TIDMPJF
RNS Number : 7928K
Prospect Japan Fund Ld
24 August 2012
THE PROSPECT JAPAN FUND LIMITED
INTERIM RESULTS ANNOUNCEMENT
The financial information set out in this announcement does not
constitute the Company's statutory financial statements for the
period ended 30 June 2012. All figures are based on the 30 June
2012 unaudited financial statements, approved by the Board of
Directors on 24 August 2012.
The Company's statutory financial statements will shortly be
available for inspection at the UK Listing Authority's Document
Viewing Facility, which is located at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
CHAIRMAN'S REPORT
for the period from 1 January, 2012 to 30 June, 2012
Japan's equity market started the year strongly, reflecting an
improvement in sentiment and positive signs in the economy, plus a
weakening of the previously strong Yen against other international
currencies. However the uncertainty and contagion within the
eurozone continued to prove disruptive, and from March the Yen
steadily firmed as investors looked for safe havens while the
market fell back, only rallying once more in June.
In this environment domestic companies were more successful than
exporters. Corporate activity was also evident, with Japanese
corporations building their cash positions and taking advantage of
weak demand in international markets and acquiring overseas groups
and also expanding their domestic interests, including the pursuit
of management buy out strategies.
The Government and the Bank of Japan continued to take
significant measures to aid the economy, including their Asset
Purchasing Programme and steps to encourage the Banks to lend. The
Bank of Japan has stood by its inflation target and the government
has added a large supplementary budget to support growth. A further
increase in land prices and a pick up in construction, together
with the reconstruction stimulus packages brought in following the
2011 earthquake, are also having a significant effect on the
economy.
Your Investment Advisor has managed the portfolio with great
success. The Net Asset Value ("NAV") of the Company as at 30 June
2012 showed an increase of 14.29 percentage points for the period
against a 5.12 percentage points increase of the Topic Small Index
for the same period. Their skill in searching for unusual stocks
and situations continues to make the Company an interesting
proposition in the current climate and its investors have been
rewarded during this period. Although the share price remains at a
discount to NAV we believe a narrower discount is justified. The
stock market is still at a low level and the portfolio is
inexpensive. The Board remain supportive of your Investment
Advisor's approach and style and we believe that they will continue
to add value. They provide further background on the portfolio in
their report.
John Hawkins
Chairman
24 August, 2012
INTERIM MANAGEMENT REPORT
for the period from 1 January, 2012 to 30 June, 2012
Market Performance (%), US$ NAV
YTD 01.01.12 1 Year 3 Year 5 Year
to 30.06.12
PROSPECT JAPAN FUND 14.3 4.3 37.1 (58.6)
Topix Small Index 5.1 2.5 21.2 (4.3)
Prospect Japan Fund inception date is 20 December, 1994. Topix
Small is a capitalization-weighted index designed to measure the
stocks not included in the Topix 500 Index that are listed on the
First Section of the Tokyo Stock Exchange. Above performance of the
Fund is net of fees and expenses and includes reinvestment of
dividends and capital gains. (Source: Prospect Asset Management,
Inc.) Topix Small Index performance includes the reinvestment of
dividends .(Source: Bloomberg).
Investment Manager's Summary
The Fund gained 14.3% year-to-date, while the Topix Small Index
performance was up 5.1%. The Japanese equity market as a whole has
been helped by a weaker Japanese currency. The Yen weakened 2.6%
versus the US dollar through the end of June (six months).
A consumption tax hike passed the lower house of the Diet on 26
June, 2012, with a vote in the upper house likely in early August.
If there is no change of heart from opposition parties, the
consumption tax will be increased from the current 5% level to 8%
in April 2014 and then to 10% in October 2015. The Democratic Party
of Japan ("DPJ") is expected to maintain support from the
opposition Liberal Democratic Party and New Komei Party in order to
pass the tax increase, despite recent defections from the DPJ by a
group of about 50 members led by Ichiro Ozawa. The consumption tax
alone will not be a panacea for the Japanese government in its
quest for fiscal reform.
Domestic demand is expected to strengthen in advance of the tax
hike as consumers rush to purchase large ticket items prior to
April 2014. Japan has achieved lower unemployment rates amid the
global financial crisis, reaching 4.4% in May 2012 from its peak of
5.5% in September 2009 (Japan Ministry of Internal Affairs and
Communications). Job offers to applicants have improved from 0.4
times in 2009 to 0.81 times in May 2012.
The Bank of Japan ("BoJ") announced an inflation target of 1% on
14 February, 2012. The market continued to rally on the back of the
announcement until it reached its 52-week high of 1,000.9 (Topix
Small Index). Since the peak, the market has struggled in light of
problems outside of its control, mainly the sovereign debt crisis
in Europe, as well as a slowdown in both China and the US. The Bank
of Japan inflation target announcement was big news, triggering a
sell-off of Japanese Yen. The Yen had a huge monthly move of 5.7%
in February, and has only weakened slightly since (79.51Yen/US$ as
of 10 July).
The Bank of Japan increased its easing initiative by Yen5
trillion to Yen70 trillion. The asset purchase program, expanded by
Yen10 trillion to Yen40 trillion, includes a Yen10 trillion
increase for Japan Government Bond purchases and extends the
maximum maturity of government bond purchased in the program to
three years, from two years. Loans were cut by Yen5 trillion to
Yen30 trillion.
Japan recorded its first annual trade deficit in 31 years for
2011, mainly due to soaring imports of oil and liquid natural gas
following the 11 March, 2011 earthquake/tsunami. Reliance on
foreign oil will remain high, but should show a moderate decrease
as more nuclear reactors go online. On 1 July, Japan ended a
two-month period without nuclear power after Kansai Electric Power
restarted the Oi Nuclear Power Plant in western Japan. The decision
to restart the reactor came from Prime Minister Noda due to
concerns of energy shortages despite a swell of protestors.
Japan posted a record current account deficit in January amid
flagging exports and soaring energy imports. Before seasonal
adjustment, the shortfall in the current account stood at Yen437.3
billion in January. That was the first deficit since January 2009,
when Japan registered its previous record shortfall of Yen132.7
billion at the height of the global financial crisis.
The January result also marked a sharp reversal from a Yen547.2
billion surplus a year earlier, and was deeper than a Yen433.4
billion deficit expected by economists surveyed by Dow Jones
Newswires and the Nikkei. (Nikkei News)
Japan's sovereign credit rating was lowered to A+ by Fitch
Ratings on 22 May, maintaining a negative outlook stating that
Japan continues to struggle with reining in its dire fiscal
imbalance. According to Fitch, 'the downgrades and negative outlook
reflect growing risks for Japan's sovereign credit profile as a
result of high and rising public debt ratio.'
A record 49.7% of publicly traded companies in Japan
(non-financials) were effectively debt free as of 31 March, 2012
(Nikkei). The figure of 1,681 debt free companies represents a
record high and is an increase of 35 from the previous year.
The cash position in the Fund was 21.34% at the end of June. The
sudden increase in cash was generated when the shares of Yasuragi
(8919) were tendered. The Fund continues to look for companies that
exhibit higher growth potential, have undervalued cash flows as
well as undervalued assets.
Fund Performance - positive
The biggest contributor to performance year-to-date came from
Yasuragi (8919) which provided a return of Yen183.5 million.
Private equity firm Advantage Partners acquired Yasuragi, a real
estate brokerage firm that focuses on refurbishing and selling of
second-hand single-family homes. Advantage Partners offered Yen627
a share, a 61% premium to the last traded price on 26 January.
Advantage Partners took the company private.
Growell Holdings (3141), a drug store chain, announced solid
first half results on 13 April, with sales growth of 9.7%
year-on-year and operating profit growth of 18.3%. Strong
same-store-sales of 4.2% outpaced estimates of 3.5% helped improve
sales and profitability. Growell proudly announced a move to the
First Section of the Tokyo Stock Exchange on 27 April. Shares of
Growell hit a 52-week high of Yen2,882 on 4 July. Visibility is
increasing, as the company is now covered by two domestic brokerage
firms Okasan Securities and Tachibana Securities.
Zuiko (6279), a manufacturer of machinery for producing sanitary
supplies such as diapers and napkins, revised earnings upwards on 6
April. For the full year, Zuiko increased sales by 35.5%
year-on-year and operating profits by 9.4%. The order book swelled
by 37.2%. First quarter figures for fiscal year February 2013
reported sales growth of 55.7% year-on-year while operating profits
declined by 19.5%.
Fund Performance - weakness
Tri-Stage (2178) was the main laggard in the Fund, while three
other names provided minimal negative impact. Tri-Stage, a company
that markets goods and services via television shopping
commercials, continues to struggle having posted negative monthly
sales figures for 11 months in a row. First quarter figures for
fiscal year February 2013 were weak, sales -16.5% year-on-year and
operating profits -63.3%. Tri-Stage is net cash positive on the
balance sheet with Yen7.2 billion (31 May, 2012), a market
capitalization of Yen5.5 billion (10 July, 2012) and shareholder
equity of 73.9% (31 May, 2012).
J-REIT Highlights
The main driver for J-REIT unit prices was the surprise 14
February announcement by the Bank of Japan of a 1% inflation "goal"
and additional Yen10 trillion in government debt purchases. Easing
has since been expanded by an additional Yen5 trillion on 27 April,
accompanied with a Yen10 billion increase in the J-REIT purchase
allotment to Yen120 billion.
The TSEREIT index gained 10.7% during the half, outperforming
the Nikkei 225's 6.5% gain. On a total return basis the TSEREIT
index also outperformed, gaining 13.8% during the first half of
2012 vs the Nikkei 225's 7.5% performance.
A Financial Services Agency working group to review the legal
structure for investment trusts and investment corporations held
its first meeting on 7 March. An interim discussion paper is
expected around mid-year, with a final report issued before the end
of 2012, and submission of related legislation during the regular
Diet session in 2013.
Topics under consideration include changes to the sponsorship
structure, capital strategy options (including unit buybacks),
insider trading rules and adoption of an Umbrella Partnership Real
Estate Investment Trust (UPREIT) type structure.
There were reports that Japan's Teachers' Mutual Aid Cooperative
Society (US$ 8.4 billion under management) plans to start investing
in J-REITs and hedge funds in addition to the current equities and
bonds as a part of diversification efforts. It may allocate as much
as Yen60 billion (US$ 719 million) as soon as September.
During the half, the Bank of Japan purchased Yen25.2 billion in
J-REIT units. As of this report, the BoJ has refrained from any
additional purchases since 4 June 2012. The BoJ has thus far
purchased Yen91.7 billion in J-REIT units (76.4% of total
allotment). The sunset date for J-REIT purchases is June 2013.
During the half, J-REITs (Nippon Building Fund (8951), Advance
Residence Investment (3269), Japan Real Estate Investment (8952),
Industrial & Infrastructure Fund (3249)) raised Yen228.4
billion in new equity through further issue of shares and Initial
Public Offerings ("IPOs"). Kenedix Residential Investment (3278),
the first new J-REIT IPO since 2007 successfully listed on 26
April, raising Yen14.3 billion. Activia Properties Inc (3279, API),
a diversified J-REIT sponsored by Tokyu Land Inc. (8815) became the
second J-REIT IPO of the year, with assets under management of
Yen170.4 billion. API raised approximately Yen98.8 billion in the
offering, and was listed on 13 June.
Other potential IPO candidates, including Aeon Co. (8267), a
leading retailer, which is looking to list a J-REIT as soon as this
year according to an article in the 23 June Nikkei Newspaper. The
J-REIT is expected to have AUM of Yen300 billion, about half the
size of Mitsubishi Estate sponsored Japan Retail Fund (8953), the
largest listed commercial property focused J-REIT. Other possible
IPOs this year include a logistic & commercial J-REIT sponsored
by Daiwa House Industry (1925), and a logistics J-REIT sponsored by
Global Logistics Properties of Singapore.
In total, J-REITs announced Yen483.2 billion in acquisitions,
along with Yen52.5 billion in dispositions during the first half of
2012.
Principal Risks and Uncertainties
The principal risks and uncertainties are a lack of macro
certainty, concerns over European sovereign debt, and a slowdown in
the US and Chinese economies.
Prospect Asset Management, Inc
13 July, 2012
PORTFOLIO OF INVESTMENTS
as at 30 June, 2012
Number of Fair Value Percentage
in U.S. of Net Asset
Securities Investments Dollars Value
Listed investments
Advertising
739,100 Tri-stage Inc 6,768,043 7.25
6,768,043 7.25
Apparel
Katakura Industries Co
832,900 Ltd 7,459,587 7.99
7,459,587 7.99
Beverages
3,371,000 Oenon Holdings Inc 8,172,378 8.75
8,172,378 8.75
Engineering and Construction
2,721,800 Tomoe Corp 9,743,914 10.43
9,743,914 10.43
Internet
259,900 Next Co Ltd 1,175,279 1.26
1,175,279 1.26
Investment companies
6,574,000 Gro-Bels Co Ltd(+) 3,220,525 3.45
3,220,525 3.45
Machinery
19,200 Zuiko Corporation 475,840 0.51
475,840 0.51
Real Estate
181 Sunwood 92,649 0.10
92,649 0.10
REITs
116,661 Invincible Investment Corp 9,349,293 10.01
Prospect Epicure J-REIT
7,898,895 Value Fund*# - -
654 Kenedix Residential Investment 2,103,052 2.25
11,452,345 12.26
Retail
26,880 Growell Holdings 931,903 1.00
290,000 Sekichu Co Ltd 1,559,101 1.67
114,900 Shimachu 2,514,204 2.69
891,000 Shaklee Global Group Inc 5,942,984 6.36
10,948,192 11.72
Storage/warehousing
3,007,000 Shibusawa Warehouse Co 8,800,791 9.42
8,800,791 9.42
Total listed investments 68,309,543 73.14
----------- -------
Unlisted investments
Corporate bond
5,150,000 Godo Kaisha Taiheiyo Jisho 5,150,000 5.51
315,700,000 Takefuji Corp 192,915 0.21
5,342,915 5.72
Total unlisted investments 5,342,915 5.72
Total investments 73,652,458 78.86
Net current assets 19,734,355 21.14
NET ASSETS 93,386,813 100.00
+ Mr. Curtis Freeze, Director of Prospect Asset Management
(Channel Islands) Limited, the Manager of The Prospect Japan Fund
Limited is President of Gro-Bels Co Ltd.
* Prospect Epicure JREIT Value Fund is classed as a related
party as the fund shares the same Investment Advisor as the
Company.
# Currently in liquidation.
RESPONSIBILITY STATEMENT
for the period from 1 January, 2012 to 30 June, 2012
We confirm that to the best of our knowledge:
(a) the Interim Condensed Financial Statements have been
prepared in accordance with IAS 34 - Interim Financial
Reporting;
(b) the Chairman's Report, Interim Management Report and Notes
to the Condensed Financial Statements include:
-- a fair review of the information required by DTR 4.2.7R
(indication of important events during the first six months and
description of principal risks and uncertainties for the remaining
six months of the year); and
-- a fair review of the information required by DTR 4.2.8R
(disclosure of related parties' transactions and changes
therein).
By order of the Board,
John Hawkins Richard Battey
Director Director
24 August, 2012
INDEPENDENT INTERIM REVIEW REPORT TO THE PROSPECT JAPAN FUND
LIMITED
Introduction
We have been engaged by the Company to review the Condensed
Financial Statements in the half-yearly Financial Report for the
six months ended 30 June, 2012 which comprise the Statement of
Comprehensive Income, the Statement of Changes in Equity, the
Statement of Financial Position, the Statement of Cash Flows and
the related notes 1 to 12. We have read the other information
contained in the half-yearly Financial Report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the Condensed Financial
Statements.
This report is made solely to the Company in accordance with
guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our work, for this report, or
for the conclusions we have formed.
Directors' Responsibilities
The half-yearly Financial Report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly Financial Report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 1, the Annual Financial Statements of the
Company are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. The Condensed
Financial Statements included in this half-yearly Financial Report
have been prepared in accordance with International Accounting
Standard 34, "Interim Financial Reporting", as adopted by the
European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the Condensed Financial Statements in the half-yearly Financial
Report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of Interim Financial Information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the Condensed Financial Statements in the
half-yearly Financial Report for the six months ended 30 June, 2012
are not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Ernst & Young LLP
24 August, 2012
STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
for the period from 1 January, 2012 to 30 June, 2012
Revenue Capital Total Revenue Capital Total
01.01.2012 01.01.2012 01.01.2012 01.01.2011 01.01.2011 01.01.2011
to to to to to to
30.06.2012 30.06.2012 30.06.2012 30.06.2011 30.06.2011 30.06.2011
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Notes Dollars Dollars Dollars Dollars Dollars Dollars
Investment
income 1,009,661 - 1,009,661 1,148,357 - 1,148,357
Interest income 118,567 - 118,567 - - -
Foreign
exchange
movements 278,424 376,635 655,059 (273,398) 127,143 (146,255)
Gain on
financial
assets at fair
value
through profit
or loss - 11,618,817 11,618,817 - 2,984,715 2,984,715
Total income 1,406,652 11,995,452 13,402,104 874,959 3,111,858 3,986,817
Management
4 fee (702,733) - (702,733) (658,437) - (658,437)
5 Other expenses (320,554) - (320,554) (310,042) - (310,042)
Transaction
costs - (182,367) (182,367) - (126,270) (126,270)
Total expenses (1,023,287) (182,367) (1,205,654) (968,479) (126,270) (1,094,749)
Gain for the
period before
tax 383,365 11,813,085 12,196,450 (93,520) 2,985,588 2,892,068
Withholding
3 tax (70,676) - (70,676) (80,385) - (80,385)
Gain for the
period after
tax 312,689 11,813,085 12,125,774 (173,905) 2,985,588 2,811,683
Total
comprehensive
income for
the period 312,689 11,813,085 12,125,774 (173,905) 2,985,588 2,811,683
Gain per Ordinary
Share - Basic
2 & Diluted 0.003 0.121 0.124 (0.002) 0.030 0.028
The 'Total' column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
IFRS. The supplementary 'Revenue' and 'Capital' columns are both
prepared under guidance published by the Association of Investment
Companies.
All items in the above statement derive from continuing
operations.
STATEMENT OF CHANGES IN EQUITY (Unaudited)
for the period from 1 January, 2012 to 30 June, 2012
Capital
Share Capital Capital Capital Reserve/
Capital Redemption Redemption Revenue Reserve/ Reserve/ Exchange
Account Reserve Reserve Reserve Realised Unrealised Differences Total
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars
Balances at
1 January,
2012 98,198 317,311 90,963,192 (11,302,434) 22,472,199 (23,861,300) 3,517,624 82,204,790
Total comprehensive
income/(expense)
for the period
Gain for the
period after
tax - - - 312,689 3,783,044 7,653,406 376,635 12,125,774
Capital
activities
Repurchase of
shares* (1,148) 1,148 (943,751) - - - - (943,751)
Balances at
30 June, 2012 97,050 318,459 90,019,441 (10,989,745) 26,255,243 (16,207,894) 3,894,259 93,386,813
========= =========== ============= =============== ============== =============== ============== =============
for the period from 1 January,
2011 to 30 June, 2011
Capital
Capital Capital Capital Reserve/
Share
Capital Redemption Redemption Revenue Reserve/ Reserve/ Exchange
Account Reserve Reserve Reserve Realised Unrealised Differences Total
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars
Balances at
1 January,
2011 99,634 315,875 92,027,074 (11,008,026) 27,619,116 (23,128,033) 2,940,085 88,865,725
Total comprehensive
income/(expense)
for the period
(Loss)/gain
for the period
after tax - - - (173,905) (4,961,680) 7,820,125 127,143 2,811,683
Capital
activities - - - - - - -
Repurchase of
shares* (868) 868 (658,786) - - - - (658,786)
- - -
--------- ----------- ------------- --------------- -------------- --------------- -------------- -------------
Balances at
30 June, 2011 98,766 316,743 91,368,288 (11,181,931) 22,657,436 (15,307,908) 3,067,228 91,018,622
========= =========== ============= =============== ============== =============== ============== =============
* For details of the Company's share buy back programme, refer
to note 8.
STATEMENT OF FINANCIAL POSITION (Unaudited)
as at 30 June, 2012
30.06.2012 31.12.2011 30.06.2011
In U.S. In U.S. In U.S.
Notes Dollars Dollars Dollars
(Unaudited) (Audited) (Unaudited)
Non-current assets
Financial assets at fair
6 value through profit or loss 73,652,458 81,179,926 85,768,792
Current assets
Due from brokers 947,494 278,868 843,901
Dividends and interest receivable 364,070 780,002 226,359
Other receivables 31,858 - 42,061
Cash and cash equivalents 23,086,836 486,833 4,974,786
Total current assets 24,430,258 1,545,703 6,087,107
Current liabilities
Due to brokers 4,453,675 272,380 375,219
Other creditors 242,228 248,459 222,495
Share buybacks payable - - 239,563
Net current assets 19,734,355 1,024,864 5,249,830
Net assets 93,386,813 82,204,790 91,018,622
Equity
8 Share capital account 97,050 98,198 98,766
8 Redemption reserve 90,019,441 90,963,192 91,368,288
8 Capital redemption reserve 318,459 317,311 316,743
Other reserves 2,951,863 (9,173,911) (765,175)
Total equity 93,386,813 82,204,790 91,018,622
Ordinary Shares in issue 97,050,602 98,198,602 98,766,852
Net Asset Value per Ordinary
2 Share 0.96 0.84 0.92
The Financial Statements were approved by the Board of Directors
on 24 August, 2012 and signed on its behalf by:
John Hawkins Richard Battey
Director Director
STATEMENT OF CASH FLOWS (Unaudited)
for the period from 1 January, 2012 to 30 June, 2012
01.01.2012 01.01.2011
to to
30.06.2012 30.06.2011
In U.S. In U.S.
Notes Dollars Dollars
Cash flows from operating activities
Net cash inflow from operating
9 activities 799,165 345,491
Cash flows from investing activities
Purchase of investments (38,285,652) (32,423,786)
Sale of investments 60,762,239 35,887,191
Net cash inflow from investing
activities 22,476,587 3,463,405
Net cash inflow before financing
activities 23,275,752 3,808,896
Cash flows from financing activities
Repurchase of shares (943,751) (419,223)
Net cash flow from financing
activities (943,751) (419,223)
Increase in cash and cash equivalents 22,332,001 3,389,673
Reconciliation of net cash flow
to
movement in net funds
Net cash inflow 22,332,001 3,389,673
Effects of foreign exchange
rate changes 268,002 (2,615)
Cash and cash equivalents at
beginning of period 486,833 1,587,728
Cash and cash equivalents at
end of period 23,086,836 4,974,786
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
Note 1 Principal Accounting Policies
Basis of Accounting
The Interim Condensed Financial Statements for the six months
ended 30 June, 2012 have been prepared in accordance with IAS 34
"Interim Financial Reporting" as adopted by the European Union, the
Listing Rules of the London Stock Exchange ("LSE") and applicable
legal and regulatory requirements of the Companies (Guernsey) Law,
2008. The accounting policies, presentation and methods of
computation followed in this Interim Condensed set of Financial
Statements are consistent with those of the latest Annual Audited
Financial Statements for the year ended 31 December, 2011 which
were prepared in accordance with International Financial Reporting
Standards as adopted by the European Union.
The Interim Condensed Financial Statements do not include all
the information and disclosures required in the Annual Financial
Statements and should be read in conjunction with the Company's
Annual Report and Audited Financial Statements for the year ended
31 December, 2011.
The preparation of the Interim Condensed Financial Statements
requires management to make estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities
at the date of the Interim Condensed 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 the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from those estimates.
Presentation of information
The Interim Condensed Financial Statements have been prepared on
a going concern basis under the historical cost convention adjusted
to take account of the revaluation of the Company's investments at
fair value.
In order to better reflect the activities of an investment
company and in accordance with the guidance issued by the
Association of Investment Companies, supplementary information
which analyses the Statement of Comprehensive Income between items
of a capital and revenue nature has been presented within the
Statement of Comprehensive Income.
Going Concern
The Directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the Financial Statements
because the assets of the Company consist mainly of securities that
are readily realisable and, whilst the liquidity of these needs to
be managed, the Company has adequate financial resources to meet
its liabilities as they fall due.
In accordance with the Company's Articles, the Board is required
every three years to include in the business to be considered by
shareholders at the Annual General Meeting a Special Resolution
that the Company should be wound up. This resolution requires 75%
of votes in favour for it to be passed. The next such resolution
will be tabled at the Eighteenth Annual General Meeting to be held
in 2014.
Note 2 Gain/(loss) per Ordinary Share - Basic & Diluted and
Net Asset Value per Ordinary Share - Basic & Diluted
The gain per Ordinary Share - Basic and Diluted has been
calculated based on the weighted average number of Ordinary Shares
of 97,747,405 and a net gain of US$12,128,070 (31 December, 2011:
on 99,056,113 Ordinary Shares and a net loss of US$5,597,053; 30
June, 2011: on 99,438,864 Ordinary Shares and a net gain of
US$2,811,683).
There were no dilutive elements to shares issued or repurchased
during the period.
The Net Asset Value per Ordinary Share - Basic and Diluted has
been calculated based on the number of shares in existence at the
period end date 97,050,602 (31 December, 2011: 98,198,602; 30 June,
2011: 98,766,852) and shareholders' funds attributable to equity
interests of US$93,386,813 (31 December, 2011: US$82,204,790; 30
June, 2011: US$91,018,622).
The Company announces its Net Asset Value per Share to the
London Stock Exchange ("LSE") at each weekly and month end
valuation point.
Below is the Net Asset Value per Ordinary Share announced to the
LSE and as presented in these Interim Condensed Financial
Statements.
30.06.2012 31.12.2011 30.06.2011
In U.S. In U.S. In U.S.
Dollars Dollars Dollars
Net Asset Value per Ordinary
Share - Basic and Diluted 0.96 0.84 0.92
Note 3 Taxation
The Company is exempt from taxation in Guernsey under the terms
of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. Its
liability is an annual fee of GBP600.
The amount disclosed as withholding tax in the Statement of
Comprehensive Income relates solely to withholding tax suffered at
source, on income in the investing country, Japan.
Note 4 Management Fees
The management fee is payable to the Manager, Prospect Asset
Management (Channel Islands) Limited, monthly in arrears at a rate
of 1.5% per annum of the Net Asset Value, which is calculated as of
the last business day of each month. Total management fees for the
period amounted to US$702,733 (30 June, 2011: US$658,437) of which
US$111,152 (30 June, 2011: US$112,651) is due and payable at the
period end. The Management Agreement dated 1 December, 1994 remains
in force until determined by the Company or by the Manager giving
the other party not less than three months' notice in writing,
subject to additional provisions included in the agreement
regarding a breach by either party.
Note 5 Other Expenses
01.01.2012 01.01.2011
to to
30.06.2012 30.06.2011
In U.S.
Dollars In U.S. Dollars
Administration and secretarial
fees* 117,122 109,740
Custodian's fees and
charges** 59,415 34,354
General expenses 63,957 85,575
Directors' remuneration 68,201 63,452
Auditors'
fees 11,859 16,921
320,554 310,042
*The administration and secretarial fees are payable to Northern
Trust International Fund Administration Services (Guernsey)
Limited, monthly in arrears and is 0.25% of the Net Asset Value of
the Company, which is calculated as of the last business day of
each month. Total administration and secretarial fees for the
period amounted to US$117,122 (30 June, 2011: US$109,740) of which
US$18,525 (30 June, 2011: US$18,775) is due and payable at the
period end.
**The custodian's fees and charges are payable to Northern Trust
(Guernsey) Limited monthly in arrears and are 0.08% of the value of
the Portfolio of the Company, and are calculated as of the last
business day of each month. Total custodian's fees and charges for
the period amounted to US$59,415 (30 June, 2011: US$34,354) of
which US$4,656 (30 June, 2011: US$5,631) is due and payable at the
period end.
Note 6 Financial Assets at Fair Value through Profit and Loss
01.01.2012 01.01.2011 01.01.2011
to to to
30.06.2012 31.12.2011 30.06.2011
In U.S. In U.S. In U.S.
Dollars Dollars Dollars
Opening book cost 105,041,226 110,330,155 110,330,155
Purchases at cost 42,399,169 76,703,583 32,162,257
Proceeds on sale (61,545,454) (77,107,152) (36,580,302)
Realised gain/(loss)
on sale 3,965,411 (4,885,360) (4,835,410)
Closing book cost 89,860,352 105,041,226 101,076,700
Unrealised loss (16,207,894) (23,861,300) (15,307,908)
Fair value 73,652,458 81,179,926 85,768,792
Note 7 Fair Value Hierarchy
IFRS 7 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements as described in the latest
Annual Report and Audited Financial Statements.
The following table analyses within the fair value hierarchy the
Company's financial assets and liabilities (by class) measured at
fair value for the period ended 30 June, 2012.
Level 1 Level 2 Level 3 Total
In US Dollars In US Dollars In US Dollars In US Dollars
Assets
Financial assets at
fair value
through profit and
loss:
-Equity Securities 68,309,543 - - 68,309,543
-Debt Securities - - 5,342,915 5,342,915
Total assets as at
30 June, 2012 68,309,543 - 5,342,915 73,652,458
============== ============== ============== ==============
The following table presents the movement in level 3 instruments
for the period ended 30 June, 2012 by class of financial
instrument.
Equity Debt
Securities Securities Total
In US Dollars In US Dollars In US Dollars
Opening balance - 134,228 134,228
Purchases - 5,150,000 5,150,000
Unrealised gains during the
period - 58,687 58,687
Closing balance - 5,342,915 5,342,915
=============== ============== ==============
Net unrealised gain for the
period included in the Statement
of Comprehensive Income for
level 3 Investments held at
30 June, 2012 - 2,033,346 2,033,346
=============== ============== ==============
The following table analyses within the fair value hierarchy the
Company's financial assets and liabilities (by class) measured at
fair value for the year ended 31 December, 2011.
Level 1 Level 2 Level 3 Total
In US Dollars In US Dollars In US Dollars In US Dollars
Assets
Financial assets
at fair value
through profit
and loss:
-Equity Securities 81,045,698 - - 81,045,698
-Debt Securities - - 134,228 134,228
Total assets as
at 31 December,
2011 81,045,698 - 134,228 81,179,926
============== ============== ============== ==============
The following table presents the movement in level 3 instruments
for the year ended 31 December, 2011 by class of financial
instrument.
Equity Debt
Securities Securities Total
In US
In US Dollars In US Dollars Dollars
Opening balance - 502,454 502,454
Sales - (3,340,292) (3,340,292)
Gains recognised in profit
and loss - 2,972,066 2,972,066
Closing balance - 134,228 134,228
=============== ============== ============
Net unrealised loss for the
year included in the Statement
of Comprehensive Income for
level 3 Investments held
at 31 December, 2011 - (8,519,824) (8,519,824)
=============== ============== ============
Level 3 investments, consisting of corporate bonds, are valued
at the Directors' estimate of their fair value in accordance with
the requirements of IAS 39 'Financial Instruments: Recognition and
Measurement'. The Directors estimates are based on available traded
prices or comparisons with the valuations of comparable convertible
bonds.
Note 8 Share Capital, Redemption Reserve & Capital Redemption Reserve
Capital
Redemption Redemption
Share
Ordinary Shares Capital Reserve Reserve
In U.S. In U.S.
Number of shares Dollars In U.S. Dollars Dollars
Balance at 1
98,198,602 January, 2012 98,198 90,963,192 317,311
Shares repurchased
and
cancelled during
(1,148,000) the period (1,148) (943,751) 1,148
Balance at 30
97,050,602 June, 2012 97,050 90,019,441 318,459
The Redemption Reserve account is a distributable reserve
account which can be used for among other things the payment of
dividends, if any.
The Capital Redemption Reserve is used to cancel the nominal
shares of the Company when they are redeemed or there is a share
buy back.
Ordinary Shares carry the right to vote at general meetings of
the Company and to receive dividends and, in a winding-up will
participate in any surplus assets remaining after settlement of any
outstanding liabilities of the Company.
As approved at the AGM on 22 August, 2011, the Company may
purchase a maximum of 5,724,519 Ordinary Shares, equivalent to
5.80% of the Issued share capital of the Company as at the date of
the AGM. During the period, 1,148,000 shares with a value of
US$943,751 were purchased and cancelled by the Company of which
US$NIL remained payable at the period end.
Note 9 Reconciliation of Return on Ordinary Activities to Net
Cash Inflow from Operating Activities
30.06.2012 30.06.2011
In U.S. In U.S.
Dollars Dollars
Return on ordinary activities
for the period 312,689 (173,905)
Decrease in dividends receivable and
other receivables 384,074 421,427
Decrease in other creditors (6,231) (31,789)
Foreign exchange gain 108,633 129,758
Net cash inflow from operating
activities 799,165 345,491
Note 10 Related Party Transactions
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
The Directors are responsible for the determination of the
investment policy of the Company and have overall responsibility
for the Company's activities. The Company's investment portfolio is
managed by Prospect Asset Management (Channel Islands) Limited
whose parent company is Prospect Company Limited (Kabushiki Kaisha
Prospect, a Japanese Company).
Mr Rupert Evans is a Director of the Manager.
Directors' fees are disclosed in Note 5. The basic fee payable
to Directors in 2012 is GBP20,000, the Chairman of the Audit
Committee GBP22,500 and the Chairman of the Board GBP25,000 per
annum. .
At 30 June, 2012 Chris Sherwell held beneficial interests of
9,940 (2011: 9,490) Ordinary Shares in the Company. No other
Directors holding office at 30 June, 2012, or their associates, had
any beneficial interest in the Company's shares. There have been no
changes in these interests between the end of the period and up to
the date of this report.
Prospect Epicure JREIT Value Fund is classed as a related party
as the fund shares the same Investment Advisor as the Company. The
Company did not receive income (2011: Nil) during the period from
Prospect Epicure JREIT Value Fund.
Note 11 Segmental Reporting
The Board is responsible for the Company's entire portfolio and
considers the business to have a single operating and geographical
segment. The Board's asset allocation decisions are based on a
single, integrated investment strategy, and the Company's
performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of Japanese
investments. As required by IFRS 8, the total fair value of the
financial instruments held by the Company and the equivalent
percentages of the total value of the Company are reported in the
Portfolio of Investments.
Revenue earned is reported separately on the face of the
Statement of Comprehensive Income as investment income being
dividend income received from equities, and interest income being
interest earned from convertible and corporate bonds.
Note 12 Subsequent Events
These Financial Statements were approved for issuance by the
Board on 24 August, 2012. Subsequent events have been evaluated
until this date. No material events have occurred subsequent to the
period end and up to the signing date that would have a material
effect on these Financial Statements.
GENERAL INFORMATION
General
The Company is a closed-ended investment company incorporated in
Guernsey in November 1994 and was launched in December 1994 with an
initial asset value of US$70 million. There are 97,050,602 Ordinary
Shares in issue as at 30 June, 2012. The Company's Ordinary Shares
being listed on the London Stock Exchange.
The Ordinary Shares of the Company have not been registered
under the United States Securities Act of 1933 or the United States
Investment Companies Act of 1940. Accordingly, none of the Ordinary
Shares may be offered or sold directly or indirectly in the United
States or to any United States persons [as defined in Regulation
'S' under the 1933 Act] other than in accordance with certain
exemptions. Investment in the Company is suitable only for
sophisticated investors and should be regarded as long-term. Past
performance is no indication of future results.
Investment Objective
The Company was established to invest substantially all of its
assets in securities issued by smaller Japanese companies. The
objective of the Company is to achieve long-term capital growth
from an actively managed portfolio of securities primarily of
smaller Japanese companies listed or traded on Japanese Stock
Markets.
Investment Restrictions
The following investment restrictions have been adopted:
(i) the Company may not invest in securities carrying unlimited liability; or
(ii) the Company may not deal short in securities; or
(iii) the Company may not take legal or management control in investments in its portfolio; or
(iv) the Company may not invest in any commodities, land or interests in land; or
(v) the Company may not invest or lend more than 10% of its
assets in securities of any one company or single issuer (other
than obligations of the Japanese Government or its agencies or of
the US Government or its agencies); or
(vi) the Company may not invest more than 10% of its assets in
non-corporate investments or securities not listed or quoted on any
recognised stock exchange, for which purpose securities quoted on
any of the Japanese Stock Markets will be treated as securities
quoted on a recognised stock exchange; or
(vii) the Company may not invest more than 5% of its assets in
unit trusts, shares or other forms of participation in managed
open-ended investment vehicles; or
(viii) the Company may not commit its assets in the purchase of
foreign exchange contracts, financial futures contracts, put or
call options or in the purchase of securities on margin other than
in connection with or for the purpose of hedging transactions
effected on behalf of the Company.
NAV and Share Price Information
The prices of Ordinary Shares and the latest NAV are published
daily in the Financial Times. Prices (in Sterling terms) of the
Ordinary Shares appear within the section of the London Share
Service entitled "Investment Companies".
Life of the Company
From inception the Directors have believed that Shareholders
should be able to review the progress of the Company so that a
decision can be taken as to whether Shareholders should have an
opportunity of realising the Company's underlying investments.
Accordingly, at the twelfth Annual General Meeting of the Company
held on 22 August, 2011, the Board included in the business to be
considered by Shareholders a Special Resolution that the Company
should be wound up. As the resolution was not passed, the Board
shall include a similar resolution in the business to be considered
at every third Annual General Meeting held. The next such
resolution will be tabled at the Annual General Meeting to be held
in 2014.
Directors
Brief biographical details of the Directors are as follows:
Rupert Evans, age 73, is a Guernsey advocate and former partner
in the firm of the Guernsey legal advisors, Mourant Ozannes. He is
now a consultant to Mourant Ozannes. He is a non-executive director
of the Manager and of a number of investment companies. Mr Evans is
resident in Guernsey. Mr Evans was appointed to the Board on 18
November, 1994.
John Hawkins, age 69, is a Fellow of the Institute of Chartered
Accountants in England and Wales. He was formerly Executive Vice
President and a member of the Corporate Office of The Bank of
Bermuda Limited, with whom he spent many years in Asia. He retired
from the Bank of Bermuda in 2001 after 25 years with the Group. He
is a director of a range of funds which include hedge funds and
equity funds investing in Japan and Asia. Mr Hawkins was appointed
to the Board on 4 April, 2004.
Christopher Sherwell, age 64, was Managing Director of Schroders
(C.I.) Limited from 2000 to 2003, and was Investment Director with
Schroders (C.I.) Limited from 1993 to 2000. Prior to joining
Schroders (C.I.) Limited, Mr Sherwell was Far East Regional
Strategist with Smith New Court Securities, and from 1977 to 1990
worked as a journalist on the Financial Times, including seven
years as a foreign correspondent in the Far East and Australia from
1983 to 1990. Mr Sherwell was appointed to the Board on 27
September, 2004.
Richard Battey, age 60, is a qualified chartered accountant. He
is a non-executive director of a number of investment companies and
funds. Mr Battey joined the Schroder Group in December 1977 and was
a director of Schroders (C.I.) Limited from April 1994 to December
2004, where he served as Finance Director and Chief Operating
Officer, and was a director of Schroder Group Guernsey companies
before retiring from his last Schroder directorship in December
2008. Mr Battey was appointed to the Board on 10 February,
2010.
Taxation Status
The Company has obtained exemption from Guernsey Income Tax
under The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989.
There is no capital gains tax in Guernsey.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FMGZRKDKGZZM
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