TIDMMWJ
RNS Number : 3233K
Morant Wright Japan Inc. Tst. Ltd
16 April 2010
MORANT WRIGHT JAPAN INCOME TRUST LIMITED
GENERAL INFORMATION
Introduction
Morant Wright Japan Income Trust Limited is a limited liability, closed-ended
Guernsey authorised investment company whose assets are managed by Morant Wright
Management Limited. The Company's capital structure consists solely of Ordinary
Shares. The Company has a fixed life of approximately 5 years and will be wound
up voluntarily on or around 15th December 2010, subject to the prior approval of
the Shareholders by ordinary resolution.
Investment Manager
Morant Wright Management Limited was established in 1999 by Stephen Morant and
Ian Wright. The firm is a specialist investment manager focusing solely on
Japanese equities and utilises a value based style. It follows a stock-picking,
non-benchmarked investment approach, based on fundamentals.
The Investment Manager invests in Japanese companies which it considers to have
secure balance sheets and/or business franchises. This investment approach
focuses on reducing the risk of permanent capital loss using a variety of
measures depending on the industry and the business cycle but companies with
lower enterprise values against their operating profits will be given
preference.
Investment Objective, Policy and Strategy
The Company aims to generate absolute returns for investors through a policy of
investing in Japanese equities which the Investment Manager considers to be
strong but undervalued.
In order to provide the Company with a high dividend yield, the Company entered
into a cross currency swap arrangement in respect of substantially the whole of
the net proceeds of the Ordinary Share issue. During the year ended 31st
December 2008 the Company unwound part of the Swap and paid to JP Morgan Chase
Bank JPY3,866,887,500 resulting in a cancellation of 50% of the original swap
notional amount. There have been no further repayments of the Swap in 2009.
Dividend
As noted above 50% of the Swap was repaid during 2008 which has resulted in the
income from the Swap being halved in 2009.
It continues to be the Company's intention to pay out most of the net earnings
to shareholders. During the year an interim dividend of 0.75p per share
(GBP1,066,250) was declared on 20th August 2009 and paid on 25th September 2009
in respect of the period covered by this annual report and Financial Statements.
A second interim dividend of 1.25p per share (GBP1,777,084) was declared on 4th
February 2010 and was paid on 12th March 2010.
+--------------------------------------------+---------------+-----------------+
| Financial Summary | 2009 | 2008 |
+--------------------------------------------+---------------+-----------------+
| Total Net Assets as at 31st December | GBP70,930,302 | GBP64,608,166 |
| | | |
+--------------------------------------------+---------------+-----------------+
| Net Asset Value per Ordinary Share | 49.89p | 45.45p |
| | | |
+--------------------------------------------+---------------+-----------------+
| Dividend per Share for the year | 2.00p | 3.25p |
| | | |
+--------------------------------------------+---------------+-----------------+
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) The Annual Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and give a true and fair view
of the assets, liabilities, financial position and profit or loss of the Company
as at and for the year ended 31st December 2009.
(b) The Investment Manager's Report and Notes to the Financial Statements
include a fair review of the development and performance of the business and the
position of the Company, together with a description of the principal risks and
uncertainties that it faces.
Signed on behalf of the Board by:
Andrew Barker
Christopher Fish
15th April, 2010
CHAIRMAN'S STATEMENT
We have some very satisfactory results to report to you for a challenging year.
Net assets per share rose from 45.45p to 49.89p, an increase of 9.8%. The share
price at the year end was up 38.1% to 46.25p from 33.50p at the end of 2008, as
the discount to net asset value narrowed to 7.3%. TOPIX, in comparison, rose by
5.6%. Meanwhile currency movements this year had far less impact as the
Company's exposure to Yen denominated assets and liabilities was approximately
matched, which remains the current position.
An interim dividend of 0.75p per share was paid to shareholders in September
2009 and a second interim dividend of 1.25p was paid in March 2010, making 2.00p
for the year. It is not our intention to make a dividend forecast for this year.
However taking into account our present revenue estimates we expect earnings per
share to be in excess of 1.5p and it is the Company's intention to pay out most
of the net earnings to shareholders.
Under the terms of the Swap agreement the currency loan will be repaid in
November 2010. The prospectus for the launch of the Company in 2005 stated
shareholders will have an opportunity to vote on the future of the Company and
in accordance with the terms a resolution will be put to shareholders to wind up
the Company at an Extraordinary General Meeting scheduled to be held in December
2010. We will be writing to our shareholders in due course setting out the date
for the Extraordinary General Meeting.
The Investment Manager's Report reviews 2009 and the outlook for 2010. Japanese
equities are cheaply rated by historical standards. We have every confidence in
the stock picking ability of our investment management team as their results
have proved over the years.
Andrew Barker
Chairman
April 2010
DIRECTORS' REPORT
The Directors of Morant Wright Japan Income Trust Limited ("the Company")
present their Annual Report and Audited Financial Statements for the year ended
31st December 2009, which have been properly prepared in accordance with The
Companies (Guernsey) Law, 2008.
Background
Morant Wright Japan Income Trust Limited was incorporated in Guernsey on 25th
October 2005 and launched on 9th November 2005. The Company is a limited
liability authorised Closed-ended investment scheme domiciled in Guernsey and
listed on the London Stock Exchange and the Channel Islands Stock Exchange. As
an existing closed-ended fund the Company is deemed to be granted an
authorisation declaration in accordance with section 8 of the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended and rule 6.02 of the
Authorised Closed-ended Investment Schemes Rules 2008 on the same date as the
Company obtained consent under the Control of Borrowing (Bailiwick of Guernsey)
Ordinance 1959 to 1989. The Company's capital consists solely of ordinary
Shares. The Company has a fixed life of approximately five years and will be
wound up voluntarily on or around 15th December 2010, subject to the prior
approval of the shareholders by ordinary resolution.
The Directors may without notice to or consent of the shareholders approve the
issue of ordinary shares by the Company. The Company's shares are denominated in
Sterling and the Company's statutory accounts are drawn up in Sterling.
Principal Activity
The principal activity of the Company is to carry on business as an investment
company. The Company aims to generate absolute returns for investors through a
policy of investing in Japanese equities which the Investment Manager considers
to be strong but undervalued.
Significant Shareholdings
As at 4th February 2010, the following had significant shareholdings in the
Company:
+------------------------------------+--------------+----------------+
| | Total Shares | % Holdings |
| | Held | |
+------------------------------------+--------------+----------------+
| Clients of State Street Nominees | 17,821,456 | 12.54 |
| Limited | | |
+------------------------------------+--------------+----------------+
| Clients of Chase Nominees Limited | 14,970,679 | 10.53 |
+------------------------------------+--------------+----------------+
| Clients of The Bank of New York | 16,085,773 | 11.31 |
| Mellon Nominees Limited | | |
+------------------------------------+--------------+----------------+
| Clients of Nortrust Nominees | 12,878,602 | 9.06 |
| Limited | | |
+------------------------------------+--------------+----------------+
| Clients of HSBC Global Custody | 8,082,102 | 5.68 |
| Nominee Limited | 6,844,652 | 4.81 |
| Clients of Frank (Nominees) | | |
| Limited | | |
+------------------------------------+--------------+----------------+
| Clients Vidacos Nominees Limited | 4,392402 | 3.09 |
+------------------------------------+--------------+----------------+
Results and Distributions to Holders of Ordinary Shares
The results for the year are set out in the Statement of Comprehensive Income.
Details of distributions paid or payable are in Note 3 of the Financial
Statements.
Directors
The Directors of the Company during the year and at the date of this Report are
set out on the Management and Administration page.
Directors' and Other Interests
The Directors are responsible for the determination of investment policy of the
Company and have overall responsibility for the Company's activities.
The Directors' interests in the Shares of the Company are listed in Note 18 to
the Financial Statements.
Directors' Responsibilities
The Directors are required by The Companies (Guernsey) Law, 2008, to prepare
Financial Statements for each financial period which gives a true and fair view
of the state of affairs of the Company as at the end of the financial period and
of the total gain/loss of the Company for that period. The Directors are
responsible for preparing the Financial Statements in accordance with
International Financial Reporting Standards. In preparing those Financial
Statements the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to
any material departures
disclosed and explained in the Financial Statements; and
- prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that
the Company will continue in business;
The Directors confirm that they have complied with the above requirement in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
The Companies (Guernsey) Law, 2008. 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.
In accordance with The Companies (Guernsey) Law, 2008 the Directors confirm that
so far as they are aware, there is no relevant audit information of which the
Company's auditor is unaware. The Directors also confirm that they have taken
all the steps they ought to have taken as Directors to make themselves aware of
any relevant audit information and to establish that the Company's auditor is
aware of that information.
Auditors
The Auditors, Grant Thornton Limited have indicated their willingness to
continue in office and offer themselves for re-election at the forthcoming
Annual General Meeting.
Corporate Governance
As a Guernsey incorporated company, the Company is not required and therefore
does not comply with the Code of Best Practice published by the UK Committee of
Corporate Governance (The "Combined Code"). The Directors, however, attach a
high degree of importance to the maintenance of high standards of corporate
governance.
The Board has considered the principles and recommendations of the AIC's Code of
Corporate Governance issued in March 2009 (the 'AIC Code') by reference to the
AIC Corporate Governance Guide for Investment Companies (the 'AIC Guide'). The
AIC Code, as explained by the AIC Guide, addresses all the principles set out in
Section 1 of the Combined Code, as well as setting out additional principles and
recommendations on issues which are of specific relevance to investment
companies. The Board considers that it is appropriate to report against the
principles and recommendations of the AIC Code, and by reference to the AIC
Guide (which incorporates the Combined Code).
Board Responsibilities
The Board currently comprises four members, all of whom are non-executive
Directors. With the exception of John Hawkins, all Directors are considered to
be independent. Mr Hawkins is not considered to be independent by virtue of his
being a director of other companies managed by the Investment Manager.
The Company has no employees and therefore there is no requirement for a chief
executive. As the Chairman is an independent director, no appointment of a
senior independent director has been made.
The Board has engaged external companies to undertake the investment management,
administrative and custodial activities of the Company. Documented contractual
arrangements are in place with these companies which define the areas where the
Board has delegated responsibility to them.
The Company holds at least four Board meetings per year. The quarterly board
meetings are the principal source of regular information for the Board enabling
it to determine policy and to monitor performance, compliance and controls. A
representative of the Investment Manager and Administrator attends each Board
meeting either in person or by telephone thus enabling the Board to fully
discuss and review the Company's operation and performance. Each Director has
direct access to the Company Secretary, and may, at the expense of the Company,
seek independent professional advice on any matter that concerns them in the
furtherance of their duties.
All members of the Board are expected to attend each Board meeting and to
arrange their schedules accordingly, although non-attendance is unavoidable in
certain circumstances. The table below details the number of Board and Committee
meetings attended by each Director. During the year to 31st December 2009 there
were four Board meetings and two Audit Committee meetings.
Board Meeting Audit Committee Meeting
Andrew Barker 4
2
Christopher Fish
3 1
John Hawkins
4 N/A
Henry Morgan
4 2
Audit Committee
The Audit Committee meetings on 15th April 2009 and 19th August 2009 were
attended Mr. Barker and Mr. Morgan. Mr. Fish (Chairman) attended the meeting on
the 19th August 2009, however was unable to attend on 15th April due to ill
health. The Audit Committee, chaired by Mr. Fish, operates within clearly
defined terms of reference and comprises all Directors with the exception of Mr.
Hawkins. The duties of the Audit Committee in discharging its responsibilities
include reviewing the Annual and Interim Accounts, the system of internal
controls; and the terms of the appointment of the auditors with their
remuneration.
It is also the forum through which the auditors report to the Board of
Directors. The objectivity of the auditors is reviewed by the Audit Committee
which also reviews the terms under which the external auditors are appointed to
perform non-audit services.
The Committee reviews the scope and results of the audit, its cost effectiveness
and independence and objectivity of the auditors, with particular regard to
non-audit fees. Notwithstanding such services the Audit Committee considers
Grant Thornton Limited to be independent of the Company and that the provision
of such non-audit services is not a threat to the objectivity and independence
of the conduct of the audit. During the year there were no non-audit services
provided to the Company.
Remuneration Committee
The Board as a whole fulfils the function of the remuneration committee and
considers Directors' remuneration on an annual basis.
The Company's Articles of Association limit the aggregate fees payable to the
Directors to a total of GBP125,000 per annum. Subject to this overall limit, it
is the Company's policy to determine the remuneration of Directors having regard
to the level of fees payable to non-executive directors in the industry
generally, the role that the individual Directors fulfil in respect of Board and
Committee responsibilities and the time committed to the Company's affairs.
The Directors' are entitled to remuneration of GBP27,000 per annum for the
Chairman of the Board, GBP20,000 per annum for the Chairman of the Audit
Committee and GBP18,000 per annum for the Directors. These fees became effective
on 1st October 2008. Prior to that date Directors were entitled to receive an
annual fee of GBP16,000 and the Chairman of the Board GBP24,000. No additional
fee was previously paid to the Chairman of the Audit Committee. No Directors
have been paid additional remuneration outside their normal Directors' fees.
Directors' and Officers' liability insurance cover is maintained by the Company
on behalf of Directors.
Management Engagement Committee
The Management Engagement Committee comprises the Directors, with the exception
of Mr. Hawkins, and meets on an annual basis to consider the performance and
remuneration of the Investment Manager.
The Management Engagement Committee determined on 16th April 2009 that the
continuing appointment of the Investment Manager under the terms agreed was in
the best interests of the Company.
Nomination Committee
The Board as a whole fulfils the function of the nomination committee.
Independent directors only may vote on appointments.
The Directors regularly review the structure of the Board, including the balance
of expertise and skills brought by the individual Directors.
Appointments of new Directors are made on a formalised basis with the Chairman
agreeing, in conjunction with the other Directors, relevant selection criteria
and the method of recruitment (including where appropriate using an external
recruitment agency), selection and appointment. The potential Director will meet
with the Board members prior to formal appointment. An induction process is in
place, with new appointees to the Board being given a full briefing on the
workings and processes of the Company and the management of the Company by the
Chairman, the Board, the Secretary and other appropriate persons.
Board Performance
The Board undertakes a formal annual evaluation of its own performance and that
of its committees and individual Directors. In order to review its
effectiveness, the Board carries out a process of formal self-appraisal. The
Directors consider how the Board functions as a whole and also reviews the
individual performance of its members. This process is conducted by the Chairman
reviewing individually with each of the Directors their performance,
contribution and commitment to the Company. The performance of the Chairman is
evaluated by the other independent Directors.
Relations with Shareholders
The Directors are available to enter into dialogue with shareholders and are
contactable via the Company Secretary. All shareholders have the opportunity,
and indeed are encouraged, to attend and vote at the Annual General Meeting
during which the Board and the Investment Managers will be available to discuss
issues affecting the Company. The Board stays abreast of shareholders' views via
regular updates from the Company's broker and the Investment Manager.
Re-election
In accordance with the Company's Articles of Association, at each Annual General
Meeting all Directors who held office at the two previous Annual General
Meetings and did not retire shall retire from office and shall be available for
re-election. The non-independent Director is subject to annual re-election.
Resolutions were passed at the Annual General Meeting on 20th August 2009 to
re-elect Mr. Barker, Mr. Fish and Mr. Hawkins to the Board.
Internal Control and Financial Reporting
The Board is responsible for establishing and maintaining the Company's system
of internal control and for maintaining and reviewing its effectiveness. The
system of internal controls is designed to manage rather than to eliminate the
risk of failure to achieve business objectives and as such can only provide
reasonable, but not absolute assurance against material misstatement or loss.
These controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for publication
is reliable.
The Board considers on an ongoing basis the process for identifying, evaluating
and managing any significant risks faced by the Company. The process includes
reviewing reports from the Company Secretary on risk control and compliance, in
conjunction with the Investment Manager's regular reports which cover investment
performance.
The Board has contractually delegated to external parties various functions as
listed below. The duties of investment management, accounting and custody are
segregated. Each of the contracts entered into with the parties was entered into
after full and proper consideration by the Board of the quality and cost of
services offered, including the control systems in operation as far as they
relate to the affairs of the Company.
· Administration and company secretarial duties are performed by Northern
Trust International Fund Administration Services (Guernsey) Limited, a company
licensed and regulated by the Guernsey Financial Services Commission.
· Custody of assets is undertaken by Northern Trust Global Services
Limited, a company authorised and regulated by the Financial Services Authority.
· Investment Management is provided by Morant Wright Management Limited, a
company authorised and regulated by the Financial Services Authority.
· CREST agency functions are performed by Computershare (CI) Limited, a
company licensed and regulated by the Jersey Financial Services Commission.
In common with most investment companies, the Company does not have an internal
audit function. All of the Company's management functions are delegated to the
Investment Manager, which has compliance and risk assessment functions and the
Administrator which has its own internal audit and risk assessment functions and
whose controls are monitored by the Board. It is therefore felt that there is no
need for the Company to have its own internal audit function.
Life of the Company
The Board shall put an ordinary resolution to the Shareholders at an
extraordinary general meeting of the Company to be held on or around 15th
December 2010 proposing that the Company should be wound up voluntarily. If the
resolution is not passed the Company shall continue in existence until such
further resolution is passed to determine otherwise.
Andrew Barker
Christopher Fish
15th April 2010
INVESTMENT POLICY
Investment Objective and Policy
The Company aims to generate absolute returns for investors through a policy of
investing in Japanese equities which the Investment Manager considers to be
strong but undervalued. Investment is made mainly in equities listed, traded or
quoted on a Japanese Stock Exchange or a Japanese over-the-counter market. These
equities are identified by using a disciplined research based approach to stock
selection. The Investment Manager is not constrained in terms of the market
capitalisation of the companies in which the Company can invest and this allows
it the freedom to select companies across the Japanese market which it considers
to have the potential to appreciate in value without undue risks.
It is intended that the investment portfolio will be selected with a view to
achieving an overall portfolio yield that exceeds the annual costs of the
Company, thereby augmenting the yield from the swap.
The Company will not invest in other UK listed investment companies (including
UK listed investment trusts).
The prospectus states "The investment portfolio will be diversified with, in
general, no single stock representing more than 10 per cent. of the Company's
gross assets or more than 10 per cent. of the relevant underlying company's
share capital; further, it is the Investment Manager's intention that a single
stock will not usually comprise more than 5 per cent. of the Company's gross
assets or more than 5 per cent. of the relevant underlying company's share
capital at the time of acquisition."
In practice the usual position size is up to 3% of the portfolio at the time of
purchase. There are no formal limits set on exposure to sectors but the
investment manager follows a "common sense" approach to industrial
diversification. (See Top 10 Holdings)
It is the present intention of the Directors that the Company will not employ
any structural borrowings. The Company does have the power under its Articles to
borrow up to an amount equal to 25 per cent. of its Total Assets at the time of
the drawdown. In the event that any borrowing is required to manage day-to-day
cash flow, it is intended that such borrowing will only be employed in the short
term.
Currency Hedging Strategy
In order to provide the Company with a dividend yield over the Company's life,
the Company entered into a cross currency swap arrangement in respect of
substantially the whole of the Sterling net issue proceeds (the "Swap Amount")
into Yen. During the year ended 31st December 2008 the Company unwound part of
the Swap and paid to JP Morgan Chase Bank JPY3,866,887,500 resulting in a
cancellation of 50% of the original swap notional amount.
The management and impact of the risks associated with the Investment Policy are
described in detail in the notes to the Financial Statements (note 20).
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF MORANT WRIGHT JAPAN INCOME
TRUST LIMITED
We have audited the Financial Statements of Morant Wright Japan Income Trust
Limited for the year ended 31 December 2009 which comprise the Statement of
Comprehensive Income, the Statement of Financial Position, the Statement of
Changes in Equity, the Statement of Cash Flows and the related notes. The
financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as issued
by the IASB.
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditors' report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As described in the Statement of Directors' Responsibilities the Company's
directors are responsible for the preparation of the Financial Statements and
for being satisfied that they give a true and fair view.
Our responsibility is to audit the Financial Statements in accordance with
applicable legal and regulatory requirements and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board's Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
Financial Statements sufficient to give reasonable assurance that the Financial
Statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting estimates
made by the directors; and the overall presentation of the Financial Statements.
Opinion on the financial statements
In our opinion the Financial Statements:
· give a true and fair view of the state of the Company's affairs as at 31
December 2009 and of its profit for the year then ended;
· have been properly prepared in accordance with IFRSs as issued by the IASB;
and
· have been prepared in accordance with the requirements of The Companies
(Guernsey) Law, 2008.
Emphasis of matter - Going concern
In forming our opinion on the
Financial Statements, which is not qualified, we have considered the adequacy of
the disclosures made in note 1 to the Financial Statements concerning the
Company's ability to continue as a going concern. As explained in note 1, in
accordance with the Company's Prospectus the Board shall put an ordinary
resolution to the shareholders at an extraordinary annual general meeting to be
held on or around 15th December 2010 regarding the winding up of the Company. If
the resolution is not passed the Company shall continue in existence until such
further resolution is passed to determine otherwise. This condition, along with
further explanation in note 1 to the financial statements, indicates the
existence of a material uncertainty which may cast significant doubt about the
Company's ability to continue as a going concern. The Financial Statements do
not include the adjustments that would result if the Company was unable to
continue as a going concern.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under The Companies (Guernsey) Law, 2008 we are required to report to you, if in
our opinion:
· the Company has not kept proper accounting records; or
· the Financial Statements are not in agreement with the accounting records
and returns; or
· we have not received all the information and explanations, which to the
best of our knowledge and belief, are necessary for the purposes of our audit.
Mr Cyril Swale
On behalf of Grant Thornton Limited
Chartered Accountants
St Peter Port, Guernsey, Channel Islands
15th April, 2010
INVESTMENT MANAGER'S REPORT
The Net Asset Value of the Trust increased from 45.45p to 49.89p, a rise of
almost 10% over the year. This compares favourably with TOPIX which rose by
5.6%. The Trust's Yen assets and liabilities were approximately in line during
the year, and thus the currency's decline from JPY130.3 to JPY149.7 against
Sterling had little effect. The company paid a total dividend of 2p.
The stock market had several distinct phases during the year. It was weak in
January and February, with TOPIX falling to a post bubble low of 701 on 12th
March 2009, before rising nearly 40% to reach a high for the year in August,
just prior to the election, at 976. Sentiment then changed for the worse,
coinciding with large amounts of new shares being issued, before a sharp
recovery occurred in December.
The economy is now recovering from the weakness caused by the global collapse in
trade in the early part of 2009; export volumes were at one stage down by some
40%. The situation has steadily improved over the year with exports to Asia
showing the biggest growth. Industrial production too was very badly hit and
although it has recovered is still well below the levels of 2008.
The domestic economy has remained difficult although unemployment has fallen
from its peak in the middle of the year. Property prices have continued to fall
and rentals are declining. There have, however, been some more encouraging signs
recently and some REITS have been raising new capital in the latter months of
the year in order to invest in new properties offering attractive yields.
Housing starts fell to their lowest levels for many years, but again there are
indications that they have reached a trough, perhaps helped by the introduction
of new tax breaks for house purchases. Deflation has worsened during the year,
although in December the Bank of Japan announced an easing of monetary policy to
address this problem. Encouragingly, it has also clarified its understanding of
medium term price stability by announcing that it will not tolerate deflation,
and thus further measures could be forthcoming.
There has been a huge change in the political situation. After almost 50 years
in power the Liberal Democratic Party lost the lower house election in August.
The new government, formed by the Democratic Party of Japan, has a very
different agenda. It aims to boost growth in the economy by stimulating
domestic demand, and also reduce bureaucracy and regulation. To that end a
JPY7.2trn supplementary budget has been announced together with a more
expansionary budget for the next fiscal year, which includes more financial help
for those with children.
The corporate sector has responded quickly to the economic downturn and cut
costs dramatically across the board. Many factories and production lines have
been shut, resulting in profits ahead of initial expectations even though sales
have been lacklustre. Corporate reorganisation has continued and the Trust
benefited from Hitachi taking control of Hitachi Koki at a significant premium.
The stock market is very cheaply rated in terms of price to book and a
substantial recovery in earnings is forecast for next year. The prospective
yield on the stock market is well above that on 10-year government bonds, which
is a comfort. After making significant purchases during the worst of the
downturn, domestic investors are more wary and thus foreigners are currently
dominating trading and market direction. The portfolio trades at a significant
price to book discount to the market, which is a comfort if the path to recovery
is not as smooth as markets currently expect.
TOP TEN HOLDINGS
+--------------+-------------+--------+------------+-----------+--------+
| Stock name | | | Holding | Market | % of |
| | | | at | Value | total |
+--------------+-------------+--------+------------+-----------+--------+
| | | | 31.12.2009 | GBP | net |
| | | | | | assets |
+--------------+-------------+--------+------------+-----------+--------+
| | | | | | |
+--------------+-------------+--------+------------+-----------+--------+
| Sumitomo Bakelite Co Ltd | | 600,000 | 1,827,915 | 2.58 |
+----------------------------+--------+------------+-----------+--------+
| Japan Securities Finance | | 375,000 | 1,788,831 | 2.51 |
| Co Ltd | | | | |
+----------------------------+--------+------------+-----------+--------+
| PanaHome | | | 440,000 | 1,757,898 | 2.47 |
+--------------+-------------+--------+------------+-----------+--------+
| Sekisui Jushi Corp | | 360,000 | 1,719,683 | 2.41 |
+----------------------------+--------+------------+-----------+--------+
| Taikisha Ltd | | | 200,000 | 1,658,217 | 2.34 |
+--------------+-------------+--------+------------+-----------+--------+
| Canon Marketing Japan Inc | | 180,000 | 1,647,528 | 2.32 |
+----------------------------+--------+------------+-----------+--------+
| Glory Ltd | | | 120,000 | 1,643,519 | 2.32 |
| | | | | | |
+--------------+-------------+--------+------------+-----------+--------+
| Nagase | | | 230,000 | 1,634,968 | 2.31 |
+--------------+-------------+--------+------------+-----------+--------+
| Sumitomo Forestry | | 350,000 | 1,634,500 | 2.30 |
+----------------------------+--------+------------+-----------+--------+
| Tokyo Style Co Ltd | | 350,000 | 1,613,455 | 2.27 |
+--------------+-------------+--------+------------+-----------+--------+
Sumitomo Bakelite
A manufacturer of specialist plastics and the world's leading supplier of
semiconductor sealants. It trades at a 10% discount to a solid balance sheet and
following significant cost cutting its earnings are recovering.
Japan Securities Finance
Japan's largest provider of finance to brokerages, supplying short-term lending.
It is valued at less than 60% of its book value.
PanaHome
A leading house builder and member of the Panasonic Group, with expertise in
eco-friendly housing. It trades at a 15% discount to a very solid and cash rich
balance sheet.
Sekisui Jushi
Japan's largest producer of road construction products, including
noise-absorbing walls and specialist fencing. It trades at a 35% discount to a
solid balance sheet.
Taikisha
A leading air conditioning engineering company and Japan's largest installer of
car paint finishing systems. It trades at a 20% discount to a very cash rich
balance sheet.
Glory
One of the world's largest makers of cash handling machines, which is winning
new clients amongst Japanese financial institutions. It has a strong balance
sheet and a progressive policy towards dividends.
Canon Marketing
The exclusive distributor of Canon's products in Japan, including copiers,
printers and SLR cameras. It is expanding its software engineering division, and
trades at a 40% discount to book value.
Sumitomo Forestry
A long-established company that is one of Japan's biggest house-builders, as
well as selling timber and construction materials. It trades at a 20% discount
to a cash rich book value.
Nagase
It is a specialist trader in chemical products, which is moving up the value
chain into manufacturing as well as expanding into Asia. It trades at a 25%
discount to book and has a strong balance sheet, with undervalued property
assets.
Tokyo Style
A major manufacturer of women's clothing in Japan, and expanding in China with
new brands. It trades at a significant discount to the cash held on its
exceptionally strong balance sheet.
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| PORTFOLIO STATEMENT | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| As at 31st December 2009 | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | Holding | | Market | | % of |
| | | at | | Value | | total |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | 31.12.2009 | | GBP | | net |
| | | | | | | assets |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Securities | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Listed | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Aica Kogyo Co | | 220,000 | | 1,386,035 | | 1.95 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Amada Co Ltd | | 400,000 | | 1,552,658 | | 2.19 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Amano Corp | | 250,000 | | 1,329,514 | | 1.87 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Aoyama Trading | | 190,000 | | 1,528,339 | | 2.15 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Araya Industrial Co Ltd | | 445,000 | | 356,764 | | 0.50 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Arcs Company Ltd | | 100,000 | | 817,083 | | 1.15 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Canon Marketing Japan Inc | | 180,000 | | 1,647,528 | | 2.32 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Chiyoda Co Ltd | | 150,000 | | 1,201,573 | | 1.69 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Circle K Sunkus Co Ltd | | 150,000 | | 1,149,461 | | 1.62 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Comsys Holdings Corp | | 200,000 | | 1,300,117 | | 1.83 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Doutor Nichires Holdings | | 175,000 | | 1,401,835 | | 1.98 |
| Co | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Glory Ltd | | 120,000 | | 1,643,519 | | 2.32 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Gunze | | 450,000 | | 1,022,189 | | 1.44 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| H2O Retailing Corp | | 300,000 | | 1,074,300 | | 1.51 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Hibiya Engineering Ltd | | 200,000 | | 1,087,662 | | 1.53 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Hitachi Koki Co Ltd | | 146,200 | | 1,036,340 | | 1.46 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Hitachi Transport System | | 200,000 | | 1,580,718 | | 2.23 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Japan Securities Finance | | 375,000 | | 1,788,831 | | 2.51 |
| Co Ltd | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Japan Wool Textile Co Ltd | | 211,000 | | 793,653 | | 1.12 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kaneka Corp | | 120,000 | | 473,013 | | 0.67 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kansai Paint Co Ltd | | 180,000 | | 933,198 | | 1.32 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kato Sangyo Co Ltd | | 70,000 | | 790,827 | | 1.11 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kokuyo Co Ltd | | 300,000 | | 1,487,184 | | 2.10 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Komori Corp | | 140,000 | | 957,784 | | 1.35 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kurabo Industries Ltd | | 400,000 | | 379,479 | | 0.55 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kuraray Co Ltd | | 162,000 | | 1,176,479 | | 1.66 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Kyorin | | 175,000 | | 1,594,748 | | 2.25 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Max Co Ltd | | 180,000 | | 1,103,964 | | 1.56 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Mitsubishi Tanabe Pharma | | 200,000 | | 1,549,986 | | 2.19 |
| Corp | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Nagase | | 230,000 | | 1,634,968 | | 2.31 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Nippon Shokubai Co | | 250,000 | | 1,334,524 | | 1.88 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Nippon Television Network | | 15,000 | | 1,202,575 | | 1.70 |
| Corp | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| PanaHome | | 440,000 | | 1,757,898 | | 2.47 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Ricoh Co Ltd | | 150,000 | | 1,314,815 | | 1.85 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Sangetsu Co Ltd | | 80,000 | | 1,040,628 | | 1.47 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Sekisui House Ltd | | 250,000 | | 1,397,993 | | 1.97 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Sekisui Jushi Corp | | 360,000 | | 1,719,683 | | 2.41 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Shibusawa Warehouse Co | | 191,000 | | 385,372 | | 0.54 |
| Ltd | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Shimachu Co Ltd | | 100,000 | | 1,216,605 | | 1.72 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Shinmaywa Industries Ltd | | 550,000 | | 1,039,893 | | 1.47 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Sumitomo Bakelite Co Ltd | | 600,000 | | 1,827,915 | | 2.58 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Sumitomo Forestry | | 350,000 | | 1,634,500 | | 2.30 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Sumitomo Warehouse | | 500,000 | | 1,403,004 | | 1.98 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Taikisha Ltd | | 200,000 | | 1,658,217 | | 2.34 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Takasago Thermal | | 250,000 | | 1,326,173 | | 1.87 |
| Engineerinng Co Ltd | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Toda Corp | | 300,000 | | 593,270 | | 0.84 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Tokyo Style Co Ltd | | 350,000 | | 1,613,455 | | 2.27 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Toppan Forms Co Ltd | | 200,000 | | 1,284,083 | | 1.81 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Toppan Printing Co Ltd | | 250,000 | | 1,252,682 | | 1.77 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Toyo Ink Manufacturing Co | | 600,000 | | 1,431,064 | | 2.02 |
| Ltd | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Trusco Nakayama Corp | | 110,000 | | 950,970 | | 1.34 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Yamatake Corp | | 85,000 | | 1,169,838 | | 1.65 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Yodogawa Steel Works Ltd | | 450,000 | | 1,133,427 | | 1.60 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Total listed securities | | | | 65,468,333 | | 92.29 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Cross currency swap | | | | (25,840,634) | | (36.42) |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Total investments | | | | 39,627,699 | | 55.87 |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Cash and other net | | | | 31,302,603 | | 44.13 |
| current assets | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
| Net assets attributable to | | | 70,930,302 | | 100.00 |
| Ordinary Shareholders | | | | | |
+------------------------------------+------------------------------+----------+--------------+-+---------+
| | | | | | | |
+---------------------------+--------+------------------------------+----------+--------------+-+---------+
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st December 2009
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | Total | | | Total |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| |Notes | Revenue | Capital | 01.01.2009 | Revenue | Capital | 01.01.2008 |
| | | | | to | | | to |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | 31.12.2009 | | | 31.12.2008 |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | GBP | GBP | GBP | GBP | GBP | GBP |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Investment | | | | | | | |
| Income | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Bank interest | 4 | 172 | - | 172 | 63,976 | - | 63,976 |
| income | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Net swap | 1&4 | 2,319,634 | - | 2,319,634 | 3,445,335 | - | 3,445,335 |
| interest income | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Dividend income | 1&4 | 1,615,598 | - | 1,615,598 | 2,402,596 | - | 2,402,596 |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Total investment | | 3,935,404 | - | 3,935,404 | 5,911,907 | - | 5,911,907 |
| income | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Net losses on | | | | | | | |
| investments at | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| fair value | 1&5 | - | 22,294,389 | 22,294,389 | - | (29,463,921) | (29,463,921) |
| through profit | | | | | | | |
| or loss | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Losses on | 1&6 | - | (15,221,464) | (15,221,464) | - | (21,671,047) | (21,671,047) |
| foreign exchange | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Total | | 3,935,404 | 7,072,925 | 11,008,329 | 5,911,907 | (51,134,968) | (45,223,061) |
| income/(loss) | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Expenses | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Investment | 7&8 | (519,647) | - | (519,647) | (719,077) | - | (719,077) |
| management | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Transaction | | - | (100,242) | (100,242) | - | (182,112) | (182,112) |
| costs | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Other expenses | 11 | (399,045) | - | (399,045) | (118,112) | - | (118,112) |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | . | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Total expenses | | (918,692) | (100,242) | (1,018,934) | (837,189) | (182,112) | (1,019,301) |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Profit/(Loss) | | | | | | | |
| for the | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| year before | | 3,016,712 | 6,972,683 | 9,989,395 | 5,074,718 | (51,317,080) | (46,242,362) |
| taxation | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Withholding tax | 2 | (113,092) | - | (113,092) | (168,182) | - | (168,182) |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | - | | | - | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Profit/(loss) and | | | | | | |
| total comprehensive | | | | | | |
+--------------------------+------------+--------------+--------------+------------+--------------+--------------+
| income for | | 2,903,620 | 6,972,683 | 9,876,303 | 4,906,536 | (51,317,080) | (46,410,544) |
| the year | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| Earnings per | | | | | | | |
| Ordinary Share | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
| - basic and | | 2.04p | 4.90p | 6.94p | 3.45p | (36.10p) | (32.65p) |
| diluted * | | | | | | | |
+------------------+-------+------------+--------------+--------------+------------+--------------+--------------+
* Earnings per Ordinary Share are based on the weighted average number of
Ordinary Shares. There being no change in the number of shares during the year,
the weighted average number of Ordinary Shares for the year is 142,166,698.
The "Total" column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with IFRS. The supplementary
"Revenue" and "Capital" columns are both prepared under guidance published by
the Association of Investment Companies.
All of the Company's income and expenses are included in the "profit/(loss) for
the year" and therefore the profit for the year is also the Company's total
comprehensive income for the year, as defined by IAS 1 (revised).
All items in the above statement derive from continuing operations.
STATEMENT OF FINANCIAL POSITION
As at 31st December 2009
+---------------------------------+-------+--------------+--------------+--------------+
| | | 31.12.2009 | 31.12.2008 | 01.01.2008* |
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| |Notes | GBP | GBP | GBP |
+---------------------------------+-------+--------------+--------------+--------------+
| ASSETS | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Non-current assets | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Investments designated at fair | 1&12 | 65,468,333 | 78,166,855 | 98,835,376 |
| value through profit or loss | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Cross currency swap at fair | 12 | - | - | 9,270,957 |
| value through profit or loss | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | 65,468,333 | 78,166,855 | 108,106,333 |
+---------------------------------+-------+--------------+--------------+--------------+
| Current assets | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Option at fair value through | 12 | - | - | 1,940,863 |
| profit or loss | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Other receivables | 13 | 270,872 | 296,445 | 504,613 |
+---------------------------------+-------+--------------+--------------+--------------+
| Cash and cash equivalents | 14 | 31,234,237 | 25,043,321 | 6,508,708 |
+---------------------------------+-------+--------------+--------------+--------------+
| | | 31,505,109 | 25,339,766 | 8,954,184 |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Total assets | | 96,973,442 | 103,506,621 | 117,060,517 |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| LIABILITIES | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Non-current Liabilities | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Cross currency swap at fair | 12 | - | 38,623,173 | - |
| value through profit or loss | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Current Liabilities | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Cross currency swap at fair | 12 | 25,840,634 | - | - |
| value through profit or loss | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Other payables | 15 | 202,506 | 275,282 | 355,139 |
+---------------------------------+-------+--------------+--------------+--------------+
| Bank overdraft | | - | - | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Total Liabilities | | 26,043,140 | 38,898,455 | 355,139 |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| EQUITY | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Net assets attributable to | | 70,930,302 | 64,608,166 | 116,705,378 |
| ordinary shareholders | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Total equity and liabilities | | 96,973,442 | 103,506,621 | 117,060,517 |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Number of Ordinary Shares in | | 142,166,700 | 142,166,700 | 142,166,700 |
| issue | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| Net assets attributable to holders | 49.89 p | 45.45 | 82.09 |
| of Ordinary Shares (per share) | | p | p |
+-----------------------------------------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
| | | | | |
+---------------------------------+-------+--------------+--------------+--------------+
* Restated see note 1
The Financial Statements were approved on 15th April 2010 and signed on behalf
of the Board of Directors by:
Andrew Barker
Christopher Fish
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st December 2009
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| | | Realised | Unrealised | | Other | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| | | Capital | Capital | Revenue | Distributable | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| | | Reserve | Reserve | Reserve | Reserve | Total |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| | | GBP | GBP | GBP | GBP | GBP |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Balance brought | | | | | |
| forward | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| at 1st January | (2,388,381) | (25,266,695) | 4,150,605 | 140,209,849 | 116,705,378 |
| 2008 | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Total recognised | | | | | |
| income | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| and expense for | (17,560,715) | (33,530,952) | 4,681,123 | - | (46,410,544) |
| the year | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| Dividend | | - | - | (5,686,668) | - | (5,686,668) |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Balance carried | | | | | |
| forward | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| at 31st December | (19,949,096) | (58,797,647) | 3,145,060 | 140,209,849 | 64,608,166 |
| 2008 | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Changes in | | | | | |
| equity for 2009 | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Balance brought | | | | | |
| forward at | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| at 31st December | (19,949,096) | (58,797,647) | 3,145,060 | 140,209,849 | 64,608,166 |
| 2008 | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Total recognised | | | | | |
| income | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| and expense for | (460,859) | 7,433,542 | 2,903,620 | - | 9,876,303 |
| the year | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| Dividend | | - | - | (3,554,167) | - | (3,554,167) |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
| Balance carried | | | | | |
| forward | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| at 31st December | (20,409,955) | (51,364,105) | 2,494,513 | 140,209,849 | 70,930,302 |
| 2009 | | | | | |
+--------------------+--------------+--------------+-------------+---------------+--------------+
| | | | | | | |
+----------+---------+--------------+--------------+-------------+---------------+--------------+
STATEMENT OF CASH FLOWS
For the year ended 31st December 2009
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | 01.01.2009 | | 01.01.2008 |
| | | | to | | to |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | 31.12.2009 | | 31.12.2008 |
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | GBP | | GBP |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Cash flows from operating activities | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Gain/(Loss) for the year | | | 9,876,303 | | (46,410,544) |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Adjusted for: | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| (Gains)/losses on financial assets at | | | (22,294,389) | | 29,463,921 |
| fair value through profit or loss | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Transaction charges | | | 100,242 | | 182,112 |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Gains on foreign exchange | | | 15,221,464 | | 21,445,634 |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Operating cash flows before movements in | | | 2,903,620 | | 4,681,123 |
| working capital | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Decrease in other receivables | | | 25,573 | | 208,168 |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Decrease in other payables | | | (72,776) | | (79,857) |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Net cash generated by operating | | | 2,856,417 | | 4,809,434 |
| activities | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Cash flows from investing activities | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Purchase of financial assets at fair | | | (46,015,608) | | (54,098,387) |
| value | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Sale of financial assets at fair value | | | 56,671,764 | | 70,267,060 |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Net cash generated from investing | | | 10,656,156 | | 16,168,673 |
| activities | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Cash flows from financing activities | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Dividend paid | | | (3,554,167) | | (5,686,668) |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Net increase in cash and cash | | | 9,958,406 | | 15,291,439 |
| equivalents | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Cash and cash equivalents at beginning | | | 25,043,321 | | 6,508,708 |
| of year | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Realised exchange (loss)/gain on cash | | | (3,767,490) | | 3,243,174 |
| and cash equivalents | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
| Cash and cash equivalents at end of year | | | 31,234,237 | | 25,043,321 |
+------------------------------------------+----------+-+--------------+----------+--------------+
| | | | | | |
+------------------------------------------+----------+-+--------------+----------+--------------+
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st December 2009
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing with
items which are considered to be material in relation to the Company's Financial
Statements:
Going Concern
The Board of Directors has made an assessment of the Company's ability to
continue as a going concern and is satisfied that the Company has the resources
to continue in business for the foreseeable future.
In accordance with the Company's Prospectus the Board shall put an ordinary
resolution to the shareholders at an extraordinary annual general meeting to be
held on or around 15th December 2010 regarding the winding up of the Company. If
the resolution is not passed the Company shall continue in existence until such
further resolution is passed to determine otherwise. It is the Directors'
opinion that although there exists material uncertainty regarding the outcome of
the continuation vote no information is available to suggest that the going
concern assumption is inappropriate. If the resolution is passed for the winding
up of the Company it may have been appropriate for these financial statements to
be prepared on a break up basis. The financial statements do not include any
adjustments that might have been necessary if the financial statements had been
prepared on a break up basis.
If these financial statements were prepared on a break up basis there would be
no material adjustments as the fair value of the investments in the Statement of
Financial Position represent their realisable values. Additional liquidation
costs would also be incurred however these are not expected to be significant.
If any shareholder votes in favour of the resolution to wind up the Company, the
shareholders present in person or by proxy and entitled to vote and who vote in
favour of the resolution shall have such number of votes as will result in the
aggregate votes cast in favour of the resolution being equal to four times the
number of votes cast against the resolution. Each shareholder voting against the
resolution shall have one vote per Ordinary Share.
Basis of accounting
The annual Financial Statements have been prepared under the historical cost
convention, as modified by the revaluation of financial assets and financial
liabilities held at fair value through profit and loss, and in accordance with
International Financial Reporting Standards (IFRS) and the Principal Documents.
The preparation of the Financial Statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expense. 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 the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from those
estimates.
Changes in accounting policies
The accounting policies adopted are consistent with those of the previous
financial year with the exception of the following:
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation
of Financial Statements - Puttable Financial Instruments and Obligations arising
on Liquidation
Amendments were issued by the IASB in February 2008 and become effective for
annual periods beginning on or after 1 January 2009. The amendment to IAS 32
requires certain puttable financial instruments and obligations arising on
liquidation to be classified as equity if certain criteria are met.
The Company's shares have all the features and have met all the conditions for
classification as equity instruments during the entire reporting period.
The Company continuously assesses the classification of the redeemable shares.
If the Company's shares cease to have all the features or meet all the
conditions set out in paragraphs 16C and 16D of IAS 32, the Company will
reclassify them as financial liabilities and measure them at fair value at the
date of reclassification, with any differences from the previous carrying amount
recognised in equity.
If Company's shares subsequently have all the features and meet the conditions
set out in paragraphs 16C and 16D of IAS 32, the Company will reclassify them as
equity instruments and measure them at the carrying amount of the liabilities at
the date of the reclassification.
Upon issuance of shares, the consideration received is included in equity.
Transaction costs incurred by the Company in issuing, acquiring or reselling its
own equity instruments are accounted for as a deduction from equity to the
extent that they are incremental costs directly attributable to the equity
transaction that otherwise would have been avoided.
No gain or loss is recognised in the Statement of Comprehensive Income on the
purchase, sale, issuance or cancellation of the Company's own equity
instruments.
As a result of the adoption of the amendments, the Company has reclassified an
amount of GBP70,930,302 (31st December 2008: GBP64,608,166, 1st January 2008:
GBP116,705,378) from financial liabilities ('Net assets attributable to
shareholders') to equity.
Following the change of classification the Company now prepares a Statement of
Changes in Equity and presents the share capital as equity on the Statement of
Financial Position. Comparative information has been restated so that it is also
in conformity with the revised standard.
IAS 1 (revised 2007) Presentation of Financial Statements
Amendments to IAS 1 introduces the statement of comprehensive income which
presents all items of income and expense recognised in profit or loss, together
with all other items of recognised income and expense, either in one single
statement, or two linked statements. The Company chose to present one single
statement of comprehensive income. In accordance with IAS 1 and as a result of
the retrospective application of IAS 32 amendments detailed above, the Company
also includes a statement of financial position as at 1st January 2008.
In order to better reflect the activities of an investment company and in
accordance with the guidance issued by the Association of Investment Companies
(AIC), supplementary information which analyses the Income Statement between
items of a revenue and capital nature has been presented alongside the Statement
of Comprehensive Income.
Amendments to IFRS 7 Financial Instruments: Disclosures - Improving Disclosures
about Financial Instruments
The amendments to IFRS 7 were issued in March 2009 and become effective for
annual periods beginning on or after 1st January 2009, with early adoption
permitted. The Company has adopted these amendments with effect from 1st January
2009.
The amendment to IFRS 7 requires fair value measurements to be disclosed by the
source of inputs using a three-level hierarchy:
- Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1).
- Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (as prices) or indirectly (derived
from prices) (Level 2).
- Inputs for the asset or liability that are not based on observable
market data (unobservable inputs) (Level 3).
In addition, the amendments revise the specified minimum liquidity risk
disclosures including: the contractual maturity of non derivative and derivative
financial liabilities and a description of how this is managed.
IFRS 8 Operating segments
IFRS 8 became effective from 1st January 2009. IFRS 8 replaces IAS 14, 'Segment
reporting', and aligns segment reporting with the requirements of the US
standard SFAS 131, 'Disclosures about segments of an enterprise and related
information'. The new standard requires a 'management approach', under which
segment information is presented on the same basis as that used for internal
reporting purposes. The segment information is therefore reported in a manner
that is more consistent with the internal reporting provided to the chief
operating decision-maker.
The chief operating decision-maker, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified as the
Board that makes strategic decisions (refer to note 19 for further information).
Standards, interpretations and amendments to published statements not yet
effective
At the date of authorisation of these financial statements, the following
standards and interpretations, which have not been applied in these Financial
Statements, were in issue but not yet effective:
- IAS 7 (amendment) Statement of Cash Flows - 1st January 2010. Amendments
to this standard might result in presentation changes to the Statement of Cash
Flows;
- IFRS 9 Financial Instruments - 1st January 2013. Adoption of this
standard is not expected to result in additional disclosures within the
Company's Financial Statements.
Standards, interpretations and amendments to published statements effective but
not relevant
At the date of authorisation of these Financial Statements, the following
standards and interpretations, which have not been applied in these Financial
Statements, were in issue but are not relevant for the Company's financial
statements:
- IAS 19 (amendment) Employee Benefits;
- IAS 20 (amendment) Government Grants and Disclosure of Government
Assistance;
- IAS 23 (amendment), 'Borrowing costs';
- IAS 29 (amendment) Financial Reporting in Hyperinflationary Economies;
- IAS 39 and IFRIC 9 (amendments), 'Embedded derivatives' (effective for
all periods ending on or after 30 June 2009);
- IFRS 1 (amendment), 'First-time adoption of IFRS', and IAS 27,
'Consolidated and separate financial statements';
- IFRS 2 (amendment), 'Share-based payment';
- IFRIC 15, 'Agreements for construction of real estates'.
Standards, interpretations and amendments to published statements not yet
effective and not relevant
The following interpretations are mandatory for the Company's accounting periods
beginning on or after 1 July 2009 or later periods but are not relevant for the
Company's financial statements:
- IAS 27 (revised), 'Consolidated and separate financial statements'
(effective from 1 July 2009);
- IAS 28, 'Consequential Amendments Arising From Amendments to IFRS 3'
(effective from 1 July 2009);
- IAS 31, 'Consequential Amendments Arising From Amendments to IFRS 3'
(effective from 1 July 2009);
- IAS 39 (amendment), 'Financial instruments: Recognition and measurement'
(effective from 1 July 2009);
- IFRS 1 (amendments), 'Additional exemptions for first-time adopters'
(effective from 1 January 2010);
- IFRS 2 (amendments), 'Group cash-settled share-based payment
transactions' (effective from 1 January 2010);
- IFRS 3 (revised), 'Business combinations' (effective from 1 July 2009);
- IFRS 5 (amendment), 'Non-current Assets Held for Sale and Discontinued
Operations' (effective 1 July 2009);
- IFRIC 17, 'Distributions of non-cash assets to owners' (effective from 1
July 2009); and
- IFRIC 18, 'Transfers of assets from customers' (effective from 1 July
2009).
'Improvements to IFRS' were issued in May 2008 and April 2009 respectively and
contain numerous amendments to IFRS, which the IASB consider non-urgent but
necessary. 'Improvements to IFRS' comprise amendments that result in accounting
changes for presentation, recognition or measurement purposes as well as
terminology or editorial amendments related to a variety of individual
standards. Most of the amendments are effective for annual periods beginning on
or after 1 January 2009 and 1 January 2010 respectively, with earlier
application permitted. No material changes to accounting policies are expected
as a result of these amendments.
Investments designated at fair value through profit or loss
All investments held by the Company are designated as at fair value through
profit or loss. This portfolio of financial assets is managed and its
performance evaluated on a fair value basis, in accordance with a documented
investment strategy and information about the portfolio is provided internally
on that basis to the Company's Board of Directors and other key management
personnel. Accordingly, upon initial recognition the investments are designated
by the Company as 'at fair value through profit or loss'.
Purchases and sales of investments are recognised on trade date (the date on
which the Company commits to purchase or sell the investment). Investments
purchased are initially recorded at fair value, being the consideration given
and excluding transaction or other dealing costs associated with the investment.
After initial recognition, investments are subsequently valued by reference to
the bid price on the relevant stock exchange or over-the-counter market as at
the close of business. Gains and losses arising from changes in fair value of
investments are shown as net gains or losses on investments through profit or
loss in Note 5 and recognised in capital in the Statement of Comprehensive
Income in the period in which they arise.
Gains and losses on investments arising from changes in foreign exchange rates
are shown separately as losses on foreign exchange in Note 6 and are also
recognised in capital in the Statement of Comprehensive Income in the period in
which they arise.
Investments are derecognised when the right to receive cash flows from the
investments have expired or the Company has transferred substantially all risks
and rewards of ownership. Gains and losses on investments sold are shown in Note
5 and recognised in capital in the Statement of Comprehensive Income in the
period in which they arise.
Investments of the Company consist of shares in a diversified range of equities
listed, traded or quoted on a Japanese stock exchange or a Japanese
over-the-counter market.
Financial Liabilities
Financial liabilities are recognized when the Company becomes a party to the
contractual agreements of the instrument. Trade and other payables are initially
recognized at their nominal value and subsequently measured at amortized cost
less settlement payments. Financial liabilities are derecognized from the
balance sheet only when the obligations are extinguished either through
discharge, cancellation or expiration.
Income
Dividend income from equity investments is recognised in the Statement of
Comprehensive Income when the relevant investment is quoted ex-dividend.
Investment income is included gross of withholding tax. Interest income for all
debt instruments is recognised using the effective interest rate method. Net
swap interest income is accounted for on an accruals basis and recognised in the
Statement of Comprehensive Income.
Expenses
Expenses are accounted for on an accruals basis. Expenses incurred on the
acquisition of investments at fair value through the profit or loss is charged
to the Statement of Comprehensive Income in capital. Other expenses are charged
to the Statement of Comprehensive Income in revenue.
Taxation
The amounts disclosed as taxation in the Statement of Comprehensive Income
relate solely to withholding tax suffered at source on income.
Cash and cash equivalents
Cash comprises cash on 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.
Capital reserves
Gains and losses recorded on the realisation of investments and realised
exchange differences of a capital nature are accounted for in the realised
capital reserve. Unrealised gains and losses recorded on the revaluation of
investments held at the period end and unrealised exchange differences of a
capital nature are accounted for in the unrealised capital reserve.
Translation of foreign currency
Items included in the Company's Financial Statements are measured using the
currency of the primary economic environment in which it operates ("the
functional currency"). The currency in which the Company's shares are
denominated and in which its operating expenses are incurred is Sterling. While
the Company's investments are denominated in Japanese Yen exposure to that
currency is hedged by a cross currency swap arrangement ("the Swap") as
described below. Accordingly the Directors regard Sterling as the functional
currency. The Company has also adopted Sterling as its presentation currency.
Transactions in currencies other than the functional currency are recorded using
the exchange rate prevailing at the transaction date. Foreign exchange gains and
losses resulting from the settlement of such transactions are recognised in the
Statement of Comprehensive Income as revenue or capital as appropriate. Foreign
exchange gains and losses resulting from the translation at period end exchange
rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the Statement of Comprehensive Income as capital. Non-monetary
assets and liabilities denominated in foreign currencies are translated using
the exchange rates at the date when fair value was determined with the resulting
gains and losses being recognised in the Statement of Comprehensive Income in
capital.
Derivative contracts
The Company's activities expose it primarily to the financial risks of changes
in foreign currency exchange rates. The Company uses a cross currency swap
contract ("the Swap") to hedge this exposure. The Swap is a derivative contract
and as such is recognised at fair value on the date on which it was entered into
and subsequently remeasured to its fair value. During the year ended 31st
December 2008 the Company unwound part of the Swap and paid to JP Morgan Chase
Bank 3,866,887,500 Yen resulting in a cancellation of 50% of the original swap
notional amount. There have been no further repayments of the Swap during 2009.
During the year ended 31st December 2008 the Company sold the currency option
entered into to hedge this exposure. The currency option is a derivative
contract and as such is recognised at fair value on the date it was entered into
and subsequently remeasured to its fair value.
All derivatives are carried as assets when fair value is positive and as
liabilities when fair value is negative.
Any gain or loss arising on the change in fair value of the Swap is recognised
in the Statement of Comprehensive Income in capital as part of gains or losses
on foreign exchange.
The swap is valued on a daily basis by JP Morgan and the value is based on mark
to market levels as at the close of business.
2. TAXATION
The Company is exempt from taxation in Guernsey under the provisions of The
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and has paid an annual
exemption fee of GBP600.
The amount disclosed as taxation in the Statement of Comprehensive Income of the
Company relates solely to withholding tax suffered at source on income.
3. DISTRIBUTIONS TO SHAREHOLDERS
The Company's dividend policy is to pay dividends in respect of each financial
year representing all or substantially all of the Company's net income,
represented by the revenue column of the Statement of Comprehensive Income,
which comprises the net interest payment received under the Swap plus the excess
of any yield achieved from the Japanese equities above the expenses of the
Company.
A second interim dividend of 1.75p per share (GBP2,487,917) was declared on 6th
February 2009 and paid on 13th March 2009 in respect of the year ended 31st
December 2008. An interim dividend of 0.75p per share (GBP1,066,250) was
declared on 20th August 2009 and paid on 25th September 2009 in respect of the
period covered by this annual report and Financial Statements. A second interim
dividend of 1.25p per share (GBP1,777,084) was declared on 4th February 2010 and
was paid on 12th March 2010.
4. INTEREST AND DIVIDEND INCOME
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | Year | | Year |
| | | | | | | | | | ended | | ended |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | | | |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | GBP | | GBP |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| Dividend income from | | | | | | | | | | |
| securities designated | | | | | | | | | | |
+---------------------------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| at fair value through | | | | | | | | 1,615,598 | | 2,402,596 |
| profit or loss | | | | | | | | | | |
+---------------------------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| Swap income | | | | | | | | | 2,319,634 | | 3,445,335 |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | | | |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| Interest income from | | | | | | | | | | |
| financial assets that | | | | | | | | | | |
+---------------------------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| are not at fair value | | | | | | | | | | |
| through profit or loss: | | | | | | | | | | |
+---------------------------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| Bank interest | | | | | | | | | 172 | | 63,976 |
| income | | | | | | | | | | | |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | | | |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | | | |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | 3,935,404 | | 5,911,907 |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
| | | | | | | | | | | | |
+-------------------+-------+----------+-----+----------+----------+----------+-------+----------+------------+----------+------------+
5. NET GAINS/(LOSSES) ON INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| | | | | | | | Year | | Year |
| | | | | | | | ended | | ended |
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | |
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| | | | | | | | GBP | | GBP |
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| Losses realised on investments sold during the year | | | | (588,587) | | (17,176,150) |
+-----------------------------------------------------+----------+--+----------+-------------+----------+--------------+
| Gains realised on options | | | | | | - | | 590,000 |
| sold during the year | | | | | | | | |
+----------------------------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| Unrealised gains/(losses) | | | | | | | | |
| on investments arising | | | | | | | | |
+----------------------------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| from changes in fair value | | | | | | 22,882,976 | | (12,877,771) |
| during the year | | | | | | | | |
+----------------------------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
| Net gains/(losses) on investments at fair value | | | | 22,294,389 | | (29,463,921) |
| through profit or loss | | | | | | |
+-----------------------------------------------------+----------+--+----------+-------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-------+----------+-------------+----------+--+----------+-------------+----------+--------------+
6. LOSSES ON FOREIGN EXCHANGE
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| | | | | | | | Year | | Year |
| | | | | | | | ended | | ended |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| | | | | | | | GBP | | GBP |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| Unrealised (losses)/gains on investments at | | | | | | |
| fair value through | | | | | | |
+------------------------------------------------+----------+-------+----------+--------------+----------+--------------+
| profit or loss arising from changes in | | | | (24,236,513) | | 46,822,590 |
| foreign exchange | | | | | | |
+------------------------------------------------+----------+-------+----------+--------------+----------+--------------+
| Unrealised gains/(losses) on cross | | | | | 12,782,539 | | (47,894,130) |
| currency swap | | | | | | | |
+---------------------------------------+--------+----------+-------+----------+--------------+----------+--------------+
| Realised losses on cross | | | | | | - | | (25,996,404) |
| currency swap | | | | | | | | |
+----------------------------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| Realised gains on | | | | | | | - | | 2,379,137 |
| option | | | | | | | | | |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| Other foreign exchange | | | | | | (3,767,490) | | 3,017,760 |
| (losses)/gains | | | | | | | | |
+----------------------------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| | | | | | | | (15,221,464) | | (21,671,047) |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
| | | | | | | | | | |
| | | | | | | | | | |
+--------------------+-------+----------+--------+----------+-------+----------+--------------+----------+--------------+
7. INVESTMENT MANAGEMENT FEES
The Company's investment manager is Morant Wright Management Limited (the
"Investment Manager"). The Investment Manager is entitled to a base fee, payable
quarterly in arrears, equal to 0.75 per cent. per annum of the Total Assets of
the Company. The Investment Manager is also entitled to all reasonable expenses
incurred by it in the performance of its duties.
During the year ended 31st December 2009 investment management fees of
GBP519,647 (31st December 2008: GBP719,077) were charged to the Company of which
GBP134,668 (31st December 2008: GBP128,896) were payable at the year end.
8. PERFORMANCE FEE
The Investment Manager will also be entitled to a performance fee in respect of
a Performance Period if the Net Asset Value of an Ordinary Share at the end of
that Performance Period exceeds the Performance Hurdle for the Performance
Period. The "Performance Hurdle" is as follows:
a) For the first Performance Period, 110p per Share.
b) For each of the second and subsequent Performance Periods, the
figure which is the higher of:
i) 10 per cent. above the Performance Hurdle for the immediate
prior Performance Period; and
ii) 10 per cent. above the Net Asset Value per share as at the end
of the immediate prior Performance Period.
Where the Performance Hurdle is met in respect of a Performance Period, a
performance fee will be payable in an amount equal to 10 per cent. of any out
performance in respect of the Net Asset Value per Ordinary Share over and above
the Performance Hurdle for such Performance Period multiplied by the
time-weighted average number of Ordinary Shares in issue over the Performance
Period subject to a cap of 5 per cent. of the Company's Net Asset Value at the
end of the relevant Performance Period.
As at 31st December 2009 the criteria for performance fees had not been reached
and as such no performance fees were charged to the Company during the year
(31st December 2008:GBPnil).
9. ADMINISTRATION FEE
The Company's administrator is Northern Trust International Fund Administration
Services (Guernsey) Limited (the "Administrator"). The Administrator is entitled
to receive an annual fee equal to 0.125 per cent. per annum on the first GBP50
million, 0.10 per cent. per annum on the next GBP50 million and 0.05 per cent.
per annum thereafter on the Net Asset Value of the Company, payable quarterly in
arrears, subject to a minimum fee of GBP75,000 per annum. In addition, the
Administrator will also be entitled to reimbursement of all reasonable out of
pocket expenses incurred by it in connection with their duties.
During the year ended 31st December 2009 administration fees of GBP86,637 (31st
December 2008:GBP104,947) were charged to the Company of which GBP20,948 (31st
December 2008:GBP19,479) were payable at the year end.
10. CUSTODIAN FEE
The Company's custodian is Northern Trust Global Services Limited (the
"Custodian"). The Custodian is entitled to receive an annual fee equal to 0.02
per cent. per annum on the Net Asset Value of the Company. In addition, the
Custodian will receive GBP15 per transaction executed.
During the year ended 31st December 2009 custodian fees of GBP13,873 (31st
December 2008:GBP20,696) were charged to the Company of which GBP3,591 (31st
December 2008:GBP45,443) were payable at the year end.
11. OTHER EXPENSES
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | Year | | Year |
| | | | | | | | ended | | ended |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | GBP | | GBP |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| Administration fee | | | | | | | 86,637 | | 104,947 |
| (Note 9) | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| General expenses | | | | | | | 123,774 | | 123,782 |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| Directors' fees | | | | | | | 83,000 | | 74,750 |
| (Note 18) | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| Custodian fee | | | | | | | 13,873 | | 20,696 |
| (Note 10) | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| Audit fee | | | | | | | 17,600 | | 19,350 |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| Foreign exchange loss/(gain) in | | | | | | 74,161 | | (225,413) |
| income transactions | | | | | | | | |
+----------------------------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | 399,045 | | 118,112 |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------+-------------+----------+---------+----------+--+----------+------------+----------+------------+
12. INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | GBP | | GBP | | GBP |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Securities | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Cost of | | | | | 65,102,941 | | 76,447,925 | | 131,009,894 |
| investments at end | | | | | | | | | |
| of year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Depreciation on revaluation due to market | | (15,791,704) | | (38,674,680) | | (25,745,538) |
| conditions | | | | | | |
+-----------------------------------------------+----------+--------------+----------+--------------+----------+--------------+
| Appreciation/(Depreciation) on revaluation | | 16,157,096 | | 40,393,610 | | (6,428,980) |
| due to foreign exchange | | | | | | |
+-----------------------------------------------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Fair value at end | | | | | 65,468,333 | | 78,166,855 | | 98,835,376 |
| of year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | GBP | | GBP | | GBP |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Cross currency | | | | | | | | | |
| swap | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Fair value at | | | | | (38,623,173) | | 9,270,957 | | 12,817,159 |
| start of year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Disposal during | | | | | | | (25,996,404) | | - |
| the year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Realised gain | | | | | - | | 25,996,404 | | - |
| during the year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Unrealised | | | | 12,782,539 | | (47,894,130) | | (3,546,202) |
| (losses)/gains during | | | | | | | | |
| the year | | | | | | | | |
+--------------------------+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Fair value at end | | | | | (25,840,634) | | (38,623,173) | | 9,270,957 |
| of year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Currency option | | | | | GBP | | GBP | | GBP |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Premium paid | | | | | - | | - | | 4,320,000 |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Unrealised loss | | | | | - | | - | | (2,379,137) |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| Fair value at end | | | | | - | | - | | 1,940,863 |
| of year | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
| | | | | | | | | | |
+--------------------+-----+----------+---------+----------+--------------+----------+--------------+----------+--------------+
13. TRADE AND OTHER RECEIVABLES
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| | | | | | GBP | | GBP | | GBP |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| Bank interest | | | | | - | | 631 | | 11,827 |
| receivable | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| Dividend income | | | | | 47,105 | | 85,303 | | 56,312 |
| receivable | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| Prepayments | | | | | 31,556 | | 29,100 | | 4,479 |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| Swap interest | | | | | 192,211 | | 181,411 | | 431,995 |
| income receivable | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| | | | | | 270,872 | | 296,445 | | 504,613 |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------+-------+----------+----------+----------+------------+----------+------------+----------+------------+
14. CASH AND CASH EQUIVALENTS
+-------------------+-------+----------+-+-+------+----------+------------+----------+------------+----------+------------+
| | | | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | | | |
+-------------------+-------+----------+-+-+------+----------+------------+----------+------------+----------+------------+
| | | | | | | | GBP | | GBP | | GBP |
+-------------------+-------+----------+-+-+------+----------+------------+----------+------------+----------+------------+
| All amounts | | | | | | | | | | | |
| stated in GBP | | | | | | | | | | | |
+-------------------+-------+----------+-+-+------+----------+------------+----------+------------+----------+------------+
| Cash and cash | | | | | | | 31,234,237 | | 25,043,321 | | 6,508,708 |
| equivalents | | | | | | | | | | | |
+-------------------+-------+----------+-+-+------+----------+------------+----------+------------+----------+------------+
| | | | | | | | 31,234,237 | | 25,043,321 | | 6,508,708 |
+-------------------+-------+----------+-+-+------+----------+------------+----------+------------+----------+------------+
Cash in banks generally earn interest at rates based on daily bank deposit
rates.
15. TRADE AND OTHER PAYABLES
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | GBP | | GBP | | GBP |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| Investment management fee | | | | 134,668 | | 128,896 | | 233,198 |
| accrual (Note 7) | | | | | | | | |
+----------------------------------+----------+----+----------+------------+----------+------------+----------+------------+
| Administration fee | | | | | 20,948 | | 19,479 | | 32,094 |
| accrual (Note 9) | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| Custodian fee accrual | | | | | 3,591 | | 45,443 | | 25,757 |
| (Note 10) | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| Directors fee accrual | | | | | 20,750 | | 20,750 | | 18,000 |
| (Note 18) | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| General fee accrual | | | | | 1,568 | | 37,142 | | 27,148 |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| Audit fee accrual | | | | | 17,600 | | 17,600 | | 15,000 |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| Withholding tax payable | | | | | 3,381 | | 5,972 | | 3,942 |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | 202,506 | | 275,282 | | 355,139 |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
| | | | | | | | | | |
+--------------------------+-------+----------+----+----------+------------+----------+------------+----------+------------+
16. SHARE CAPITAL ACCOUNT
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | Number | Share | Number | Share | Number | Share |
| | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | of | Capital | of | Capital | of | Capital |
| | shares | | shares | | shares | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| Issued Share | | GBP | GBP | GBP | GBP | GBP |
| Capital | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| Management Shares | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| Management Shares | 2 | - | 2 | - | 2 | - |
| of no par value | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| Ordinary Shares | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| Balance at start of | 142,166,698 | - | 142,166,698 | - | 142,166,698 | - |
| year | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| Balance at end of | 142,166,700 | - | 142,166,700 | - | 142,166,700 | - |
| year | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
| | | | | | | |
+---------------------+--------------+------------+--------------+------------+--------------+------------+
The holders of Ordinary Shares ("Shares") shall have the right to receive notice
of and to attend and vote at general meetings of the Company and each holder of
Shares will have one vote in respect of each Share held. Holders are entitled to
receive any dividends or other distributions out of the revenue profits of the
Company and on winding up they are entitled to the surplus assets remaining
after payment of all the creditors of the Company.
By way of a special resolution passed on 7th November 2005, it was resolved that
the amount standing to the credit of the share premium account of the Company
was cancelled and credited as a distributable reserve in the Company's books of
account. This resolution was approved by the Royal Court of Guernsey on 10th
February 2006.
17. CONTINGENT LIABILITIES
There were no contingent liabilities at the balance sheet date.
18. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party in making
financial or operational decisions.
The Directors are responsible for the determination of the investment policy of
the Company and have overall responsibility for the Company's activities.
The Company has four non - executive directors.
The Chairman of the Board is entitled to GBP27,000 per annum, the Chairman of
the Audit Committee is entitled to GBP20,000 and the other Directors are each
entitled to GBP18,000 per annum. No commissions or performance related payments
will be made to the Directors of the Company. Total Directors fees for the
period, including outstanding Directors' fees at the end of the period, are set
out below.
+------------------------+------------+-----+------+----------+------------+----------+------------+
| | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | |
+------------------------+------------+-----+------+----------+------------+----------+------------+
| | | | | | GBP | | GBP |
+------------------------+------------+-----+------+----------+------------+----------+------------+
| | | | | | | | |
+------------------------+------------+-----+------+----------+------------+----------+------------+
| Directors' fees for | | | | | 83,000 | | 74,750 |
| the year | | | | | | | |
+------------------------+------------+-----+------+----------+------------+----------+------------+
| | | | | | | | |
+------------------------+------------+-----+------+----------+------------+----------+------------+
| Accrued at end of year | | | | | 20,750 | | 20,750 |
+------------------------+------------+-----+------+----------+------------+----------+------------+
| | | | | | | | |
+------------------------+------------+-----+------+----------+------------+----------+------------+
As at 31st December 2009, Directors of the Company held the following numbers of
shares beneficially:-
+------------------------+--------------+-----+------+----------+----------+
| Directors | | | | | Shares |
| | | | | | |
+------------------------+--------------+-----+------+----------+----------+
| Andrew Barker | | | | | 230,000 |
| (Chairman) | | | | | |
+------------------------+--------------+-----+------+----------+----------+
| Christopher Fish | | | | | - |
+------------------------+--------------+-----+------+----------+----------+
| John Hawkins | | | | | 25,000 |
+------------------------+--------------+-----+------+----------+----------+
| Henry Morgan | | | | | - |
+------------------------+--------------+-----+------+----------+----------+
19. OPERATING SEGMENTS
IFRS 8 requires disclosure of information about the Company's operating
segments and replaced the requirement to determine primary (business) and
secondary (geographical) reporting segments of the Company.
The Board of Directors makes the strategic resource allocations on
behalf of the Company and is responsible for the Company's entire portfolio. The
Board is of the opinion that the Company is engaged in a single geographic and
economic segment business. The asset allocation decisions are based on a single,
integrated investment strategy, and the Company's performance is evaluated on an
overall basis.
The internal reporting provided to the Directors for the Company's
assets, liabilities and performance is prepared on a consistent basis with the
measurement and recognition principles of IFRS.
As required by IFRS 8, the total fair value of the financial instruments held by
the Company by each major geographical segment, and the equivalent percentages
of the total value of the Company, are reported in the Portfolio Statement.
Revenue earned is reported separately on the face of the statement of
comprehensive income as dividend income received from Japanese equities, and
interest income received from UK fixed interest securities and Guernsey
domiciled bank deposits.
20. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Financial instruments and risk profile
In accordance with its investment objectives and policies the Company holds
financial instruments which at any time may comprise the following:
· securities held in accordance with the investment objectives and
policies;
· cash and short-term receivables and payables arising directly from
operations; and
· derivative instruments including the cross currency swap contract and the
option.
The primary objective of the Morant Wright Japan Income Trust is to generate
absolute returns for investors through a policy of investing in Japanese
equities which the Investment Manager considers to be strong but undervalued.
The investment policy permits the company to identify equities by using a
disciplined research based approach to stock selection.
The Company's portfolio of investments is predominantly in listed Japanese
equities. In order to provide the Company with a high dividend yield the Company
entered into a cross currency swap arrangement.
The investment portfolio has been selected with a view to achieving an overall
portfolio yield that exceeds the annual costs of the Company, thereby augmenting
the yield from the swap.
Capital Management
The Company is a closed-ended investment company, and thus has a fixed capital
for investment. The Company's capital is represented by Ordinary Shares of no
par value and each share carries one vote. They are entitled to dividends when
declared. The Board has the power to purchase shares for cancellation and thus
reduce capital, and the Board considers on a regular basis whether it is
appropriate to exercise such powers. The company is generally authorised to make
market purchases as defined in the Ordinance of its Ordinary Shares of GBP0.01
each provided that:
i) the maximum number of ordinary shares to be purchased shall be
14.99 per cent. of the Company's issued share capital immediately following
admission, as such term defined in the Company's Prospectus.
ii) the minimum price (exclusive of expenses) which may be paid for
such shares is GBP0.01 per share.
iii) The maximum price (exclusive of expenses) which may be paid for
the shares shall be higher of:
a) 5 per cent. above the average market value of the shares taken from the
London Stock Exchange Daily Official list for five business days before the
purchase is made.
b) the higher of the price of the last independent trade and the highest
current independent bid, on the trading venue where the purchase is carried out.
iv) the Company may make a contract to purchase its own shares under
the authority conferred at the Company's latest annual general meeting, prior to
the expiry of such authority, which will or may be, executed wholly or partly
after the expiry of such authority and may make a purchase of its own shares in
pursuance of any such contract.
v) the purchase price may be paid by the Company out of distributable
profits or out of capital and share premium or otherwise to the fullest extent
permitted by the Law.
The specific risks arising from the Company's exposure to these instruments, and
the Manager's policies for managing these risks, which have been applied
throughout the period, are summarised below:
Market price risk
Market price risk arises mainly from the uncertainty about future prices of the
financial instruments held by the Company. It represents the potential loss the
Company may suffer through holding market positions in the face of price
movements.
The value of Japanese equities may be affected by factors not typically
associated with investments in the UK. It should be appreciated that liquidity
and settlement risks may be increased by investing in Japanese equities and
accounting standards may not provide the same degree of shareholder protection
as would apply in the UK. Changes in economic conditions in Japan (for example,
rates of deflation, inflation, rates of tax, industry conditions, regulatory
conditions, regulatory protection, competition, political and diplomatic events
and other factors) or adverse economic conditions in Japan could substantially
and adversely affect the Company's prospects and returns. One factor which has
troubled Japan in recent years is the phenomenon of deflation. Deflation limits
domestic spending as it reinforces a reluctance to consume.
The value of the Japanese equities in which the Company invests may fluctuate
and there is no guarantee that the amounts invested by the Company will be
returned in whole or in part. Japanese stock markets may experience short-term
volatility and investment in the Company should be regarded as long term in
nature.
A 10% increase in stock prices at 31st December 2009 would have increased the
net assets attributable to shareholders by GBP6,546,833 (2008: a 3%
increase/decrease would have increased/decreased the net assets attributable to
shareholders by GBP2,345,006) an equal change in the opposite direction would
have an equal opposite effect. The 10% (31st December 2008: 3%) price movement
is the Directors' best estimate of a reasonably possible price movement during
the year.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of foreign currency.
It represents the potential loss the Company may suffer through holding foreign
currency assets in the face of foreign exchange movements.
Most of the Company's transactions are carried out in Japanese Yen. Exposures to
currency exchange rates arise since the Company invests in Yen in Japanese
equities, movements in the exchange rate of Yen relative to Sterling, to the
extent not hedged by the swap, may affect the Sterling Net Asset Value of the
Ordinary Shares during the life of the Company prior to the Maturity Date.
The Company has an exposure to the GBP/Yen exchange rate via a number of factors
including the swap, and the underlying portfolio.
At 31st December, 2009 the currency swap amount was broadly in line with the
assets of the Company and consequently a strengthening or weakening in the Yen
against Sterling of 5% would have a negligible effect on the Company's Net Asset
Value.
Exposures to foreign exchange rates vary during the year depending on the volume
of overseas transactions. Nonetheless, the analysis above is considered to be
representative of the Company's exposure to currency risk.
Cross currency swap risk
Cross currency swap risk arises from the Company holding a cross currency swap
contract. It represents the potential losses the Company may suffer through
holding the Swap in the face of movements in the Sterling/Yen exchange rate,
movements in the Sterling and Yen interest rates and the remaining life of the
Swap.
The terms of the Swap agreement will require the Gross Assets of the Company to
cover at least twice the aggregate of i) the Sterling mark-to-market value of
the Swap (only where such value is negative), ii) the value of any other debts
and derivatives of the Company that rank pari passu with the Swap, and iii) the
Sterling mark-to-market value of any other swap entered into by the Company
which has a negative mark-to-market value ("Cover Requirement").
In the event that the value of the Company's investments was to decrease and/or
the value of Sterling was to depreciate against the Yen such that the Cover
Requirement was not met, the Company would be required to unwind a proportion of
the Swap. Any unwinding of the Swap would be carried out at the then prevailing
Yen/Sterling exchange rate which would expose the Company to foreign exchange
risk. It would also mean that the semi-annual Sterling interest payments the
Company will be entitled to receive under the Swap agreement would decrease.
During 2008 the Company announced the unwinding of the swap on three occasions.
In total the Company paid JPMorgan Chase Bank, N.A. (the "Bank")
JPY3,866,887,500 resulting in a cancellation of 50 per cent. of the swap
notional amount. As a result of this, the semi annual Sterling interest payments
the Company is entitled to receive under the Swap Agreement has decreased to
GBP1,153,266 (JPY172,619,396).
The Swap matures on 30th November 2010. If the Company has insufficient
resources to make the payment of Yen Principal as required on the Maturity Date
in full, it will not receive the Sterling Principal. In such circumstances, the
mark-to-market value of the Swap will be calculated in Sterling. If Yen has
depreciated against Sterling over the life of the Swap, the mark-to-market value
of the Swap will be a positive number and such value will be paid by the Swap
Counterparty to the Company. However, if Yen has appreciated against Sterling
over the life of the Swap, the mark-to-market value of the swap will be a
negative number and such value will be payable by the Company to the Swap
Counterparty. If the mark-to-market value of the Swap is negative or if the
mark-to-market value is positive but is insufficiently large to make up for the
capital losses, Shareholders will receive less than the initial Issue Price for
their Ordinary Shares. In the event that the value of the Company's portfolio
falls by a substantial proportion and Yen appreciates substantially against
Sterling over the term of the Swap, it is possible that there will be no payment
to Shareholders upon liquidation of the Company.
As at 31st December 2009 the fair value and notional amount of the cross
currency swap along with the fixed rates payable and receivable by the Company
are detailed below:
Credit risk
The Company's exposure to credit risk is limited to the carrying amount of
financial assets recognised at the balance sheet date, as summarised below:
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
| | | | | | | | 31.12.2009 | | 31.12.2008 | | 01.01.2008 |
| | | | | | | | | | | | |
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
| | | | | | | | GBP | | GBP | | GBP |
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
| All amounts | | | | | | | | | | | |
| stated in GBP | | | | | | | | | | | |
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
| Cash and cash | | | | | | | 31,234,237 | | 25,043,321 | | 6,508,708 |
| equivalents | | | | | | | | | | | |
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
| Other receivables | | | | | | | 270,872 | | 296,445 | | 504,613 |
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
| | | | | | | | 31,505,109 | | 25,339,766 | | 7,013,321 |
+-------------------+-------+----------+-+----------+-------+----------+------------+----------+------------+----------+------------+
The Company continuously monitors defaults of customers and other
counterparties, identified either individually or by group and incorporates this
information into its credit risk controls. Where available at reasonable cost,
external credit ratings and/or reports on customers and other counterparties are
obtained and used. None of the Company's financial assets are secured by
collateral or other credit enhancements.
In respect of trade and other receivables, the Company is not exposed to any
significant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics. The counterparties are reputable
banks with high quality external credit rating. JP Morgan Chase Bank has a
credit rating of AA-. Northern Trust Corp has a credit rating of AA-.
Counterparty risk
Counterparty risk arises from the cross currency swap undertaken with the Swap
counterparty. The Company controls this risk by entering into the contract with
an internationally recognised counterparty whilst monitoring its credit rating.
Liquidity risk
Certain of the Company's investments are or may be illiquid, and the
marketability of investments that are normally liquid may be affected by
unsettled market conditions.
The Company's liquidity risk is managed by the Investment Manager who monitors
the cash positions on a regular basis.
The table below shows the Company's liquidity analysis for its financial assets
and liabilities. The table has been disclosed based upon undiscounted gross cash
flows.
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | Less | 1-3 | 3-12 | More | No | |
| | than 1 | | | than | stated | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | month | months | months | 12 | maturity | Total |
| | | | | months | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| 31st December | | | | | | |
| 2009 | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Assets | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Investments at | | | | | 65,468,333 | 65,468,333 |
| fair value | | | - | - | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Cash and cash | 31,234,237 | | | | | 31,234,237 |
| equivalents | | - | - | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Receivables | | 270,872 | | | | 270,872 |
| | - | | - | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Liabilities | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Cross currency | | | (25,840,634) | | | (25,840,634) |
| swap | - | - | | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Accrued expenses | | (202,506) | - | | | (202,506) |
| | - | | | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Net assets attributable to | | | | | |
| holders | | | | | |
+-------------------------------------+--------------+--------------+--------------+-----------------+-------------------+
| of redeemable | 31,234,237 | 68,366 | (25,840,634) | | 65,468,333 | 70,930,302 |
| shares | | | | - | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| 31st December | | | | | | |
| 2008 | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Assets | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Investments at | | | | | 78,166,855 | 78,166,855 |
| fair value | - | - | - | - | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Cash and cash | 25,043,321 | | | | | 25,043,321 |
| equivalents | | - | - | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Receivables | | 296,445 | | | | 296,445 |
| | - | | - | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Liabilities | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Cross currency | | | | (38,623,173) | | (38,623,173) |
| swap | - | - | - | | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Accrued expenses | | (275,282) | | | | (275,282) |
| | - | | - | - | - | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| Net assets attributable to | | | | | |
| holders | | | | | |
+-------------------------------------+--------------+--------------+--------------+-----------------+-------------------+
| of redeemable | 25,043,321 | 21,163 | | (38,623,173) | 78,166,855 | 64,608,166 |
| shares | | | - | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
| | | | | | | |
+-------------------+-----------------+--------------+--------------+--------------+-----------------+-------------------+
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
The hierarchy groups financial assets and liabilities into three levels based on
the significance of inputs used in measuring the fair value of the financial
assets and liabilities. The fair value hierarchy has the following levels:
- Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities;
- Level 2: inputs other than quoted prices included within Level 1 that
are observable for
the asset or liability, either directly (ie as prices) or indirectly (ie
derived from prices); and
- Level 3: inputs for the asset or liability that are not based on
observable market data
(unobservable inputs).
The level within which the financial asset or liability is classified is
determined based on the lowest level of significant input to the fair value
measurement.
The financial assets and liabilities measured at fair value in the statement of
financial position are grouped into the fair value hierarchy as follows:
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| 31st December | | | | | | | |
| 2009 | | | | | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| | Note | Level | Level 2 | Level | | | Total |
| | | 1 | | 3 | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| Listed Securities | a | 65,468,333 | | - | | | 65,468,333 |
| | | | - | - | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| Cross Currency | b | | (25,840,634) | - | | | (25,840,634) |
| Swap | | - | | - | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| | | | | | | | 39,627,699 |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| | | | | | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| 31st December | | | | | | | |
| 2008 | | | | | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| | | Level | Level 2 | Level | | | Total |
| | | 1 | | 3 | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| Listed Securities | a | 78,166,855 | | - | | | 78,166,855 |
| | | | - | - - | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| Cross Currency | b | | (38,623,173) | - | | | (38,623,173) |
| Swap | | - | | - | | | |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
| | | | | | | | 39,543,682 |
+-------------------+-------+------------+--------------+--------+---+----------+--------------+
a) Listed securities and debentures
All the listed equity securities and debentures have been issued by publicly
traded companies in Japan. Fair values for these securities have been determined
by reference to their quoted bid prices at the reporting date.
b) Cross currency swap
The Company uses a cross currency swap contract to hedge the exposure to
Japanese Yen. The Swap is a derivative contract and as such is recognised at
fair value on the date on which it was entered into and subsequently remeasured
at mark to market.
22. SUBSEQUENT EVENTS
The Directors of the Company announced a dividend of 1.25p per share on
4th February 2010 in respect of the year ended 31st December 2009. This
represents a total dividend of GBP1,777,084 and was paid on 12th March 2010.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KKADQDBKDFQD
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