims to demonstrate to lenders that it is a well-managed business, capable of consistently delivering long-term returns.
Proxy Advisors
The evolving practice and support (or lack thereof) of proxy adviser agencies are important to 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.	The Board recognises that the views, questions from, and recommendations of many proxy adviser agencies provide a valuable feedback mechanism and play a part in highlighting evolving Shareholders' expectations and concerns. 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. Based on feedback received from proxy advisers on the 2020 Annual Report, the Company has included more details on gender and ethnic diversity.
Regulators
The Company can only operate with the approval of its regulators who have a legitimate interest in how the Company operates in the market and treats its Shareholders.	The Company follows voluntary and best-practice guidance, regularly considers how it meets various regulatory and statutory obligations and how any governance decisions it makes can have an impact on its stakeholders, both in the shorter and in the longer-term.

The above mechanisms for engaging with stakeholders are kept under review by the Directors and will be discussed on a regular basis at Board meetings to ensure that they remain effective.

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 in the Corporate Governance Report in the Annual Report).

The Board seeks to appoint the best possible service providers and evaluates their service on a regular basis. 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 company, the Company's own direct environmental impact is minimal. The Company has minimal direct greenhouse gas emissions to report from its operations (2020: none), 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.

The Company's operations are delegated to third-party service providers, and the Company has no employees. The Board seeks assurances, at least annually, from its suppliers that they comply with the provisions of the UK Modern Slavery Act 2015 and maintain adequate safeguards in keeping with the provisions of the Bribery Act 2010 and Criminal Finances Act 2017.

The Directors do not have service contracts. There are four Directors, two male and two female. Further information on the Board's policy on diversity and recruitment of new Directors is contained within the Corporate Governance Statement of the Annual Report.

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 in the Annual Report. AVI became supporters of the Task Force on Climate-related Financial Disclosures ("TCFD") in May 2021 and a signatory to the UN-supported Principles for Responsible Investment ('UNPRI") on 9 April 2021. The UNPRI is the world's leading proponent of responsible investment which entails the following commitments, developed by an international group of institutional investors.

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 environmental, social, and corporate governance ('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 Ltd. commit to the following:

• to incorporate ESG issues into investment analysis and decision-making processes;

• to be an active owner and to incorporate ESG issues into our ownership policies and practices;

• to seek appropriate disclosure on ESG issues by the entities in which we invest;

• to promote acceptance and implementation of the Principles within the investment industry;

• to work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the Principles; and

• to report on our activities and progress towards implementing the Principles.

KPI's

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

NAV performance in Absolute and Relative Terms

One year: 12.3%

Since Inception (SI): 26.9%

SI Annualised: 7.8%

The Directors regard the Company's NAV total return as being the overall measure of value delivered to Shareholders 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 26.9%, resulting in an annualised return of 7.8%. The Investment Manager's investment style is such that performance is likely to deviate materially from that of any broadly based equity index. The Board considers the most useful comparator to be the MSCI Japan Small Cap Index. Since the launch on 23 October 2018, the benchmark has increased by 9.7%, resulting in an annualised return of 3.0%. For the year ended 31 December 2021, the Company's NAV rose by 12.3%. The MSCI Japan Small Cap Index fell by 1.4%. A full description of performance and the investment portfolio is contained in the Investment Manager's Report above.

Discount/ Premium

Premium 31 December 2021: 0.1%

Premium - high for the period: 6.0%

Discount - low for the period: -3.6%

The Board believes that an important driver of an investment trust's discount or premium over the long-term is investment performance. However, there can be volatility in the discount or premium. Therefore, the Board seeks Shareholder approval each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium. During the period under review, 3.6 million new shares were issued under the authorisation granted at the 2021 AGM (as well as 12.1 million under the prospectus), using the Company's Block Listing Facility. During the year, 250,000 shares were bought back into treasury under the authorisation granted at the 2021 AGM, which were subsequently reissued in January 2022.

Peer Group NAV Performance Total return AIC Japanese Smaller Companies Sector*

AVI Japan Opportunity Trust: 12.3%

JP Morgan Japan Smaller Companies: -11.5%

Baillie Gifford Shin Nippon: -10.2%

Atlantis Japan Growth: -9.6%

Nippon Active Value: 22.3%

Average AIC peer group: -2.2%

The Board is aware of other investment trusts in The AIC Japanese Smaller Companies Sector. Each investment trust has its own focus and strategy which will differ from the one implemented by AVI. The Company's activist approach is concurrent with the focus on corporate governance reform taking place in Japan.

Ongoing Charges

31 December 2021: 1.45%

31 December 2020: 1.56%

The Board continues to be conscious of expenses and aims to maintain a sensible balance between good service and costs. In reviewing charges, the Board reviews in detail each year the costs incurred and ongoing commercial arrangements with each of the Company's key suppliers. The majority of the ongoing charges ratio is the cost of the fees paid to the Investment Manager. This fee is reviewed annually and the Board believes that the cost is reasonable, given the Investment Manager's activist approach to fund management and the resources required to provide the level of service. The Company adheres to The AIC guidance in calculating its ongoing charges ratio.

* Returns are for the year to 31 December 2021.

Going Concern

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 the foreseeable future (being a period of at least 12 months from the date these financial statements were approved). 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) ant eh potential exit opportunity in October 2022 as discussed in the viability statement below. Therefore, the financial statements have been prepared on a going concern basis.

Viability

The Directors consider viability as part of their continuing programme of monitoring risk. The Directors believe five years to be a reasonable time horizon to consider the continuing viability of the Company, reflecting a balance between a longer-term investment horizon and the inherent shorter-term uncertainties within equity. The Company is an investment trust whose portfolio is invested in readily realisable listed securities and with some short-term cash deposits.

The five year time horizon takes into account that the Directors may offer Shareholders a potential opportunity to exit the Company at close to NAV in October 2022 and every two years thereafter. The Board together with its advisers will canvass opinion from Shareholders in the months leading up to October 2022 when making the decision in respect of any potential Exit Opportunity. Considering investment and share price performance, the Ordinary Shares' liquidity as well as continued Shareholder satisfaction, the Board does not anticipate more than a minimal take-up of any such exit opportunity. The investment strategy remains robust.

The following facts support the Directors' view of the viability of the Company:

· in the year under review, expenses (including finance costs and taxation) were adequately covered by investment income and there is no expectation that these expenses would significantly increase over the next five years;

· the Company's investment portfolio is made up of listed equities;

· the Company has short-term debt of ¥2.93 billion via an unsecured revolving credit facility (extended for two years to February 2024 during February 2022). This debt was covered over 9 times as at the end of December 2021 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 in ad valorem 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 the COVID-19 pandemic 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 below, 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.

Approval of Strategic Report

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

Norman Crighton

Chairman

16 March 2022

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has a robust ongoing process for identifying, evaluating and managing the principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. However, as AJOT has a limited operating history, some risks are not yet known and some that are currently not deemed material, could later turn out to be material. Following the risk assessment process described above, the Board considers the following as the principal risks faced by the Company and the following controls are in place to manage or mitigate these risks:

Risk Area	Controls and mitigation
Investment Objective
The Company may be unsuccessful in achieving its investment objective, leading to a potential loss of demand for its shares.	The Company has a clearly defined strategy and investment remit. The portfolio is managed by a highly experienced Investment Manager backed by a strong team. The Board relies on the Investment Manager's skills and judgement to make investment decisions based on research and analysis of individual stocks and sectors. The Board reviews the performance of the portfolio against the Company's Benchmark Index, that of its competitors and the outlook of the markets on a regular basis. The Board ensures that there is regular dialogue with major investors, primarily through the Company's broker and the Investment Manager; it follows up on any concerns and regularly reviews the discount control policy.
Investment opportunities matching the criteria encapsulated in the investment objective may become less available in the future.	The Board monitors the portfolio's composition, performance and development. Should appropriate opportunities diminish, the Board will consider the future of the Company and may recommend that the Company's investments are sold, it is wound up and cash returned to Shareholders.
Gearing
The use of borrowings by the Company has the eﬀect of amplifying the gains or losses the Company experiences. A significant fall in portfolio value could cause gearing levels to exceed pre-set limits, requiring the Company to sell investments at short notice.	The Board and the Investment Manager regularly review gearing, as well as the eﬀect of interest rate movements on the Company's finances and the Company's on-going compliance with the loan covenants. Aggregate borrowings may not exceed 25% of net assets. The Company has in place a 364 day ¥4.330 billion (£32 million) unsecured revolving facility agreement unsecured revolving facility agreement which was renewed in February 2022. As at 31 December 2021, ¥2.930 billion (£18.8 million) of the facility had been drawn. Interest is payable at a rate equal to TONAR plus 1.15%. As at 31 December 2021, gearing stood at 6.6%.
Reliance on the Investment Manager and Other Service Providers
The Company has no employees and relies on a number of third-party service providers, principally the Investment Manager, Registrar, Administrator and Custodian / Depositary. It is dependent on the eﬀective operation of its service providers' control systems with regard to the security of the Company's assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements.	The Board carries out regular reviews of the delegated services to ensure their continued competitiveness and eﬀectiveness, which include assessment of the providers' control systems, whistleblowing, anti-bribery and corruption policies and business continuity plans.
The 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.
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. In the light of the impact of the COVID-19 pandemic and related changes to working conditions during the year under review, the Audit Committee requested and reviewed 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.
Foreign Exchange
The functional and presentational 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 investments denominated in Japanese Yen and converted to Pounds Sterling. The Company is subject to currency risk on exchange rate movements between Pounds Sterling and Japanese Yen.	It is the Company's current policy not to hedge against currency risk, however the Investment Manager and the Board continuously monitor currency movements and exposure. The revolving credit facility is denominated in Yen and therefore the eﬀect of Yen exchange rate movements on the drawn down facility will be oﬀset against the assets.
Global/Climate/Systemic
Unforeseen global disruption such as a pandemic, climate and nature change-related event, geopolitical conflict or systemic technology failure could lead to dramatically increased market and Company share price volatility. Fraud and cyber security vulnerability could increase for key service providers.	The Board continuously monitors global developments and their potential impact on the Company; it scrutinises the performance of the Investment Manager and is aware of emerging risks and has a robust process for addressing them. All key service providers are asked to provide updates on business continuity, anti-bribery and corruption and information security processes on an annual basis.

EXTRACTS FROM THE DIRECTORS' REPORT

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 2021, there were 133,220,702 Ordinary Shares of 1p each in issue, of which 250,000 were held in treasury, and therefore the total voting rights attaching to Ordinary Shares in issue were 132,970,702. In the period from 1 January 2022 to 11 March 2022 3,991,000 shares were issued and the 250,000 shares were sold from treasury, and the voting rights attaching to Ordinary Shares as at 11 March 2022 were 137,211,702.

The Directors intend to seek annual authority from Shareholders to allot new Ordinary Shares, to disapply pre-emption rights of existing Shareholders and to buyback Ordinary Shares for cancellation or to be held in treasury.

Issues of Shares

At the AGM held on 28 April 2021, the Company was granted authority to allot up 26,286,000 shares on a non-pre-emptive basis. This authority is due to expire at the Company's forthcoming AGM on 3 May 2022. In addition to this authority, at the General Meeting held on 26 March 2020, the Company was authorised to allot up to 85 million Ordinary Shares and/or C Shares on a non-pre-emptive basis pursuant to a Placing Programme and Prospectus. On 15 February 2021, the Company announced that it had raised gross proceeds of approximately £13.9 million through the issue of 12,107,323 new Ordinary Shares at £1.1507 each (mid market price on 15 February 2021: £1.1300 per share). These shares were admitted to trading on the London Stock Exchange on 17 February 2021. The net proceeds of the placing have been used to fund investments in accordance with the Company's investment objective and policy. The Placing Programme closed on 2 March 2021 and the authority to issue up to 85 million Ordinary Shares expired at the Company's AGM on 28 April 2021. As at 31 December 2021, the remaining authority to allot Ordinary Shares under the authority granted at the AGM held on 28 April 2021 was 25,186,000 Shares and as at 11 March 2022 the remaining authority was 20,945,000 Shares.

The Company has a block listing of Ordinary Shares to be listed to the premium segment of the Official List of the FCA and admitted to trading on the premium segment of the LSE's main market. During the year, the Company issued 3,623,637 shares utilising the block listing, details of which (as well as a further issue following the year end) are provided in the schedule below. During the year, block listing of a further 24,782,777 Ordinary Shares was applied for and granted effective from 6 May 2021. As at 31 December 2021, the remaining authority under the block listing facility was 25,624,140 Ordinary Shares and as at 11 March 2022the remaining authority is 21,633,140 Ordinary Shares.

Share Issues during the year and following year end

Date	No of shares	Price paid per share	Mid market price
15/02/2021	12,107,323*	£1.15070	£1.13000
24/02/2021	1,833,637	£1.10440	£1.11500
18/03/2021	390,000	£1.11900	£1.08750
20/04/2021	300,000	£1.11500	£1.11250
30/04/2021	250,000	£1.11250	£1.12000
14/05/2021	250,000	£1.04100	£1.04250
13/10/2021	200,000	£1.16500	£1.17000
26/10/2021	250,000	£1.17000	£1.16500
04/11/2021	150,000	£1.22650	£1.22500
13/01/2022	750,000**	£1.20500	£1.18500
26/01/2022	400,000	£1.15900	£1.15000
27/01/2022	760,000	£1.13000	£1.15500
31/01/2022	500,000	£1.14750	£1.15500
07/02/2022	870,000	£1.15500	£1.15500
09/02/2022	961,000	£1.16000	£1.17000
Total	19,971,960

* Share issue pursuant to equity placing as discussed above.

** This issue is comprised of 250,000 treasury shares and 500,000 shares issued under the block listing.

Purchase of Shares

At the general meeting held on 28 April 2021, 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 15 March 2021, such authority to expire on conclusion of the 2022 AGM. During the year 250,000 Ordinary Shares were bought back under this authority, and as at 31 December 2021, authority to buy back a further 19,451,462 Ordinary Shares remained.

Sale of Shares from Treasury

At the AGM held on 28 April 2021, the Company was authorised to waive pre-emption rights in respect of Treasury Shares, such authority to expire on conclusion of the 2022 AGM. Since 8 June 2021, 250,000 Ordinary Shares were held in Treasury, but no shares were sold from Treasury during the year. The shares held in Treasury were sold on 13 January 2022 and as at the date of this report, there were no shares held in Treasury.

Related Party Transactions

The Company's related parties in the year were its Directors, the Investment Manager, City of London Investment Management and Finda Oy as the Company's largest Shareholders.

There have been no material transactions between the Company and its Directors during the year and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable. Directors' shareholdings are disclosed in the Remuneration Directors' Report in the Annual Report.

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 2021 and shares held by AVI, are given in note 14 below.

Finda Oy and City of London Investment Management, significant Shareholders of the Company, are deemed to be related parties of the Company for the purposes of the Listing Rules by virtue of their holding in the Company's issued share capital. During the year under review, no transactions took place between the Company and Finda Oy. City of London Investment Management increased its holding in the Company's shares during the year, but no other transactions took place between it and the Company.

Dividends

The Directors are proposing a final dividend of 0.70 pence per Share for the year to 31 December 2021. Subject to the approval of Shareholders at the forthcoming AGM, the proposed final ordinary dividend will be payable on 26 May 2022 to Shareholders on the register at the close of business on 29 April 2022. The ex-dividend date will be 28 April 2022.

By order of the Board

For and on behalf of Link Company Matters Limited

Company Secretary

16 March 2022

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RELATION TO THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with UK adopted international accounting standards and applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements and have elected to prepare the company financial statements in accordance with UK adopted international accounting standards. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period.

In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with UK adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and

· prepare a Directors' report, a strategic report and Directors' remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.

They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and Accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

Website Publication

The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' Responsibilities Pursuant to DTR4

The Directors confirm to the best of their knowledge:

· The Financial Statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company.

· The Annual Report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that they face.

In the opinion of the Board, the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy.

Directors Statement as to the Disclosure of Information to Auditor

All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

For and on behalf of the Board

Norman Crighton
Chairman

16 March 2022

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's Annual financial statements for the year ended 31 December 2021 and 31 December 2020, but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 will be delivered in due course. The Annual Report, including the Annual financial statements, for the period ended 31 December 2021 was approved by the Board on 16 March 2022. The Auditor has reviewed those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report at: www.ajot.co.uk.

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2021

		For the year ended 31 December 2021			For the year ended 31 December 2020
	Notes	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Income
Investment income	2	3,190	-	3,190	2,818	-	2,818
Gains/(losses) on investments held at fair value	8	-	15,646	15,646	-	(1,171)	(1,171)
Exchange losses on currency balances		-	(612)	(612)	-	(745)	(745)
		3,190	15,034	18,224	2,818	(1,916)	902

Expenses
Investment management fee	3	(145)	(1,302)	(1,447)	(122)	(1,096)	(1,218)
Other expenses (including irrecoverable VAT)	3	(668)	-	(668)	(638)	-	(638)

Profit/(loss) before finance costs and tax		2,377	13,732	16,109	2,058	(3,012)	(954)
Finance costs	4	(21)	(187)	(208)	(22)	(194)	(216)
Exchange gains/(losses) on Revolving Credit Facility	4	-	1,956	1,956	-	(210)	(210)

Profit/(loss) before taxation		2,356	15,501	17,857	2,036	(3,416)	(1,380)
Taxation	5	(326)	-	(326)	(284)	-	(284)
Profit/(loss) for the year		2,030	15,501	17,531	1,752	(3,416)	(1,664)

Earnings per Ordinary Share	7	1.55p	11.89p	13.44p	1.51p	(2.94p)	(1.43p)

The total column of this statement is the Income Statement of the Company prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. The supplementary revenue and capital columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the 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.

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2021

	Ordinary Share capital £'000	Share premium £'000	Special reserve* £'000	Capital reserve* £'000	Revenue reserve** £'000	Total £'000
For the year to 31 December 2021
Balance as 31 December 2020	1,175	38,242	77,588	9,729	1,216	127,950
Issue of Ordinary Shares	157	17,818	-	-	-	17,975
Expenses of share issue	-	(686)	-	-	-	(686)
Ordinary Shares bought back and held in Treasury	-	-	(264)	-	-	(264)
Total comprehensive income for the period	-	-	-	15,501	2,030	17,531
Ordinary dividends paid	-	-	-	-	(1,785)	(1,785)
Balance as at 31 December 2021	1,332	55,374	77,324	25,230	1,461	160,721

	Ordinary Share capital £'000	Share premium £'000	Special reserve* £'000	Capital reserve* £'000	Revenue reserve** £'000	Total £'000
For the year to 31 December 2020
Balance as at December 2019	1,139	34,476	77,588	13,145	1,262	127,610
Issue of Ordinary Shares	36	3,835	-	-	-	3,871
Expenses of share issue	-	(69)	-	-	-	(69)
Total comprehensive (loss)/income for the year	-	-	-	(3,416)	1,752	(1,664)
Ordinary dividends paid	-	-	-	-	(1,798)	(1,798)
Balance as at 31 December 2020	1,175	38,242	77,588	9,729	1,216	127,950

* Distributable reserves. Within the balance of the capital reserve, £4,156,000 (31 December 2020: £1,022,000) relates to realised gains which is distributable by way of dividend. The remaining £21,074,000 (31 December 2020: £8,707,000) relates to unrealised gains on investments and is non-distributable.

**Revenue reserve is fully distributable by way of dividend.

The accompanying notes are an integral part of these financial statements.

BALANCE SHEET
As at 31 December 2021

	Notes	As at 31 December 2021 £'000	As at 31 December 2020 £'000
Non-current assets
Investments held at fair value through profit or loss	8	171,249	136,616
		171,249	136,616
Current assets
Receivables	9	404	909
Cash and cash equivalents		8,165	6,028
		8,569	6,937

Total assets		179,818	143,553

Current liabilities
Revolving credit facility	10	(18,787)	(15,231)
Payables	10	(310)	(372)
		(19,097)	(15,603)

Total assets less current liabilities		160,721	127,950

Net assets		160,721	127,950

Equity attributable to equity Shareholders
Ordinary Share capital	11	1,332	1,175
Share premium		55,374	38,242
Special reserve		77,324	77,588
Capital reserve		25,230	9,729
Revenue reserve		1,461	1,216
Total equity		160,721	127,950

NAV per Ordinary Share - basic	12	120.87p	108.90p

Number of shares in issue excluding Treasury shares	11	132,970,702	117,489,742

These financial statements were approved and authorised for issue by the Board of AVI Japan Opportunity Trust plc on 16 March 2022 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

STATEMENT OF CASH FLOWS

For the year ended 31 December 2021

	31 December 2021 £'000	31 December 2020 £'000
Reconciliation of profit/(loss) before taxation to net cash inflow/(outflow) from operating activities
Profit/(loss) before taxation	17,857	(1,380)
(Gains)/losses on investments held at fair value through profit or loss	(15,646)	1,171
Decrease/(increase) in other receivables	316	(1)
Exchange (gains)/losses on revolving credit facility	(1,956)	210
Exchange losses on currency balances	694	-
Interest paid	187	195
Increase in other payables	7	57
Taxation paid	(326)	(284)
Net cash inflow/(outflow) from operating activities	1,133	(32)

Investing activities
Purchases of investments	(62,903)	(50,653)
Sales of investments	44,036	38,141
Net cash outflow from investing activities	(18,867)	(12,512)

Financing activities
Dividends paid	(1,785)	(1,798)
Issue of shares	17,975	3,871
Cost of share issues	(686)	(69)
Payments for Ordinary Shares bought back and held in Treasury	(264)	-
Issue/(repayment) of revolving credit facility net of costs	5,512	(944)
Interest paid	(187)	(195)
Prospectus issue costs	-	(288)
Cash inflow from financing activities	20,565	577

Increase/(decrease) in cash and cash equivalents	2,831	(11,967)

Reconciliation of net cash flow movement:
Cash and cash equivalents at beginning of period	6,028	17,995
Exchange losses on currency balances	(694)	-
Increase/(decrease) in cash and cash equivalents	2,831	(11,967)

Cash and cash equivalents at end of period	8,165	6,028

The accompanying notes are an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2021

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 financial statements of the Company have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts.

Basis of preparation

The financial statements of the Company have been prepared for the year ended 31 December 2021.

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 financial statements are presented in the Company's functional currency, 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 have considered the likely impacts of the current COVID-19 pandemic on the Company, operations and the investment portfolio. The Directors noted that the Company, with the current cash balance and holding a portfolio of liquid listed investments, is able to meet the obligations of the Company as they fall due.

The current cash balance plus available additional borrowing, through the revolving credit facility (extended for two years to February 2024 during February 2022), enables the Company to meet any funding requirements and finance future additional investments. 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 and income with associated cash flows. In making this assessment, they have considered plausible downside scenarios. These tests were driven by the possible effects of continuation of the COVID-19 pandemic but, as an arithmetic exercise, apply equally to any other set of circumstances in which asset value and income are significantly impaired. The conclusion was that in a plausible downside scenario the Company could continue to meet its liabilities. Whilst the economic future is uncertain, and the Directors believe that it is possible the Company could experience further reductions in income and/or market value, the opinion of the Directors is that this should not be to a level which would threaten the Company's ability to continue as a going concern.

The Company's IPO Prospectus stated that the Directors may, at their discretion, deliver a full or a partial exit opportunity to Shareholders in October 2022 and every two years thereafter. The mechanism would be dependent on various factors including the number of Shareholders seeking to participate in the exit opportunity, the liquidity of the underlying market and/or the demand for Shares from other investors. The Directors have reviewed the Shareholders of the Company, Shareholder feedback, the current market position and performance. It is anticipated no significant uptake by Shareholders of any potential realisation opportunity in 2022 is expected and the Company will continue as a going concern.

The Directors, the Manager and other service providers have put in place contingency plans to minimise disruption. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis.

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 year under review, the Company has applied amendments to IFRS issued by the IASB adopted in conformity with the Companies Act 2006. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. This incorporated:

· Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39 and IFRS 7).

The adoption of the changes to accounting standards has had no material impact on these or prior years' financial statements.

There are amendments to IAS/IFRS that will apply from 1 January 2022 as follows:

· Classification of liabilities as current or non-current (Amendments to IAS 1);

· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);

· Onerous contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);

· Definition of Accounting Estimates (Amendments to IAS 8);

· Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction - Amendments to IAS 12 Income Taxes; and

· Annual improvements to IFRS Standards.

The Directors do not anticipate the adoption of these will have a material impact on the financial statements.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS 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 judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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.

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.

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 designated '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 value 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 13.

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 demand deposits. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above net of outstanding bank overdrafts when applicable.

Receivables and payables

Trade and other receivables and payables are measured where applicable, at amortised cost and balances revalued for exchange rate movements.

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. Fixed returns on non-equity shares are recognised on a time-apportioned basis. Dividends from overseas companies are shown gross of any withholding taxes. Irrecoverable withholding taxes are disclosed separately within taxation in the Statement of Comprehensive Income.

Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis.

When the Company has elected to receive scrip dividends in the form of additional shares rather than cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

All other income is accounted for on a time-apportioned accruals basis and is recognised in the Statement of Comprehensive Income.

Expenses and finance costs

All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board's expected long-term split of total returns the Company charges 90% of its management fee and finance costs to capital.

Taxation

The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary differences between the treatment of certain items for accounting and taxation purposes.

The tax charge consists of overseas tax not recoverable.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the 'marginal' basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

Dividends payable to Shareholders

Dividends to Shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

Share premium

The share premium account represents the accumulated premium paid for shares issued above their nominal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve:

· costs associated with the issue of equity; and

· premium on the issue of shares.

Special reserve

The special reserve was created by the cancellation of the share premium account by order of the court and forms part of the distributable reserves.

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.

2. Income

	Year ended 31 December 2021 £'000	Year ended 31 December 2020 £'000
Income from investments
Overseas dividends	3,265	2,840
Bank and deposit interest	(30)	(17)
Exchange losses on receipt of income*	(45)	(5)
Total income	3,190	2,818
* Exchange movements arise from ex-dividend date to payment date.

3. Investment management fee and other expenses

	Year ended 31 December 2021			Period ended 31 December 2020
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Management fee	145	1,302	1,447	122	1,096	1,218
Other expenses:
Directors' emoluments - fees	130	-	130	128	-	128
Directors' insurances and other expenses	11	-	11	9	-	9
Directors' National Insurance Contributions	13	-	13	13	-	13
Auditor's remuneration - audit services	41	-	41	44	-	44
Marketing	102	-	102	52	-	52
Printing and postage costs	26	-	26	48	-	48
Registrar fees	18	-	18	13	-	13
Custodian fees	33	-	33	33	-	33
Depositary fees	33	-	33	33	-	33
Advisory and professional fees	237	-	237	244	-	244
Regulatory fees	24	-	24	21	-	21
Total other expenses	668	-	668	638	-	638

The Auditor, BDO LLP, provided additional non-audit services for a fee of £26,000 as reporting accountants in 2020 for the issue of the Prospectus for the issue of additional shares. Subsequent to the issue of shares in 2021 this was charged against the premium of the shares issued in the Share Premium account.

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 2021			Year ended 31 December 2020
	Revenue return £'000	Capital Return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
JPY revolving credit facility	21	187	208	22	194	216
Exchange gain/(loss) on JPY revolving credit facility*	-	1,956	1,956	-	(210)	(210)

* Revaluation of revolving credit facility.

5. Taxation

	Year ended 31 December 2021			Year ended 31 December 2020
	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*	326	-	326	284	-	284
Tax cost for the year	326	-	326	284	-	284

* Tax deducted on payment of overseas dividends by local tax authorities.

The tax assessed for the year is the standard rate of corporation tax in the United Kingdom of 19%. The diﬀerences are explained below:

	Year ended 31 December 2021			Year ended 31 December 2020
	Revenue Return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Profit/(loss) on ordinary activities after interest payable but before appropriations	2,356	15,501	17,857	2,036	(3,416)	(1,380)
Theoretical tax at UK corporation tax rate 19%	448	2,945	3,393	387	(649)	(262)
Effects of the non-taxable items:
- Tax-exempt overseas investment income	(612)	-	(612)	(539)	-	(539)
- Gains on investments and exchange losses on capital items	-	(2,856)	(2,856)	-	363	363
- Excess management expenses carried forward	164	(89)	75	144	209	353
- Disallowed expenses	-	-	-	1	-	1
- Movement in NTLR deficit not utilised	-	-	-	7	77	84
- Overseas tax recoverable	326	-	326	284	-	284
Tax charge for year	326	-	326	284	-	284

At 31 December 2021, the Company had unrelieved losses of £4,458,000 (31 December 2020: £4,061,000) that are available to offset future taxable revenue. A deferred tax asset of £1,114,000 (31 December 2020: £772,000), which has been calculated using a corporation tax rate of 25% (2020: 19%), has not been recognised because the Company is not expected to generate sufficient taxable income in future periods to utilise these 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

	Year ended 31 December 2021 £'000	Year ended 31 December 2020 £'000
Amounts recognised as distribution to equity holders in the year:
Final dividend for the period ended 31 December 2020: 0.65p (2019: 0.90p) per Ordinary Share	860	1,034
Interim dividend for the year ended 31 December 2021: 0.70p (2020: 0.65p) per Ordinary Share	925	764
	1,785	1,798

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 2021 £'000	31 December 2020 £'000
Interim dividend for the year ended 31 December 2021: 0.70p (2020: 0.65p) per Ordinary Share	925	764
Proposed final dividend for the year ended 31 December 2021 of 0.70p (2020: 0.65p) per Ordinary Share	960*	860
	1,885*	1,624
*Based on shares in circulation on 11 March 2022.

7. Earnings per Ordinary Share

The earnings per Ordinary Share is based on the Company's net profit after tax of £17,531,000 (year ended 31 December 2020: loss of £1,664,000) and on 130,418,782 (year ended 31 December 2020: 116,259,004) 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 2021			Year ended 31 December 2020
	Revenue	Capital	Total	Revenue	Capital	Total
Net profit/(loss) (£'000)	2,030	15,501	17,531	1,752	(3,416)	(1,664)
Weighted average number of Ordinary Shares			130,418,782			116,259,044
Earnings per Ordinary Share (pence)	1.55	11.89	13.44	1.51	(2.94)	(1.43)

There are no dilutive instruments issued by the Company.

8. Investments held at fair value through profit or loss

	31 December 2021 £'000	31 December 2020 £'000
Financial assets held at fair value
Opening book cost	127,909	118,320
Opening investment holding gains	8,707	7,211
Opening fair value	136,616	125,531
Movement in the year:
Purchases at cost: Equities	62,834	50,722
Sales proceeds: Equities	(43,847)	(38,466)
- realised gains/(losses) on equity sales	5,780	(2,667)
Increase in investment holding gains	9,866	1,496
Closing fair value	171,249	136,616
Closing book cost	152,677	127,909
Closing investment holding gains	18,572	8,707
Closing fair value	171,249	136,616

	Year ended 31 December 2021 £'000	Year ended 31 December 2020 £'000
Transaction costs
Cost on acquisition	35	30
Cost on disposal	26	22
	61	52
Analysis of capital gains
Gains/(losses) on sales of financial assets based on historical cost	5,780	(2,667)
Movement in investment holding gains for the year	9,866	1,496
Net gains/(losses) on investments held at fair value	15,646	(1,171)

The Company received £43,847,000 (year ended 31 December 2020: £38,466,000) from investments sold in the year. The book cost of these investments when they were purchased was £38,067,000 (year ended 31 December 2020: £41,133,000). 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.

9. Receivables

	31 December 2021 £'000	31 December 2020 £'000
Due from Brokers	136	325
Other receivables	268	584*
Total	404	909

*The Auditor BDO LLP provided additional non-audit service fees of £26,000 as reporting accountants for the issue of the Prospectus for the issue of additional shares.

No other receivables are past due or impaired.

10. Current liabilities

	31 December 2021 £'000	31 December 2020 £'000
Revolving credit facility	18,787	15,231
Payables:
Management fees	133	106
Interest payable	66	22
Purchases for future settlement	-	44
Other payables	111	200
	310	372
Total current liabilities	19,097	15,603

Revolving credit facility

The Company entered into an unsecured revolving credit facility ("the facility") of ¥4.33 billion with The Bank of Nova Scotia, London Branch on 5 April 2019, which was renewed for one year on 17 February 2021. This was an effective facility of ¥2.93 billion with the option to increase the facility by ¥1.4 billion to ¥4.33 billion should the Board wish to and dependent on being accepted by The Bank of Nova Scotia. This option was never invoked. Subsequent to the year end the facility was extended for a further two years to 2 February 2024 with the ¥1.4 billion option removed to leave a facility size of ¥2.93 billion.

During the year, the facility bore interest at the rate of 0.95% over LIBOR (1.25% to 17 February 2021) until the novation of the agreement on 9 September 2021 when LIBOR was replaced with Tokyo unsecured overnight rate ("TONAR") due to discontinuation of use of LIBOR as risk-free rate. From 2 February 2022 interest is being charged at TONAR plus 1.15%.

When less than 50% of the facility is being utilised, commitment fees of 0.325% (0.375% from 2 February 2022) are charged on undrawn balances. If over 50% is drawn down, 0.275% (0.325% from 2 February 2022) is payable on the undrawn amount. As at the date of this report, the Company has drawn down the ¥2.93 billion facility in full.

Under the terms of the facility the net assets shall not be less than £60 million (£75 million from 2 February 2022) 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 is included.

11. Share capital

	As at 31 December 2021 Ordinary Shares of 1p each
	Number of shares	Nominal value (£'000)
Allocated, called up, and fully paid	133,220,702	1,332

Treasury shares:
Balance at beginning of year	-
Buyback of Ordinary Shares into Treasury	250,000
Balance at end of year	250,000
Total Ordinary Share capital excluding Treasury shares	132,970,702

During the year to 31 December 2021, 15,730,960 (31 December 2020: 3,550,000) Ordinary Shares were issued for a net consideration of £17,289,000 (31 December 2020: £3,802,000).

During the year 250,000 Ordinary Shares (31 December 2020: nil) were bought back and placed in Treasury for an aggregate consideration of £264,000 (31 December 2020: £nil).

12. NAV per Ordinary Share

The NAV per Ordinary Share is based on net assets of £160,721,000 (31 December 2020: £127,950,000) and on 132,970,702 (31 December 2020: 117,489,742) Ordinary Shares, being the number of Ordinary Shares in issue at the year end.

13. 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 above.

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. The risk of borrowings may be reduced by raising the level of cash balances held.

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 and exchange rate movements. The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager.

Market price risk

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 and equity of £17,125,000 (31 December 2020: £13,662,000).

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 2021 was ¥155.96:£1 (31 December 2020: ¥141.16:£1).

Currency risk

	GBP £'000	JPY £'000	Total £'000
At 31 December 2021
Receivables	53	351	404
Cash and cash equivalents	1,363	6,802	8,165
JPY revolving credit facility	-	(18,787)	(18,787)
Payables	(244)	(66)	(310)
Currency exposure on net monetary items	1,172	(11,700)	(10,528)
Investment held at fair value through profit or loss	-	171,249	171,249
Total net currency exposure	1,172	159,549	160,721

	GBP £'000	JPY £'000	Total £'000
At 31 December 2020
Receivables	666	243	909
Cash and cash equivalents	693	5,335	6,028
JPY revolving credit facility	-	(15,231)	(15,231)
Payables	(253)	(119)	(372)
Currency exposure on net monetary items	1,106	(9,772)	(8,666)
Investment held at fair value through profit or loss	-	136,616	136,616
Total net currency exposure	1,106	126,844	127,950

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 NAV by £7,977,000 (31 December 2020: £6,342,000). A 5% rise in Sterling against foreign currency denominated assets & liabilities held at the year end would have decreased the NAV by £7,977,000 (31 December 2020: £6,342,000).

This exposure is representative at the Balance Sheet date and may not be representative of the period as a whole. The balances are shown in the reporting currencies of the investee companies and may not represent the underlying currency exposures of the investee companies.

Interest rate risk

Interest rate movements may affect:

· the level of income receivable on cash deposits; and

· the interest payable on variable rate borrowings.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.

The exposure at 31 December of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates.

	31 December 2021 £'000	31 December 2020 £'000
Exposure to floating interest rates
Cash and cash equivalents	8,165	6,028
JPY revolving credit facility	(18,787)	(15,231)

If the above level of cash was maintained for a year, a 1% increase in interest rates would decrease the revenue return and net assets by £106,000 (31 December 2020: £92,000). Management proactively manages cash balances. If there was a fall of 1% in interest rates, it would potentially impact the Company by turning positive interest to negative interest. The total effect would be a cost increase/revenue reduction of £106,000 (31 December 2020: £92,000).

Liquidity risk

The Company's assets mainly comprise readily realisable securities which can be easily sold to meet funding commitments, if necessary. Unlisted investments, if any, in the portfolio are subject to liquidity risk. The risk is taken into account by the Directors when arriving at their valuation of these items.

Liquidity risk is mitigated by the fact that the Company has £8,165,000 (2020: £6,028,000) cash at bank, the assets are readily realisable and further short-term flexibility is available through the use of bank borrowings. 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 2021, based on the earliest date on which payment can be required and current exchange rates at the Balance Sheet date, were as follows:

	Due in 1 year or less £'000
At 31 December 2021
JPY revolving credit facility	(18,787)
Payables	(310)
	(19,097)

	Due in 1 year or less £'000
At 31 December 2020
JPY revolving credit facility	(15,231)
Payables	(372)
	(15,603)

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 2021, 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 £8,569,000 (31 December 2020: £6,649,000).

Fair values of financial assets

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The fair value is the amount at which the asset could be sold or the liability transferred in an orderly transaction between market participants, at the measurement date, other than a forced or liquidation sale.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows:

· Level 1 - valued using quoted prices unadjusted in active markets for identical assets or liabilities.

· Level 2 - valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1.

· Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

The table below sets out fair value measurements of financial instruments as at the period end, by the level in the fair value hierarchy into which the fair value measurement is categorised.

Financial assets at fair value through profit or loss at

31 December 2021

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Equity investments

171,249

Financial assets at fair value through profit or loss at

31 December 2020

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Equity investments

136,616

There have been no transfers during the period between Levels 1, 2 and 3.

Capital management policies and procedures

The structure of the Company's capital is described above and details of the Company's reserves are shown in the Statement of Changes in Equity above.

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.

The Company has complied with these requirements at all times since commencing trading on 23 October 2018.

14. Related party disclosures and investment management fees

Fees paid to the Company's Directors are disclosed in the Directors' Remuneration Report and in note 3 above.

The Company paid management fees to AVI during the year amounting to £1,420,000 (2020: £1,145,000). As at the year end, £133,000 remained outstanding in respect of management fees (2020: £106,000) at 31 December 2021, AVI held 975,000 Ordinary Shares (2020: 675,000 Ordinary Shares) of the Company.

Finda Oy and City of London Investment Management Company Limited ("City of London"), significant Shareholders of the Company, are deemed to be related party of the Company for the purposes of the Listing Rules by virtue of their holding in the Company's issued share capital. During the year under review no material transactions took place between the Company and Finda Oy and as at 31 December 2021 the Company had not been notified of any change to Finda Oy's holding of 30,000,000 Ordinary Shares reported in the period to 31 December 2020, apart from a change to the percentage held by Finda Oy due to an increase in the issued share capital. At the date of the latest notification, on 25 February 2021, Finda Oy's holding represented 22.8% of the Ordinary Shares in issue and, as at 31 December 2021, no further notifications have been received since that date (2020: 25.5%). During the year under review, City of London increased their holding in the Company and notified the Company on 17 February 2021 that their holding had increased to 17.7% of the issued capital on that date. As at 31 December 2021, no further notifications have been received from City of London (2020: 11.1%).

15. Post Balance Sheet events

Since 31 December 2021 the Company has issued 4,241,000 Ordinary Shares at an average price of 116p as detailed in the Directors' Report above.

On 2 February 2022 the Company entered into an amendment and restatement agreement between the Company and The Bank of Nova Scotia, London Branch which amended and restated the ¥2,930,000,000 revolving facility agreement, which was originally entered into on 5 April 2019. Details of the facility can be found in note 10 above.

As is well known, on 24 February 2022 Russia invaded Ukraine in what is first and foremost a humanitarian tragedy. While there are no positive takeaways, the economic impact on Japan, and indeed AJOT, should be limited. Nonetheless our companies do operate in a globally-linked economy, and while there could be spillover effects from the ever-developing situation, these are most likely to be felt in Japan through higher commodity prices, not as company-specific shocks to our portfolio.

GLOSSARY

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 yard stick to compare investment performance.

Cost

The book cost of each investment is the total acquisition value, including transaction costs, less the value of any disposals or capitalised distributions allocated on a weighted average cost basis.

Discount/Premium

If the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. 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 with debt at market value.

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), had a market capitalisation of 100 and EBIT of 10, the EV/EBIT would be 2x, (100-80)/10.

Enterprise Value ("EV") Free Cash Flow Yield ("EV FCF Yield")

A similar calculation to free cash flow yield except the free cash flow excludes interest and dividend income and is divided by enterprise value. This gives a representation for how overcapitalised and undervalued a company is. If a company were to pay out of all of its NFV (defined under Net Financial Value/Market Capitalisation) and the share price remained the same, the EV FCF Yield would become the FCF yield. For example, take a company with a market capitalisation of 100 that had NFV of 80 and FCF of 8. The FCF yield would be 8%, 8/100, but if the company paid out all of its NFV the FCF yield would become 40%, 8/(100-80). This gives an indication of how cheaply the market values the underlying business once excess capital is stripped out.

Free Cash Flow ("FCF") Yield

Free cash flow is the amount of cash profits that a business generates, adjusted for the minimum level of capital expenditure required to maintain the company in a steady state. It measures how much a business could pay out to equity investors without impairing the core business. When free cash flow is divided by the market value, we obtain the free cash flow yield.

Gearing

Gearing refers to the ratio of the Company's debt to its equity capital. The Company may borrow money to invest in additional investments for its portfolio. If the Company's assets grow, the Shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

The gearing of 11.7% (31 December 2020: 11.9%) represents borrowings of £18,787,000 (31 December 2020: £15,231,000) expressed as a percentage of Shareholders' funds of £160,721,000 (31 December 2020: £127,950,000). The gearing of -6.6% (31 December 2020: -6.8%) represents borrowings net of cash of (£10,528,000) (31 December 2020: (£8,666,000) expressed as a percentage of Shareholders' funds of £160,721,000 (31 December 2020: £127,950,000).

Net Asset Value ("NAV")

The NAV is Shareholders' funds expressed as an amount per individual share. Shareholders' funds are the total value of all of the Company's assets, at their current market value, having deducted all liabilities and prior charges at their par value, or at their asset value as appropriate. The total NAV per share is calculated by dividing the NAV by the number of Ordinary Shares in issue.

Net Cash/Market Capitalisation

Net cash consists of cash and the value of treasury shares less debt and net pension liabilities. It is a measure of the excess cash on a company's balance sheet and, by implication, how much value the market attributes to the core operating business. For example, the implied valuation of the core operating business of a company trading with a net cash/ market capitalisation of 100% is zero.

Net Financial Value ("NFV")/Market Capitalisation

Net Financial Value consists of cash, investment securities (less capital gains tax) and the value of treasury shares less debt and net pension liabilities. A measure of the excess cash on a company's balance sheet and, by implication, how much value the market attributes to the core operating business. For example, the implied valuation of the core operating business of a company trading with a NFV/market capitalisation of 100% is zero.

Ongoing Charges Ratio

The Company's Expense Ratio is its annualised expenses (excluding finance costs and certain non-recurring items) of £2,115,000 (2020: £1,856,000) (being investment management fees of £1,447,000 (2020: £1,218,000) and other expenses of £668,000 (2020: £638,000) less non-recurring expenses of £nil (2020: £nil) expressed as a percentage of the average monthly net assets of £146,056,000 (2020: £119,025,000) 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.

INVESTING IN THE COMPANY

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 Link Group, using the contact details given below or via www.signalshares.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.

Registrar Customer Support Centre

Link Group Customer Support Centre is available to answer any queries you have in relation to your shareholding:

- By phone: from the UK, call 0371 664 0300, from overseas call +44 (0) 371 664 0300 calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00-17:30, Monday to Friday excluding public holidays in England and Wales);

- By email: [email protected];

- By post: Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL.

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 Link Group 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

AVI Japan Opportunity Trust

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