AVI Japan Opportunity Trust Plc Annual Report 2022

FY2022 Annual Report · AVI Japan Opportunity Trust Plc

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Driving positive change
through active engagement

ANNUAL REPORT 2022

Welcome to our 2022 Annual Report

AVI Japan Opportunity Trust plc Annual Report 2022

AVI Japan Opportunity
Trust plc (“AJOT” or
“the Company”) invests
in a focused portfolio
of quality small
and mid-cap listed
companies in Japan
that have a large
portion of their market
capitalisation in cash
or realisable assets.

An active approach to investing responsibly

As active investors, AVI considers all drivers relevant
to each company’s success, offering suggestions to
enhance sustainable corporate value in consideration
of all stakeholders and in the best long-term interest
of our clients.

We aim to build strong relationships with the boards and management of our
portfolio companies. Through constructive engagement, we encourage and expect
them to take meaningful action in the context of long-term value creation.

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Filtering

AVI Japan Opportunity Trust plc Annual Report 2022

KEY STORIES

How we engage

Read more on page 22 and 23 of the Annual Report

active engagement
Driving positive change through Active Engagement

Read more about our ESG approach on page 30 and 31 of the Annual Report

Portfolio Breakdown by Market Capitalisation

<£250mn

£250mn - £500mn

£500mn - £750mn

£750mn - £1bn

1bn - £2.5bn

>£2.5bn

2022

2021

26%

15%

19%

17%

23%

14%

27%

20%

23%

A diversifed collection of businesses

CONTENTS

Strategic Report
02 Company Performance

04 Company Overview

06 Chairman’s Statement

08 Our Top 10 Holdings

10 Business Model

Investment Manager’s Report

28 ESG Policy

30 Our Approach to ESG

32 Portfolio Construction

33 Japan Investment Team

Investment Portfolio

35 Principal Risks and Uncertainties

Governance
37 Directors

38 Directors’ Report

40 Corporate Governance Statement

45 Directors’ Remuneration Report

48 Statement of Directors’ Responsibilities

in Relation to the Annual Report
and Financial Statements

49 Report from the Audit Committee

Independent Auditor’s Report

Financial Statements
55 Statement of Comprehensive Income

56 Statement of Changes in Equity

57 Balance Sheet

58 Statement of Cash Flows

59 Notes to the Financial Statements

Shareholder Information
70 AIFMD Disclosures

71 Glossary

Investing in the Company

74 Company Information

The Company’s website, which can be found
at www.ajot.co.uk, includes useful information
on the Company, such as price performance,
news, monthly and quarterly reports, as well as
previous Annual and Half-Year reports.

@AVIJapan

avi-japan-opportunity-trust

Read more on page 08 of the Annual Report

u/avi-ajot

Strategic Report / Company Performance

PERFORMANCE
SUMMARY

Net Asset Value* (£)

156,395,000

160,721,000

31 December 2022

31 December 2021

Net Asset Value per Share (total return) for the year

Share price total return for the year

Comparator Benchmark
MSCI Japan Small Cap Index (£ adjusted total return)

Portfolio Valuation
Net Cash as % of Market Cap
Net Financial Value as % of Market Cap
EV/EBIT
FCF Yield

Earnings and Dividends
(Loss)/profit before tax
Investment income
Revenue earnings per share
Capital earnings per share
Total earnings per share
Ordinary dividends per share

Ongoing Charge
Management, marketing and other expenses
(as a percentage of average Shareholders’ funds)

2022 Year’s Highs/Lows
Net asset value per share

-4.3%

-4.5%

12.3%

10.0%

-1.0%

-1.4%

41.9%
63.0%
6.0x
6.0%

39.9%
75.9%
5.1x
5.4%

Year to
31 December
2022

Year to
31 December
2021

-£6.6m
£3.7m
1.69p
-6.79p
-5.10p
1.55p

1.5%

High
120.7p

£17.9m
£3.2m
1.55p
11.89p
13.44p
1.40p

1.5%

Low
102.8p

AVI Japan Opportunity Trust plc Annual Report 2022

140

120

100

Net asset value per share at 31 December 2022

Share price at 31 December 2022

Discount as at 31 December 2022

(difference between share price and net asset value)

Net Asset Value, Share Price* and Benchmark

114.11p

112.25p

1.63%

140

120

15
12
9
6
3
100
0
-3
-6
-9
-12
-15

Dec 18 Mar 19

Jun 19

Sep 19 Dec 19 Mar 20

Jun 20

Sep 20 Dec 20 Mar 21

Jun 21

Sep 21

Dec 21

Mar 22

Jun 22

Sep 22

Dec 22

AVI Japan Opportunity Trust NAV TR
MSCI Japan Small Cap Index (£ adjusted total return)

AVI Japan Opportunity Trust Share Price TR

Premium or Discount to Net Asset Value (%)

-5

-10

-15

Oct 18

Jan 19

Apr 19

Jul 19

Oct 19

Jan 20

Apr 20

Jul 20

Oct 20

Jan 21

Apr 21

Jul 21

Oct 21

Jan 22

Apr 22

Jul 22

Oct 22

Dec 22
Jan 23

AVI Japan Opportunity Trust plc

* For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 71 and 72.

AVI Japan Opportunity Trust plc Annual Report 2022

Strategic Report / Company Overview

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

ABOUT ASSET VALUE INVESTORS

COMPANY OBJECTIVES AND STRATEGY

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

Asset Value Investors (“AVI”) has been
investing in Japan for three decades.
AVI focuses on undervalued companies
with resilient and growing earnings, that
are overlooked by investors due to non-
fundamental factors.

By utilising nearly 40 years of capital
markets experience, having analysed and
met with hundreds of Japanese companies
across a wide variety of industries, AVI
works with management teams, making
suggestions on how to grow long-term
corporate value and address share price
undervaluation.

AVI focuses on four main areas of
improvement: capital efficiency, ESG,
investor communication and operational
strategy. While AVI seeks to work privately
and collaboratively with management
teams, if progress is not made, AVI will
share its ideas with other shareholders
in a public forum.

Find more about AVI on page 10
of the Annual Report

Capital Structure
As at 31 December 2022, the Company’s issued
share capital comprised 137,461,702 Ordinary
Shares of 1p each, of which 400,000 were
held in treasury and therefore the total voting
rights attached to Ordinary Shares in issue were
137,061,702. As at 10 March 2023 it comprised
140,361,702 Ordinary Shares, none of which
were held in treasury, and therefore the total
voting rights attached to Ordinary Shares in
issue were 140,361,702.

AJOT aims to provide Shareholders with total returns in excess of the MSCI Japan Small
Cap Index in GBP (“MSCI Japan Small Cap”), through the active management of a focused
portfolio of equity investments listed or quoted in Japan which have been identified by Asset
Value Investors Limited as undervalued and having a significant proportion of their market
capitalisation held in cash, listed securities and/or other realisable assets.

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

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

Benchmark
The MSCI Japan Small Cap Index.

The Association of Investment Companies (“The AIC”)
The Company is a member of The AIC.

Find more about AVI on page 10 of the Annual Report

WHAT DO WE INVEST IN

AJOT aims to achieve long-term capital growth by engaging with
its concentrated portfolio of Japanese equities to unlock value.

Materials

Capital Goods

Software and Services

Health Care Equipment and Services

Consumer durables and Apparel

Technology Hardware and Equipment

Retailing

Commercial and Professional Services

Automobiles and Components

Transportation

29%

19%

18%

6%
5%

Find more on page 32 of the Annual Report

ENGAGED
Building relationships with companies, actively
working together to improve shareholder value.

CONCENTRATED
Our portfolio of 20-30 stocks means we devote
ample resources to research and engagement
for every investment.

LONG-TERM
A five-year horizon aligns our interests with
those of management.

AVI Japan Opportunity Trust plc Annual Report 2022

OUR PERFORMANCE

OUR ESG POLICY

Finding Compelling
Opportunities in Japan

Responsible
investors

We believe that the integration of ESG and
sustainability considerations into our investment
strategy is not only integral to comprehensively
understanding each investment’s ability to create
long-term value, but aligned with our values as
responsible investors.

i p

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‘G’ Ste w

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Since Inception (“SI”)

Since Inception (“SI”)*

21.4%

4.7%

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31 December 2021

0.1%

2021

1.45%

Find more about our ESG Policy on pages 28
and 29 of the Annual Report

Annual General Meeting
The Company’s Annual General Meeting (“AGM”)
will be held at 11.30 am on Tuesday, 2 May
2023 at the offices of Stephenson Harwood
LLP, 1 Finsbury Circus, London, EC2M 7SH.
Shareholders will be able to submit questions
to the Board and AVI ahead of the AGM and
answers to these, as well as AVI’s presentation,
will be made available on the Company’s
website. Please refer to the Notice of AGM for
further information and the resolutions which will
be proposed at this meeting.

NAV PERFORMANCE

1 Year

-4.3%

* SI Annualised

DISCOUNT/PREMIUM

31 December 2022

-1.6%

ONGOING CHARGES

2022

1.50%

UNIQUE
Discovering overlooked and under
researched investment opportunities to
unlock long-term value.

EXPERIENCED
Investing in the Japanese market for over
two decades, with a dedicated team in
London and Tokyo.

MANAGED BY

Visit the website at:

www.assetvalueinvestors.com

AVI Japan Opportunity Trust plc Annual Report 2022

Strategic Report / Chairman’s Statement

Year to date 2023, AJOT has returned +7.7% versus the benchmark’s
return of +2.4%.

Your Company’s bottom-up, deep research approach focuses on
investing in companies with solid fundamentals and attractive valuations.
The portfolio has 63% of its market cap covered by net cash and
investment securities, while trading on a lowly 6.0x EV/EBIT multiple.
This, coupled with continued engagement, shielded us from the extreme
re-pricing experienced in more highly valued stocks, as rising interest rates
exposed stretched valuations.

Your manager, AVI, has continued public campaigns at four portfolio
companies and sent letters or presentations in private to a further 9.
AVI has leveraged its expanded Japan team in the past 12 months
to step up the level and intensity of engagement. The team continues
to build deep relationships with management, having had numerous high-
level meetings with Chairmen, CEOs and outside directors of our portfolio
companies. The preferred approach of private engagement has led to
notable successes, with a raft of shareholder-friendly measures being
introduced across multiple companies without requiring public campaigns.
This approach of constructive engagement has helped the Company to
navigate the challenging market conditions and deliver strong results for
our investors.

Dividend
As provided for in the Prospectus at the IPO, the Company intends to
distribute substantially all the net revenue arising from the portfolio.
The Company paid an interim dividend of 0.75p per share in November
2022, and the Board has elected to propose a final dividend of 0.80p per
share, bringing the total dividend for the year ended 31 December 2022
to 1.55p per share (2021: 1.40p per share).

Investment Strategy
AJOT listed in October 2018 to take advantage of the highly attractive
opportunity to invest in under-valued, over-capitalised Japanese small-cap
equities with strong underlying business fundamentals. We believed – and
still do – that active engagement and corporate action will allow for the
unlocking of valuation anomalies unavailable in other global developed
markets, with the potential for attractive absolute and relative returns.

Four years since launch, your Company has performed well in the
face of multiple headwinds: lacklustre performance of small cap stocks
(MSCI Small Cap Japan has underperformed its larger MSCI Japan
counterpart by almost 8%); a notable sell-off in the Japanese Yen which
has detracted 11% from GBP returns; as well as a turbulent global
environment. The Board remains confident AVI is well placed to continue
executing on the strategy and that there are still plenty of mispriced
investment opportunities.

Share Premium and Issuances
As at 31 December 2022, your Company’s shares were trading
at a discount of -1.6% to NAV per share. The Board monitors the
premium/discount carefully and manages it by periodically issuing or
buying back shares. During 2022, we re-issued 250,000 shares from
treasury and employed the Company’s authorised block listing facility to
increase our shares in issue by 4,241,000. 400,000 shares were bought
back during the year. As at 31 December 2022, 137,061,702 shares
were in circulation, a pleasing increase from the 80,000,000 shares at
AJOT’s launch.

Since the year end, the Company re-issued the 400,000 shares which
had been bought back during the year, as well as a further 2,900,000
shares using the block listing facility. As a result, as at 10 March 2023,
140,361,702 shares were in circulation.

The Directors believe that the performance of the Company since IPO
should be attractive to a larger pool of investors and are constantly
exploring ways to grow AJOT.

Four years since launch, your
Company has performed well in the
face of multiple headwinds.
Norman Crighton
Chairman

Overview of the Year
On behalf of the Board of Directors (“the Board”) I am pleased to present
the Annual Report for 2022. This past year your Company has pursued
its investment objective with ever more conviction and has not been in
any way unnerved by the historic sell-off in bond and equity markets. I am
truly appreciative of our Shareholders continuing to validate the Board’s
confidence in our investment approach. This confidence was demonstrated
most clearly in October 2022 when Shareholders overwhelmingly decided
not to take up the exit opportunity to which they were entitled. I would like
to thank our brokers, Singer Capital Markets, for their efforts in canvassing
opinion from Shareholders representing a significant majority of the shares in
issue, that they did not wish to exit at this time – in so doing they have saved
the Company, and you, a substantial amount of money that would have
been wasted on the administrative expenses of putting an exit opportunity
together. In accordance with the terms of our Initial Public Offering (“IPO”), an
exit opportunity will continue to be offered on a biannual basis.

The war in Ukraine and other macroeconomic factors in the last 12
months have created a challenging environment for all investors, and your
Company was no exception. Risk aversion has risen, and valuations have
fallen, particularly for growth assets.

In Japan specifically, the Bank of Japan’s (“BoJ”) ultra-low interest rate
policy has continued to weigh on the Japanese Yen, despite core inflation
reaching a 41-year high of 4% at the end of the year. The persistence of
this high inflation rate may have been the root cause for the BoJ’s slight
modification to the 10-year Japanese Government Bond yield cap in
December 2022, which increased from 0.25% to 0.5%. This small shift in
policy could indicate that the BoJ is moving away from its loose monetary
stance, towards further rate increases in 2023, which would benefit the Yen
and have implications for assets globally.

Despite the challenging environment, your Company ended the year -4.4%
in GBP terms in respect of net asset value, a less negative return than most
global equity markets. However, it was still below the -1.0% return of the official
comparator benchmark, the MSCI Japan Small Cap Index. Total net assets at
the year end stood at £156.4mn (31 December 2021: £160.7mn). Performance
across the portfolio was generally good but was dragged down by two large
detractors, Wacom and Pasona (as discussed in more detail on pages 25 and
26). Since inception, however, AJOT has proven to be a source of resilience,
with returns since October 2018 of 21.4% versus 8.7% for the benchmark.

AVI Japan Opportunity Trust plc Annual Report 2022

Debt Structure and Gearing
As described in the Prospectus, the Board supports the use of gearing to
enhance portfolio performance. The Company has in place a ¥4.33 billion
debt facility which was renewed on 2 February 2022. As at 31 December
2022, ¥2.47 billion of the facility had been drawn and net gearing stood
at 5.1%.

Governance
The Directors firmly believe that greater diversity in the boardroom
leads to better decision-making and therefore higher returns for our
Shareholders. Needless to say, your Board meets or surpasses the
various recommendations issued by the Parker Review, the Hampton-
Alexander Review and the New Listing Rule 9.8.6 (9-11) for gender
and ethnic diversity. However, the Board has even greater and, I would
argue, more directly relevant diversity within its ranks: the diversity of
social background, of education, of skills, of work experience and of lived
experience. Our diversity of gender and ethnicity is a happy coincidence of
constructing a Board with these broader attributes. Ultimately, I believe that
boards should be comprised of the best people for the job, full stop. I am
proud to confirm that for your Board these are the very people that
we do have in place.

Investment trusts are different from operating companies. We do not
have CEOs or CFOs which the FCA mentions in their recommendation
for positive diversity on boards. The Board has chosen not to appoint a
Senior Independent Director (“SID”), one of the roles that the FCA believes
should count towards diversity targets. If a Board is functioning correctly
then there should be no need for a SID. The Directors of AJOT are strong,
knowledgeable, professional individuals who do not hesitate to inform
me when I have made a mistake. It is the Chairman’s role to foster a
culture where the independence of Directors helps them serve as effective
stewards of Shareholder wealth. This is how all boards should operate. For
investment trusts a much more important role than that of the SID is filled
by the Chair of the Audit Committee and we strongly believe that the FCA
should recognise the unusual position of investment trusts and include the
Chair of Audit role when looking at diversity considerations. Your Board’s
Chair of the Audit Committee role is held by a capable female Director.

Outlook
Japan reopened its doors to tourists on 11 October 2022 and much of
the APAC region followed suit. As travel and tourism are set to resume
across the continent, the added economic boost that this brings is likely
to continue to drive inflationary expectations upwards – a step-change
from the long-entrenched deflationary mindset of Japan. The possible
impact of these and other factors on BoJ and Japanese Government
policy going forward has firmly returned this long neglected country to
the forefront of global investors’ minds for the first time in a generation.

Furthermore, the fundamental argument for Japanese equities remains
compelling, especially when compared to developed market alternatives.
Not only are we seeing continued improvements in capital management
and corporate governance, but at the end of December 2022, the TOPIX
traded at 1x price to book, lower than its long-term average, since 1993,
of 2x. Similarly, the TOPIX’s trailing PE stood at 14x at the end of
December, below its long-term average of 21x (to 1993)*.

Predicting the future macroeconomic landscape is a difficult task.
Instead, your Investment Manager’s focus remains on finding high-quality
companies trading at attractive valuations. AJOT’s portfolio has become
higher in quality since its launch, and its level of engagement has intensified
materially. The current portfolio is well positioned with a concentrated yet
diverse collection of high-quality, lowly valued companies, with multiple
levers for re-rating. As a Board, we are confident that AJOT can continue
building on its successful track record of engagement with companies and
delivering overall attractive returns for investors.

In the coming weeks I shall be meeting any institutional investors who
would like to see me and I encourage as many Shareholders as possible
to attend our fourth AGM in May. The Investment Manager, your Board
and I are respectful of the workload of our investors. We remain available
to all our Shareholders – institutional and retail – who may wish to discuss
an issue or ask a question. As always, please feel free to reach out to me
through our broker, Singer Capital Markets, to arrange a meeting.

The role of proxy advisors has increased over the past few years. This,
I believe, is to the detriment of the investment trust industry as a whole.
Proxy advisors seem to have little understanding of how investment trusts
and their boards operate, and unfortunately their decision-making process
remains opaque and final.

Norman Crighton
Chairman
15 March 2023

The use of a proxy advisor is understandable for an index fund charging
minimal fees, but those shareholders are in a minority, or non-existent, in
most investment trusts which are actively managed by their shareholders
and where investment manager decisions are subject to active Board
oversight. While there are good reasons why the Board and the Investment
Manager may make certain decisions, there is no forum or opportunity for
boards to explain the rationale and circumstances for decisions to proxy
advisors, who may then advise a vote against particular resolutions.

Proxy advisors also have an obsession with succession planning. In order
to address this concern, the Board has formulated a succession plan
which will see new Directors join the Board and existing Directors resign as
their duties are handed over. However, I strongly believe that Shareholders
should make the ultimate decision on who represents them on the Board
and over the coming period I will be seeking Shareholders’ views on the
evolving composition of the Board, rather than have it dictated by others
with an imperfect understanding on how the industry functions, let alone
how specifically your Board operates, all while using arbitrary metrics.

* Bloomberg as at 31 December 2022

Strategic Report / Our Top 10 Holdings
A diversified collection
of businesses

66.4%**

The top ten equity investments
make up 66.4% of the net assets*,
with operating businesses spread
across a diverse range of sectors
and regions.

* For definitions, see Glossary on pages 71 and 72.
** % of net assets.

Visit our investment platforms
www.assetvalueinvestors.com/ajot/
how-to-invest/platforms/

1. DTS CORP

8.0%

of portfolio

2. NIHON KOHDEN CORP

6.9x

EV/EBIT

7.5%

of portfolio

9.3x

EV/EBIT

DTS provides IT-related services to Japanese
corporations. Its business is expanding into
Digital-transformation related (“DX”) fields such
as cloud, robotics and IoT (“Internet of Things”).
Japanese companies have underinvested in their
IT infrastructure, with antiquated processes and
complex legacy systems. With encouragement
from the Government, we believe companies will
dramatically increase their IT expenditure –
much to the benefit of DTS.

Nihon Kohden is a medical equipment
manufacturer, with a product lineup of patient
monitors, defibrillators and ventilators. It has
generated a 5.4% 20-year sales CAGR, with
sales declining in only three of the past 37 years,
and has grown its overseas business to just
over a third of sales. We expect this growth to
continue as the business benefits from increased
global healthcare expenditure and a shift to
higher value-add digital solutions.

Source / Getty Images

6. T HASEGAWA CO LTD

7. SHIN-ETSU POLYMER CO LTD

6.6%

of portfolio

9.8x

EV/EBIT

6.5%

of portfolio

3.5x

EV/EBIT

T Hasegawa is a top 10 global flavour and
fragrance (“F&F”) manufacturer. Its products
are used in a variety of products from tea to
instant noodles. The Company’s motto is “a
company founded on technology” and it has
a rich library of recipes. The F&F industry is
appealing because of its high barriers to entry
and resilient pricing power, which explains
why T Hasegawa’s global peers trade on an
average EV/EBIT of over 20x.

Shin-Etsu Polymer manufactures an assortment
of devices, but its main product is a container
used to carry semiconductor silicon wafers.
It is a listed subsidiary of Shin-Etsu Chemical,
and our base case is that Shin-Etsu Polymer is
taken over. The companies’ business operations
are intertwined, and the management of both
companies have made indications that they are
open to addressing the parent/child listing issue.

Source / T Hasegawa Co Ltd

Source / iStock

AVI Japan Opportunity Trust plc Annual Report 2022
SR

38.7%**

3. KONISHI CO LTD

4. NC HOLDINGS CO LTD

5. WACOM CO LTD

7.0%

of portfolio

4.0x

EV/EBIT

6.7%

of portfolio

7.4x

EV/EBIT

6.6%

of portfolio

9.4x

EV/EBIT

Konishi is famed for its household glue
brand BOND. It has a dominant market
share across the domestic adhesives market
and successfully expanded its business into
infrastructure repair works. We believe Konishi
has potential to grow its adhesive offering into
more industrial applications and to establish
itself overseas, which is not reflected in the
lowly 4.0x EV/EBIT valuation.

NC Holdings owns an eclectic mix of businesses,
including solar panel consulting, conveyor belts
and – the most attractive – car parking systems.
Each standalone business has its merits, but
they have no synergies combined. This is part
of the reason why the business trades on
7.4x EV/EBIT vs our fair value of over 10x.

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

Source / Konishi Co Ltd

Source / iStock

Source / Wacom Co Ltd

8. TSI HOLDINGS CO LTD

9. FUJITEC CO LTD

10. DIGITAL GARAGE INC

6.1%

of portfolio

<0.0x

EV/EBIT

5.8%

of portfolio

18.3x

EV/EBIT

5.6%

of portfolio

7.2x

EV/EBIT

TSI Holdings owns a collection of diversified
apparel brands. Its unique focus on athleisure
and outdoor wear sets it apart from competitors,
but it trades at a steep discount due to a bloated
balance sheet. Net cash, investment securities
and real estate account for 176% of TSI’s market
cap, obscuring the underlying business. Were
TSI to trade in line with peers, there would be a
+150% upside to the current share price.

Fujitec is a global leader in manufacturing
and servicing elevators and escalators. It has
a unique focus on Asian markets, which offer
a compelling growth opportunity. We launched
a public campaign in May 2021, calling on
Fujitec to address decades of underperformance
and its undervaluation. Fujitec is the largest
independent player left in a highly consolidated
market, making it an attractive acquisition target
for competitors.

Digital Garage’s three main business interests
are card payment processing, online marketing
and venture investments. The real crown jewel is
the wholly-owned payment processing business,
a beneficiary of shifting habits towards cashless
payments. Digital Garage’s complex holding
structure leads to a large discount and we have
been engaging with management on ways
to rectify this, including separating the
payments business.

Source / TSI Holdings Co Ltd

Source / Getty Images

AVI Japan Opportunity Trust plc Annual Report 202210

Strategic Report / Business Model

BUSINESS MODEL
Company Status
The Company is registered as a public limited company under the
Companies Act 2006 and is an investment company under Section 833
of the Companies Act 2006. It is a member of The AIC.

The Company was incorporated on 27 July 2018 and listed on the London
Stock Exchange on 23 October 2018.

The Company has been approved as an investment trust under Sections
1158/1159 of the Corporation Tax Act 2010. The Directors are of the
opinion, under advice, that the Company continues to conduct its affairs
as an Approved Investment Trust under the Investment Trust (Approved
Company) (Tax) Regulations 2011.

The Company qualifies as an Alternative Investment Fund in accordance
with the Alternative Investment Fund Managers Directive (“AIFMD”).

Investment Objective
The Company’s investment objective is to provide Shareholders with a
total return in excess of the MSCI Japan Small Cap Index, through the
active management of a focused portfolio of equity investments listed or
quoted in Japan which have been identified by AVI as undervalued and
having a significant proportion of their market capitalisation held in cash,
listed securities and/or realisable assets.

Investment Policy
The Company invests in a diversified portfolio of equities listed or quoted
in Japan which are considered by the Investment Manager to be
undervalued and where cash, listed securities and/or realisable assets
make up a significant proportion of the market capitalisation. AVI seeks to
unlock this value through proactive engagement with management and
taking advantage of the increased focus on corporate governance and
returns to shareholders in Japan. The Board has not set any limits
on sector weightings or stock selection within the portfolio. Whereas it is
not expected that a single holding (including any derivative instrument)
will represent more than 10% of the Company’s gross assets at the time
of investment, the Company has discretion to invest up to 15% of its
gross assets in a single holding, if a suitable opportunity arises.

No restrictions are placed on the market capitalisation of investee
companies, but the portfolio is weighted towards small and mid-cap
companies. The portfolio normally consists of between 20 and 30 holdings
although it may contain a lesser or greater number of holdings at any time.

The Company may invest in exchange traded funds, listed anywhere in
the world, in order to gain exposure to equities listed or quoted in Japan.
On acquisition, no more than 15% of the Company’s gross assets will be
invested in other UK listed investment companies.

The Company may also use derivatives for gearing and efficient portfolio
management purposes.

The Company will not be constrained by any index benchmark in its
asset allocation.

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

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

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

Material Changes to the Investment Policy
No material change will be made to the Company’s investment policy
without Shareholder approval. In the event of a breach of the Company’s
investment policy, the Directors will announce through a Regulatory
Information Service the actions which have been taken to rectify the breach.

Management Arrangements
The Company has an independent Board of Directors which has appointed
AVI, the Company’s Investment Manager, as Alternative Investment
Fund Manager (“AIFM”) under the terms of an Investment Management
Agreement (“IMA”) dated 6 September 2018. The IMA is reviewed annually
by the Board and may be terminated by one year’s notice from either party
subject to the provisions for earlier termination as stipulated therein.

The portfolio is managed by Joe Bauernfreund, the Chief Executive Officer
and Chief Investment Officer of AVI. He also manages AVI Global Trust
Plc and is responsible for all investment decisions across the Investment
Manager’s strategies. Travel restrictions permitting, he conducts regular
visits to Japan, engaging with prospective and current investments,
which he has done for over 15 years.

Management fees are charged in accordance with the terms of the
management agreement, and provided for when due. The Investment
Manager is entitled to an annual fee of 1% per annum of the lesser of
the Company’s NAV or the Company’s market capitalisation, invoiced
monthly in arrears. The IMA requires AVI to invest not less than 25% of
the management fee in shares in the Company. Management fees paid
during the year were £1,516,000 and the number of shares held by AVI
is set out in note 15.

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

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

Link Company Matters Limited was appointed as corporate Company
Secretary on 27 July 2018. The current annual fee is £67,000, which is
subject to an annual RPI increase. The agreement may be terminated by
either party on six months’ written notice.

Link Alternative Fund Administrators Limited has been appointed to
provide general administrative functions to the Company. The Administrator
receives an annual fee of £100,000. The agreement can be terminated
by either the Administrator or the Company on six months’ written notice,
subject to an initial term of one year.

AVI Japan Opportunity Trust plc Annual Report 2022SR

DIRECTORS’ DUTIES
Overview
The Directors’ overarching duty is to act in good faith and in a way that
is the most likely to promote the success of the Company as set out
in Section 172 of the Companies Act 2006 (“Section 172”). In doing
so, Directors must take into consideration the interests of the various
stakeholders of the Company, the impact the Company has on the
community and the environment, take a long-term view on consequences
of the decisions they make, as well as aim to maintain a reputation for
high standards of business conduct and fair treatment between the
members of the Company.

Fulfilling this duty naturally supports the Company in achieving its investment
objective and helps to ensure that all decisions are made in a responsible
and sustainable way. In accordance with the requirements of the Companies
(Miscellaneous Reporting) Regulations 2018, the Company explains how the
Directors have discharged their duty under Section 172 below.

To ensure that the Directors are aware of, and understand, their duties,
they are provided with the pertinent information when they first join the
Board, as well as receive regular and ongoing updates and training on
the relevant matters. They also have continued access to the advice and
services of the Company Secretary, and when deemed necessary, the
Directors can seek independent professional advice. The schedule of
matters reserved for the Board, as well as the terms of reference of its
committees, are reviewed on at least an annual basis and further describe
Directors’ responsibilities and obligations and include any statutory and
regulatory duties. The Audit Committee has the responsibility for the
ongoing review of the Company’s risk management systems and internal
controls and, to the extent that they are applicable, risks related to the
matters set out in Section 172 are included in the Company’s risk register
and are subject to periodic and regular reviews and monitoring.

Decision-making
The importance of stakeholder considerations, in particular in the context
of decision-making, is taken into account at every Board meeting. All
discussions involve careful consideration of the longer-term consequences
of any decisions and their implications for stakeholders. Examples of
decisions made by the Board on this basis include the buyback of 400,000
shares in order to control the discount, as the Board believes that this is in
the interest of Shareholders as a whole. Similarly, the Company consulted
with its largest institutional and private wealth Shareholders regarding the
proposed Exit Opportunity (discussed in more detail on pages 6, 16 and
17) and gave all Shareholders the opportunity to contribute to the process.
In addition, in line with increasing stakeholder attention to Environmental,
Social and Governance (“ESG”) matters, the Board requests regular
updates from its main service providers on these topics. Following
feedback received from proxy advisers on the 2021 Annual Report, the
Company has included more details on succession planning and gender
and ethnic diversity.

AVI Japan Opportunity Trust plc Annual Report 202212

Strategic Report / Business Model continued

Stakeholders
The Board seeks to understand the needs and priorities of the
Company’s stakeholders and these are taken into account
during all its discussions and as part of its decision-making.
The Board has discussed which parties should be considered
as stakeholders of the Company.

Following thorough review, it was concluded that, as the Company is an externally
managed investment company and does not have any employees or customers, its
key stakeholders comprise its Shareholders and service providers. The section on the
pages following discusses why these stakeholders are considered of importance to the
Company and the actions taken to ensure that their interests are taken into account.

STAKEHOLDERS

IMPORTANCE

BOARD ENGAGEMENT

SHAREHOLDERS

Shareholders

Continued Shareholder
support and engagement
are critical to the existence of
the Company and the delivery
of the long- term strategy of
the Company.

The Company has over 200 Shareholders, including institutional and retail investors.
The Board is committed to maintaining open channels of communication and to
engaging with Shareholders in a manner which they find most meaningful, in order to
gain an understanding of the views of Shareholders. These include:

AGM – the Company welcomes and encourages attendance and participation from
Shareholders at the AGM. Shareholders have the opportunity to meet the Directors
and Investment Manager and to address questions to them directly. Shareholders
who are unable to attend the AGM in person are offered the opportunity to submit
questions via email. The Investment Manager attends the AGM and provides a
presentation on the Company’s performance and the future outlook, which is made
available on the Company’s website following the meeting. The Company values
any feedback and questions it may receive from Shareholders ahead of and during
the AGM and will take action or make changes, when and as appropriate;
Publications – the Annual Report and Half-Year results are made available on the
Company’s website and the Annual Report is circulated to Shareholders. These
reports provide Shareholders with a clear understanding of the Company’s portfolio
and financial position. This information is supplemented by the daily calculation
and publication of the NAV per share and a monthly factsheet and quarterly reports
which are available on the Company’s website and the publication of which is
announced via a Regulatory Information Service. Feedback and/or questions the
Company receives from the Shareholders help the Company evolve its reporting,
aiming to render the reports and updates transparent and understandable;

Shareholder meetings – unlike trading companies, Shareholder meetings often

take the form of meeting with the Investment Manager rather than members of the
Board. Shareholders are able to meet with the Investment Manager throughout
the year and the Investment Manager provides information on the Company and
videos of the Investment Manager on the Company’s website and via various social
medial channels. Feedback from all meetings between the Investment Manager and
Shareholders is shared with the Board. The Chairman, the Chairman of the Audit
Committee or other members of the Board are available to meet with Shareholders
to understand their views on governance and the Company’s performance
where they wish to do so. With assistance from the Investment Manager, the
Chairman seeks meetings with Shareholders who might wish to meet with him and
Shareholders can contact him through our broker, Singer Capital Markets;
Shareholders concerns – in the event Shareholders wish to raise issues or
concerns with the Directors, they are welcome to do so at any time by writing to the
Chairman at the registered office. Other members of the Board are also available
to Shareholders if they have concerns that have not been addressed through the
normal channels;
Exit Opportunity – the Directors may, at their discretion, offer Shareholders the
opportunity to exit the Company at close to NAV every two years. The Board
and the Corporate Broker carried out a consultation regarding the potential exit
opportunity in 2022 during the summer of 2022, with Shareholders representing
a significant majority of the shares in issue. The Company established that
Shareholders who expressed an opinion were supportive of the Company forgoing
the administrative burden and expense of an exit opportunity in October 2022. A
similar consultation will take place in the months leading up to future potential exit
opportunities, with the next consultation taking place in 2024; and

AVI Japan Opportunity Trust plc Annual Report 2022
SR

STAKEHOLDERS

IMPORTANCE

BOARD ENGAGEMENT

Shareholders
continued

SERVICE
PROVIDERS

The Investment
Manager

Holding the Company’s
shares offers investors an
investment vehicle through
which they can obtain
exposure to AJOT’s diversified
portfolio of Japanese equities.
The Investment Manager’s
performance is critical for
the Company to successfully
deliver its investment strategy
and meet its objective to
provide Shareholders with a
total return in excess of the
MSCI Japan Small Cap Index
through active management of
the portfolio and engagement
with portfolio companies.

In order to function as
an investment trust with
a premium listing on the
London Stock Exchange, the
Company relies on a diverse
range of reputable advisors
for support in meeting all
relevant obligations.

The Administrator,
the Company
Secretary, the
Registrar, the
Depositary, the
Custodian and the
Corporate Broker

Investor Relations updates – at every Board meeting, the Directors receive
updates from the Company’s broker on the share trading activity, share price
performance and any Shareholders’ feedback, as well as an update from the
Investment Manager on any publications or comments by the press. To gain a
deeper understanding of the views of its Shareholders and potential investors,
the Investment Manager also undertakes regular Investor Roadshows. Any
pertinent feedback is taken into account when Directors discuss the share capital,
any possible fundraisings or the dividend policy and actioned as and when
appropriate. The willingness of the Shareholders, including the partners and staff
of the Investment Manager, to maintain their holdings over the long-term period is
another way for the Board to gauge how the Company is meeting its objectives and
suggests a presence of a healthy corporate culture.

Maintaining a close and constructive working relationship with the Investment
Manager is crucial, as the Board and the Investment Manager both aim to continue to
achieve consistent, long-term returns in line with the investment objective. Important
components in the collaboration with the Investment Manager, representative of the
Company’s culture, are:

• encouraging open discussion with the Investment Manager, allowing time and space

for original and innovative thinking;

• the Chairman has frequent conversations with the Investment Manager to talk

through any matters discussed by the Board between scheduled meetings, as well
as any matters raised by the Investment Manager;

• the IMA requires AVI to invest not less than 25% of the management fee in shares in
the Company and to hold these for a minimum of two years which ensures that the
interests of Shareholders and the Investment Manager are well aligned;
• recognising the alignment of interests mentioned above, adopting a tone of

constructive challenge, balanced with robust negotiation of the Investment Manager’s
terms of engagement if those interests should not be fully congruent;

• drawing on Board Members’ individual experience and knowledge to support the

Investment Manager in its monitoring of and engagement with portfolio companies; and

• willingness to make the Board Members’ experience available to support the
Investment Manager in the sound long-term development of its business and
resources, recognising that the long-term health of the Investment Manager is in the
interests of Shareholders in the Company.

The Board maintains regular contact with its key external providers and receives regular
reporting from them, both through the Board and committee meetings, as well as
outside of the regular meeting cycle. Their advice, as well as their needs and views
are routinely taken into account. The Board formally assesses their performance, fees
and continuing appointment at least annually, to ensure that the key service providers
continue to function at an acceptable level and are appropriately remunerated to deliver
the expected level of service. For the year under review, all key service providers were
asked to complete a questionnaire regarding the matters discussed above, the results
of which were discussed during a formal review of service providers at the March 2023
Board meeting. The Audit Committee reviews and evaluates the control environment in
place at each service provider and also requests confirmation that key service providers
have the relevant policies in place, including those on business continuity, cyber security
and fraud prevention.

AVI Japan Opportunity Trust plc Annual Report 202214

Strategic Report / Business Model continued

STAKEHOLDERS

IMPORTANCE

BOARD ENGAGEMENT

Therefore, the Company aims to demonstrate to lenders that it is a well-managed
business, capable of consistently delivering long-term returns.

When deemed relevant, the Company will engage with proxy advisers regarding
resolutions that will be proposed to the Company’s Shareholders at AGMs and,
based on feedback received, incorporate changes to future Annual Reports to
enhance disclosures.

The Company follows voluntary and best-practice guidance, regularly considers
how it meets various regulatory and statutory obligations and how any governance
decisions it makes can have an impact on its stakeholders, both in the shorter and
in the longer-term.

OTHER
STAKEHOLDERS

Lender

Proxy Advisors

Regulators

Availability of funding and
liquidity are crucial to the
Company’s ability to take
advantage of investment
opportunities as they arise.

Where relevant, the evolving
practice and support (or
lack thereof) of proxy adviser
agencies are considered by
the Directors, as the Company
aims to build a good reputation
and maintain high standards
of corporate governance,
which contribute to the long-
term sustainable success of
the Company.

The Company can only
operate with the approval
of its regulators who have
a legitimate interest in how
the Company operates in
the market and treats its
Shareholders.

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

AVI Japan Opportunity Trust plc Annual Report 2022SR

As institutional investors, we have a duty
to act in the best long-term interests of our
beneficiaries. In this fiduciary role, we believe
that ESG issues can affect the performance of
investment portfolios (to varying degrees across
companies, sectors, regions, asset classes and
through time).

We also recognise that applying these Principles may better align
investors with broader objectives of society. Therefore, where
consistent with our fiduciary responsibilities, Asset Value Investors
Limited commit to the following:

• to incorporate ESG issues into investment analysis and decision-

making processes;

• to be an active owner and to incorporate ESG issues into our

ownership policies and practices;

• to seek appropriate disclosure on ESG issues by the entities in

which we invest;

• to promote acceptance and implementation of the Principles within

the investment industry;

• to work with the PRI Secretariat and other signatories, to enhance

their effectiveness in implementing the Principles; and

• to report on our activities and progress towards implementing

the Principles.

AVI became a signatory to the UN-supported Principles
for Responsible Investment (“PRI”) on 9 April 2021.

Culture
The Directors agree that establishing and maintaining a healthy corporate
culture within the Board and in its interaction with the Investment Manager,
Shareholders and other stakeholders, will support the delivery of its
purpose, values and strategy. The Board seeks to promote a culture of
openness, debate and integrity through ongoing dialogue and engagement
with its service providers, principally the Investment Manager.

The Board strives to ensure that its culture is in line with the Company’s
purpose, values and strategy. The Company has a number of policies and
procedures in place to assist with maintaining good corporate governance,
including those relating to diversity, Directors’ conflicts of interest and
Directors’ dealings in the Company’s shares. The Board assesses and
monitors compliance with these policies, as well as the general culture
of the Board, regularly through Board meetings and in particular during
the annual evaluation process (for more information see the performance
evaluation section on page 43).

The Board seeks to appoint the best possible service providers and
evaluates their service on a regular basis as described on page 13. The
Board considers the culture of the Investment Manager and other service
providers, including their policies, practices and behaviour, through regular
reporting from these stakeholders and in particular during the annual review
of the performance and continuing appointment of all service providers.

Environmental, Social and Governance Matters
As an investment trust without employees, the Company’s own direct
environmental impact is minimal and as such, the Company is also not
required to report against the TCFD framework. The Company has minimal
direct greenhouse gas emissions to report from its operations (2022:
minimal), nor does it have responsibility for any other emissions producing
sources under the Companies Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013 or the Companies (Directors’ Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018. Where
a large company does not consume more than 40,000 kWh of energy in
a reporting period, it qualifies as a low energy user and is exempt from
reporting under these regulations. This exemption applies to the Company.

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

The Directors do not have service contracts. There are four Directors, two
male and two female. Further information on the Board’s policy on diversity
and recruitment of new Directors is contained on page 41.

Both the Board and AVI recognise that social, human rights, community,
governance and environmental issues have an effect on its investee
companies. The Board supports AVI in its belief that good corporate
governance will help to deliver sustainable long-term Shareholder value. AVI
is an investment management firm that invests on behalf of its clients and its
primary duty is to produce returns for its clients. AVI seeks to exercise the
rights and responsibilities attached to owning equity securities in line with
its investment strategy. A key component of AVI’s investment strategy is to
understand and engage with the management of public companies. AVI’s
Stewardship Policy recognises that Shareholder value can be enhanced
and sustained through the good stewardship of executives and boards.
It therefore follows that in pursuing Shareholder value AVI will implement
its investment strategy through proxy voting and active engagement with
management and boards. Further details on AVI’s environmental, social
and governance policy can be found on pages 28 and 29. AVI became
supporters of the Task Force on Climate-related Financial Disclosures
(“TCFD”) in May 2021 and a signatory to the UN-supported Principles for
Responsible Investment (“PRI”) on 9 April 2021. The PRI is the world’s
leading proponent of responsible investment which entails the following
commitments, developed by an international group of institutional investors.

AVI Japan Opportunity Trust plc Annual Report 202216

Strategic Report / Business Model continued

Key Performance Indicators
The Company’s Board meets regularly and at each meeting reviews
performance against a number of key measures. In selecting these
measures, the Directors considered the key objectives and expectations
of typical investors in an investment trust such as the Company. These
indicators are alternative performance measures (“APM”s).

NAV Total Return Performance1

1 Year*

Since Inception (“SI”)

SI Annualised

-4.3%

21.4%

4.7%

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

AVI Japan
Opportunity Trust

-4.3%

Atlantis Japan
Trust

-22.5%

JP Morgan Japan
Smaller Companies

Baillie Gifford
Shin Nippon

-25.3%

-22.8%

Nippon Active
Value

3.5%

Average AIC
peer group

-14.3%

The Directors regard the Company’s NAV total return as being the overall
measure of value delivered to Shareholders by the Investment Manager
over the long term. Total return reflects both the NAV growth of the
Company and also dividends paid to Shareholders. Since the launch on
23 October 2018, the Company’s NAV has increased by 21.4%, resulting
in an annualised return of 4.7%. The Investment Manager’s investment
style is such that performance is likely to deviate materially from that of
any broadly based equity index. The Board considers the most useful
comparator to be the MSCI Japan Small Cap Index. Since the launch on
23 October 2018, the benchmark has increased by 8.7%, resulting in an
annualised return of 2.0%. For the year ended 31 December 2022, the
Company’s NAV fell by -4.3%. The MSCI Japan Small Cap Index fell by
-1.0%. A full description of performance and the investment portfolio is
contained in the Investment Manager’s Report, commencing on page 18.

Discount/Premium1

Discount
31 December 2022

Premium
High for the period

Discount
Low for the period

-1.6%

5.4%

-6.9%

The Board believes that an important driver of an investment trust’s
discount or premium over the long term is investment performance.
However, there can be volatility in the discount or premium. Therefore, the
Board seeks Shareholder approval each year to buy back and issue shares
with a view to limiting the volatility of the share price discount or premium.
During the period under review, 4.5 million new shares were issued under
the authorisation granted at the 2022 AGM, using the Company’s Block
Listing Facility. During the year, 400,000 shares were bought back into
treasury under the authorisation granted at the 2022 AGM.

Since the year-end, the Company issued further shares through the
block listing facility as detailed on page 38 and as at 10 March 2023,
the Company had 140,361,702 shares in issue.

The Company has a successful discount control policy whereby if, under
normal market conditions, the four-month average share price discount
to NAV is greater than -5%, the Company will buy back shares with the
intention of reducing the discount to a level no greater than -5%. Since
IPO, the Company has only bought back shares on two occasions under
this policy, and in each case this was to clear out the remainder of a
sell order and not because the discount and time thresholds under the
discount control policy had been triggered.

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

Ongoing Charges1

31 December 2022

31 December 2021

1.50%

1.45%

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

Going Concern
The Directors have made an assessment of the Company’s ability to
continue as a going concern based on detailed profit & loss and cash flow
forecasts, covering the period up to and including 31 December 2024.
These forecasts have been ‘stressed’ for inflation, as well as a severe and
sudden downturn in market conditions under which it is assumed that the
investment portfolio will lose 45% of its value. Even under this extreme
‘stress’ scenario, the Company has adequate resources to continue in
operational existence for the foreseeable future (being a period of at least
12 months from the date these financial statements were approved). The
Directors also regularly assess the resilience of key third-party service
providers, most notably the Investment Manager and Fund Administrator.
The Directors do not have any concerns about the financial viability of the
Company’s third-party service providers.

Furthermore, the Directors are not aware of any material uncertainties
that may cast significant doubt upon the Company’s ability to continue
as a going concern, having taken into account liquidity of the Company’s
investment portfolio and the Company’s financial position in respect of its
cash flows, borrowing facilities and investment commitments (of which
there are none of significance) and the potential exit opportunity in October
2024 as discussed in the viability statement below. Therefore, the financial
statements have been prepared on a going concern basis.

* Returns are for the year to 31 December 2022.
1 For all Alternative Performance Measures, please refer to the definitions in the

Glossary on pages 71 and 72.

AVI Japan Opportunity Trust plc Annual Report 2022

In order to maintain viability, the Company has a robust risk control
framework which follows the FRC guidelines and has the objectives of
reducing the likelihood and impact of: poor judgement in decision-making,
risk-taking that exceeds the levels agreed by the Board, human error or
control processes being deliberately circumvented.

Taking the above into account, and the potential impact of the principal
risks as set out on pages 35 and 36, the Directors have a reasonable
expectation that the Company will be able to continue in operation and
meet its liabilities as they fall due for a period of five years from the date
of approval of this Annual Report.

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

The five-year time horizon takes into account that the Directors may offer
Shareholders a potential opportunity to exit the Company at close to NAV
in October 2024 and every two years thereafter. The Board, together
with its advisers, will canvass opinion from Shareholders in the months
leading up to October 2024 when making the decision in respect of any
potential Exit Opportunity. Such a consultation took place during the year
under review with respect to the potential exit opportunity in October
2022. Following consultation with Shareholders representing a significant
majority of the shares in issue during the summer of 2022, the Company
established that Shareholders who expressed an opinion were supportive
of the Company forgoing the administrative burden and expense of an exit
opportunity in October 2022. Considering this, coupled with investment
and share price performance, the Ordinary Shares’ liquidity, as well as
continued Shareholder satisfaction, the Board does not anticipate more
than a minimal take-up of any such exit opportunity in October 2024.
The investment strategy remains robust.

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

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

taxation) were adequately covered by investment income and there is
no expectation that these expenses would significantly increase over
the next five years. In addition, cash flow forecasts have been prepared
and stress tested to simulate: a) inflation at 20% and b) a 45% fall in
the value of the investment portfolio. These forecasts illustrate that the
Company would continue to hold sufficient cash even under the most
severe stress scenarios;

• the Company’s investment portfolio is made up of listed equities;
• the Company has short-term debt of ¥2.93 billion via an unsecured

revolving credit facility (extended for two years to February 2024 during
February 2022). This debt was covered over 11 times as at the end of
December 2022 by the Company’s total assets. The Directors are of the
view that, subject to unforeseen circumstances, the Company will have
sufficient resources to meet the costs of annual interest and eventual
repayment of principal on this debt; and

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

The Company’s viability depends on the Japanese and the global economy
and markets continuing to function. The Directors also consider the
possibility of a wide-ranging collapse in corporate earnings and/or the
market value of listed securities. To the latter point, it should be borne
in mind that a significant proportion of the Company’s expenses are
investment management fees, which would reduce if the market value of
the Company’s assets were to fall. In arriving at its conclusion, the Board
has taken account of the potential effects of another global event (e.g.
similar to the COVID-19 pandemic or the invasion of Ukraine) on the value
of the Company’s assets, income from those assets and the ability of the
Company’s key suppliers to maintain effective and efficient operations.

AVI Japan Opportunity Trust plc Annual Report 202218

Strategic Report / Investment Manager’s Report

Like much of the rest of the world, inflation continued to creep higher in
Japan, with the country’s core CPI ending the year at 4.0%, the highest
since the late 1980s. Pressure from inflation and relatedly, a low approval
rating for Prime Minister Kishida, might have been the catalyst for the
BoJ modifying its 10-year Japan Government Bond yield target from
0% ±0.25% to 0% ±0.5% in December 2022. Although only slight, it
signalled a change in policy that might pave the way for further rate
increases in 2023. The effect was a strengthening of the Yen against
Sterling, which at the year low had weakened by -8.8% but ended
the year down only -1.9%.

Adjusting for portfolio weight changes, i.e. keeping the weights of the
stocks still held at the end of the period constant, the EV/EBIT multiple
of the portfolio increased modestly from 5.8x to 6.1x. This was entirely
accounted for by Fujitec’s multiple rising from 8.6x to 18.3x, with the
position beginning the period as a 6.1% weight in the portfolio. Although
Fujitec suffered from a temporary decline in earnings driven by lockdowns
in China, its share price gained 22% on hopes of an increased chance
of a much-anticipated privatisation.

During the year we welcomed Shimpei Ochi to the Japan team. He joins
us on a nine-month internship, having advised the Ministry of Economy,
Trade and Industry in Japan on their M&A guidelines and subsequently
completing a Master of Law from Columbia Law School.

The backdrop for shareholder engagement is as supportive as ever. Fifty-
five companies received shareholder proposals during the 2022 AGM
season (almost double last year’s number), Uniden was taken private in
what we believe is the first successful friendly tender offer completed by a
foreign engagement fund, while EGMs were called at Fujisoft, Fujitec and
Japan Securities Finance.

Increased public engagement activity is helpful for our endeavours,
reminding management of our portfolio companies that they are
accountable to shareholders, and highlighting the risks of not listening
to our suggestions. Support from regulators is also helpful, and it was
encouraging that the Japan Stock Exchange continued discussing ways
to improve corporate value of companies listed on the TSE. Shortly after
the end of 2022, they decided to mandate companies to disclose policies
and initiatives to address capital efficiency and low valuations (specifically a
price/book ratio below 1x).

Our engagement was mostly behind the scenes, sending 24 detailed
letters or presentations and holding 121 meetings with our 25 portfolio
companies. This led to notable successes at DTS when in May 2022
it announced a new mid-term plan with a raft of shareholder-friendly
measures, and Teikoku Electric when management committed to paying
out 100% of earnings to shareholders and announced a 4.3% share
buyback, the second in the space of nine months.

Our public engagement was limited to four companies, which were
continuations of prior campaigns. We submitted shareholder proposals
to NS Solutions, SK Kaken and Tokyo Radiator for the second year in a
row, ranging from seeking higher shareholder returns to greater board
independence. While all companies have controlling shareholders, we
received good support from minority shareholders. The fourth was Fujitec,
where at the end of June 2022 we released a public statement questioning
whether Fujitec’s independent directors were acting in the best interests of
shareholders. This followed Fujitec’s decision to retain the then President
as Chairman, despite his appointment not having been approved by
shareholders at the AGM.

There are a number of exciting engagement campaigns developing
amongst portfolio companies. We intend to keep these discussions private
and will only pursue them in the public domain when our progress stalls
and management fail to accept our suggestions. Our lack of public activity
this year is evidence of the successes we are having privately and we hope
that this continues next year.

The portfolio trades at 6.0x EV/EBIT
and is positioned for several potential
idiosyncratic events with upsides of
50-100%. Combined with a cheap
Yen and an increasingly supportive
macro environment, we are optimistic
about prospective returns.

Joe Bauernfreund
Portfolio Manager

2022 was a year filled with challenges and volatility, with a war on
European soil and rising interest rates leading to a sell-off in both bonds
and equities. However, Japanese equities fared relatively well, with the
MSCI Japan Small Cap Index rising by +0.8% in JPY and declining by
-1.0% in GBP. This contrasts with the significant declines seen in other
markets, such as the Bloomberg UK Government All Bonds Total Return
Index, which fell by -25.1%, the MSCI AC World Index, which decreased
by -8.1%, and the growth-oriented NASDAQ Composite, which saw a
drop of -24.1% (all in GBP). A strong USD flattered these returns and in
local currency they fared more poorly.

Despite the challenging market conditions, your Company proved to be a
source of resilience, with a GBP NAV decline of -4.4%. This is a testament
to the strength of the portfolio and its low starting valuations. Performance
across the portfolio was generally good, with several stocks contributing
positively to the overall performance. Our three largest contributors, DTS,
Fujitec and Teikoku Electric, all benefited from shareholder engagement,
leading to a re-rating in their valuations. However, we experienced two
large detractors, Wacom and Pasona, which had an outsized impact on
performance, reducing returns by -6.4%.

Wacom suffered from a deterioration in its business environment while
Pasona’s decline was driven by a broad sell-off in growth equities. We will
discuss both in more detail later, but the share price weakness has made
their investment cases more compelling and we still see upside.

AVI Japan Opportunity Trust plc Annual Report 2022SR

PORTFOLIO TRADING
Buying Activity
Almost half of all purchases over the year were concentrated in two new
positions: TSI Holdings and Nihon Kohden. TSI Holdings owns a collection
of diversified apparel brands, with an attractive investment opportunity from
a more shareholder-friendly management team, upside from managing
the brands more efficiently and a bloated balance sheet, where net cash,
investment securities and real estate account for 176% of TSI’s market
cap. We believe there is +150% upside to our fair value.

Nihon Kohden is a medical equipment manufacturer, with a product
line-up across patient monitors, defibrillators and ventilators. Net cash
accounts for 28% of its market cap, trading on a 9.3x EV/EBIT multiple
vs medical equipment peers on 15.3x. Aside from the undervaluation,
we believe the company is underearning, with margins below peer
average. We have identified several improvement measures aimed at
doubling the share price, something the President agreed was
achievable during a meeting.

We added to positions in Shin-Etsu Polymer (a potential takeover target by
its parent company Shin-Etsu Chemical), NC Holdings (where across our
funds at year-end we held 21% of the votes), Konishi (open shareholder
register and trading on only a 4.0x EV/EBIT multiple), Wacom (on share
price weakness), and we continued building our position in LOCONDO.

Selling Activity
In the four years since launching AVI Japan Opportunity Trust, we have
built up experience engaging with the management of our portfolio
companies. Having gone through three AGMs and holding numerous
meetings, this was a year to reflect on whether continued engagement at
some companies was the best use of our resources. Our frustration with
a handful of companies tended to coincide with companies where there
was a high ratio of allegiant shareholders. We sold positions in Kato
Sangyo, Daiwa Industries, King Co, Kanaden and Sekisui Jushi. The
average % ownership of allegiant shareholders at our companies which
are not subsidiaries of parent companies fell from 27% to 21% over the year.

The largest sale was Daibiru, which was subject to a takeover bid by
its parent company in 2021, followed by C Uyemura, where we took
profits surrounding concerns over a potential semiconductor slowdown
and following an +84% return on our investment. Other selling was
modest; trimming a few positions on valuation strength to fund
purchases of new positions.

CONTRIBUTORS

DTS CORP

Contribution (GBP)

1.4%

EV/EBIT

6.9x

% of net assets

8.0%

NFV/Market Cap

44%

DTS, an IT system developer, was the largest contributor to returns
with a +22% share price increase, adding 140bps to performance.

We first invested in DTS in January 2020 premised on the appealing
backdrop for increased IT development demand and management’s
openness to engaging with us on how to rectify the undervaluation.
Across all AVI funds, we built a 10% ownership stake, becoming the
largest shareholder. Since then, we have sent 12 presentations and letters
to management covering corporate governance, employee remuneration,
balance sheet efficiency and its growth strategy.

In May 2022, DTS responded to our suggestions and announced a new
mid-term plan that included a raft of shareholder-friendly policies. Beyond
higher shareholder returns which could see up to 35% of the market
cap returned to shareholders in the next three years, DTS announced a
strategy to double EBITDA by 2030, increase ROE to 16% and focus on
high-value-added IT services.

We have been working closely with management and the board behind the
scenes on the mid-term plan, holding multiple meetings, including face-to-
face discussions in Japan. DTS’ response to our engagement has been
exemplary – they allowed us frequent dialogue with senior board members
and, aside from a few minor points, actioned all our suggestions. The
positive share price performance, and significant outperformance vs the
market is, we believe, a testament to our efforts and clearly demonstrates
the real value of AVI’s constructive activism – something that we hope will
not have gone unnoticed by our other investee companies, as well as other
investors in the Japanese markets.

DTS’ share price sold off towards the end of the year, ending on an
EV/EBIT multiple of 6.9x vs peers’ 13.5x. There remains considerable
upside, and as the largest shareholder, we will continue engaging with
management to achieve a higher share price.

AVI Japan Opportunity Trust plc Annual Report 202220

AVI Japan Opportunity Trust plc Annual Report 2022

Strategic Report / Investment Manager’s Report continued

TSI HOLDINGS
TSI Holdings owns a collection
of diversified apparel brands,
with a unique exposure to
sport and athleisure wear.
Its brands include PEARLY
GATES, Margaret Howell, HUF
and Stüssy.

We started building a position in July 2022.
The investment case is predicated on a
more shareholder-friendly management
team, upside from managing the brands
more efficiently and a bloated balance sheet,
where net cash, investment securities and
real estate account for 176% of TSI’s market
cap. We believe there is +150% upside to
our fair value.

CONTRIBUTORS

FUJITEC CO LTD

Contribution (GBP)

1.3%

EV/EBIT

18.3x

% of net assets

5.8%

NFV/Market Cap

33%

Fujitec, the elevator and escalator company, was the second largest
contributor over the period, adding 126 bps to performance as its share
price increased +22%. The share price rise was driven by an increase in
Fujitec’s EV/EBIT multiple from 8.6x to 18.3x.

It was a busy period for our engagement work, which followed on from
our public campaign in May 2020. At the end of 2021, Fujitec announced
a mid-term plan which we felt was strategically misguided, with confusing
growth plans and an unjustifiable capital allocation plan towards M&A. We
responded by sending a presentation to the company, showcasing the
plan’s flaws, putting forward solutions and, importantly, threatening to take
our grievances public. To our delight, management responded to all eight
of our recommendations and released a supplementary plan at the start of
March 2022.

Then in May 2022 Oasis, a Hong Kong-based activist investor, launched
a campaign calling for shareholders to vote against the reappointment of
President Takakazu Uchiyama, son of Fujitec’s founder. Oasis highlighted
several related-party transactions dating back to 1989, and as recently
as 2021, alleging that Mr Uchiyama has enriched himself at the expense
of shareholders.

Fujitec’s response was troubling. Instead of admitting wrongdoing and
strengthening corporate governance, Fujitec embarked on a campaign of
denial and obfuscation. Fujitec’s response omitted important details, the
law firm appointed to investigate the transactions was not independent
and the board, amazingly and despite ostensibly being 50% independent,
unequivocally concluded that not one of the related-party transactions
posed a problem for corporate governance.

When the AGM came around in June 2022, the motion to reappoint Mr
Uchiyama as President was withdrawn just one hour before, in what we
believe was an effort to conceal his low level of support. Then shortly
after the AGM, Mr Uchiyama was reappointed as Chairman without the
approval of the shareholders. Fujitec’s disregard for shareholder rights and
circumnavigation of the AGM voting process was astounding. We released
a public statement to that effect, questioning whether Fujitec’s outside
directors were representing shareholders’ best interests.

After our public letter, Oasis continued their campaign and in November
2022 called an Extraordinary General Meeting (“EGM”) seeking to replace
all of Fujitec’s outside directors. The objective is to bring new elevator
industry experience, reform the governance structure and, ultimately,
unlock trapped value. Given the disgruntled shareholder base, we expect
that the vote will be close and put the board in an untenable position where
nearly half of the shareholder base does not support their appointment. We
hope that the EGM will draw a line in the sand and with an improved board
allow the company to focus on growing its business.

Since we established a position in 2018, we have achieved an +89%
return. While the valuation is not as compelling as it was when we initiated
the position, there is a higher probability that Fujitec could be subject to a
takeover bid from a long list of potential suitors.

AVI Japan Opportunity Trust plc Annual Report 2022

CONTRIBUTORS

TEIKOKU ELECTRIC MFG CO LTD

Contribution (GBP)

1.2%

EV/EBIT

7.0x

% of net assets

0.5%

NFV/Market Cap

39%

Despite a short holding period of just over a year, our investment in the
pump manufacturer Teikoku Electric has been a resounding success,
achieving a +51% return, with management responding positively to our
engagement efforts. We identified Teikoku Electric as a company with an
overcapitalised balance sheet, a good globally recognised product and a
presence of several engagement funds on the register.

Shortly after we acquired a position, we sent a 51-slide presentation to
management with a particular focus on exiting a loss-making non-core
business and addressing the inefficient balance sheet. Since commencing
our dialogue, management’s openness to considering a sale of their non-
core business has improved and they have taken aggressive steps towards
rightsizing the balance sheet. After committing to paying out 100% of
earnings at the start of the year, Teikoku Electric announced a buyback
of 4.3% of its shares and a 110% increase in the dividend. The buyback
came shortly after another 4.2% buyback, meaning in just under a year
and a half Teikoku Electric will have bought back 8.5% of its shares while
paying a 4.9% dividend yield.

Naturally, the more accommodating attitude towards shareholders,
coupled with a +52% upgrade to full-year profit guidance, buoyed the
share price. Although the EV/EBIT of 7.2x is below that of peers, the
sustainability of the earnings strength is a concern, and we decided to trim
our position. Teikoku Electric is still on our watchlist and, should the share
price weaken, we might look to rebuild the position.

Source / TSI Holdings Co., Ltd.

Strategic Report / Investment Manager’s Report continued
Actively engaged:
Visiting T Hasegawa

We began building a position
in T Hasegawa (“TH”), a global
top-ten flavour and fragrance
(“F&F”) company in March 2021.
By the end of the year, it was
AJOT’s 6th largest position with
a 6.6% weight.

The investment merits of F&F companies are
not lost on international investors – TH’s global
peers trade on an average EV/EBITA multiple
of 20x. TH trades on 10x, and we do not think
the reasons for this are attributable to inferior
quality. TH, founded in 1903, first expanded to
the US in 1978 and now boasts over a third of
sales overseas, mainly to the US and China.
Flavours are a critical component of consumers’
purchasing decisions while accounting for only a
small portion of overall costs. This creates sticky
customer contracts, strong barriers to entry, and
pricing power. TH has consistently generated
double-digit EBIT margins with little cyclicality,
evidence of the appealing business model.

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

DANIEL LEE
Head of Japan Research

Q
A

Why are company visits
an important part of the
process for you?

It complements the desk research
that we do, which accounts for
most of our research work. The
physical visits help to conceptualise
ideas created from behind a
computer screen and puts
them into real life, and then that
sometimes creates new ideas and
new perspectives that we hadn’t
yet considered.

Is it helpful to see the
beginning to end process
of the company?

It can be, especially when the
company has manufacturing
facilities. It helps to go through the
process in seeing how a product
is designed, manufactured,
and shipped. As part of our
engagement work, we’re trying to
improve companies. We might see
something that looks inefficient,
which we can probe and put
forward suggestions to rectify. It
helps see things that can’t be
seen from a desk.

Q
A

So how long has it been an
investment and what attracts
you to the company?

AJOT first invested in March 2021,
just under two years ago. T Hasegawa
manufactures vital flavours and
other components used in food
and drinks. Most of the flavourings
go into consumer staple products,
which makes it a stable business.
If there’s a downturn, most people
carry on buying their favourite
chocolate bar and drink, so it’s stable
and the flavours are hard to replicate.
T Hasegawa also trades at 10x
EV/EBITA, a significant discount
to global flavour and fragrance
manufacturers, which trade at an
average of over 20x.

What kind of outlook/future do
you expect for the company?

We expect stability, which limits the
downside. There’s also a president
that came in five years ago, who is
revamping the entire company culture
to become more globally aware and
less conservative. Part of that is a
more aggressive M&A strategy, and
to that end, the company recently
bought a business in the US called
Mission Foods. We expect to see the
new President’s actions take effect,
with stronger growth and some
margin expansion.

Can you give some details on
the company visit? What do
they usually entail?

It varies by company. If a company
is service orientated, there might
not be anything to see other than
the people and systems, for others
it might just be a distribution centre.
For manufacturing companies, clearly
the factories are an important part of
the business. In Japan it’s quite rare
to get this access, not every investor
does. We were granted access
because of our close relationships with
management and large ownership
stakes.

AVI Japan Opportunity Trust plc Annual Report 2022SR

Q
A

Please can you highlight the
in-depth research process you
employ in general, not just
through company visits.

Company visits are not critical
to the research process. They are
part of a long, in-depth process,
which can take two to three months.
We speak to ex-employees,
competitors, industry experts and
company directors (including outside
directors) to get an understanding
of the company.

Is this something that
differentiates you from
other funds?

We intentionally have a small portfolio
of 20 core investments. If you have a
portfolio of 100 investments, you will
only be able to dedicate a fifth of the
time to each. We’re able to conduct
in-depth research and engagement
work because we’re concentrated and
that is part of our strategy. We aim to
know the companies better than most.

Q
A

Is there a timeline from when
you go to the visits to when
you decide to potentially invest
in that company?

You don’t usually get access to
factories or R&D centres unless
you are a shareholder. While we are
able to meet with management and
talk through questions before the
investment, the physical visits happen
after we’ve built a relationship with
the company.

Did it reinforce your
expectations or unearth
anything that you did not
know before?

It gave us a deeper understanding
of T Hasegawa’s product quality and
the customer value proposition. While
it didn’t change our outlook on the
company, it helped us appreciate the
value and confirmed what we had
previously thought.

What aspects of the visit
to the company most
impressed you?

The flavourings! We were given two
cans, one was 5% dilute ethanol and
the other the same diluted mixture but
with a few drops of their Chardonnay
flavour. The flavoured ethanol tasted
just like wine. It was remarkable. It
could be from a region in France but
it’s completely artificial. Artificial wines
haven’t really taken off, but obviously
they are a lot cheaper to make, and
still tasty.

Joe Bauernfreund (front row 2nd from left), Daniel Lee (front row 3rd from right) and Jason Bellamy (back row
1st on the right) during their visit to T Hasegawa’s R&D facility in Kawasaki. Accompanied by T Hasegawa’s President,
Head of R&D and Corporate Planning team.

AVI Japan Opportunity Trust plc Annual Report 202224

Strategic Report / Investment Manager’s Report continued

CONTRIBUTORS

NC HOLDINGS

Contribution (GBP)

1.0%

EV/EBIT

7.4x

% of net assets

6.7%

NFV/Market Cap

42%

We started investing in NC Holdings (“NCHD”) in June 2021 following
an acrimonious public dispute between NCHD and its then-largest
shareholder TCS. NCHD owns a collection of businesses, including solar
panel consulting, conveyor belts and, the most attractive, car parking
systems. Collectively, they trade on an EV/EBIT multiple of just 7.4x, with
net cash and investment securities covering 42% of the market cap.

After TCS failed to replace NCHD’s board, NCHD repurchased their shares
(c.32% of outstanding) at ¥900, a hugely accretive acquisition with the
shares closing the year at ¥2,073. With growing confidence in the quality
of NCHD’s business, the presence of a US-based investor on the
shareholder register and a compelling valuation, we have been slowly
increasing our position. Over the year we almost doubled our ownership
and, at the end of the quarter, we owned 21% of the company across
AVI’s funds. We note the US investor has also been increasing their
ownership and now holds 25% of NCHD’s shares.

Our engagement agenda has covered a wide variety of topics, from
reviewing NCHD’s conglomerate structure to improving corporate
governance and adopting a more generous 100% total return pay-out ratio.

NCHD does not disclose a policy on shareholder returns and, excluding
the repurchase of shares from TCS, has only paid out about 20% of its
net income over the past three years. A 100% dividend pay-out ratio on
next year’s earnings would amount to a respectable 4.5% dividend yield.
So far in our engagement we have not heard a convincing response from
management as to why the three assets it owns should be held under the
same corporate structure.

We believe if management act on all our suggestions, then the share
price would be able to reach our target price of ¥2,700 – ¥3,000, or
30% - 45% higher.

AVI Japan Opportunity Trust plc Annual Report 2022SR

DETRACTORS

WACOM CO LTD

Contribution (GBP)

-3.5%

EV/EBIT

9.4x

% of net assets

6.6%

NFV/Market Cap

24%

The largest detractor over the year was Wacom, who saw its share price
decline -35%. Starting the year with a 8.3% weight and being the largest
position, the decline had a meaningful impact, detracting 346bps from
performance. Wacom is the global leader in digital pen solutions and our
investment was premised on the increased adoption of digital drawing and
writing. Wacom manufactures both its own branded tablets and sells its
technology to other electronic device manufacturers. For example, the S22
Ultra smartphone which launched at the start of 2022 has an embedded
Wacom pen.

While we continue to believe that digital writing solutions will see strong
growth over the long term, inflationary cost pressures and diminished
consumer spending power have weighed on short-term profits.
Encouragingly, Wacom’s B2B business has been resilient with a growing
customer base and higher adoption of digital pens, but the consumer
business has suffered from a demand-led slowdown. In October 2022,
Wacom released a profit warning revising down its full-year sales and
profit guidance by -11% and -56% respectively. We have been a little
disappointed in Wacom’s investor communications surrounding the profit
decline, with comments shortly before the profit warning now appearing
naively optimistic, and poor planning to control gross margins and Selling,
General and Administrative (“SG&A”) expenses. We sent a letter during
November 2022 outlining seven actions we think management can take
to aid the situation. We recognise that the consumer environment is out of
management’s control, but there are several self-help measures that we
would like to see implemented.

Our conviction in Wacom’s technology and long-term growth potential is
unchanged, and the market’s myopic focus presents an opportunity to
take advantage of the share price dislocation. Using normalised earnings,
Wacom trades on an EV/EBIT multiple of only 5.3x, a remarkably low
valuation considering Wacom’s technology and structural growth tailwinds
from the increased adoption of digital writing solutions.

We increased our holding in Wacom by 24% over the year, adding to our
position on share price weakness. As a top three shareholder, we are
working closely with management to address the underperformance and
ensure that efforts are being made to maximise shareholder value. With a
return to normalised profits, our estimated potential upside to the current
share price is in the order of +100%.

T HASEGAWA
T Hasegawa is a top ten
global flavour and fragrance
(“F&F”) manufacturer. Its
products are used in a variety
of products from tea to
instant noodles.

The F&F industry is appealing because
of its high barriers to entry and resilient
pricing power. At the end of the period
the investment accounts for 6.6% of
AJOT’s NAV.

Source / T. Hasegawa Co., Ltd.

AVI Japan Opportunity Trust plc Annual Report 202226

Strategic Report / Investment Manager’s Report continued

DETRACTORS

PASONA GROUP INC

Contribution (GBP)

-2.9%

EV/EBIT

<0.0x

% of net assets

3.8%

NFV/Market Cap

203%

Pasona was a large detractor, reducing returns by 294 bps to
performance. The shares returned -43% over the period, driven by a
-60% decline in Benefit One’s share. Pasona is one of Japan’s largest
recruitment and outsourcing companies, mainly operating through three
business segments: HR, Life, and Public Solutions. Pasona owns a 50%
stake in Benefit One, which accounts for 202% of Pasona’s market cap.
Benefit One is a market leader in providing outsourced HR services, from
education and training to healthcare and employee benefit options.

Benefit One’s -60% fall was less driven by fundamentals but more by
general market concerns over higher valued companies. Benefit One’s
share price strongly correlated with the MSCI Japan Growth Index which
fell -16% over the year vs a smaller fall of -4% for the MSCI Japan. While
Pasona traded on a large discount, Benefit One’s valuation was on the
richer side at the end of last year. We reduced our position by -30% ahead
of the fall, but did not manage to exit entirely.

Pasona is making a greater effort this year to help realise the value in its
business portfolio. Over the year, it IPO’d Circlace, a 43% owned digital
experience consulting firm and Bewith, a business process outsourcing
company. It is encouraging to see Pasona’s newfound proactivity, and we
expect that as the transparency of Pasona’s businesses improves and
the company continues to grow earnings, we will see a narrowing of the
discount to its valuation.

Benefit One has 11.3m captive members on its platform, about 19% of
the 60m employed workers in Japan, providing stable cash flows and
an opportunity to sell additional services. With Pasona’s 69% discount
coupled with a more appealing Benefit One valuation, we see upside to
Pasona’s knocked down share price.

KONISHI
Konishi is an adhesive and
civil engineering company.
Founded in 1870 as a trading
company at the same location
where its head office is
today, it was the predecessor
company of Asahi beer.

We have been shareholders of Konishi
since AJOT’s launch and, having added to
the holding on share price weakness, are
now Konishi’s largest single shareholder.
Despite its quality, Konishi trades on only a
4.0x EV/EBIT multiple. Konishi’s peers trade
on an EV/EBIT of 14.3x which, if achieved,
would result in a +100% upside. This severe
mispricing justifies Konishi’s place in the
portfolio as our third-largest holding.

Source / KONISHI CO., LTD

AVI Japan Opportunity Trust plc Annual Report 2022SR

DETRACTORS

TEIKOKU SEN-I

Contribution (GBP)

-1.2%

EV/EBIT

1.2x

% of net assets

2.1%

NFV/Market Cap

85%

LOCONDO

Contribution (GBP)

-0.8%

EV/EBIT

10.0x

% of net assets

4.2%

NFV/Market Cap

29%

Teikoku Sen-I’s share price fell -33%, reducing returns by 117bps.
Teikoku Sen-I is the leading manufacturer and distributor of disaster
prevention equipment in Japan, from fire hoses to airport firefighting trucks.
Geographically speaking, Japan is precariously placed and each year
suffers from typhoons, earthquakes, and flooding. The Government of
Japan is devoting significant resources to disaster prevention infrastructure
as have private companies (particularly nuclear power operators).

LOCONDO is a relatively new position in the portfolio. It runs a fashion
e-commerce platform in Japan, which was launched to provide shoe
manufacturers a venue to sell online. Importantly, it does not own the
inventory of each brand, it simply matches buyers and sellers, then
manages the logistics – storage, delivery and returns. This asset light
business model is hugely appealing, and its larger peer, ZOZO, trades on
an EV/Sales of 5.4x vs LOCONDO’s 0.9x.

Teikoku Sen-I is well placed to benefit from this trend and has a fantastic
track record of diversifying into new business lines. However, the market
has difficulty understanding Teikoku Sen-I’s business model as its earnings
are extremely seasonal, with over 100% of profits coming in the first and
last quarter of the calendar year. It means that investors must wait until the
last quarter to get a good handle on the financial situation and, during the
year, less sophisticated investors tend to extrapolate the weak Q2 and Q3
earnings.

As usual, profits were low in Q2 and Q3, but grew by +24% in Q1 and we
are encouraged by the overall positive trend for Teikoku Sen-I’s fiscal year
so far. All the weakness over the period therefore came from a fall in the
valuation, from an already low EV/EBIT of 4.2x at the start of the year, to a
remarkable 1.1x.

We have been gradually reducing our position in Teikoku Sen-I, and
trimmed it by a further 10% in 2022. Teikoku Sen-I’s business outlook
is good and clearly undervalued, trading on a 1.1x EV/EBIT, but the
shareholder register is littered with companies that are allegiant to
management, frustrating our engagement efforts. As we expect continued
earnings growth, we are in no rush to exit the position. Still, we are unlikely
to allocate further to the investment and it could be used as a source of
capital for higher conviction ideas.

We were also attracted to LOCONDO’s growth potential, with Japan’s
fashion ecommerce penetration currently standing at only 19% but
estimated to grow to 41% by 2030. LOCONDO is aiming to have a 3%
market share by 2030 which implies a nine year compound annual growth
rate of +19%. After a -73% decline in the share price from its peak in
September 2020, we are able to own this fantastic business on an EV/
EBIT of just 9.7x and with net cash covering 29% of its market cap.
While the EV/EBIT multiple is higher than the average company in AJOT’s
portfolio, this is more than compensated by its stronger growth prospects,
and this is not factored into the share price.

During the year, LOCONDO announced that it had gained the rights to
manage the Reebok brand in Japan, owning 66% alongside ITOCHU’s
33%. The brand has been poorly managed, owned by Adidas and
deprioritised for fear of cannibalising Adidas’ sales. Reebok should be
hugely accretive for LOCONDO, who only paid for the inventory (at a highly
reasonable price) and is a large contributing factor behind management’s
confidence in growing profits by +75% next year.

We have built a near 10% stake in LOCONDO, making us the largest
shareholder. We do not believe that the current share price reflects
LOCONDO’s intrinsic value and will be working with management on ways
to rectify the undervaluation.

AVI Japan Opportunity Trust plc Annual Report 202228

Strategic Report / ESG Policy

ABOUT ASSET VALUE INVESTORS

It is our view that a responsible approach to the
environment, society and governance is key to
long-term sustainable businesses. This guiding
principle is embedded not only in our investment
philosophy but in how we manage Asset Value
Investors as a company.

During 2022, we began the process of measuring our environmental
impact. Our primary goal is to reduce emissions, however we are also
researching appropriate methods to offset unavoidable emissions.

AVI’s 2022 emissions from commuting and business travel

81.5 tonnes CO2e*

*Calculated in accordance with GHG Protocol Standards (distance-based method).

People are the most important asset at AVI. We recognise that
our industry has traditionally been skewed towards a less diverse
workforce. We are actively challenging this.

One of the original 200 investment firms to support 10,000 Black
Interns Programme.

DIVERSITY OF WORKFORCE:
Female
Male

6 (32%)

13 (68%)

We believe that shareholders and stakeholders need not be in conflict.

Employees with equity ownership in AVI

37%

i p

a r d

c ti o

ortfolio co n str u
‘G’ Ste w

Scre
Purp

e
nin

&
’
S

‘

,
’
E

‘

g
n

a
r
c

proach
h

P ri n

c i p le s

Filtering

f t

P
h

o
s
o
p
h
y

PURPOSE

PRINCIPLES

Helping our clients to
make the most of their
financial future.

The people at Asset Value Investors
(“AVI”) are committed to leveraging
our long heritage, stewardship,
and expertise to make investing
responsible, accessible, and
profitable for everyone – individuals,
families, institutions, private
companies, and listed companies.
Financial returns matter but we are in
a unique position to influence positive
change by questioning the practices
of the companies we invest in for a
more sustainable future.

We are aligned with
the PRI’s belief that an
economically efficient,
sustainable global
financial system is a
necessity for long-term
value creation.

Such a system will reward long-term
responsible investment and better
align investors with the broader
objectives of society. AVI became
a signatory to the UN-supported
Principles for Responsible Investment
(“PRI”) on 9 April 2021. In doing so,
we have confirmed our belief in our
duty to act in the best long-term
interests of our beneficiaries.

PHILOSOPHY

APPROACH

As research-driven value
investors, we seek to
truly understand each
company in our portfolio
and the context within
which it operates on a
case-by-case basis.

AVI has built ESG factors into
its proprietary database and
implemented a number of
processes to support the integration
of ESG considerations into each
stage of the investment process.

We are fundamentally
committed to supporting
long-term sustainable
businesses that will
grow and participate
in the prosperity of
the economy, with a
responsible approach
to the environment,
society, and governance.

We believe that the integration
of ESG and sustainability
considerations into our investment
strategy is not only integral to
comprehensively understanding
each investment’s ability to create
long-term value, but aligned with
our values as responsible investors.

AVI Japan Opportunity Trust plc Annual Report 2022

DEFINING ‘E’, ‘S’ & ‘G’

Drawing on the World Economic Forum’s ‘21 core metrics’, AVI has
identified the factors that we believe are the most material and relevant
to our investments and developed a bespoke ESG monitoring system
to track the performance and progress of our portfolio companies
against defined ESG metrics.

S
Our Social focus is divided into:

• Dignity and Equality
• Wellbeing and
Development

• Community Engagement

G
Our approach to Governance
includes:

• Quality of Governing Body
• Corporate Strategy
• Ethical Behaviour

We believe that long-
term value is most
effectively created by
serving the interests
of all stakeholders.

Promoting dignity and equality
and investing in the wellbeing
and development of employees
not only positively impacts
society but the sustainability of
a company.

Our metrics assess the
measures that our investee
companies have in place to
foster a work environment
that is inclusive, safe and
rewarding. Moreover, we track
the company’s approach to
community engagement and
the steps taken to ensure
responsible conduct throughout
their supply chain.

We believe that
the dynamism
and knowledge
necessary for
strong governance
is supported by
the presence of
diverse perspectives
and skills.

Our metrics in this section
examine the composition,
representation and
independence of the governing
body, its integration of
sustainability, and the policies
and procedures in place to
ensure corporate integrity,
as well as the mechanisms
available to ensure misconduct
can be reported and remedied.

E
We define Environmental
sustainability within the
context of:

• Environmental Impact
• Tackling Climate Change
• Sustainable Management

We believe that
there is a collective
duty to take urgent
and meaningful
action in tackling
climate change,
and corporate
transparency and
accountability is
integral to this.

Our metrics enable us to track
a company’s environmental
impact and assess the extent
to which strategies to reduce
negative impacts and manage
climate-related risks and
opportunities are integrated into
business strategy.

These metrics are key to
highlighting unsustainable
business strategy and
assessing vulnerability in the
context of limited resources,
increasingly stringent
environmental regulations,
and a responsibility to embed
environmentally sustainable
business practices.

PRE-INVESTMENT

Exclusionary screening is not our guiding
framework, however there are certain
exceptions to this.

AVI will not invest in a company with direct
involvement* in:

• Tobacco
• Controversial Weapons
• Pornography

Or companies that engage in child labour
or human exploitation as defined by the
relevant ILO conventions.

Consider company’s exposure to ESG
risks and opportunities, including climate
related risks and opportunities.

Identify whether the company is involved
in any actual or potential violations
of international norms and standards
supported by ISS^ Norms-based
Research.

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

from these activities.

^ Institutional Shareholders Services group of companies.

INVESTMENT PERIOD

ESG monitoring system built into our
proprietary database to ensure ESG factors
are considered alongside financial analysis.

Ongoing ESG assessments of portfolio
companies’ performance against defined
ESG metrics. A scoring system is used to
assess trends and highlight potential areas
for engagement.

Tailored questionnaires sent to all
companies based on our assessments to
request additional ESG information and
promote improved sustainability disclosure.

Ongoing controversy monitoring following
a clear engagement pathway if companies
are flagged.

Constructive engagement with boards
and management to help sustainably
increase corporate value by building
resilience to ESG risks and promoting
responsible business practices.

AVI became a signatory to the UN-supported
Principles for Responsible Investment (“PRI”)
on 9 April 2021.

AVI Japan Opportunity Trust plc Annual Report 202230

Strategic Report / Our Approach to ESG
Seeking to drive positive change
through active engagement

STEWARDSHIP

PRIVATE ENGAGEMENT

PUBLIC ENGAGEMENT

Good stewardship should be
viewed as a continuous practice
and is essential to preserving and
enhancing long-term value.

Active engagement is at the core of our
investment strategy and our ESG monitoring
system plays an important role in helping us to
identify potential areas of engagement. As long-
term investors, our aim is to build constructive
relationships with the boards and management
of the companies in which we invest, addressing
issues and offering suggestions to sustainably
improve corporate value in consideration of
all stakeholders and in the best long-term
interest of our clients. We also closely monitor
any controversies and potential violations of
international norms and standards associated
with our universe. Whilst our hope is that
controversies do not occur, they can be a
marker of how well a company’s policies are
integrated into business operations and culture,
highlighting vulnerabilities or structural problems
and indicating where improvements can
be made. Through constructive engagement,
we encourage and expect investee companies
to take meaningful action in addressing
weaknesses in the context of long-term
value creation.

The majority of our
engagement takes place
behind closed
doors, and we continue
to maintain an active
dialogue with the boards
and management of our
portfolio companies on a
wide range of topics.

We seek to be constructive partners,
offering detailed suggestions and
guidance on issues specific to
each company, to sustainably grow
corporate value.

• Held a total of 121 meetings

with our 25 portfolio companies

• Sent 24 detailed letters or

presentations

• Made specific ESG-related

suggestions covering themes
such as scope 3 emissions,
supply chain management,
Diversity, Equity & Inclusion,
employee remuneration, board
independence and board diversity

• Companies such as Toagosei

and Wacom approached us for
ESG advice

We always aim to engage privately,
however we are willing to take our
concerns public if necessary.

Company

SK Kaken

ESG issue
addressed
• Transparent

environmental
management

• Board independence

NS Solutions • Employee welfare

ISS
Support

AVI’s 2022
proposal
View our
proposal
on the link
below

View our
proposal
on the link
below

PROXY VOTING

As responsible, active stewards of capital, we
vote carefully and thoughtfully at every AGM.

AJOT 2022 PROXY VOTING RECORD

Total voted

Against Management

With Management

Against ISS

With ISS

100%

30%

70%

18%

82%

We believe that a responsible
approach to the environment,
society and governance is key
to the long-term sustainability
of our companies.

We are committed to actively engaging
with our portfolio companies to help build
resilience to long-term financially relevant ESG
risks, and to promote sustainable attitudes.

2022 was the first full year of implementing
our formalised approach to ESG.

• We conducted ESG assessments
on 100% of portfolio companies,
helping us to identify and address
ESG-related issues with our
portfolio companies.

• We sent bespoke questionnaires
to 20 portfolio companies and
received 15 responses. This has
helped us to better understand
their approach to ESG issues
and has proven to be a useful
starting point in engaging with
our companies on sustainability
themes.

Details of our campaign and shareholder proposals
submitted to SK Kaken can be viewed here:
https://www.assetvalueinvestors.com/ajot/campaign/
painting-a-better-sk-kaken/

Details of our campaign and shareholder proposals
submitted to NS Solutions can be viewed here:
www.assetvalueinvestors.com/ajot/campaign/taking-
ns-solutions-to-the-next-level/

Please visit our website to view our full ESG Policy at:
https://www.assetvalueinvestors.com/ajot/how-to-
invest/investor-information/esg-policy/

AVI Japan Opportunity Trust plc Annual Report 2022

Source / Getty Images

Measures implemented by DTS since the start
of our engagement (June 2020)

Appointed first two female Board members
Majority of Board now independent (54%)
Transitioned to Audit and Supervisory Committee Structure
Established Sustainability Committee
Published comprehensive mid-term plan and long-term vision, setting out
strategy to double EBITDA by 2030
Increased target for % female managers
Formally committed to having environmental targets validated by Science
Based Targets Initiative

Please visit our website to view our full
ESG Policy: .lorempisum

AVI Engagement

Campaign Name

Stop Exploiting Daibiru

Public presentation

An Independent
Tokyo Radiator

Taking NS Solutions
to the Next Level

Painting a Better
SK Kaken
Taking Fujitec
to the Next Level

Shareholder proposals

Public presentation
& statement

Share Price Performance
Since Start of 2021

71.4%

39.0%

5.3%

8.0%

34.6%

DTS
Our engagement with DTS, which provides IT-
related services to Japanese companies, is a prime
example of the power of private engagement.

At AVI, we seek out investment opportunities with identifiable catalysts
for long-term value and the scope to unlock greater value through
active engagement. DTS exemplifies this approach: it is well placed to
benefit from Japan’s digital revolution, and the board and management
has been open to our engagement, taking action to enact real change.

We first invested in DTS in January 2020 and are now the largest
shareholder with a c. 9% stake across all AVI funds. We have been
working closely with management and the board behind the scenes
to rectify its undervaluation and to build sustainable corporate value.
Our approach to engagement is highly bespoke, looking at the
company as a whole and considering all drivers relevant to its long-term
success. We have sent 12 presentations or letters to management
and held numerous meetings, offering detailed suggestions covering
corporate governance, employee remuneration, diversity, environmental
management, balance sheet efficiency and growth strategy.

DTS’ response to our engagement has been exemplary – bar a few
minor points, all our suggestions were accepted and included in
a comprehensive mid-term 2025 plan and long-term 2030 vision
announced in May 2022, in which they set out a strategy to double
EBITDA by 2030, increase ROE to 16% and focus on high-value-added
IT services. The careful management of both people and the planet are
important considerations for the long-term sustainability of companies
in the IT industry. DTS has shown proactiveness in this regard.
Recognising that it operates in an industry traditionally skewed towards
low female representation, DTS doubled its diversity targets and also
set ambitious environmental targets, formally committing to having
them validated by the Science Based Targets Initiative in January 2023.

Of course, the responsible management of both environmental and
social issues flows from good governance. DTS has strengthened its
corporate governance, adopting an Audit and Supervisory Committee
structure, improving board diversity and establishing a Sustainability
Committee. This ‘tone from the top’ will stand it in good stead for future
sustainable growth.

DTS’ positive share price performance, and significant outperformance
vs the market is, we believe, a testament to our efforts and clearly
demonstrates the real value of AVI’s constructive activism.

DTS is well positioned for Japan’s digital revolution and is making great
strides in living up to its slogan: ‘Delivering Tomorrow’s Solutions’.

2021 & 2022 YTD
PUBLIC CAMPAIGNS

Company

Daibiru

Tokio Radiator1

NS Solutions1

SK Kaken1

Fujitec2

Public campaigns since our strategy
launch in 2018

1 New shareholder proposals were submitted in 2022, along with further public engagement.

2 Public campaign started in 2020. A new statement was released in 2022.

AVI Japan Opportunity Trust plc Annual Report 2022

Strategic Report / Portfolio Construction

The objective of AVI’s portfolio construction is to
create a concentrated position in about 20-30
holdings, facilitating a clear monitoring process
of the entire portfolio.

AVI picks stocks that meet our investment criteria and once we decide
to invest, a minimum position size of approximately 2% of the portfolio
is initiated. In determining position sizes, AVI is mindful of liquidity and
the likely timing of any catalysts to unlock value. A key consideration
is the make-up of the shareholder register, a proxy for how receptive
management might be to our suggestions. The portfolio is diverse in the
industries within it, but we are sector agnostic and select investments
based on quality and value.

PORTFOLIO VALUE BY SECTOR

EQUITY PORTFOLIO VALUE BY MARKET CAPITALISATION

Materials

Capital Goods

Software and Services

Health Care Equipment and Services

Technology Hardware and Equipment

Consumer Durables and Apparel

Retailing

Automobiles and Components

Commercial and Professional Services

Transportation

Food and Staples Retailing

<£250mn

£250mn - £500mn

£500mn - £750mn

£750mn - £1bn

1bn - £2.5bn

>£2.5bn

2022

29%

19%

18%

6%
6%

2021

28%

24%

18%

8%
0%

2022

2021

26%

15%

19%

17%

23%

14%

27%

20%

23%

AVERAGE VOTING OWNERSHIP OF PORTFOLIO
COMPANIES ACROSS ALL AVI FUNDS

TOP 10 CONCENTRATION (% OF NET ASSETS)

6.0%

5.5%

5.0%

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

80%

70%

60%

50%

40%

30%

Mar 21

Jun 21

Sep 21

Dec 21 Mar 22

Jun 22

Sep 22

Dec 22

Dec 18

Dec 19

Dec 20

Dec 21

Dec 22

AVI Japan Opportunity Trust plc Annual Report 2022
Strategic Report / Japan Investment Team

OUTLOOK

The performance of our portfolio in the
wider context of weak global markets is
encouraging and shows that fundamentals
and valuations do matter. The MSCI Japan
Small Cap’s return of -1.0% (in GBP) for
2022 against steep declines in other indices
proves Japan’s diversification value.

We are optimistic about the macro
environment in Japan. The weak Yen makes
Japan highly cost-competitive, both for
tourism and manufacturing. Inflation has
returned after a 40-year absence and, with
wage growth and increased spending, we
could see a more rational allocation of capital
and improved productivity, which would
bode well for your portfolio companies.

It is challenging to predict how 2023 will
unfold, but we remain convinced that
valuations are important. Your Company’s
portfolio trades at a lowly 6.0x EV/EBIT
and is positioned for several potential
idiosyncratic events with upsides of 50-
100%. The potential for a reversal of foreign
outflows, a stronger undervalued Yen, and a
robust economic environment in the coming
years, gives us reason to be optimistic
about the potential for attractive absolute
returns for our Company’s portfolio.

Joe Bauernfreund
Asset Value Investors Limited
15 March 2023

Joe Bauernfreund
CEO, Portfolio Manager

Daniel Lee
Head of Japan Research

Jason Bellamy
Japan Consultant*

Kaz Sakai
Senior Investment Analyst*

Yuki Nicolas
Japan Team Assistant*

Shimpei Ochi
Investment Analyst*

* Native Japanese speaker.

AVI Japan Opportunity Trust plc Annual Report 202234

Strategic Report / Investment Portfolio
As at 31 December 2022

Company

DTS

Nihon Kohden

Konishi

NC Holdings

Wacom

T Hasegawa

Shin Etsu Polymer

TSI Holdings

Fujitec

Digital Garage

Top ten investments

NS Solutions

SK Kaken

Locondo

Pasona

A-One Seimitsu

Toagosei

C Uyemura

Alps Logistics

Teikoku Sen-i

Tokyo Radiator MFG

Top twenty investments

Soft99

Aichi

Papyless

Teikoku Electric MFG

ITFOR

Total investments

Stock Exchange
Identifer

% of
AJOT
net assets

% of
investee
company

Cost
£'000*

Market
value
£'000

NFV/Market
capitalisation1

EV/EBIT1

TSE: 9682

TSE: 6849

TSE: 4956

TSE: 6236

TSE: 6727

TSE: 4958

TSE: 7970

TSE: 3608

TSE: 6406

TSE: 4819

TSE: 2327

TSE: 4628

TSE: 3558

TSE: 2168

TSE: 6156

TSE: 4045

TSE: 4966

TSE: 9055

TSE: 3302

TSE: 7235

TSE: 4464

TSE: 6345

TSE: 3641

TSE: 6333

TSE: 4743

8.0%

7.5%

7.0%

6.7%

6.6%

6.5%

6.1%

5.8%

5.6%

66.4%

5.1%

4.8%

4.2%

3.8%

3.2%

3.0%

2.9%

2.4%

2.1%

2.0%

99.9%

1.9%

1.8%

1.0%

0.5%

0.0%

1.4

0.7

2.5

10,939

12,568

11,274

11,660

11,055

10,986

17.1

7,842

10,405

1.7

1.3

1.7

3.6

0.6

0.4

0.9

8.5

1.2

8.0

0.6

1.4

1.3

4.9

1.9

0.8

2.5

0.3

0.1

13,911

10,352

8,275

10,295

10,055

10,166

8,733

5,309

7,427

9,545

9,104

8,833

94,820

103,914

8,649

9,444

8,213

5,112

4,571

5,753

2,971

2,989

5,580

4,250

8,019

7,413

6,603

5,888

4,977

4,741

4,571

3,680

3,334

3,075

152,352

156,215

2,811

2,789

2,141

468

2,954

2,803

1,543

743

44%

29%

73%

42%

24%

29%

56%

133%

33%

81%

47%

96%

29%

6.9

9.3

4.0

7.4

9.4

9.8

3.5

<0.0

18.3

7.2

5.1

1.3

9.7

198%

<0.0

86%

56%

51%

46%

85%

92%

100%

77%

18%

39%

49%

4.3

3.8

3.9

3.6

1.1

0.0

<0.0

2.0

<0.0

7.0

2.4

105.1%

160,623

164,323

Other net assets and liabilities

Net assets

(5.1%)

100.0%

(7,928)

156,395

* Please refer to Glossary on pages 71 and 72.
1 Estimates provided by AVI. For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 71 and 72.

AVI Japan Opportunity Trust plc Annual Report 2022Strategic Report / Principal Risks and Uncertainties

The Board has a robust ongoing process for
identifying, evaluating and managing the emerging
and principal risks and uncertainties faced by the
Company, including those that could threaten its
business model, future performance, solvency
or liquidity.

However, as AJOT has a limited operating history, some risks are not
yet known and some that are currently not deemed material could later
turn out to be material. Following the risk assessment process described
above, the Board considers the following as the principal risks faced by
the Company and the following controls are in place to manage or
mitigate these risks:

t Increased

t Decreased

tu No change

RISK AREA

CONTROLS AND MITIGATION

Investment Objective
The Company may be unsuccessful in
achieving its investment objective, leading to a
potential loss of demand for its shares.

The Company has a clearly defined strategy and investment remit. The portfolio
is managed by a highly experienced Investment Manager backed by a strong
team. The Board relies on the Investment Manager’s skills and judgement to make
investment decisions based on research and analysis of individual stocks and
sectors.

The Board reviews the performance of the portfolio against the Company’s
Benchmark Index, that of its competitors and the outlook of the markets on a
regular basis.

The Board ensures that there is regular dialogue with major investors, primarily
through the Company’s broker and the Investment Manager; it follows up on any
concerns and regularly reviews the discount control policy.

Investment opportunities matching the criteria
encapsulated in the investment objective may
become less available in the future.

The Board monitors the portfolio’s composition, performance and development.
Should appropriate opportunities diminish, the Board will consider the future of
the Company and may recommend that the Company’s investments are sold, it is
wound up and cash returned to Shareholders.

Gearing
The use of borrowings by the Company has
the effect of amplifying the gains or losses the
Company experiences.

The Board and the Investment Manager regularly review gearing, as well as the
effect of interest rate movements on the Company’s finances and the Company’s
ongoing compliance with the loan covenants. Aggregate borrowings may not
exceed 25% of net assets.

A significant fall in portfolio value could cause
gearing levels to exceed pre-set limits, requiring
the Company to sell investments at short notice.

The Company has in place a two-year ¥2.93 billion (£18.5 million) unsecured
revolving facility agreement which was renewed in February 2022. As at 31
December 2022, ¥2.465 billion (£15.532 million) of the facility had been drawn.
Interest is payable at a rate equal to TONAR plus 1.15%. As at 31 December
2022, gearing stood at 9.9%.

The Board carries out regular reviews of the delegated services to ensure their
continued competitiveness and effectiveness, which include assessment of the
providers’ control systems, whistleblowing, anti-bribery and corruption policies
and business continuity plans.

Reliance on the Investment Manager and
Other Service Providers
The Company has no employees and relies on a
number of third-party service providers, principally
the Investment Manager, Registrar, Administrator
and Custodian / Depositary. It is dependent on
the effective operation of its service providers’
control systems with regard to the security of
the Company’s assets, dealing procedures,
accounting records and the maintenance of
regulatory and legal requirements.

The Company is heavily reliant on the
Investment Manager’s processes, both in
terms of making investment decisions and
compliance with the investment policy.

The Investment Manager has an established investment process which has
proven to be successful within the AVI Global Trust plc portfolio. The Board
evaluates the investment process and compliance with investment limits and
restrictions in conjunction with its portfolio review at every Board meeting.

Cyber Security
The Company has limited direct exposure to
cyber risk. However, the Company’s operations
or reputation could be affected if any of its
service providers suffered a major cyber
security breach.

The Board monitors the preparedness of its service providers in general and
requests and reviews updates from key service providers on cyber security and
other matters. Following this review, the Board remained satisfied that the risk is
given due priority.

AVI Japan Opportunity Trust plc Annual Report 202236

Strategic Report / Principal Risks and Uncertainties continued

RISK AREA

CONTROLS AND MITIGATION

The Investment Manager monitors trading volumes and prices, and looks to
ensure that a proportion of the portfolio is invested in readily realisable assets.

The Board also receives updates on the liquidity of the portfolio and the current
level of liquidity of the Company on a regular basis.

It is the Company’s current policy not to hedge against currency risk, however the
Investment Manager and the Board continuously monitor currency movements
and exposure.

The revolving credit facility is denominated in Yen and therefore the effect of Yen
exchange rate movements on the drawn down facility will be offset against the
assets.

The Board continuously monitors global developments and their potential impact
on the Company; it scrutinises the performance of the Investment Manager and
is aware of emerging risks and has a robust process for addressing them. All key
service providers are asked to provide updates on business continuity, anti-bribery
and corruption, and information security processes on an annual basis.

The Investment Manager, the Corporate Broker and the Board have a good
understanding of the investor base and have good lines of communication
with investors in general and a direct communication channel with the major
Shareholders in particular.

Portfolio Liquidity
The market for smaller Japanese stocks can
be illiquid. The Company is exposed to the risk
that it will not be able to sell its investments at
the current market value or on a timely basis,
when the Investment Manager chooses or is
required to do so to meet financial liabilities.

Foreign Exchange
The functional and presentation currency of the
Company is Pounds Sterling. All investments
held and income derived from these
investments are denominated in Japanese Yen.
Certain costs of the Company are impacted
by the underlying value of the investments
denominated in Japanese Yen and converted
to Pounds Sterling. The Company is subject
to currency risk on exchange rate movements
between Pounds Sterling and Japanese Yen.

Global/Climate/Systemic
Unforeseen global disruption, such as a
pandemic, climate and nature change-
related event, geopolitical conflict or systemic
technology failure, could lead to dramatically
increased market and Company share price
volatility. Fraud and cyber security vulnerability
could increase for key service providers.

Concentrated Share Register
A substantial portion (around 40%) of the
Company’s shares are held by two major
Shareholders, City of London Investment
Management and Finda Oy. A concentracted
share register can potentially present issues
with regards to voting or liquidity.

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

Norman Crighton
Chairman
15 March 2023

AVI Japan Opportunity Trust plc Annual Report 2022
AVI Japan Opportunity Trust plc Annual Report 2022

SR
SR

G
G

FS
FS

SI
SI

37
37

Governance / Directors
Your Board

Norman Crighton
Chairman, Non-Executive Director

Date of Appointment:
27 July 2018

External Appointments:
Weiss Korea Opportunity Fund Ltd,
RM Infrastructure Income plc and
Harmony Energy Income Trust plc.

Ekaterina Thomson
Chairperson of the Audit Committee,
Non-Executive Director

Date of Appointment:
5 September 2018

External Appointments:
Allianz Technology Trust PLC,
MIGO Opportunities Trust plc and
Henderson EuroTrust plc.

Experience and Contribution:
Norman Crighton is an experienced public company director, having
served on the boards of eight closed-end funds and one operating
company. Presently, Norman is also Non-Executive Chair of Weiss
Korea Opportunity Fund Limited, RM Infrastructure Income plc and
Harmony Energy Income Trust plc.

Norman has extensive fund experience, having previously been
Head of Closed-end Funds at Jefferies International and Investment
Manager at Metage Capital Limited, leveraging his 32 years of
experience in investment trusts. His career in investment banking
covered research, sales, market making and proprietary trading,
servicing major international institutional clients over 15 years. His
work in many countries included restructuring closed-end funds, as
well as several IPOs. As a fund manager, Norman managed portfolios
of closed-end funds on a hedged and unhedged basis covering
developed and emerging markets.

Following on from his long-term promotion of best corporate
governance practice, Norman has more recently been focussing on
expanding his work into Environmental and Social issues. His work
in the investment trust industry is backed up with a master’s degree
from the University of Exeter in Finance and Investment. Norman is
British and resident in the United Kingdom.

Yoshi Nishio
Non-Executive Director

Date of Appointment:
27 July 2018

External Appointments:
–

Experience and Contribution:
Katya is Chairperson of the Audit Committee. She is a corporate
finance, strategy and business development professional, with over
25 years of experience with UK and European blue chip companies.
Katya is a non-executive director and audit committee chairman
of Allianz Technology Trust PLC, MIGO Opportunities Trust plc
and Henderson EuroTrust plc. She is a member of the Institute of
Chartered Accountants in England and Wales. Katya is British and
resident in the United Kingdom.

Margaret Stephens
Chairperson of the Nomination
Committee, Non-Executive Director

Date of Appointment:
5 September 2018

External Appointments:
VH Global Sustainable Energy
Opportunities plc and the Nuclear
Liabilities Fund.

Experience and Contribution:
Yoshi began his career at Goldman Sachs International, where he
had overall responsibility for the trading of Japanese equities and
equity derivative products. Since then, he has combined his twin
specialisations of finance and media as an investor, advisor and
consultant. Much of his work has had a Japanese focus, with clients
ranging from family offices to the office of the chairman of Columbia
Pictures in Hollywood in the period following the studio’s acquisition
by the Sony Corporation, to the Ministry of Finance of the Russian
Federation. Yoshi is fluent in Japanese and in English. He was born in
Japan but now holds dual British/American citizenship and lives in the
United States of America.

Experience and Contribution:
Margaret is a Non-Executive Board Member and Chair of the Audit
and Risk Committee of VH Global Sustainable Energy Opportunities
plc and a Trustee, Director and Chair of the Audit Committee of the
Nuclear Liabilities Fund. She was a partner of KPMG until 2016,
having qualified as a Chartered Accountant in 1988. From 2007, she
played a key role in building KPMG’s Global Infrastructure Practice,
also leading UK and international due diligence and structuring
services on major merger and acquisition transactions and public
private partnerships. Margaret was a non-executive Board Member
and Chair of the Audit and Risk Assurance Committee of the
Department for Exiting the European Union and was also a Board
Trustee of the London School of Architecture. Margaret is British and
resident in the United Kingdom.

AVI Japan Opportunity Trust plc Annual Report 202238

Governance / Directors’ Report

The Directors present their report and the
audited financial statements for the year ended
31 December 2022.

The Investment Portfolio on page 34, the Corporate Governance
Statement on pages 40 to 44, Report from the Audit Committee on pages
49 and 50 and the Shareholder Information on pages 70 to 74 form part
of the Report of the Directors.

Directors
The Directors of the Company are listed on page 37. All served throughout
the year under review. The Directors will retire at the forthcoming AGM and
offer themselves for re-election.

As set out on page 43, the Board carries out an annual review of
each Director and of the Board as a whole. The Board considers that
all Directors contribute effectively, possess the necessary skills and
experience, and continue to demonstrate commitment to their roles as
non-executive Directors of the Company. Following the performance
review, it was agreed that all Directors should stand for re-election,
and the re-election of each of the Directors is recommended by the Board.

The Company has provided indemnities to the Directors in respect of
costs or other liabilities which they may incur in connection with any claims
relating to their performance or the performance of the Company whilst
they are Directors.

The beneficial interests of the current Directors and their connected
persons in the securities of the Company as at 31 December 2022
are set out in the Directors’ Remuneration Report on page 47.

Share Capital
The Company’s share capital comprises Ordinary Shares with a nominal
value of 1p each. The voting rights of the shares on a poll are one vote for
each share held. There are no restrictions on the transfer of the Company’s
Ordinary Shares or voting rights, no shares which carry specific rights
with regard to the control of the Company and no agreement which the
Company is party to that affects its control following a takeover bid. To
the extent that they exist, the revenue profits of the Company (including
accumulated revenue reserves) are available for distribution by way of
dividends to the holders of the Ordinary Shares. Upon a winding-up,
after meeting the liabilities of the Company, the surplus assets would be
distributed to the Shareholders pro rata to their holding of Ordinary Shares.

At 31 December 2022, there were 137,461,702 Ordinary Shares of
1p each in issue, of which 400,000 were held in treasury, and therefore the
total voting rights attaching to Ordinary Shares in issue were 137,061,702.
In the period from 1 January 2023 to 10 March 2023 2,900,000 shares
were issued and the 400,000 shares were sold from treasury. The
voting rights attaching to Ordinary Shares as at 10 March 2023 were
140,361,702.

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

Issues of Shares
At the AGM held on 3 May 2022, the Company was granted authority
to allot up to 27,442,300 Ordinary Shares on a non-pre-emptive basis.
This authority is due to expire at the Company’s forthcoming AGM on
2 May 2023. As at 31 December 2022, the remaining authority to allot
Ordinary Shares under the authority granted at the AGM held on 3 May
2022 was 27,192,300 Shares and as at 10 March 2023 the remaining
authority was 23,892,300 Shares.

The Company has a block listing of Ordinary Shares to be listed to the
premium segment of the Official List of the FCA and admitted to trading
on the premium segment of the LSE’s main market. During the year, the
Company issued 4,241,000 shares utilising the block listing, details of
which are provided in the schedule below. As at 31 December 2022,
the remaining authority under the block listing facility was 21,383,140
Ordinary Shares and as at 10 March 2023 the remaining authority is
18,483,140 Ordinary Shares.

Shares issued during the year and following year end

Date

No of shares

Price paid per
share

Mid market price

13/01/2022

750,000*

£1.2050

£1.8500

26/01/2022

400,000

£1.1590

£1.1500

27/01/2022

760,000

£1.1300

£1.1550

31/01/2022

500,000

£1.1475

£1.1550

07/02/2022

870,000

£1.1550

09/02/2022

961,000

£1.1600

£1.1700

20/06/2022

250,000

£1.0700

£1.0775

16/02/2023

650,000**

£1.2200

£ 1.2175

17/02/2023

1,900,000

£1.2200

£ 1.2200

21/02/2023

750,000

£1.2200

£ 1.2100

Total

7,791,000

* This issue is comprised of 250,000 treasury shares and 500,000 shares issued

under the block listing.

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

under the block listing.

Purchase of Shares
At the general meeting held on 3 May 2022, the Company was
granted authority to purchase up to 14.99% of the Company’s Ordinary
Shares in issue as at the close of business on 11 March 2022, such
authority to expire on conclusion of the 2023 AGM. During the year,
400,000 Ordinary Shares were bought back for an aggregate amount
of £432,000 (nominal value £4,000, representing 0.291% of the called
up share capital at the time) under this authority in order to control the
discount. As at 31 December 2022, authority to buy back a further
20,168,034 Ordinary Shares remained.

AVI Japan Opportunity Trust plc Annual Report 2022SR

Sale of Shares from Treasury
At the AGM held on 3 May 2022, the Company was authorised to waive
pre-emption rights in respect of treasury shares, such authority to expire
on conclusion of the 2023 AGM. At the start of the year, 250,000 Ordinary
Shares were held in treasury, which were sold on 13 January 2022 for
an aggregate amount of £301,250. Since 3 October 2022 and as at
31 December 2022, 400,000 Ordinary Shares were held in treasury.
The shares held in treasury were sold from treasury on 16 February 2023
for an aggregate amount of £488,000 and, as at the date of this report,
there were no shares held in treasury.

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

There have been no material transactions between the Company
and its Directors during the year and the only amounts paid to them
were in respect of expenses and remuneration for which there were no
outstanding amounts payable. Directors’ shareholdings are disclosed
on page 47.

In relation to the provision of services by the Investment Manager, other
than fees payable by the Company in the ordinary course of business and
the facilitation of marketing activities with third parties, there have been no
material transactions with the Investment Manager affecting the financial
position of the Company during the year under review. More details on
transactions with the Investment Manager, including amounts outstanding
at 31 December 2022 and shares held by AVI, are given in note 15 on
page 69.

Interests in Share Capital
At 31 December 2022, the following holdings representing more than
3% of the Company’s voting rights had been reported to the Company
in accordance with the Disclosure Guidance and Transparency Rules.
This information was correct at the date of notification, however it should
be noted that these holdings may have changed since notified to the
Company and may not therefore be wholly accurate statements of actual
holdings as at 31 December 2022. However, notification of any change is
not required until the next applicable threshold is crossed:

Dividends
The Directors are proposing a final dividend of 0.80 pence per Share for
the year to 31 December 2022. Subject to the approval of Shareholders at
the forthcoming AGM, the proposed final ordinary dividend will be payable
on 26 May 2023 to Shareholders on the register at the close of business
on 28 April 2023. The ex-dividend date will be 27 April 2023.

Financial Instruments
The Company utilises financial instruments, which comprise equity
investments, cash balances, receivables, payables and borrowings.
The risks identified arising from the financial instruments are market risk
(which comprises market price risk, interest rate risk and foreign currency
risk), liquidity risk and credit and counterparty risk. The Company may
also enter into derivative transactions to manage risk. The Board and
Investment Manager consider and review the risks inherent in managing
the Company’s assets which are detailed in note 14.

Annual General Meeting (“AGM”)
The AGM will be held on Tuesday 2 May 2023 at the offices of
Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.
The Notice of Meeting and details of the resolutions to be put to the
AGM are contained in the circular sent to Shareholders with this report.

Directors’ Statement as to Disclosure of Information to Auditor
Each of the Directors, who were all members of the Board at the date of
approval of this Report, confirms that to the best of his or her knowledge
and belief, there is no information relevant to the preparation of the Annual
Report of which the Company’s Auditors are unaware and he or she
has taken all the steps a Director might reasonably be expected to have
taken to be aware of relevant audit information and to establish that the
Company’s Auditors are aware of that information.

Listing Rule 9.8.4
Listing Rule 9.8.4 requires the Company to include certain information
in a single identifiable section of the Annual Report or a cross reference
table indicating where the information is set out. The information required
under Listing Rule 9.8.4(7) in relation to Shares issued by the Company is
set out on page 38.

Other Information
Information on future developments and financial risks is detailed in the
Strategic Report. Further details of post balance sheet events can be
found in note 16.

By order of the Board

For and on behalf of Link Company Matters Limited

Company Secretary
15 March 2023

Number of
Ordinary
Shares

Percentage of
voting rights

Finda Oy

30,000,000

21.86

City of London Investment
Management Company Limited

23,000,685

Investec Wealth & Investment Limited

4,320,570

17.7

3.68

During the period between 31 December 2022 and 10 March 2023,
the Company has been notified by City of London of a decrease in their
holding to 22,434,728 shares, representing 15.98% of the voting rights.

As at 31 December 2022, AVI Ltd & AVI employees owned 2,424,235
shares.

AVI Japan Opportunity Trust plc Annual Report 202240

Governance / Corporate Governance Statement

The Corporate Governance Statement forms part of the Report
of the Directors.

Applicable Corporate Governance Codes
The Company is committed to high standards of corporate governance.
This statement, together with the Statement of Directors’ Responsibilities
on page 48, indicates how the Company has applied the principles of
recommended governance of the Financial Reporting Council’s (“FRC”)
2018 UK Corporate Governance Code (the “UK Code”) and The AIC’s
Code of Corporate Governance issued in 2019, (the “AIC Code”), which
complements the UK Code and provides a framework of best practice for
investment trusts.

The Board considers that reporting against the principles and provisions
of the AIC Code, which has been endorsed by the FRC, provides more
relevant information to Shareholders and that by reporting against the
AIC Code the Company has met its obligations in relation to the UK Code
and associated disclosure requirements under paragraph 9.8.6 of the
Listing Rules.

The UK Code is available on the FRC website (www.frc.org.uk). The AIC
Code is available on the AIC website (www.theaic.co.uk) and includes an
explanation of how the AIC Code adapts the principles and provisions set
out in the UK Code to make them relevant for investment companies.

Statement of Compliance
The UK Code includes provisions relating to:

• the role of the chief executive;
• executive directors’ remuneration;
• management performance;
• remuneration and succession planning;
• workforce policies (including remuneration) and practices; and
• the need for an internal audit function.

For the reasons explained in the AIC Code, the Board considers that
these provisions are not relevant to the Company, being an externally
managed investment company with no employees. The Company has
therefore not reported further in respect of these provisions. The Board
is responsible for ensuring the appropriate level of corporate governance
and considers that the Company has complied with the principles and
provisions of the AIC Code during the year under review except as
disclosed below:

• provision 14: No senior independent director has been appointed.
All the Directors have different qualities and areas of expertise on
which they lead, and concerns can be conveyed to another Director
if Shareholders do not wish to raise concerns with the Chairman or
the Chairman of the Audit Committee. Any other Director will chair the
Board or Nomination Committee meeting when the annual evaluation
of the Chairman’s performance, his re-election, or the recruitment of his
successor, is discussed;

• provision 17: As all of the Directors are independent of the Investment
Manager, the Board is of the view that there is no requirement for a
separate management engagement committee. The Board as a whole
will review the terms of appointment and performance of the Investment
Manager and the Company’s other third-party service providers (other
than the Auditor who is reviewed by the Audit Committee);

• provision 37: As all of the Directors are non-executive, the Board is
of the view that there is no requirement for a separate remuneration
committee. Directors’ fees will be considered by the Board as a whole
within the limits approved by Shareholders; and

• provision 23: Directors are not appointed for a specified term, as all
Directors are non-executive and the Board believes that a Director’s
performance and their continued contribution to the running of the
Company is of greater importance and relevance to Shareholders
than the length of time for which they have served as a Director of
the Company. Each Director is subject to the election and re-election
provisions set out in the Articles, which provide that a Director appointed
during the year is required to retire and seek election by Shareholders
at the next AGM following their appointment. Thereafter the Directors
intend to offer themselves for re-election annually but, under the Articles,
are only required to submit themselves for re-election at least once every
three years. Directors who have served for more than nine years will be
subject to annual re-election, provided that the Nomination Committee
and the Board remain satisfied that the relevant Director’s independence
is not impaired by their length of service.

Role of the Board
A management agreement between the Company and the Investment
Manager sets out the matters over which the Investment Manager has
authority. This includes management of the Company’s assets and some
marketing services. The Board is collectively responsible for the success
of the Company and a formal schedule of matters reserved to the Board
for decision has been approved, which is available on the Company’s
website: www.ajot.co.uk. This includes strategy and management, Board
and committee membership and other appointments, appointment
and oversight of delegates, corporate structure and share capital,
remuneration, financial reporting and controls, company contracts, internal
controls, corporate governance and policies.

The Board is responsible for the approval of annual and half-year results
and other public documents and for ensuring that such documents
provide a fair, balanced and understandable assessment of the Company’s
position and prospects.

The Board’s role is to provide leadership within a framework of prudent
and effective controls that enable risk to be assessed and managed. It
is responsible for setting the Company’s standards and values and for
ensuring that its obligations to its Shareholders and other stakeholders
are understood and met. The Board sets the Company’s strategic aims
(subject to the Company’s Articles of Association, and to such approval
of the Shareholders in General Meeting as may be required from time to
time) and ensures that the necessary resources are in place to enable the
Company’s objectives to be met. The Articles of Association may only be
amended by way of a special resolution of shareholders.

The Board meets formally at least four times a year, with additional ad hoc
Board or Committee meetings arranged when required. The Directors have
regular contact with the Investment Manager and Company Secretary
between formal meetings. Full and timely information is provided to the
Board to enable it to function effectively and to allow Directors to discharge
their responsibilities.

At each meeting the Directors follow a formal agenda, which includes a
review of the Company’s NAV, share price, premium, financial position,
gearing levels, peer group performance, investment performance, asset
allocation and transactions and any other relevant business matters to
ensure that control is maintained over the affairs of the Company. The
Board monitors compliance with the investment restrictions required by the
FCA and s1158 of the Corporation Tax Act 2010, the Company’s objective,
investment, borrowing and hedging policies and reviews the investment
strategy. The Board regularly receives reports from the Investment
Manager on marketing and investor relations. The proceedings at all Board
and Committee meetings are fully recorded through a process that allows
any Director’s concerns to be recorded in the minutes.

AVI Japan Opportunity Trust plc Annual Report 2022SR

There is an agreed procedure for Directors to take independent
professional advice if necessary and at the Company’s expense.
This is in addition to the access that every Director has to the advice
and services of the Company Secretary, Link Company Matters Limited,
which is responsible to the Board for ensuring that Board procedures are
followed, and that applicable rules and regulations are complied with.

Board Composition
The Board is chaired by Norman Crighton, and consists of four
non-executive Directors who have all served throughout the year. All of
the Board are regarded as independent of the Company’s Investment
Manager, including the Chairman. The Directors have a breadth of
investment, financial and professional experience relevant to the
Company’s business and brief biographical details of each Director
are set out on page 37.

A review of Board composition and balance is included as part of the
annual performance evaluation of the Board, details of which may be
found below.

The Directors acknowledge the benefits of Board diversity and continual
review of the Board’s and individual Directors’ effectiveness, while
seeking to retain a balance of knowledge of the Company, diversity and
continuity in the relationship with the Investment Manager. The Board has
adopted a Diversity Policy in line with its commitment to ensuring that the
Company’s Directors bring a wide range of skills, knowledge, experience,
backgrounds and perspectives to the Board. The Board does not feel that
it would be appropriate to set targets as all appointments must be made
on merit. However, diversity generally will be taken into consideration when
evaluating the skills, knowledge and experience desirable to fill each Board
vacancy. The Board has established the following objectives for achieving
diversity on the Board:

• all Board appointments will be made on merit, in the context of the skills,
background, knowledge and experience that are needed for the Board
to be effective; and

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

candidates of appropriate merit.

The terms and conditions of Directors’ appointments are set out in formal
letters of appointment, copies of which are available for inspection on
request at the Company’s registered office during normal business hours
and at the Company’s AGM.

The Board notes the new FCA rules on diversity and inclusion on company
boards, namely that from accounting periods commencing on or after
1 April 2022 included in Listing Rule 9.8.6 (9-11):

• At least 40% of individuals on the Board to be women;
• At least one senior Board position to be held by a woman; and
• At least one individual on the Board to be from a minority ethnic

background.

The Company continues to develop its succession planning in line with
these recommendations and is opting to disclose its diversity data earlier
than required by the recommendations, for full transparency.

In accordance with Listing Rule 9 Annex 2.1, the below tables, in
prescribed format, show the gender and ethnic background of the
Directors at the year end.

Gender identity or sex

Men
Women
Not specified/
prefer not to say

Ethnic background

White British or other White
(including minority white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic group,
including Arab
Not specified/ prefer not to say

Number of
Board
members

Percentage
on the Board

Number of
senior positions
on the Board*

1
2

25%
50%

25%

–
1

Number of
Board
members

Percentage
on the Board

Number of
senior positions
on the Board*

2
–
1

–

–
1

50%
–
25%

–

–
25%

1
–
–

–

–
1

Listing Rule 9.8.6(9) includes only the positions of chair, chief executive, senior
independent director and chief financial officer in this category. Other than the
Chairman of the Board, the Company does not have these roles, as it is an
externally managed investment trust without employees and therefore this target
is not applicable. The Company has chosen to report against this target by
including the position of Audit Committee Chairman as a senior position.

The data in the above tables was collected through self-reporting by the
Directors, who were asked to indicate which of the categories specified
in the prescribed tables were most applicable to them.

Responsibilities of the Chairman, the Board and its Committees
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the affairs of the Company. The Company has
adopted a document setting out the responsibilities of the Chairman,
which is available on the website: www.ajot.co.uk.

Tenure
Directors are generally initially appointed by the Board, until the following
AGM when, as required by the Company’s Articles of Association, they will
stand for re-election by Shareholders. Thereafter, a Director’s appointment
is subject to an annual performance evaluation and the approval of
Shareholders at each AGM, in accordance with corporate governance
best practice.

Under the Articles of Association, Shareholders may remove a Director
before the end of his or her term by passing a special resolution at a
meeting, and may by ordinary resolution appoint another person who is
willing to act to be a Director in his or her place. A special resolution is
passed if more than 75% and an ordinary resolution if more than 50% of
the votes cast, in person or by proxy, are in favour of the resolution.

In accordance with the above and the AIC Code, all Directors will stand
for re-election at the 2023 AGM. The contribution and performance of the
Directors seeking re-election was reviewed by the Nomination Committee
at its meeting in March 2023, which recommended to the Board their
continuing appointment.

AVI Japan Opportunity Trust plc Annual Report 202242

Governance / Corporate Governance Statement continued

The Board has adopted a formal tenure policy for Directors based on
a continual review of performance. The Board does not believe that
length of service in itself necessarily disqualifies a Director from seeking
reappointment but, when making a recommendation, the Board takes
into account the ongoing requirements of the UK Corporate Governance
Code, including the need to refresh the Board and its Committees.
It is not anticipated that any of the Directors would normally serve in
excess of nine years. In exceptional circumstances, which would be fully
explained to Shareholders at the time, a one or two-year extension might
be appropriate.

Similarly, it is not anticipated that the Chairman will normally serve in
excess of nine years. However, in exceptional circumstances, which
would be fully explained at the time, a one or two-year extension might
be appropriate, given the entirely non-executive nature of the Board and
in particular where the Chairman has not been appointed in his position
for the entire duration of his tenure as a Director. As with all Directors,
the continuing appointment of the Chairman is subject to ongoing review
of performance, including a satisfactory annual evaluation, annual re-
election by Shareholders and may be further subject to the particular
circumstances of the Company at the time he or she intends to retire
from the Board.

Board Independence
All Directors are non-executive, have a range of other interests and are not
dependent on the Company itself. At the Nomination Committee meeting
in March 2023, the Directors reviewed their independence and confirmed
that all Directors remain wholly independent of the Investment Manager.
The Board has determined that all Directors are independent in character
and judgement and that their individual skills, broad business experience
and knowledge and understanding of the Company are of great benefit
to Shareholders.

There were no contracts subsisting during or at the end of the year in
which a Director of the Company is or was materially interested and which
is or was significant in relation to the Company’s business. No Director
has a contract of service with the Company and there are no agreements
between the Company and its Directors concerning compensation for loss
of office.

Directors’ Conflicts of Interest
The Company’s Articles of Association permit the Board to consider and,
if it sees fit, to authorise situations where a Director has an interest that
conflicts, or may possibly conflict, with the interests of the Company
(“situational conflicts”).

A schedule of interests for each Director is maintained by the Company
and reviewed at every Board meeting. The Board has a formal system
in place, in line with the Articles of Association for Directors, to declare
any new situational conflicts to be considered for authorisation by those
Directors who have no interest in the matter being considered. In deciding
whether to authorise a situational conflict, the non-conflicted Directors act
honestly and in good faith with a view to the best interests of the Company
and they may impose limits or conditions when giving the authorisation,
or subsequently, if they think this is appropriate. Any situational conflicts
considered, and any authorisations given, are recorded in the relevant
meetings’ minutes and the register of interests. The prescribed procedures
have been followed in deciding whether, and on what terms, to authorise
situational conflicts, and the Board believes that the system it has in place
for reporting and considering situational conflicts continues to operate
effectively. The Chairman has had no relationship that may have created
a conflict between his interests and those of the Company’s Shareholders.

Induction and Training
On appointment, the Company Secretary provides all Directors with
induction training. The training covers the Company’s investment strategy,
policies and practices. The Directors are also given regular briefings on
changes in law and regulatory requirements that affect the Company and
the Directors. It is the Chairman’s responsibility to ensure that the Directors
have sufficient knowledge to fulfil their role and Directors are encouraged
to attend industry and other seminars covering issues and developments
relevant to investment trust companies. Regular reviews of Directors’
training needs are carried out by the Chairman by means of the evaluation
process described below.

The Directors have access to the advice and services of the Company
Secretary through its appointed representative, who is responsible
for general secretarial functions and for assisting the Company with
compliance with its continuing obligations as a company listed on the
premium segment of the Official List. The Company Secretary is also
responsible for ensuring good information flows between all parties.

Directors’ Insurance and Indemnification
Directors’ and officers’ liability insurance cover was in place throughout
the year and remains in place at the date of this report. The Company’s
Articles of Association provide, subject to the provisions of UK legislation,
an indemnity for Directors in respect of costs which they may incur relating
to the defence of any proceedings brought against them arising out of their
positions as Directors, in which they are acquitted or judgment is given in
their favour by the Court. The Company has granted indemnity to Directors
to the extent permitted by law in respect of liabilities that may attach to
them in their capacity as Directors of the Company.

Board Committees
The Board delegates certain responsibilities and functions to the Audit
Committee and the Nomination Committee. Both Committees comprise all
Directors. The terms of reference for these Committees are available on the
website www.ajot.co.uk or via the Company Secretary.

Separate Remuneration and Management Engagement Committees have
not been established as the Board consists of only independent non-
executive Directors. The whole Board is responsible for setting Directors’
fees in line with the Remuneration Policy set out on page 45, which is
subject to periodic Shareholder approval. The investment management
agreement and performance of the Investment Manager is reviewed by the
Board as a whole on a regular basis, ensuring that the terms are fair and
reasonable and that its continuance, given the Company’s performance
over both short and longer terms, is in the best interests of the Company
and its Shareholders. The Board as a whole also reviews the terms of
appointment and performance of the Company’s other service providers.

Audit Committee
The Audit Committee comprises all Directors and is chaired by Katya
Thomson, who is a Chartered Accountant. The other Audit Committee
members have a combination of financial, investment and other experience
gained throughout their careers and the Board is satisfied that at least
one of the Audit Committee’s members has recent and relevant financial
experience. The Audit Committee as a whole is considered to have
competence relevant to the sector. All members of the Audit Committee
are independent. The Chairman of the Board is a member of the Audit
Committee but, in line with the AIC Code, does not chair it and was
considered independent on appointment. The Chairman’s membership
of the Audit Committee is considered appropriate given his extensive
knowledge of the Investment Trust sector.

The Report of the Audit Committee, which forms part of this Corporate
Governance Statement, can be found on pages 49 and 50.

AVI Japan Opportunity Trust plc Annual Report 2022SR

Nomination Committee
The Nomination Committee, consisting of all of the Directors and chaired
by Margaret Stephens, meets at least annually. The Nomination Committee
is responsible for ensuring that the Board has an appropriate balance
of skills and experience to carry out its duties, to select and propose
suitable candidates for appointment when necessary and for making
recommendations regarding the re-election of existing Directors.

When considering succession planning and tenure policy, the Nomination
Committee bears in mind the balance of skills, knowledge, experience,
gender and diversity of Directors, the achievement of the Company’s
investment objective and compliance with the Company’s Articles of
Association and the AIC Code. The Nomination Committee will make
recommendations when the recruitment of additional non-executive
Directors is required. Once a decision is made to recruit additional
Directors to the Board, a formal job description is drawn up. The Company
may use external agencies as and when recruitment becomes necessary.

The Nomination Committee also reviews and recommends to the Board
the Directors seeking re-election. Recommendation is not automatic and
will follow an annual performance evaluation of the Board, its Committees
and individual Directors and consideration of the Director’s independence.
The evaluation of individual Directors takes into account whether they
have devoted sufficient time and contributed adequately to the work of the
Board and its Committees. The evaluation of the Board and its Committees
considers the balance of experience, skills, independence, corporate
knowledge, its diversity, including gender, and how it works together.

The Nomination Committee met in March 2023 to carry out its annual
review of the Board, its composition and size and its Committees, the
results of which are detailed below. Notwithstanding the fact that all of the
current Directors have served for less than five years and in order to ensure
an orderly transition, the Nomination Committee has begun discussing
succession planning and agreed that a staggered approach will be taken
to replace the current Directors in due course and refresh the Board.

The current intention is for recruitment for the first two new Directors to
commence in 2025, with appointments to follow in 2026. Further changes
will then take place in the following years to refresh the entire Board. The
Nomination Committee has scheduled these Board changes in a manner
which will at times result in the Board consisting of five Directors, to ensure
an orderly handover of in particular the functions of the Chairman of the
Audit Committee and the Chairman of the Board. Further information on
succession planning and recruitment will be provided in future Annual
Reports, as and when appropriate.

Board and Committee Meeting Attendance
The table details the number of scheduled Board and Committee meetings
held during the year under review and the number of meetings attended by
each Director.

Norman Crighton
Yoshi Nishio
Margaret Stephens
Katya Thomson

Board

Audit
Committee

Nomination
Committee

4(4)
4(4)
4(4)
4(4)

2(2)
2(2)
2(2)
2(2)

1(1)
1(1)
1(1)
1(1)

The number in brackets denotes the number of meetings each was entitled
to attend.

The Directors also met on an ad hoc basis during the year to undertake
business, such as to discuss marketing arrangements and to review
portfolio developments with the Investment Manager.

Performance Evaluation
In January 2023, the Nomination Committee conducted a review of the
Board’s performance, together with that of its Committees, the Chairman
and each individual Director, as well as their independence. This was
conducted by way of individual discussions between the Nomination
Committee Chairman and, separately, Chairman of the Board, with each
Director, as well as a discussion between the Chairman of the Board and
the Nomination Committee Chairman. A summary of the findings was then
discussed at the Nomination Committee meeting held in March 2023. It
was concluded that the performance of the Board, its Committees, the
Chairman and each individual Director was satisfactory, and the Board
has a good balance of skills, knowledge and experience, and includes
individuals from different social, geographical and ethnic backgrounds.
It is considered that each of the Directors remains independent of the
Investment Manager, makes a significant contribution and devotes
sufficient time to the affairs of the Company, the Chairman continues to
display effective leadership and all Directors seeking re-election at the
Company’s AGM merit re-election by Shareholders.

Internal Control
The Board has overall responsibility for the Company’s system of internal
control and for reviewing its effectiveness. The Audit Committee supports
the Board in the continuous monitoring of the internal control and risk
management framework. The Board has established an ongoing process
for identifying, evaluating and managing the principal and new or emerging
risks faced by the Company. The process accords with the FRC’s
guidance on Risk Management, Internal Control and Related Business and
Financial Reporting published in September 2014.

The risk management process and system of internal control was in
operation throughout the year and up to the date of this report. The system
is designed to meet the specific risks faced by the Company and takes
account of the nature of the Company’s reliance on its service providers
and their internal controls. The system therefore manages rather than
eliminates the risk of failure to achieve the Company’s business objectives
and provides reasonable, but not absolute assurance against material
misstatement or loss.

In arriving at its judgement of what risks the Company faces, the Board,
through the Audit Committee, has considered the Company’s operations in
light of the following factors:

• the nature and extent of risks which it regards as acceptable for the

Company to bear within its overall business objective;

• the threat of such risks becoming reality;
• the Company’s ability to reduce the incidence and impact of risk on its

performance; and

• the extent to which third parties operate the relevant controls.

The Company maintains a risk matrix which identifies key risks faced by
the Company and controls in place to mitigate those risks. The risks are
assessed on the basis of the likelihood of them happening, the impact on
the business if they were to occur and the effectiveness of the controls in
place to mitigate against them. This risk matrix is reviewed twice a year by
the Audit Committee and at other times as necessary.

The Directors confirm that they have carried out a robust assessment of
the Company’s emerging and principal risks as identified by the Board,
which are set out on pages 35 and 36, as well as the controls in place to
manage or mitigate those risks.

AVI Japan Opportunity Trust plc Annual Report 202244

Governance / Corporate Governance Statement continued

The Board reviews financial information produced by the Investment
Manager and the Administrator on a regular basis. Most functions
for the day-to-day management of the Company are subcontracted,
and the Directors therefore obtain assurances and information, including
internal control reports, from key third-party suppliers regarding the internal
systems and controls operated in their respective organisations. During
the year under review, the Board also requested and reviewed updates
from key service providers on business continuity, cyber security and
fraud prevention.

Continued Appointment of the Investment Manager
The Board considers the arrangements for the provision of investment
management and other services to the Company on an ongoing basis.
In addition to the monitoring of investment performance at each Board
meeting, an annual review of the Company’s investment performance over
both the short and longer terms is undertaken.

Following an annual review, it is the Directors’ opinion that the continuing
appointment of AVI, the Investment Manager, on the existing terms, is in
the best interests of the Company and its Shareholders as a whole.

By order of the Board

For and on behalf of Link Company Matters Limited

Company Secretary
15 March 2023

By the means of the procedures set out above, the Board confirms that
it has reviewed, and is satisfied with, the effectiveness of the Company’s
system of internal control for the year ended 31 December 2022, and to
the date of approval of this Annual Report and Financial Statements.

During the course of its review of the system of internal control, the Board
has not identified nor been advised of any failings or weaknesses which it
has determined to be significant. Therefore, a confirmation in respect
of necessary actions has not been considered appropriate.

Internal Audit Function
As the Company is an externally managed investment company
with day-to-day management and administrative functions being
outsourced to third parties, and as the Company does not have executive
Directors, employees or internal operations, the Board does not consider
it necessary to establish an internal audit function, as it believes the
existing system of monitoring and reporting by the third parties to be
appropriate and sufficient.

Accountability and Relationship with AVI
The Statement of Directors’ Responsibilities in respect of the Financial
Statements is set out on page 48, the Independent Auditors’ Report on
pages 51 to 54 and the Viability Statement on page 17.

The Board has delegated contractually to external third parties, including
the Investment Manager, the management of the investment portfolio, the
custodial services (including the safeguarding of the assets), the day-to-day
accounting and cash management, company secretarial and administration
requirements and registration services. Each of these contracts was entered
into after full and proper consideration by the Board of the quality and
cost of the services offered, including the control systems in operation in
so far as they relate to the affairs of the Company. Further information on
management arrangements can be found on page 10.

The Board receives and considers regular reports from the Investment
Manager and ad hoc reports and information are supplied to the Board
as required. The Investment Manager takes decisions as to the purchase
and sale of individual investments. The Investment Manager also ensures
that all Directors receive, in a timely manner, all relevant management,
regulatory and financial information.

Representatives of AVI attend Board meetings, enabling the Directors
to probe further on matters of concern. The Board and the Investment
Manager operate in a supportive, co-operative and open environment.

AVI Japan Opportunity Trust plc Annual Report 2022Governance / Directors’ Remuneration Report

Directors’ Remuneration Policy
The Remuneration Policy provides details of the remuneration policy
for the Directors of the Company. The Remuneration Policy was
approved by Shareholders at the AGM of the Company held on 3 May
2022. Remuneration Policy Provisions apply until they are next put to
Shareholders for approval at intervals of not more than three years, or if
the Remuneration Policy is varied, in which event Shareholder approval for
the new Remuneration Policy will be sought. The Remuneration Policy is
provided below, which remains as approved at the 2022 AGM.

The Company follows the recommendation of the AIC Code of
Corporate Governance that non-executive Directors’ remuneration
should reflect the time commitment and responsibilities of the role. The
Board’s policy is that the remuneration of non-executive Directors should
reflect the experience of the Board as a whole and be determined from
time to time at the Board’s discretion with reference to comparable
organisations and appointments.

All Directors are non-executive, appointed under the terms of letters of
appointment. There are no service contracts in place. The Company has
no employees. In line with the majority of investment trusts and the AIC
Code, there are no performance conditions attached to the remuneration
of the Directors as the Board does not consider such arrangements or
benefits necessary or appropriate for non-executive Directors.

The Board has set three levels of fees: one for a Director and additional
fees for the Chairman of the Audit Committee and the Chairman of
the Board. Fees are reviewed annually in accordance with the above
policy. Annual fees are pro-rated where a change takes place during a
financial year. The fee for any new Director appointed to the Board will be
determined on the same basis.

In addition to the annual fee, under the Company’s Articles of Association,
any Director who is requested to perform services which, in the opinion of
the Board, go beyond the ordinary duties of a director, may be paid such
extra remuneration as the Board may in its discretion decide in addition
to or in substitution for any other remuneration that they may be entitled
to receive. Should any extra remuneration be paid during the year, details
of the events, duties and responsibilities that gave rise to the additional
Directors’ fees would be disclosed in the Annual Report. Directors are also
entitled to reimbursement of reasonable fees and expenses incurred by
them in the performance of their duties.

The approval of Shareholders would be required to increase the aggregate
annual Directors’ Remuneration limit of £250,000, as set out in the
Company’s Articles of Association.

None of the Directors has any entitlement to pensions or pension related
benefits, medical or life insurance schemes, share options, long-term
incentive plans, or performance related payments. No Director is entitled
to any other monetary payment or any assets of the Company, except
in their capacity (where applicable) as Shareholders of the Company.
Directors’ Letters of Appointment expressly prohibit any entitlement to
payment on loss of office.

Directors’ and Officers’ liability insurance cover is maintained by the
Company, at its expense, on behalf of the Directors. The Company has
also provided indemnities to the Directors in respect of costs or other
liabilities which they may incur in connection with any claims relating to
their performance or the performance of the Company whilst they
are Directors.

The Company is committed to ongoing Shareholder dialogue and any
views expressed by Shareholders on the fees being paid to Directors
would be taken into consideration by the Board when reviewing the
Directors’ Remuneration Policy and in the annual review of Directors’ fees.

Report on Implementation
This Report is prepared in accordance with Schedule 8 of the Large
and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2008 as amended in August 2013. The report
also meets the relevant requirements of the Companies Act 2006 (the
“Act”) and the Listing Rules of the FCA and describes how the Board has
applied the principles relating to Directors’ remuneration. The Company’s
Auditors are required to report on certain information contained within this
report; where information set out below has been audited it is indicated
as such.

All Directors are non-executive, and the Company has no chief
executive officer or employees; as such some of the reporting
requirements contained in the Regulations are not applicable and have
not been reported on, including the requirement for a future policy table
and an illustrative representation of the level of remuneration that could
be received by each individual Director. It is believed that all relevant
information is disclosed within this report in an appropriate format.

The Board may amend the level of remuneration paid to individual Directors
within the parameters of the Remuneration Policy.

Statement from the Chairman
As the Company has no employees and the Board is comprised wholly
of non-executive Directors, the Board has not established a separate
Remuneration Committee. Directors’ remuneration is determined by the
Board as a whole, at its discretion, within an aggregate set amount per
annum. This aggregate ceiling had been set at £250,000 in the Company’s
Articles of Association and in the Remuneration Policy as approved on
2 May 2022.

Each Director abstains from voting on their own individual remuneration.
The Board has not been provided with advice or services by any person
in respect of its consideration of the Directors’ remuneration.

During the year the Board carried out a review of the level of Directors’ fees
in accordance with the Remuneration Policy. As part of this review, the
Board considered the Company’s performance, the demands placed on
Directors’ time and the level of fees being paid to non-executive directors
in the Company’s peer group. Taking these matters into consideration, the
review concluded that the fees being paid to the Company’s Directors were
below the average. As a result, with effect from 1 January 2023, fees were
increased to £40,500 (previously £37,500) per annum for the Chairman,
£37,800 (previously £35,000) per annum for the Chairperson of the
Audit Committee and £35,100 (previously £32,500) per annum for other
Directors. The Board is satisfied that the changes to the remuneration of
the Directors are compliant with the Directors’ Remuneration Policy.

There have been no other major decisions on Directors’ remuneration or
any other changes to the remuneration paid to each individual Director in
the year under review.

Directors’ Emoluments (audited information)
Directors are only entitled to fixed fees at such rates as are determined
by the Board from time to time and in accordance with the Directors’
Remuneration Policy as approved by the Shareholders.

None of the Directors has any entitlement to pensions or pension-related
benefits, medical or life insurance schemes, share options, long-term
incentive plans, or performance-related payments. No Director is entitled
to any other monetary payment or any assets of the Company.
Accordingly, the Single Total Figure table below does not include columns
for any of these items or their monetary equivalents. Directors’ & Officers’
liability insurance is maintained and paid for by the Company on behalf
of the Directors.

AVI Japan Opportunity Trust plc Annual Report 202246

Governance / Directors’ Remuneration Report continued

In line with market practice, the Company has agreed to indemnify the Directors in respect of costs, charges, losses, liabilities, damages and expenses,
arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application
under Section 1157 of the Companies Act 2006, in connection with the performance of their duties as Directors of the Company. The indemnities would
also provide financial support from the Company should the level of cover provided by the Directors’ & Officers’ liability insurance maintained by the
Company be exhausted.

The Directors who served during the year received the following emoluments:

Single Total Figure Table (audited information)

Fees paid*

Taxable benefits

Name of Director

2022

2021

2022

2021

2022

140

Norman Crighton
Yoshi Nishio
Margaret Stephens
Katya Thomson

120

37,500
32,500
32,500
35,000

35,625
30,625
30,625
33,125

137,500

130,000

–
–
–
–

–

–
–
–
–

–

37,500
32,500
32,500
35,000

137,500

130,000

Total

2021

35,625
30,625
30,625
33,125

% change
2021-2022

% change
2020-2021

% change
2019-2020†

5.3%
6.1%
6.1%
5.7%

5.8%

1.8%
2.1%
2.1%
1.9%

12.7%
13.9%
15.2%
15.2%

2.0%

14.2%

100

* Excluding Employer’s National Insurance Contribution.
† The 2019 fees used to calculate the percentage change were for those paid in the period from 1 January 2019 to 31 December 2019, rather than the period from

IPO on 23 October 2018 to 31 December 2019, to provide a more accurate comparison.

Sums Paid to Third Parties (audited information)
None of the fees referred to in the above table were paid to any third party in respect of the services provided by any of the Directors.

Other Benefits
Taxable benefits – Article 105 of the Company’s Articles of Association provides that Directors are entitled to be reimbursed for reasonable expenses
incurred by them in connection with the performance of their duties and attendance at Board and General Meetings or any other meeting which they,
as Directors, are entitled to attend.

Pensions related benefits – Article 106 permits the Company to provide gratuities or pensions or similar benefits for Directors of the Company. However,
no pension schemes or other similar arrangements have been established and no Director is entitled to any pension or similar benefits.

Performance
The chart below illustrates the total Shareholder return for a holding in the Company’s shares, as compared to the MSCI Japan Small Cap (£ adjusted
total return), which the Board has adopted as the measure for both the Company’s performance and that of the Investment Manager for the year, over
the period since inception of the Company.

Total Shareholder Return vs MSCI Japan Small Cap

140

120

100

Dec 18 Mar 19

Jun 19

Sep 19 Dec 19 Mar 20

Jun 20

Sep 20 Dec 20 Mar 21

Jun 21

Sep 21

Dec 21

Mar 22

Jun 22

Sep 22

Dec 22

AVI Japan Opportunity Trust plc
MSCI Japan Small Cap Index (£ adjusted total return)

AVI Japan Opportunity Trust plc Annual Report 2022SR

Relative Importance of Spend on Pay
The table below shows the proportion of the Company’s income spent
on pay.

Spend on Directors’ fees*

Distribution to
Shareholders

Management fee and
other expenses**

2022
£’000

138

2021
£’000

130

2,151

1,885

2,322

2,115

Difference
£’000

266

207

* As the Company has no employees the total spend on remuneration comprises

only the Directors’ fees.

** Note: the items listed in the table above are as required by the Large and Medium
sized Companies and Groups (Accounts and Reports) (Amendment) Regulations
2013 s.20, with the exception of the management fee and other expenses,
which has been included because the Directors believe it will help Shareholders’
understanding of the relative importance of the spend on pay. The figures for this
measure are the same as those shown in note 3 to the financial statements.

Statement of Directors’ Shareholding and Share Interests
(audited information)
Neither the Company’s Articles of Association nor the Directors’ Letters
of Appointment require a Director to own shares in the Company. The
interests of the Directors and their connected persons in the equity and
debt securities of the Company at 31 December 2022 are shown in the
table below:

Statement of Voting at AGM
At the 2022 AGM, 42,261,853 votes (99.26%) were received voting for
the resolution seeking approval of the Directors’ Remuneration Report,
129,211 (0.30%) were against, 187,917 ( 0.44 %) were at the Chairman’s
discretion and 4,500 were withheld; the percentages of votes excludes
votes withheld. In relation to the approval of the Remuneration Policy which
was most recently approved at the 2022 AGM, 42,292,385 (99.33%) votes
were received for the resolution, 98,679 (0.23%) were against, 187,917
(0.44%) were at the Chairman’s discretion and 4,500 were withheld. The
percentages of votes excludes votes withheld.

Annual Statement
On behalf of the Board and in accordance with Part 2 of Schedule 8 of
the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013, I confirm that the above Report
on Remuneration Implementation summarises, as applicable, for the year
to 31 December 2022:

(a) the major decisions on Directors’ remuneration;

(b) any discretion which has been exercised in the award of Directors’

remuneration;

during the year; and

(d) the context in which the changes occurred and decisions have

been taken.

A resolution to approve this Directors’ Remuneration Report will be
proposed at the AGM to be held on 2 May 2023.

Name of Director

Norman Crighton
Yoshi Nishio
Margaret Stephens
Katya Thomson

Total

Ordinary Shares

26,575
–
10,000
10,000

46,575

Norman Crighton
Chairman
15 March 2023

There have been no changes to Directors’ interests between 31 December
2022 and the date of this Report.

AVI Japan Opportunity Trust plc Annual Report 202248

Governance / Statement of Directors’ Responsibilities
in Relation to the Annual Report and Financial Statements

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

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

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

• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and

prudent;

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

• prepare the financial statements on the going concern basis, unless it

is inappropriate to presume that the Company will continue in business;
and

• prepare a Directors’ report, a strategic report and Directors’

remuneration report which comply with the requirements of the
Companies Act 2006.

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

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

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

Directors’ Responsibilities Pursuant to DTR4
The Directors confirm to the best of their knowledge:

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

• The Annual Report includes a fair review of the development and

performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that
they face.

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

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

For and on behalf of the Board

Norman Crighton
Chairman
15 March 2023

AVI Japan Opportunity Trust plc Annual Report 2022Governance / Report from the Audit Committee

I am pleased to present the Audit Committee Report for the year ended
31 December 2022.

The Audit Committee (the “Committee”) met twice during the year under
review and once following the year end. The Company’s Auditors are
invited to attend meetings as necessary. Representatives of the Investment
Manager may also be invited.

Details of the composition of the Committee are set out in the Corporate
Governance Statement on page 42.

Responsibilities of the Committee
The Committee’s responsibilities are set out in formal terms of reference
which are available on the Company’s website and are reviewed at least
annually. The Committee’s primary responsibilities are set as follows:

• to monitor the integrity of the financial statements of the Company,
including its Annual and Half-Yearly reports and any other formal
announcements of the Company relating to its financial performance,
and to review and report to the Board on significant financial reporting
issues and judgements which those statements contain, having regard
to matters communicated to it by the Auditor;
• to review the Half-Yearly and Annual Reports;
• to review the Company’s internal financial controls and the internal

control and risk management systems of the Company and its third-
party service providers;

• to make recommendations to the Board in relation to the appointment

of the external auditor and their remuneration;

• to review the scope, results, cost effectiveness, independence and

objectivity of the external auditor;

• to develop and implement policy on the engagement of the external
auditor to supply non-audit services and consider relevant guidance
regarding the provision of non-audit services by the external audit firm;
and

• to review circulars issued in respect of major non-routine and corporate

transactions.

Activities in the Year
During the year, the Committee has:

• conducted a detailed review of the internal controls and risk

management systems of the Company and its third-party service
providers;

• reviewed the service levels provided by the Company’s Custodian and

Depositary;

• considered the emerging and principal risks facing the Company and the

mitigating controls in place;

• carried out a detailed review of the external Auditor’s performance

during the 2021 audit;

• agreed the audit plan and fees with the Auditor in respect of the Annual
Report for the year ended 31 December 2022, including the principal
areas of focus;

• reviewed the Company’s Half-Yearly Report and financial statements,

discussed the appropriateness of the accounting policies adopted and
recommended these to the Board for approval;

• assessed whether it was appropriate to prepare the Company’s financial
statements on a going concern basis and made recommendations to
the Board. This review included challenging the assumptions on viability
of the Company and reviewing stress tests focused on its ability to
continue to meet its liabilities;

• considered the appropriate level of dividend to be paid by the Company

for recommendation to the Board; and

• examined in detail the methodology and assumptions applied in valuing

the assets of the Company.

Following the year end, the Committee has received and discussed
with the Auditor their report on the results of the audit and reviewed this
Annual Report and Financial Statements, discussed the appropriateness
of the accounting policies adopted and recommended these to the Board
for approval.

Significant Issues
The Committee considered the following key issues in relation to
the Company’s financial statements during the year. A more detailed
explanation of the consideration of the issues set out below, and the steps
taken to manage them, is set out in the principal risks and uncertainties on
pages 35 and 36.

Valuation of Investments
The Committee considered the valuation of the investment portfolio.
The Company’s portfolio currently consists of quoted investments, which
are valued by reference to their bid prices on the relevant exchange.
Third-party fund valuations are received from the fund managers and
reviewed by the Directors. Any future unquoted or illiquid investments
will be valued by the Directors based on recommendations from the
Investment Manager’s pricing committee.

Maintaining Internal Controls
The Committee has considered carefully the internal control systems.
As the Company relies heavily on third-party suppliers, the Committee
monitors the services and control levels of all of its suppliers on an ongoing
basis, as explained below.

Going Concern and Long-term Viability of the Company
The Committee considered the Company’s financial requirements
for the next 12 months and concluded that it has sufficient resources to
meet its commitments. Consequently, the financial statements have been
prepared on a going concern basis. The Committee also considered the
longer-term viability statement within the Annual Report for the year ended
31 December 2022, covering a five-year period, and the underlying factors
and assumptions which contributed to the Committee deciding that this
was an appropriate length of time to consider the Company’s long-term
viability. The Company’s viability statement can be found on page 17.

Internal Controls
The Committee carefully considers the internal control systems by
continually monitoring the services and controls of its third-party
service providers.

The Committee reviewed the risk matrix at both of its meetings held during
the year under review and where appropriate it was updated. The results of
this ongoing process, as well as the principal risks identified, and controls
put in place to manage or mitigate these risks are detailed on pages 35
and 36 of this Report. The Committee received a report on internal control
and compliance from the Investment Manager and the Company’s other
service providers and no significant matters of concern were identified.

The Company does not have an internal audit function. During the
year, the Committee reviewed whether an internal audit function would
be of value and concluded that this would provide minimal additional
comfort at considerable extra cost to the Company. While the Committee
believes that the existing systems of monitoring and reporting by third
parties remain appropriate and adequate, it will continue, on an annual
basis, to actively consider possible areas within the Company’s controls
environment which may need to be reviewed in detail.

AVI Japan Opportunity Trust plc Annual Report 202250

Governance / Report from the Audit Committee continued

Independence and Objectivity of the Auditor
The Committee has considered the independence and objectivity
of the Auditor. No non-audit fees were paid to BDO LLP during the year
to 31 December 2022 (2021: £nil). The Committee is satisfied that the
Auditor has fulfilled its obligations to the Company and its Shareholders
and remains independent and objective.

Appointment of the Auditor
Following consideration of the performance of the Auditor, the services
provided during the year and a review of its independence and objectivity,
the Committee has recommended to the Board the re-appointment of
BDO LLP as Auditor to the Company.

Ekaterina Thomson
Chairperson of the Audit Committee
15 March 2023

External Auditor
BDO LLP has been the Auditor to the Company since launch in 2018. No
tender for the audit of the Company has been undertaken. In accordance
with the Competitions and Markets Authority Order, a competitive audit
tender must be carried out at least every ten years. The Company is
therefore required to carry out a tender no later than in respect of the
financial year ending 31 December 2029. The Committee will review the
continuing appointment of the Auditor on an annual basis and give regular
consideration to the Auditor’s fees and independence, along with matters
raised during each audit.

Audit fees and Non-audit Services provided by the Auditor
In accordance with the Company’s non-audit services policy, the Audit
Committee reviews the scope and nature of all proposed non-audit
services before engagement, to ensure that auditor independence and
objectivity are safeguarded. The policy includes a list of non-audit services
which may be provided by the Auditor provided there is no apparent threat
to independence, as well as a list of services which are prohibited.
Non-audit services are capped at 70.0% of the average of the statutory
audit fees for the preceding three years.

Information on the fees paid to the Auditor is set out in note 3 to the
Financial Statements on page 62.

Effectiveness of the External Audit
The Audit Committee monitors and reviews the effectiveness of the
external audit carried out by the Auditor, including a detailed review
of the audit plan and the audit results report, and makes recommendations
to the Board on the re-appointment, remuneration and terms of
engagement of the Auditor. This review takes into account the experience
and tenure of the audit partner and team, the nature and level of
services provided, and confirmation that the Auditor has complied with
independence standards. During the year to 31 December 2022, the
Committee carried out a detailed review of the quality and effectiveness
of the 2021 audit. The review was based on feedback requested from the
Investment Manager, the Administrator and the Company Secretary and
discussions with the Auditor. No serious issues were identified with regards
to the effectiveness of the external audit. Any concerns with effectiveness
of the external audit process would be reported to the Board.

AVI Japan Opportunity Trust plc Annual Report 2022SR

Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Company’s ability to continue as a
going concern for a period of at least 12 months from when the financial
statements are authorised for issue.

In relation to the Company’s reporting on how it has applied the UK
Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the Directors’ statement in the financial
statements about whether the Directors considered it appropriate to adopt
the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.

Overview

Key audit
matters

Valuation and ownership
of investments

2022

2021

✓

Materiality

£1.5m based on 1% of net assets
(£1.6m based on 1% of net assets)

An Overview of the Scope of our Audit
Our audit was scope by obtaining an understanding of the Company and
its environment, including the Company’s system of internal control, and
assessing the risks of material misstatement in the financial statements.
We also addressed the risk of management override of internal controls,
including assessing whether there was evidence of bias by the Directors
that may have represented a risk of material misstatement.

Key Audit Matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including
those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit, and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Governance / Independent Auditor’s Report
to the Members of AVI Japan Opportunities Trust plc

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 2022 and of its loss for the year then ended;

• have been properly prepared in accordance with UK adopted

international accounting standards; and

• have been prepared in accordance with the requirements of the

Companies Act 2006.

We have audited the financial statements of AVI Japan Opportunity Trust
plc (the ‘Company’) for the year ended 31 December 2022 which comprise
the Statement of Comprehensive Income, Statement of Changes in Equity,
Balance Sheet, Statement of Cash Flows and Notes to the Financial
Statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in their preparation is
applicable law and UK adopted international accounting standards.

Basis for Opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for
the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion. Our audit opinion is consistent with the
additional report to the Audit Committee.

Independence
Following the recommendation of the Audit Committee, we were appointed
by the Board of Directors on 8 October 2018 to audit the financial
statements for the year ended 31 December 2019 and subsequent
financial periods. The period of total uninterrupted engagement, including
retenders and reappointments, is four years, covering the years ended 31
December 2019 to 31 December 2022. We remain independent of the
Company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by that standard were not provided to
the Company.

Conclusions Relating to Going Concern
In auditing the financial statements, we have concluded that the Directors’
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors’
assessment of the Company’s ability to continue to adopt the going
concern basis of accounting included:

• Reviewing and assessing the cash flow forecasts used in Directors’
going concern assessment and the stress testing performed by
assessing them for reasonableness and performing our own more
severe stress-testing;

• An assessment of the financing facilities available to the Company,

including their nature and terms of repayment;

• Reviewing loan arrangements with the bank for covenants in place,

recalculating the period end covenant compliance and assessing future
covenant compliance and headroom under market downturn scenarios; and

• Assessing whether the Company has the ability to pay forecast

expenditure, in both the base and stress tested scenarios, taking
into account the liquidity of the Company’s investment portfolio. We
assessed the key assumptions being investment valuations and income
and expenditure against existing levels.

AVI Japan Opportunity Trust plc Annual Report 202252

Governance / Independent Auditor’s Report continued
to the Members of AVI Japan Opportunities Trust plc

HOW THE SCOPE OF OUR AUDIT ADDRESSED
THE KEY AUDIT MATTER

We responded to this matter by testing the valuation and ownership of 100% of the portfolio of
investments. We performed the following procedures:

• Compared the valuations used by management to independent third-party sources;

• Obtained direct independent confirmation from the custodian regarding the investments held at

year end;

• Recalculating the valuation by multiplying the number of shares held per the statement

obtained from the custodian by the valuation per share; and

• Assessed whether there were contra indicators, such as liquidity considerations to suggest
that the bid price was not the most appropriate indication of fair value by considering the
realisation period for individual holdings.

Key observations:
Based on our procedures performed we did not identify any matters to suggest the valuation or
ownership of the listed equity investments was not appropriate.

KEY AUDIT MATTER

Valuation and ownership of investments
(Notes 1, 8 and 14 to the financial
statements)
The investment portfolio at the year-end
comprised of listed equity investments.

There is a risk that the prices used for the listed
investments held by the Company are not
reflective of fair value and the risk that errors
made in the recording of investment holdings
result in the incorrect reflection of investments
owned by the Company.

Therefore, we considered the valuation and
ownership of investments to be the most
significant audit area, as investments represent
the most significant balance in the financial
statements and underpin the principal activity of
the Company.

For these reasons and the materiality of the
balance in relation to the financial statements as
a whole, we considered this to be a key audit
matter.

Our Application of Materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to
be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis
of the financial statements.

In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as
we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the
financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:

Materiality

COMPANY FINANCIAL STATEMENTS

2022

£1,500,000

2021

£1,600,000

Basis for determining materiality

1% of net assets

Rationale for the benchmark applied

Our audit materiality was set at 1% of net assets as it is the most relevant metric for investors
and a driver of shareholder value. In setting materiality, we have had regard to the nature and
disposition of the investment portfolio.

Performance materiality

£1,120,000

£1,200,000

Basis for determining performance materiality

75% of materiality

The level of performance materiality applied was set after having considered a number of
factors, including the expected total value of known and likely misstatements and the level of
transactions in the year.

Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £30,000 (2021: £32,000). We also agreed
to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

AVI Japan Opportunity Trust plc Annual Report 2022SR

Other Information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report other than the
financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is
materially consistent with the financial statements or our knowledge obtained during the audit.

Going concern and
longer-term viability

• The Directors’ statement with regards to the appropriateness of adopting the going concern basis of

accounting and any material uncertainties identified set out on page 48; and

• The Directors’ explanation as to their assessment of the Company’s prospects, the period this assessment

covers and why the period is appropriate set out on page 48.

Other Code provisions

• Directors’ statement on fair, balanced and understandable set out on page 48;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out

on page 35 and 36;

• The section of the Annual Report that describes the review of effectiveness of risk management and internal

control systems set out on page 43 and 44; and

• The section describing the work of the Audit Committee set out on page 49 and 50.

Other Companies Act 2006 Reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and
ISAs (UK) to report on certain opinions and matters as described below.

Strategic report and
Directors’ report

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic report and the Directors’ report for the financial year for which the

financial statements are prepared is consistent with the financial statements; and

• the Strategic report and the Directors’ report have been prepared in accordance with applicable legal

requirements.

In the light of the knowledge and understanding of the Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the Strategic report or the Directors’ report.

Directors’ remuneration

In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in
accordance with the Companies Act 2006.

Matters on which we
are required to report
by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received

from branches not visited by us; or

• the financial statements and the part of the Directors’ remuneration report to be audited are not in

agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

AVI Japan Opportunity Trust plc Annual Report 202254

Governance / Independent Auditor’s Report continued
to the Members of AVI Japan Opportunities Trust plc

We also addressed the risk of management override of internal controls,
including testing a sample of journals and evaluating whether there was
evidence of bias by the Directors that represented a risk of material
misstatement.

We have communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and remained alert
to any indications of fraud or non-compliance with laws and regulations
throughout the audit.

Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through
collusion. There are inherent limitations in the audit procedures performed
and the further removed non-compliance with laws and regulations is from
the events and transactions reflected in the financial statements, the less
likely we are to become aware of it.

A further description of our responsibilities is available on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.

Use of Our Report
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.

Chris Meyrick (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK

15 March 2023

BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).

Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities in
Relation to the Annual Report and Financial Statements, the Directors are
responsible for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal control as
the Directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud
or error.

In preparing the financial statements, the Directors are responsible
for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend
to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.

Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws
and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below:

We gained an understanding of the legal and regulatory framework
applicable to the entity and the industry in which it operates and
considered the risk of acts by the Company which would be contrary to
applicable laws and regulations, including fraud. These included but were
not limited to compliance with Companies Act 2006, the FRC listing and
DTR rules, the principles of the UK Corporate Governance Code and
industry practice represented by the Statement of Recommended Practice
(SORP). We also considered the Company’s qualification as an investment
company under UK tax legislation as any breach of this would lead to the
Company being penalised.

We focused on laws and regulations that could give rise to a material
misstatement in the Company financial statements. Our tests included:

• obtaining an understanding of the control environment in monitoring

compliance with laws and regulations;

• agreement of the financial statement disclosures to underlying

supporting documentation;

• enquiries of management and those charged with governance of

any known, reported or indications of non-compliance with laws and
regulations, including fraud occurring within the Company and its
operations; and

• review of minutes of Board meetings throughout the period for any

instances of non-compliance with laws and regulations.

AVI Japan Opportunity Trust plc Annual Report 2022AVI Japan Opportunity Trust plc Annual Report 2022

Financial Statements / Statement of Comprehensive Income
For the year ended 31 December 2022

For the year ended 31 December 2022

For the year ended 31 December 2021

Income
Investment income
(Losses)/gains on investments held at fair value
Exchange gains/(losses) on currency balances

Expenses
Investment management fee
Other expenses

Profit/(loss) before finance costs and tax
Finance costs
Exchange (losses)/gains on revolving credit facility

Profit/(loss) before taxation
Taxation

Profit/(loss) for the year

Earnings per Ordinary Share

2
8

3
3

4
4

Revenue
return
£’000

Capital
return
£’000

Notes

–
(7,657)
950

3,667
–
–

3,667

Total
£’000

3,667
(7,657)
950

Revenue
return
£’000

Capital
return
£’000

3,190
–
–

–
15,646
(612)

Total
£’000

3,190
15,646
(612)

(6,707)

(3,040)

3,190

15,034

18,224

(152)
(806)

(1,364)
–

(1,516)
(806)

(145)
(668)

(1,302)
–

(1,447)
(668)

2,709
(21)
–

2,688
(377)

(8,071)
(187)
(1,044)

(5,362)
(208)
(1,044)

2,377
(21)
–

13,732
(187)
1,956

16,109
(208)
1,956

(9,302)
–

(6,614)
(377)

2,356
(326)

15,501
–

17,857
(326)

2,311

(9,302)

(6,991)

2,030

15,501

17,531

1.69p

(6.79p)

(5.10p)

1.55p

11.89p

13.44p

The total column of this statement is the Income Statement of the Company prepared in accordance with International Accounting Standards in
conformity with the requirements of UK IFRS. The supplementary revenue and capital columns are presented in accordance with the Statement of
Recommended Practice issued by the Association of Investment Companies (“AIC SORP”).

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

There is no other comprehensive income, and therefore the loss for the year after tax is also the total comprehensive income.

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

Financial Statements / Statement of Changes in Equity
For the year ended 31 December 2022

Ordinary
Share capital
£’000

Share
premium
£’000

For the year ended 31 December 2022
Balance as at 31 December 2021
Issue of Ordinary Shares
Expenses of share issues
Ordinary Shares issued from treasury
Ordinary Shares bought back and held in treasury
Total comprehensive income for the year
Ordinary dividends paid

Balance as at 31 December 2022

For the year ended 31 December 2021
Balance as at 31 December 2020
Issue of Ordinary Shares
Expenses of share issue
Ordinary Shares bought back and held in treasury
Total comprehensive income for the year
Ordinary dividends paid

Balance as at 31 December 2021

1,332
43
–
–
–
–
–

1,375

1,175
157
–
–
–
–

1,332

Special
reserve*
£’000

77,324
–
(6)
270
(435)
–
–

Capital
reserve*
£’000

Revenue
reserve**
£’000

25,230
–
–
–
–
(9,302)
–

1,461
–
–
–
–
2,311
(1,988)

Total
£’000

160,721
4,892
(99)
295
(435)
(6,991)
(1,988)

55,374
4,849
(93)
25
–
–
–

60,155

77,153

15,928

1,784

156,395

38,242
17,818
(686)
–
–
–

77,588
–
–
(264)
–
–

55,374

77,324

9,729
–
–
–
15,501
–

25,230

1,216
–
–
–
2,030
(1,785)

127,950
17,975
(686)
(264)
17,531
(1,785)

1,461

160,721

* Distributable reserves. Within the balance of the capital reserve, £12,705,000 (31 December 2021: £5,544,000) relates to realised gains which is distributable by way

of dividend. The remaining £4,156,000 (31 December 2021: £21,074,000) relates to unrealised gains on investments and is non-distributable.

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

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

AVI Japan Opportunity Trust plc Annual Report 2022Financial Statements / Balance Sheet
As at 31 December 2022

Non-current assets
Investments held at fair value through profit or loss

Current assets
Receivables
Cash and cash equivalents

Total assets

Current liabilities
Revolving credit facility
Other payables

Total assets less current liabilities

Non-current liabilities
Revolving credit facility

Net assets

Equity attributable to equity Shareholders
Ordinary Share capital
Share premium
Special reserve
Capital reserve
Revenue reserve

Total equity

As at
31 December
2022
£’000

As at
31 December
2021
£’000

Notes

10
10

164,323

171,249

164,323

171,249

196
7,792

7,988

404
8,165

8,569

172,311

179,818

–
(384)

(384)

(18,787)
(310)

(19,097)

171,927

160,721

(15,532)

–

156,395

160,721

1,375
60,155
77,153
15,928
1,784

1,332
55,374
77,324
25,230
1,461

156,395

160,721

Net asset value per Ordinary Share – basic and diluted

114.11p

120.87p

Number of shares in issue excluding treasury

137,061,702

132,970,702

These financial statements were approved and authorised for issue by the Board of AVI Japan Opportunity Trust plc on 15 March 2023 and were signed
on its behalf by:

Norman Crighton

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

Registered in England & Wales No. 11487703

AVI Japan Opportunity Trust plc Annual Report 2022
58

Financial Statements / Statement of Cash Flows
For the year ended 31 December 2022

Reconciliation of (loss)/profit before taxation to net cash inflow from operating activities
(Loss)/profit before taxation
Losses/(gains) on investments held at fair value through profit or loss
Decrease in other receivables
Exchange losses/(gains) on revolving credit facility
Exchange (gains)/losses on currency balances
Interest paid
Increase in other payables
Taxation paid

Net cash inflow from operating activities

Investing activities
Purchases of investments
Sales of investments

Net cash outflow from investing activities

Financing activities
Dividends paid
Issue of shares
Issue of Ordinary Shares from treasury
Cost of share issues
Payments for Ordinary Shares bought back and held in treasury
Repayment of revolving credit facility
Drawdown of revolving credit facility
Interest paid

Cash (outflow)/inflow from financing activities

Increase in cash and cash equivalents

Reconciliation of net cash flow movement
Cash and cash equivalents at beginning of year
Exchange losses on currency balances
Increase in cash and cash equivalents

Cash and cash equivalents at end of year

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

31 December
2022
£’000

31 December
2021
£’000

(6,614)
7,657
71
1,044
(737)
190
74
(377)

1,308

17,857
(15,646)
316
(1,956)
694
187
7
(326)

1,133

(55,223)
54,628

(62,903)
44,036

(595)

(18,867)

(1,988)
4,923
264
(99)
(435)
(9,013)
5,999
(190)

(1,785)
17,975
–
(686)
(264)
–
5,512
(187)

(539)

20,565

174

2,831

8,165
(547)
174

6,028
(694)
2,831

7,792

8,165

AVI Japan Opportunity Trust plc Annual Report 2022Financial Statements / Notes to the Financial Statements
For the year ended 31 December 2022

1 General Information and Accounting Policies
AVI Japan Opportunity Trust plc is a public limited company incorporated on 27 July 2018 and registered in England and Wales. The principal activity
of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and its investment
approach is detailed in the Strategic Report.

The Company commenced trading and was listed on the London Stock Exchange on 23 October 2018.

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

Basis of Preparation
The financial statements of the Company have been prepared for the year ended 31 December 2022.

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by The AIC, supplementary information
which analyses the Statement of Comprehensive Income between items of revenue and a capital nature has been prepared alongside the Statement
of Comprehensive Income.

The Company invests in Japan with subsequent cash flows (dividend receipts and interest payments) being received in Japanese Yen, however the
Directors consider the Company’s functional currency to be Pounds Sterling as the Shares of the Company are listed on the London Stock Exchange,
it is regulated in the United Kingdom, principally having its Shareholder base in the United Kingdom, and pays dividend and expenses in Pounds Sterling.
The Directors have chosen to present the financial statements in Pounds Sterling rounded to the nearest thousand, except where otherwise indicated.

Going Concern
The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue
to be met. The Directors have made an assessment of the Company’s ability to continue as a going concern based on detailed profit & loss and cash
flow forecasts, covering the period up to and including 31 December 2024. These forecasts have been ‘stressed’ for inflation, as well as a severe but
plausible and sudden downturn in market conditions under which it is assumed that the investment portfolio will lose 45% of its value. Even under this
extreme ‘stress’ scenario, the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date
when these financial statements were approved. The Directors also regularly assess the resilience of key third-party service providers, most notably the
Investment Manager and Fund Administrator. The Directors do not have any concerns about the financial viability of the Company’s third-party service
providers. In making their assessment, the Directors have considered the likely impacts of international and economic uncertainties on the Company,
operations and the investment portfolio. These include, but are not limited to, another global event similar to the COVID–19 pandemic, the war in
Ukraine, political and economic instability in the UK, supply shortages and inflationary pressures. The Directors noted that the Company, with the current
cash balance and holding a portfolio of liquid listed investments, is able to meet the obligations of the Company as they fall due.

The Investment Manager assesses the exposure to risk when making each investment decision, monitors cash flows and the performance of the
portfolio on a daily basis.

The current cash balance plus available additional borrowing, through the revolving credit facility (extended for two years to February 2024 during
February 2022), enables the Company to meet any funding requirements and finance future additional investments. The Company is a closed–ended
fund, where assets are not required to be liquidated to meet day–to–day redemptions.

The Company’s IPO Prospectus stated Directors may, at their discretion, deliver a full or a partial exit opportunity to Shareholders during October 2022
and every two years thereafter. Through consultation with Shareholders representing a significant majority of the shares in issue, during the summer
of 2022, the Company established that Shareholders who expressed an opinion were supportive of the Company forgoing the administrative burden
and expense of an exit opportunity in October 2022. The mechanism for any future exit opportunity would be dependent on various factors, including
the number of Shareholders seeking to participate in the exit opportunity, the liquidity of the underlying market and/or the demand for Shares from
other investors. The Directors have reviewed the Shareholders of the Company, Shareholder feedback received during the consultation in relation to
the first potential exit opportunity during the year under review, the current market position and performance. It is anticipated no significant uptake by
Shareholders of any potential realisation opportunity in 2024 is expected and the Company will continue as a going concern.

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

Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.

The Company invests in companies listed in Japan on recognised exchanges.

AVI Japan Opportunity Trust plc Annual Report 202260

Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2022

1 General Information and Accounting Policies continued
Accounting Developments
In the year under review, the Company has applied amendments to IFRS issued by the IASB adopted in conformity with UK IFRS. These include annual
improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. This
incorporated:

• Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); and
• Annual improvements to IFRS Standards.

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

There are amendments to IAS/IFRS that will apply from 1 January 2023 as follows:

• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income Taxes.

Amendments to IAS/IFRS applicable from 1 January 2024 are:

• Classification of liabilities as current or non–current (Amendments to IAS 1); and
• Non–current liabilities with Covenants (Amendments to IAS 1).

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

Critical Accounting Judgements and Key Sources of Estimation Uncertainty
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts in the Balance Sheet, the Statement of Comprehensive Income and the disclosure of contingent assets
at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The areas requiring judgement and estimation in the preparation of the financial statements are: recognising and classifying unusual or special dividends
received as either revenue or capital in nature; allocation of expenses between capital and income, and setting of the level of dividends paid and
proposed.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future
periods. There are no further significant judgements or estimates in these financial statements.

Investments
The investment objective of the Company is to provide Shareholders with a total return in excess of the MSCI Japan Small Cap Index in GBP, through
the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by the Investment Manager as
undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or realisable assets.

The investments held by the Company are measured ‘at fair value through profit or loss’. All gains and losses are allocated to the capital return within the
Statement of Comprehensive Income as ‘Gains or losses on investments held through profit or loss’. Also included within this heading are transaction
costs in relation to the purchase or sale of investments. When a purchase or sale is made under a contract, the terms of which require delivery within the
timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair
value, which is the bid price. The Company derecognises a financial asset only when the contractual right to the cash flows from the asset expire, or
when it transfers the financial asset and subsequently all the risks and rewards of ownership to another entity. On derecognition of a financial asset, the
difference between the asset’s carrying amount and the sum of the consideration received and receivable, and the cumulative gain or loss that had been
accumulated is recognised in profit or loss.

All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 14.

Foreign currency
Transactions denominated in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the date of transaction. Items
which are denominated in foreign currencies are translated at the rates prevailing on the Balance Sheet date. Any gain or loss arising from a change in
exchange rate subsequent to the date of the transaction is included as exchange gain or loss in the capital reserve or revenue, reserve depending on
whether the gain or loss is capital or revenue in nature.

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

For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents.

AVI Japan Opportunity Trust plc Annual Report 2022SR

1 General Information and Accounting Policies continued
Receivables and payables
Receivables and payables are short term in nature, do not carry any interest, effective interest is not applied and are measured where applicable at
amortised cost revalued for exchange rate movements.

Revolving Credit Facility
The revolving credit facility is shown at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange
rates is included in the capital reserve and shown in the capital column of the Statement of Comprehensive Income.

Income
Dividends receivable on quoted equity shares are taken to revenue on an ex–dividend basis. Dividends receivable on equity shares where no ex–dividend
date is quoted are brought into account when the Company’s right to receive payment is established. Fixed returns on non–equity shares are recognised
on a time–apportioned basis. Dividends from overseas companies are shown gross of any withholding taxes. Irrecoverable withholding taxes are
disclosed within taxation in the Statement of Comprehensive Income.

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

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

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

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

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

The tax charge consists of overseas tax not recoverable.

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

Dividends Payable to Shareholders
Dividends to Shareholders are recognised as a liability when approved in a general meeting and the liability derecognised when paid.

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

• costs associated with the issue of equity; and
• premium on the issue of shares.

Special Reserve
The special reserve was created by the cancellation of the share premium account by order of the court and forms part of the distributable reserves.
The following items are taken to this reserve:

• costs of share buybacks.

Capital Reserve
The following are taken to the capital reserve through the capital column in the Statement of Comprehensive Income:

Capital reserve – other, forming part of the distributable reserves:

• gains and losses on the disposal of investments;
• issue expenses on revolving credit facility;
• exchange differences of a capital nature; and
• expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies.

Capital reserve – investment holding gains, not distributable:

• increase and decrease in the valuation of investments held at the year end.

Revenue Reserve
The revenue reserve represents the surplus of accumulated profits and is distributable by way of dividends.

AVI Japan Opportunity Trust plc Annual Report 202262

Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2022

2 Income

Income from investments
Overseas dividends
Bank and deposit interest
Exchange losses on receipt of income*

Total income

* Exchange movements arise from ex–dividend date to payment date.

3 Investment Management Fee and Other Expenses

31 December
2022
£’000

31 December
2021
£’000

3,772
(24)
(81)

3,667

3,265
(30)
(45)

3,190

Management fee

152

1,364

1,516

145

1,302

1,447

Year ended 31 December 2022

Year ended 31 December 2021

Revenue
£’000

Capital
£’000

Total
£’000

Revenue
£’000

Capital
£’000

Total
£’000

Other expenses:
Directors’ emoluments – fees
Directors’ insurances & other expenses
Directors’ National Insurance Contributions
Auditor’s remuneration – audit services
Marketing
Printing and postage costs
Registrar fees
Custodian fees
Depositary fees
Advisory and professional fees
Regulatory fees
Irrecoverable VAT

Total other expenses

138
12
15
47
212
27
18
28
32
240
29
8

806

–
–
–
–
–
–
–
–
–
–
–

–

138
12
15
47
212
27
18
28
32
240
29
8

806

130
11
13
41
102
26
18
33
33
237
24
–

668

–
–
–
–
–
–
–
–
–
–
–
–

–

130
11
13
41
102
26
18
33
33
237
24
–

668

The management fee of 1% per annum is calculated on the lesser of the Company’s NAV or Market Capitalisation at each quarter end. The Investment
Manager will invest 25% of the management fee it receives in shares of the Company (through open market purchases) and will hold these for
a minimum of two years.

4 Finance Costs

JPY revolving credit facility
Exchange (loss)/gain on JPY revolving credit facility*

* Revaluation of revolving credit facility.

Year ended 31 December 2022

Year ended 31 December 2021

Revenue
return
£’000

(21)
–

Capital
return
£’000

(187)
(1,044)

Total
£’000

(208)
(1,044)

Revenue
return
£’000

(21)
–

Capital
return
£’000

(187)
1,956

Total
£’000

(208)
1,956

Details of the revolving credit facility are set out in notes 10 and 11.

AVI Japan Opportunity Trust plc Annual Report 2022SR

5 Taxation

Analysis of charge for the year
Overseas tax not recoverable*

Tax charge for the year

Year ended 31 December 2022

Year ended 31 December 2021

Revenue
return
£’000

Capital
return
£’000

377

–

Total
£’000

377

Revenue
return
£’000

Capital
return
£’000

284

–

Total
£’000

284

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

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

Year ended 31 December 2022

Year ended 31 December 2021

Revenue
return
£’000

Capital
return
£’000

Total
£’000

Revenue
return
£’000

Capital
return
£’000

Total
£’000

Return on ordinary activities after interest payable
but before appropriations

2,688

(9,302)

(6,614)

2,356

15,501

17,857

Theoretical tax at UK corporation tax rate of 19%

(2021: 19%)

511

(1,767)

(1,256)

448

2,945

3,393

Effects of:
– Tax – exempt overseas investment income
– Foreign exchange (gains)/losses not taxable
– (Losses)/gains on investments and exchange

losses on capital items

– Excess management expenses carried forward
– Movement in non-trading loan relationship deficit

not utilised

– Overseas tax not recoverable

Tax charge for the year

(717)
15

–
182

9
377

377

–
18

1,455
259

35
–

–

(717)
33

1,455
441

44
377

377

(612)
–

–
164

–
326

326

–
–

(2,856)
(89)

–
–

–

(612)
–

(2,856)
75

–
326

326

At 31 December 2022, the Company had unrelieved tax losses of £8,758,000 (31 December 2021: £4,458,000) that are available to offset future taxable
revenue. A deferred tax asset of £2,189,000 (31 December 2021: £1,114,000), which has been calculated using a corporation tax rate of 25% (2021:
25%), has not been recognised because the Company is not expected to generate sufficient taxable income in future periods to utilise these tax losses.

Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends
to continue for the foreseeable future to meet) the conditions for approval as an investment trust company.

6 Dividends

Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 0.70p (2020: 0.65p) per Ordinary Share
Interim dividend for the year ended 31 December 2022 of 0.75p (2021: 0.70p) per Ordinary Share

31 December
2022
£’000

31 December
2021
£’000

960
1,028

860
925

1,988

1,785

Set out below are the interim and final dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the
requirements of Section 1159 of the Corporation Tax Act 2010 are considered:

Interim dividend for the year ended 31 December 2022: 0.75p (2021: 0.70p) per Ordinary Share
Proposed final dividend for the year ended 31 December 2022 of 0.80p (2021: 0.70p) per Ordinary Share

* Based on shares in circulation on 9 March 2023.

31 December
2022
£’000

31 December
2021
£’000

1,028
1,123*

2,151

925
960

1,885

AVI Japan Opportunity Trust plc Annual Report 202264

Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2022

7 Earnings per Ordinary Share
The earnings per Ordinary Share is based on the Company’s net loss after tax of £6,991,000 (year ended 31 December 2021: profit of £17,531,000) and
on 136,908,472 (year ended 31 December 2021: 130,418,782) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during
the year.

The earnings per Ordinary Share detailed above can be further analysed between revenue and capital as follows:

Year ended 31 December 2022

Year ended 31 December 2021

Revenue

Capital

Total

Revenue

Capital

Total

Net profit/(loss) (£’000)
Weighted average number of Ordinary Shares

2,311

(9,302)

(6,991)
136,908,472

2,030

15,501

17,531
130,418,782

Earnings per Ordinary Share

1.69p

(6.79p)

(5.10p)

1.55p

11.89p

13.44p

There are no dilutive instruments issued by the Company.

8 Investments Held at Fair Value Through Profit or Loss

Financial assets held at fair value
Opening book cost
Opening investment holding gains

Opening fair value

Movement in the year:
Purchases at cost: Equities
Sales proceeds: Equities
– realised gains on equity sales
(Decrease)/increase in investment holding gains

Closing fair value

Closing book cost
Closing investment holding gains

Closing fair value

Transaction costs
Cost on acquisition
Cost on disposals

Analysis of capital gains
Gains on sales of financial assets based on historical cost
Movement in investment holding gains for the year

Net (losses)/gains on investments held at fair value

31 December
2022
£’000

31 December
2021
£’000

152,677
18,572

127,909
8,707

171,249

136,616

55,224
(54,493)
7,215
(14,872)

62,834
(43,847)
5,780
9,866

164,323

171,249

160,623
3,700

152,677
18,572

164,323

171,249

Year ended
31 December
2022
£’000

Year ended
31 December
2021
£’000

32
30

35
26

7,215
(14,872)

5,780
9,866

(7,657)

15,646

The Company received £54,493,000 (year ended 31 December 2021: £43,847,000) from investments sold in the year. The book cost of these
investments when they were purchased was £47,278,000 (year ended 31 December 2021: £38,067,000). These investments have been revalued over
time and until they were sold any unrealised gains or losses were included in the fair value of the investments.

The Company has five interests amounting to an investment of 3% or more of the equity capital which are set out in the Investment Portfolio on page 34.

AVI Japan Opportunity Trust plc Annual Report 2022
9 Receivables

Due from brokers
Dividends receivables
VAT recoverable
Prepayments

No receivables are past due or impaired.

10 Current Liabilities

Revolving credit facility

Payables:
Management fees
Interest payable
Purchases for future settlement
Accrued expenses

Total current liabilities

11 Non-Current Liabilities

Revolving credit facility

Total

2022
£’000

–
159
10
27

196

2021
£’000

136
215
18
35

404

2022
£’000

2021
£’000

–

18,787*

124
51
1
208

384

2022
£’000

15,532*

15,532

133
66
–
111

310

19,097

2021
£’000

–

The facility was extended to February 2024 being greater than 12 months (2021: less than 12 months) from the Balance Sheet date and is considered a Non-current
liability. The facility may be repaid at the discretion of the Company at any point in time.

Revolving Credit Facility
Effective 2 February 2022, the Company extended the revolving credit facility (“the facility”) for a further two years to 2 February 2024, with the ¥1.4 billion
option removed to leave a facility size of ¥2.93 billion. Interest is charged at the Tokyo Overnight Average Rate (“TONAR”) (if TONAR – the reference rate
is less than zero this shall be deemed to be zero). The interest is payable bi-annually, and the current interest rate (and also the effective rate) is 1.15%.
Prior to 2 February 2022, interest was charged at LIBOR plus 0.95% and the other terms set out below remain unchanged.

When less than 50% of the facility is utilised, commitment fees of 0.375% are charged on undrawn balances. If over 50% is drawn down, 0.325% is
payable on the undrawn amount. As at the date of this report, the Company has drawn down ¥2.465 billion of the facility and the commitment fee is
payable. The commitment fees are payable quarterly.

Under the terms of the facility, the net assets shall not be less than £75 million and the adjusted total net assets to borrowing ratio shall not be less
than 4.5:1.

The facility is shown at amortised cost and revalued for exchange rate movements. Costs of £20,000 were incurred in relation to the extension of the
facility. Any gain or loss arising from changes in exchange rates are included in the capital reserves and shown in the capital column of the Statement of
Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company’s accounting policies.

AVI Japan Opportunity Trust plc Annual Report 202266

Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2022

12 Share Capital

Alloted, called up and fully paid

Balance at beginning of year
Issue of Ordinary Shares

Treasury shares:
Balance at beginning of year
Issue of Ordinary Shares from treasury
Buyback of Ordinary Shares into treasury
Balance at end of year

Total Ordinary Share capital excluding treasury shares

As at 31 December 2022
Ordinary Shares of 1p each

Nominal
value
£’000

1,332
43

1,375

Number
of shares

133,220,702
4,241,000

137,461,702

250,000
(250,000)
400,000
400,000

137,061,702

During the year ended 31 December 2022, 4,491,000 (31 December 2021: 15,730,960) Ordinary Shares were issued for a net consideration
of £4,824,000 (31 December 2021: £17,289,000), including 250,000 Ordinary Shares issued from treasury (31 December 2021: Nil).

During the year, 400,000 Ordinary Shares (31 December 2021: 250,000) were bought back and placed in treasury for an aggregate consideration
of £171,000 (31 December 2021: £264,000).

13 NAV per Ordinary Share
The NAV per Ordinary Share is based on net assets of £156,395,000 (31 December 2021: £160,721,000) and on 137,061,702 (31 December 2021:
132,970,702) Ordinary Shares, being the number of Ordinary Shares in issue at the year end.

14 Financial Instruments and Capital Disclosures
Investment Objective and Policy
The investment objective of the Company is to achieve a total return through a focused portfolio of investments, particularly in companies whose share
prices stand at a discount to estimated underlying NAV.

The Company’s investment objective and policy are detailed on page 10.

The Company’s financial instruments comprise equity investments, cash balances, receivables, payables and borrowings. The Company makes use of
borrowings to achieve improved performance in rising markets.

Risks
The risks identified arising from the financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency risk),
liquidity risk and credit and counterparty risk. The Company may also enter into derivative transactions to manage risk.

The Board and Investment Manager consider and review the risks inherent in managing the Company’s assets which are detailed below.

Market Risk
Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss
which the Company might suffer through holding market positions by way of price movements, interest rate movements, exchange rate movements and
systematic risk (risk inherent to the market, reflecting economic and geopolitical factors). The Investment Manager assesses the exposure to market risk
when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings
with the Investment Manager.

Market Price Risk
Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments.

Adherence to investment policies mitigates the risk of excessive exposure to any particular type of security or issuer. The portfolio is managed with
an awareness of the effects of adverse price movements through detailed and continuing analysis, with the objective of maximising overall returns to
shareholders. The assessment of market risk is based on the Company’s portfolio as held at the year end. The Company has experienced volatility
in the fair value of investments during recent years due to COVID-19, the Russian invasion of Ukraine, UK political and economic instability, and inflation.
The Company has used 10% to demonstrate the impact of a reduction/increase in the fair value of the investments and the impact upon the Company
that might arise from future events.

The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with the objective
of maximising overall returns to Shareholders. If the fair value of the Company’s investments at the year end increased or decreased by 10%, then it
would have had an impact on the Company’s capital return through (losses)/gains on investments held at fair value, impacting profit/(loss) and the NAV,
by £16,432,000 (31 December 2021: £17,125,000).

AVI Japan Opportunity Trust plc Annual Report 2022
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14 Financial Instruments and Capital Disclosures continued
Foreign Currency
The value of the Company’s assets and the total return earned by the Company’s Shareholders can be significantly affected by foreign exchange
rate movements as most of the Company’s assets are denominated in currencies other than Pounds Sterling, the currency in which the Company’s
financial statements are prepared. Income denominated in foreign currencies is converted to Pounds Sterling upon receipt. The JPY exchange rate
at 31 December 2022 was ¥158.705:£1 (31 December 2021: ¥155.96:£1).

Currency Risk

At 31 December 2022
Receivables
Cash and cash equivalents
JPY revolving credit facility
Payables

Currency exposure on net monetary items
Investments held at fair value through profit or loss

Total net currency exposure

At 31 December 2021
Receivables
Cash and cash equivalents
JPY revolving credit facility
Payables

Currency exposure on net monetary items
Investment held at fair value through profit or loss

Total net currency exposure

GBP
£’000

37
1,066
–
(332)

771
–

771

GBP
£’000

53
1,363
–
(244)

1,172
–

1,172

JPY
£’000

Total
£’000

159
6,726
(15,532)
(52)

(8,699)
164,323

196
7,792
(15,532)
(384)

(7,928)
164,323

155,624

156,395

JPY
£’000

Total
£’000

351
6,802
(18,787)
(66)

(11,700)
171,249

404
8,165
(18,787)
(310)

(10,528)
171,249

159,549

160,721

A 5% decline in Sterling against foreign currency denominated (i.e. non Pounds Sterling) assets and liabilities held at the year end would have
increased the net assets and exchange gains and losses, impacting profit/(loss), by £7,781,000 (31 December 2021: £7,977,000). A 5% rise in Sterling
against foreign currency denominated assets and liabilities held at the year end would have decreased the net assets and exchange gains and losses,
impacting profit/(loss) by £7,781,000 (31 December 2021: £7,977,000).

Interest Rate Risk
Interest rate movements may affect:

• the level of income receivable on cash deposits; and
• the interest payable on variable rate borrowings.

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

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

Exposure to floating interest rates
Cash and cash equivalents
JPY revolving credit facility

31 December
2022
£’000

31 December
2021
£’000

7,792
(15,532)

8,165
(18,787)

If the above level of cash was maintained for a year, a 1% increase in interest rates would decrease the revenue return and net assets by £77,000
(31 December 2021: £106,000). Management proactively manages cash balances. If there was a fall of 1% in interest rates, it would potentially impact
the Company by turning positive interest to negative interest. The total effect would be a change in profit/(loss) and the NAV, through a cost increase/
revenue reduction, of £77,000 (31 December 2021: £106,000).

The current interest rate chargeable on the revolving credit facility (the “facility”) is 1.15% and the effective interest rate 1.15%. The effective rate
chargeable for a year on the current drawn down balance of ¥2,465,000,000 is £179,000.

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AVI Japan Opportunity Trust plc Annual Report 2022

Financial Statements / Notes to the Financial Statements continued
For the year ended 31 December 2022

14 Financial Instruments and Capital Disclosures continued
Liquidity Risk
Liquidity risk is mitigated by the fact that the Company has £7,792,000 (2021: £8,165,000) cash at bank, the assets are readily realisable, which can be
easily sold to meet funding commitments and further short-term flexibility is available through the use of bank borrowings. The current revolving credit
facility is repayable on 6 February 2024, or prior to that date. Repayment may be completed through cash repayments, further borrowings and/or
disposal of investments. Unlisted investments, if any, in the portfolio are subject to liquidity risk which is taken into account by the Directors when arriving
at their valuation.

The Company is a closed-ended fund, assets do not need to be liquidated to meet redemptions, and sufficient liquidity is maintained to meet obligations
as they fall due.

The remaining contractual payments on the Company’s financial liabilities at 31 December 2022, based on the earliest date on which payment can be
required and current exchange rates at the Balance Sheet date undiscounted amounts, were as follows:

At 31 December 2022
JPY revolving credit facility
Payables

At 31 December 2021
JPY revolving credit facility
Payables

In one year
or less
£’000

In more
than 1 year
but not more
than 2 years
£’000

Total
£’000

(173)
(384)

(557)

(15,617)
–

(15,790)
(384)

(15,617)

(16,174)

Due in
1 year or less
£’000

(18,787)
(310)

(19,097)

Credit Risk
Credit risk is mitigated by diversifying the counterparties through which the Investment Manager conducts investment transactions. The credit standing
of all counterparties is reviewed periodically, with limits set on amounts due from any one counterparty. As at 31 December 2022, cash was held with
J.P. Morgan Chase Bank (A2* Moody’s credit rating).

The total credit exposure represents the carrying value of cash and receivable balances and totals £7,988,000 (31 December 2021: £8,569,000).

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

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

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

• Level 1 – valued using quoted prices unadjusted in active markets for identical assets or liabilities.
• Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1.
• Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability.

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

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G

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14 Financial Instruments and Capital Disclosures continued
Fair values of Financial Assets continued

Financial assets at fair value through profit or loss at 31 December 2022

Equity investments

Financial assets at fair value through profit or loss at 31 December 2021

Equity investments

Level 1
£’000

164,323

Level 1
£’000

171,249

Level 2
£’000

Level 3
£’000

–

Level 2
£’000

Level 3
£’000

–

Total
£’000

164,323

Total
£’000

171,249

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

Capital Management Policies and Procedures
The structure of the Company’s capital is described on page 04 and details of the Company’s reserves are shown in the Statement of Changes in Equity
on page 56.

The Company’s capital management objectives are:

• to ensure that it will be able to continue as a going concern;
• to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated

underlying NAV, through an appropriate balance of equity capital and debt; and

• to maximise the return to Shareholders while maintaining a capital base to allow the Company to operate effectively and meet obligations as they

fall due.

The Board, with the assistance of the Investment Manager, regularly monitors and reviews the broad structure of the Company’s capital on an ongoing
basis. These reviews include:

• the level of gearing, which takes account of the Company’s position and the Investment Manager’s views on the market; and
• the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company’s objectives, policies and processes for managing capital are set out in the Strategic Report. The Company is subject to externally
imposed capital requirements:

• as a public company, the Company is required to have a minimum share capital of £50,000; and
• in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company, as an investment company:

– is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities

after the dividend payment has been made; and

– is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from shares

and securities.

These requirements are unchanged since last year and the Company has complied with these requirements at all times since commencing trading
on 23 October 2018.

15 Related Party Disclosures and Investment Management Fees
Fees paid to the Company’s Directors are disclosed in the Directors’ Remuneration Report on page 46 and in note 3 on page 62.

The Company paid management fees to AVI during the year amounting to £1,525,000 (2021: £1,420,000). As at the year end, £124,000 remained
outstanding in respect of management fees (2021: £133,000). At 31 December 2022, AVI held 1,275,000 Ordinary Shares (2021: 975,000 Ordinary
Shares) of the Company.

Finda Oy and City of London Investment Management Company Limited (“City of London”), significant Shareholders of the Company, are deemed
to be related parties of the Company for the purposes of the Listing Rules by virtue of their holding in the Company’s issued share capital. During the
year under review, no material transactions took place between the Company and Finda Oy or City of London. As at 31 December 2022, the Company
had not been notified of any change to Finda Oy’s holding, apart from a small reduction in the percentage held by Finda Oy due to an increase in the
issued share capital during the year. At the date of the latest notification, on 9 February 2022, Finda Oy’s holding represented 21.8% of the voting rights.
No notifications were received from City of London during the year under review, but since the year end City of London informed the Company on
23 February 2023 that its holding had reduced to 15.89% of the voting rights. As at 10 March 2023, no further notifications have been received from
either of the significant Shareholders.

16 Post Balance Sheet Events
Since 31 December 2022 the Company has issued 3,300,000 Ordinary Shares, of which 400,000 Ordinary Shares were issued from treasury, at an
average price of 122p as detailed on page 38.

AVI Japan Opportunity Trust plc Annual Report 2022
70

Shareholder Information / AIFMD Disclosures

The Company’s AIFM is Asset Value Investors Limited.

The AIFMD requires certain information to be made available to
investors in AIFs before they invest and requires that material changes
to this information be disclosed in the annual report of each AIF. Those
disclosures that are required to be made pre-investment are included
within an AIFMD Investor Disclosure Document. This, together with
other necessary disclosures required under AIFMD, can be found on the
Company’s website www.ajot.co.uk. All authorised AIFMs are required to
comply with the AIFMD Remuneration Code. The AIFM’s remuneration
disclosures can be found on the Company’s website www.ajot.co.uk.

AVI Japan Opportunity Trust plc Annual Report 2022Shareholder Information / Glossary

Alternative Performance Measure (“APM”)
An APM is a numerical measure of the Company’s current, historical or
future financial performance, financial position or cash flows, other than a
financial measure defined or specified in the applicable financial framework.

The definitions below are utilised for the measures of the Company, the
investment portfolio and underlying individual investments held by the
Company. Certain of the metrics are to look through to the investments
held, excluding certain non-core activities, so the performance of the
actual core of the investment may be evaluated. Where a company in
the investment portfolio holds a number of listed investments these are
excluded in order to determine the actual core value metrics.

Comparator Benchmark
The Company’s Comparator Benchmark is the MSCI Japan Small Cap
Index, expressed in Sterling terms. The benchmark is an index which
measures the performance of the Japan Small Cap equity market. The
weighting of index constituents is based on their market capitalisation.
Dividends paid by index constituents are assumed to be reinvested in the
relevant securities at the prevailing market price. The Investment Manager’s
investment decisions are not influenced by whether a particular company’s
shares are, or are not, included in the benchmark. The benchmark is used
only as a yard stick to compare investment performance.

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

Discount/Premium
If the share price is lower than the NAV per share it is said to be trading at
a discount. The size of the discount is calculated by subtracting the share
price from the NAV per share and is usually expressed as a percentage of
the NAV per share. If the share price is higher than the NAV per share, this
situation is called a premium.

The discount and performance are calculated in accordance with
guidelines issued by The AIC. The discount is calculated using the net
asset values per share inclusive of accrued income with debt at market
value.

Earnings Before Interest and Taxes (“EBIT”)
EBIT is equivalent to profit before finance costs and tax set out in the
statement of comprehensive income.

Enterprise Value (“EV”)
Enterprise Value reflects the economic value of the business by taking
the market capitalisation less cash, investment securities and the value of
treasury shares plus debt and net pension liabilities.

Enterprise Value (“EV”)/Earnings Before Interest and Taxes (“EBIT”)
A multiple based valuation metric that takes account of the excess capital
on a company’s balance sheet. For example, if a company held 80% of
its market capitalisation in NFV (defined under Net Financial Value/Market
Capitalisation), and had a market capitalisation of 100 and EBIT of 10, the
EV/EBIT would be 2x, (100-80)/10.

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

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

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

The gearing of 9.9% (31 December 2021: 11.7%) represents borrowings
of £15,532,000 (31 December 2021: £18,787,000) expressed as a
percentage of Shareholders’ funds of £156,395,000 (31 December
2021: £160,721,000). The gearing of –5.1% (31 December 2021: -6.6%)
represents borrowings net of cash of (£7,928,000) (31 December 2021:
(£10,528,000) expressed as a percentage of Shareholders’ funds of
£156,395,000 (31 December 2021: £160,721,000).

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

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

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

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Shareholder Information / Glossary continued

Ongoing Charges Ratio
The Company’s Expense Ratio is its annualised expenses (excluding
finance costs and certain non-recurring items) of £2,322,000 (2021:
£2,115,000) (being investment management fees of £1,516,000 (2021:
£1,447,000) and other expenses of £806,000 (2021: £668,000) less non-
recurring expenses of £nil (2021: £nil) expressed as a percentage of the
average monthly net assets of £154,813,000 (2021: £146,056,000) of the
Company during the year.

Portfolio Discount
A proprietary estimate of how far below fair value a given company is
trading. For example, if a company with a market capitalisation of 100 had
80 NFV and a calculated fair value of the operating business of 90, we
would attribute it a discount of -41%, 100/(90+80) -1. This indicates the
amount of potential upside. The company trading on a -41% discount has
a potential upside of +69%, 1/(1-0.41).

Portfolio Yield
The weighted-average dividend yield of each underlying company in
AJOT’s portfolio.

Return on Equity (“ROE”)
A measure of performance calculated by dividing net income by
Shareholder equity.

ROE ex Non-Core Financial Assets
Non-core financial assets consists of cash and investment securities
(less capital gains tax) less debt and net pension liabilities. The ROE is
calculated as if non-core financial assets were paid out to Shareholders.
Companies with high balance sheet allocations to non-core, low yielding
financial assets have depressed ROEs. The exclusion of non-core financial
assets gives a fairer representation of the true ROE of the underlying
business.

Total Return – NAV and Share Price Returns
The combined effect of any dividends paid, together with the rise or fall
in the share price or NAV. Total return statistics enable the investor to
make performance comparisons between investment trusts with different
dividend policies. Any dividends received by a Shareholder are assumed to
have been reinvested in either additional shares in the Company or in the
assets of the Company at the prevailing NAV, in either case at the time that
the shares begin to trade ex-dividend.

AVI Japan Opportunity Trust plc Annual Report 2022Shareholder Information / Investing in the Company

The Company’s Ordinary Shares are listed on the London Stock Exchange
and can be bought directly on the London Stock Exchange or through the
platforms listed on www.ajot.co.uk/how-to-invest/platforms/.

Share Prices
The share price is published daily in The Financial Times, as well as on the
Company’s website: www.ajot.co.uk.

Dividends
Shareholders who wish to have dividends paid directly into a bank account,
rather than by cheque to their registered address, can complete a mandate
form for the purpose. Mandate forms may be obtained from Link Group,
using the contact details given below or via www.signalshares.com (by
clicking on ‘your dividend options’ and following the on screen instructions).
The Company operates the BACS system for the payment of dividends.
Where dividends are paid directly into Shareholders’ bank accounts,
dividend tax vouchers are sent to Shareholders’ registered addresses.

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

– By phone: from the UK, call 0371 664 0300, from overseas call +44 (0)

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

– By email: enquiries@linkgroup.co.uk; and
– By post: Link Group, 10th Floor, Central Square, 29 Wellington Street,

Leeds, LS1 4DL.

Change of Address
Communications with Shareholders are mailed to the last address held on
the share register. Any change or amendment should be notified to Link
Group using the contact details given above, under the signature of the
registered holder.

Daily NAV
The daily NAV of the Company’s shares can be obtained from the London
Stock Exchange or via the website: www.ajot.co.uk

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AVI Japan Opportunity Trust plc Annual Report 2022

Shareholder Information / Company Information

Registrar and Transfer Office
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL

Registrar’s Shareholder Helpline
Tel. 0371 664 0300
From overseas call:
+44 (0) 371 664 0300

Calls are charged at the standard
geographic rate and will vary
by provider. Calls from outside
the United Kingdom will be
charged at the applicable
international rate. Lines are open
between 09:00-17:30, Monday
to Friday, excluding public holidays
in England and Wales.

Secretary
Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ

Solicitors
Stephenson Harwood LLP
1 Finsbury Circus
London
EC2M 7SH

Directors
Norman Crighton (Chairman)
Ekaterina (Katya) Thomson
Yoshi Nishio
Margaret Stephens

Administrator
Link Alternative Fund Administrators
Limited
Broadwalk House
Southernhay West
Exeter
EX1 1TS

Auditor
BDO LLP
55 Baker Street
London
W1U 7EU

Corporate Broker
Singer Capital Markets
1 Bartholomew Lane
London
EC2N 2AX

Custodian
J.P. Morgan Chase Bank
National Association
London Branch
25 Bank Street
Canary Wharf
London
E14 5JP

Depositary
J.P. Morgan Europe Limited
25 Bank Street
Canary Wharf
London
E14 5JP

Investment Manager and AIFM
Asset Value Investors Limited
2 Cavendish Square
London
W1G 0PU

Registered Office
Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ

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