TIDMPJF
RNS Number : 6333V
Prospect Japan Fund Ld
11 August 2015
THE PROSPECT JAPAN FUND LIMITED
HALF YEARLY FINANCIAL REPORT
The financial information set out in this announcement does not
constitute the Company's statutory financial statements for the
period ended 30 June 2015. All figures are based on the 30 June
2015 unaudited condensed financial statements, approved by the
Board of Directors on 10 August 2015.
The Company's unaudited condensed financial statements will
shortly be available on the UK Listing Authority's National Storage
Mechanism, which is located at
http://www.morningstar.co.uk/uk/NSM.
CHAIRMAN'S REPORT
for the period from 1 January, 2015 to 30 June, 2015
The Prospect Japan Fund (the "Company") underperformed the MSCI
Japan Small Cap Index (Total Return) by 26.7% in the six months to
30 June, 2015. This large underperformance was due to the fact that
the NAV had been uplifted by $23.9 million to the published NAV at
year end by an IFRS adjustment to the fair value of two unlisted
investments. The actual underperformance based on published NAV
excluding IFRS adjustments was still a disappointing 7.1%.
The Japanese stock market was buoyant during the first half of
the year, with TOPIX hitting an 8 year high. Corporate results for
the fiscal year ended March 2015 showed companies had achieved
record profits and have forecast further growth for the year to
March 2016. From 1 June one of Prime Minister Abe's initiatives,
the new Corporate Governance Code, was introduced which has
encouraged more companies to focus on raising their shareholder
returns and return on equity. The market has been supported by
domestic investors including the Government Pension Investment Fund
(GPIF), which in October last year announced an increased
allocation to domestic equities, and companies buying back their
own shares. On the economic front, first quarter GDP grew at an
annualised rate of 3.9% and the labour market remains tight. The
property market continues to be strong with office vacancy rates in
Tokyo falling to the lowest level since 2009, while the prices of
condominiums in Tokyo continue to rise. Confidence is steadily
recovering in Japan and the strong labour market has started to
translate into some growth in wages. The trend to an improving
economy and better shareholder returns and profits remains a
positive backdrop for the market.
The Company's investment policy was significantly changed as
approved by shareholders in early 2014. The Company portfolio
reflects this change of mandate as the top five holdings were over
50 percent of gross assets, and remain as such. Consequently the
Company's performance will have little correlation to index
performance, but will reflect the mandate for absolute returns.
This mandate sets the Company apart from other listed Japan
focussed investment companies.
The Prospect Co., Yen3,000 million Convertible Bond (CB) was the
first investment made under the new investment policy. The CB was
approximately 24 percent of gross assets at the time that the
investment was made. One hundred percent of the CB has been
converted into shares and over eighty percent of which were
subsequently sold in the market to realise a gain of thirty five
percent within nine months.
Tri-Stage management reacted positively to the Company's
shareholder resolutions by committing to a 100% pay-out ratio for
earnings over the next three years and appointing two additional
outside directors.
The Board of the Company has high expectations of engaged
activism from the Manager, in accordance with the mandate, to
deliver continued absolute performance for shareholders, which will
take time. Whilst international risks and uncertainties remain, the
Directors have the reviewed the outlook for your Company and
conclude that Japan continues to offer value and opportunity. We
continue to have confidence in the strategy and ability of your
manager.
John Hawkins
Chairman
10 August, 2015
INVESTMENT ADVISOR'S REPORT
for the period from 1 January, 2015 to 30 June, 2015
Market Performance (%), US$ NAV
YTD 01.01.14
to 30.06.15 1 Year 3 Year 5 Year
THE PROSPECT JAPAN FUND LIMITED (12.3)/7.3* (10.8) 27.6 50.9
MSCI Japan Small Cap Index 14.4 7.5 47.9 66.6
The Prospect Japan Fund Limited inception date is 20 December
1994. The above performance of the Fund is net of fees and expenses
and includes reinvestment of dividends and capital gains. (Source:
Prospect Asset Management, Inc.) Although the Company is not
managed to a benchmark, it measures its performance against the
MSCI Japan Small Cap Index (Total Return) for comparison purposes
only. The MSCI Developed Markets Small Cap Indices offer an
exhaustive representation of this size segment by targeting
companies that are in the Investable Market Index but not in the
Standard Index in a particular developed market. The indices
include Value and Growth style indices and industry indices based
on the Global Industry Classification Standard (GICS(R)). (Source:
Bloomberg)
*Refers to performance based on published NAV
Summary
The Prospect Japan Fund Limited (the "Company") underperformed
during H1 2015, losing 12.3% during the period ending 30 June, 2015
vs the MSCI Japan Small Cap Index's 14.4% total return. The broader
Japanese market performed strongly during the half, with the Nikkei
225 index reaching highs last seen in 1996.
Corporate governance was a key theme during the half, in no
small part due to the surprising announcement by robotics marker
Fanuc (6954) that it will pursue efforts to become more
shareholder-friendly. The Company credited the move to the final
draft of the Tokyo Stock Exchange's (TSE) new corporate governance
code, though the vocal criticism by activist Third Point likely
helped bring the kettle to boil. The Financial Times reports that
Hong Kong-based Oasis Management has taken a position in cash-rich
Kyocera Corp (6971), with an eye on increasing shareholder value
through restructuring of the company's solar business and reducing
investments in other listed companies. Oasis head Seth Fisher cites
Japan's stated push for improved governance as a key factor in
realizing these objectives.
The shift in focus could be seen in the example of Fund holding
Tri-Stage Inc. (2178), with the announcement that it will expand
its board by increasing the number of outside directors by 2 (5
internal, 3 outside). Tri-Stage also announced a new mid-term
business plan, featuring a policy of 100% dividend payout ratio for
the next 3 years. The changes at Tri-Stage are a direct response to
long-term engagement between the Fund and management, including
proposals put forth regarding increased dividend payout and outside
director board membership.
Thus far into 2015, the Bank of Japan (BoJ) has kept its
monetary easing policy largely unchanged, lowering the FY 2015
inflation forecast to 1% from the previous 1.7% due to the decline
in energy prices. While asset purchase targets were left constant,
the BoJ decided to extend by one year its bank lending facility,
while increasing the provision from Yen7 trillion to Yen10
trillion, and increase the maximum amount provided to financial
institutions from Yen1 trillion to Yen2 trillion.
The regional banking sector saw another shakeup during the half,
with ShinGinko Tokyo (unlisted) to join the Tokyo TY Financial
Group (7173) via share exchange. ShinGinko is currently 80% held by
the Tokyo Metropolitan government. Tokyo TY Financial Group was
established in October 2014 via the merger of Tokyo Tomin Bank and
Yachiyo Bank. The merger is expected to be completed 1 April, 2016,
with terms finalized in September 2015.
Holdings providing outsized contribution to positive performance
during the period included Prospect Co. Ltd (3528) and Daito Bank
(8563). Prospect Co. Ltd saw strong share performance following the
Yen3.0 billion convertible bond issuance to the Company in Nov 2014
and an announcement of a TOB for control of Yutaka Shoji (8747), a
commodity futures trader. The Company held the Prospect Co.
convertible bonds, which had a par value of Yen60 per share. The
conversion of the bond and subsequent sale of the shares was the
top contributor to H1 performance. Daito Bank, a regional bank in
Fukushima prefecture, rose to eight-year highs, following full year
results well ahead of company forecasts. Outstanding loans
increased 1.4% to Yen472.7 billion. Dividends were increased by
25.0%.
Weakness came from Shaklee Global Group (8205), a seller of
nutrition and personal care products. Shaklee Global retreated
following FY results showing deep YoY declines in profits on
increases in input costs and increased selling, general and
administrative expenses (+12.0% YoY). Capital expenditures rose
2.5x YoY to Yen1.2 billion, by far the largest amount of capital
expenditure done in any FY within the last 10 years. The Company
announced estimates for further profit declines on continuation of
elevated investment costs.
The Tokyo District Court announced the results of the case
involving the Toho (9602) TOB of Toho Real Estate at March end,
with the court ordering the price raised 13.6% to Yen835. While an
improvement, the price is still significantly discounted to book
value of Toho Real Estate when adjusted for unrealized gains on its
real estate holdings. The Company is currently appealing the
ruling.
The Company is also currently engaged in an appraisal rights
petition, challenging the fairness of the Yen245 per share squeeze
out price of Yukiguni Maitake (1378), a manufacturer and seller of
fresh mushrooms and bean sprouts, by Bain Capital.
Official land prices released by the Ministry of Land,
Infrastructure, Transport and Tourism (MLIT) showed that in Greater
Tokyo both commercial and residential land prices made YoY gains.
Commercial land prices gained 2.0% (+1.7% previously) and
residential land price rose 0.5% (+0.7% previously).
Principal Risks and Uncertainties
Japan remains vulnerable to slowdown in the global economy and
geopolitical turmoil, particularly in major trading partners, as
well as by volatile swings in currency exchange rates and interest
environment due to domestic and overseas monetary policy.
While the Bank of Japan remains posed to provide additional
stimulus as needed, inflation expectations remain muted, the Abe
administration's successful rollout of regulatory and tax reform
remains a necessary catalyst for long-term economic growth.
Fundamentals on the corporate level remain strong, and while
corporate governance reforms are nascent, a widespread and
ingrained refocusing on investor return would be a long-term
positive.
The Prospect Japan Fund Limited
Top 10 Holdings
30-June-15
Symbol Security % of Total
Assets
========= =============================== ===========
8563 DAITO BANK LTD/THE 16.1
2178 TRI-STAGE INC 11.5
3001 KATAKURA INDUSTRIES CO LTD 9.0
LN022178 LINKUP LOAN 4% 07/01/15 8.3
8205 SHAKLEE GLOBAL GROUP INC 6.5
1921 TOMOE CORP 5.8
9313 MARUHACHI WAREHOUSE CO LTD 5.4
3528 PROSPECT CO LTD 4.9
7404 SHOWA AIRCRAFT INDUSTRY CO LTD 4.5
9324 YASUDA LOGISTICS CORPORATION 3.4
The Prospect Japan Fund Limited
Sector Weighting
30-June-15
Advertising 19.9
Banks 16.1
Real Estate 13.9
Storage/Warehousing 8.8
Retail 6.5
Engineering & Construction 5.8
Machinery-Diversified 4.5
Transportation 3.3
Diversified Financial Services 0.2
REITs 0.0
Total** 79.0
No of Positions 14
--------------------------------
**Percentage weightings are Prospect Asset Management, Inc.'s
internal calculations. Results of calculations as presented may not
be exact due to rounding and precision of stored values.
Prospect Asset Management, Inc.
10 August, 2015
PORTFOLIO OF INVESTMENTS
as at 30 June, 2015
Number Percentage
of Fair Value of
in U.S. Net Asset
Securities Investments Dollars Value
Listed investments
Advertising
996,000 Tri-stage Inc 13,089,401 11.53
13,089,401 11.53
Banks
12,641,000 The Daito Bank 18,297,816 16.13
------------ -----------
18,297,816 16.13
Diversified Financial
Services
Maruhachi Securities
71,000 Ltd 117,869 0.10
117,869 0.10
Engineering and Construction
1,935,400 Tomoe Corp 6,631,768 5.84
.
------------ -----------
6,631,768 5.84
Machinery
Showa Aircraft Industry
507,300 Co Ltd 5,102,871 4.50
5,102,871 4.50
Real Estate
Katakura Industries
940,200 Co Ltd 10,187,807 8.98
10,000,000 Prospect Co. Ltd + 5,561,008 4.90
15,748,815 13.88
Retail
Shaklee Global Group
569,000 Inc 7,375,409 6.50
7,375,409 6.50
REITs
Prospect Epicure JORD
7,898,895 GBP *# - -
- -
Storage/warehousing
Maruhachi Warehouse
1,814,000 Co Ltd 6,126,775 5.40
470,295 Yasuda Logistics 3,865,280 3.41
9,992,055 8.81
Transportation
Daiwa Motor Transportation
993,000 Co Ltd 3,792,370 3.34
3,792,370 3.34
Total listed investments 80,148,374 70.63
============ ===========
Unlisted investments
Corporate bond
315,700,000 Takefuji Corp 125,597 0.11
125,597 0.11
Loan
1,137,784,320 Link Up KK Second Loan 9,445,464 8.32
9,445,464 8.32
Total unlisted investments 9,571,061 8.43
Total investments 89,719,435 79.06
Net current assets 23,756,556 20.94
NET ASSETS 113,475,991 100.00
* Prospect Epicure J-REIT Value Fund is classed as a related
party as the fund shares the same Investment Advisor as the
Company
# Currently in liquidation.
+ Mr. Curtis Freeze, Director of Prospect Asset Management
(Channel Islands) Limited ("PAM(CI)"), the Manager of The Prospect
Japan Fund Limited is President of Prospect Co. Ltd which owns the
majority share capital of PAM(CI) and Prospect Asset Management Inc
("PAMI"), the Investment Advisor of The Prospect Japan Fund
Limited.
RESPONSIBILITY STATEMENT
for the period from 1 January, 2015 to 30 June, 2015
We confirm that to the best of our knowledge:
(a) the Interim Unaudited Condensed Financial Statements have
been prepared in accordance with IAS 34 - Interim Financial
Reporting as adopted in the European Union;
(b) the Chairman's Report, Investment Advisor's Report and Notes
to the Unaudited 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
10 August, 2015
INDEPENDENT INTERIM REVIEW REPORT TO THE PROSPECT JAPAN FUND
LIMITED
Introduction
We have been engaged by the Company to review the Unaudited
Condensed Financial Statements in the half-yearly Financial Report
for the six months ended 30 June, 2015 which comprise the Unaudited
Condensed Statement of Comprehensive Income, the Unaudited
Condensed Statement of Financial Position, the Unaudited Condensed
Statement of Changes in Equity, the Unaudited Condensed Statement
of Cash Flows and the related notes 1 to 15. 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 Unaudited
Condensed Financial Statements.
This report is made solely to the Company in accordance with
guidance contained in International Standards on Review Engagements
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 Conduct 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 Unaudited
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 Unaudited 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 Unaudited Condensed Financial
Statements in the half-yearly Financial Report for the six months
ended 30 June, 2015 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 Conduct Authority.
Ernst & Young LLP
Guernsey
10 August, 2015
The Financial Statements are published on websites maintained by
the Investment Advisor.
The maintenance and integrity of these websites are the
responsibility of the Investment Advisor; the work carried out by
the Auditors does not involve consideration of these matters and,
accordingly, the Auditors accept no responsibility for any changes
that may have occurred to the Financial Statements since they were
initially presented on the website.
Legislation in Guernsey governing the preparation and
dissemination of Financial Statements may differ from legislation
in other jurisdictions.
UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
for the period from 1 January, 2015 to 30 June, 2015
Revenue Capital Total Revenue Capital Total
01.01.2015 01.01.2015 01.01.2015 01.01.2014 01.01.2014 01.01.2014
to to to to to to
30.06.2015 30.06.2015 30.06.2015 30.06.2014 30.06.2014 30.06.2014
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 1,274,158 - 1,274,158 788,822 - 788,822
Interest income 299 - 299 - - -
Foreign exchange movements 378,772 (335,379) 43,393 1,779,240 (721,417) 1,057,823
(Loss)/gain on financial
assets
at fair value through
profit or loss - (15,398,127) (15,398,127) - 8,604,693 8,604,693
-
------------ ------------- ------------- ------------ ----------- ------------
Total income 1,653,229 (15,733,506) (14,080,277) 2,568,062 7,883,276 10,451,338
4 Management fee (851,576) - (851,576) (952,064) - (952,064)
5 Other expenses (445,308) - (445,308) (524,933) - (524,933)
Transaction costs - (135,870) (135,870) - (286,989) (286,989)
Total expenses (1,296,884) (135,870) (1,432,754) (1,476,997) (286,989) (1,763,986)
(Loss)/gain for the
period before tax 356,345 (15,869,376) (15,513,031) 1,091,065 7,596,287 8,687,352
3 Withholding tax (434,415) - (434,415) (179,336) - (179,336)
(Loss)/gain for the
period after tax (78,070) (15,869,376) (15,947,446) 911,729 7,596,287 8,508,016
Total comprehensive
(loss)/income for the
period (78,070) (15,869,376) (15,947,446) 911,729 7,596,287 8,508,016
(Loss)/gain per Ordinary
2 Share -
Basic & Diluted (in
cents) (0.08) (17.16) (17.25) 0.97 8.06 9.02
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. There was no comprehensive income other than the
(loss)/gain for the period.
All items in the above statement derive from continuing
operations.
The notes form an integral part of the Unaudited Condensed
Financial Statements.
UNAUDITED CONDENSED STATEMENT OF FINANCIAL POSITION
as at 30 June, 2015
30.06.2015 31.12.2014
In U.S. In U.S.
Notes Dollars Dollars
(Unaudited) (Audited)
Non-current assets
Financial assets at fair value through
6 profit or loss 89,719,435 124,002,050
Current assets
8 Receivables 16,853,010 749,055
Cash and cash equivalents 7,937,542 5,404,636
Total current assets 24,790,552 6,153,691
Current liabilities
9 Payables 1,033,996 732,304
Net current assets 23,756,556 5,421,387
Net assets 113,475,991 129,423,437
Equity
10 Share capital account 92,452 92,452
10 Redemption reserve 85,533,077 85,533,077
10 Capital redemption reserve 323,057 323,057
Other reserves 27,527,405 43,474,851
Total equity 113,475,991 129,423,437
Ordinary Shares in issue 92,452,602 92,452,602
Net Asset Value per Ordinary Share (in
2 cents) 122.74 139.99
The Financial Statements were approved by the Board of Directors
on 10 August, 2015 and signed on its behalf by:
John Hawkins Richard Battey
Director Director
The notes form an integral part of the Unaudited Condensed
Financial Statements.
UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY
for the period from 1 January, 2015 to 30 June, 2015
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,
2015 92,452 323,057 85,533,077 (14,905,590) 53,873,130 9,116,533 (4,609,222) 129,423,437
Total comprehensive
income/(expense)
for the
period
Gain/(loss)
for the
period after
tax - - - (78,070) 8,140,362 (23,674,359) (335,379) (15,947,446)
Balances
at 30
June, 2015 92,452 323,057 85,533,077 (14,983,660) 62,013,492 (14,557,826) (4,944,601) 113,475,991
========= =========== =========== ============= =========== ============= ============ =============
for the period from 1 January, 2014 to 30 June, 2014
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,
2014 94,878 320,631 88,197,203 (14,106,096) 49,738,831 (2,389,140) (244,238) 121,612,069
Total comprehensive
income/(expense)
for the
period
Gain/(loss)
for the
period after
tax - - - 911,729 6,341,679 1,976,025 (721,417) 8,508,016
Capital
activities
Repurchase
of shares (1,395) 1,395 (1,505,919) - - - - (1,505,919)
Balances
at 30
June, 2014 93,483 322,026 86,691,284 (13,194,367) 56,080,510 (413,115) (965,655) 128,614,166
========= =========== ============ ============= =========== ============ ============ ============
The notes form an integral part of the Unaudited Condensed
Financial Statements.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
for the period from 1 January, 2015 to 30 June, 2015
01.01.2015 01.01.2014
to to
30.06.2015 30.06.2014
In U.S.
Notes In U.S. Dollars Dollars
Cash flows from operating activities
Net cash inflow from operating
11 activities 293,161 4,066,865
Cash flows from investing activities
Purchase of investments (31,721,650) (52,746,406)
Sale of investments 34,296,774 64,104,483
Net cash inflow from investing
activities 2,575,124 11,358,077
Net cash inflow before financing
activities 2,868,285 15,424,942
Cash flows from financing activities
Repurchase of shares - (1,505,919)
Net cash outflow from financing
activities - (1,505,919)
Increase in cash and cash equivalents 2,868,285 13,919,023
Reconciliation of net cash flow
to
movement in net funds
Net cash inflow 2,868,285 13,919,023
Effects of foreign exchange rate
changes (335,379) (721,417)
Cash and cash equivalents at beginning
of the period 5,404,636 21,309,724
Cash and cash equivalents at end
of the period 7,937,542 34,507,330
Foreign exchange translation amounts arising in 2014 have been
presented in the comparative column on the face of the statement of
cash flows, and not as a reconciling item in Note 11, to align with
the current period presentation, with no net impact on the net cash
inflow.
The notes form an integral part of the Unaudited Condensed
Financial Statements.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
for the period from 1 January, 2015 to 30 June, 2015
Note 1 Principal Accounting Policies
The Unaudited Condensed Interim Financial Statements for the six
months ended 30 June, 2015 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 Unaudited Condensed Interim 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, 2014.
The accounting policies and methods of computation followed in
this Interim Unaudited Condensed set of Financial Statements are
consistent with those of the latest Annual Audited Financial
Statements for the year ended 31 December, 2014 which were prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union.
The preparation of the Interim Unaudited 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 Unaudited 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 Unaudited 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 assets
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 Annual General Meeting to be held in
2017.
Note 2 Gain/(loss) per Ordinary Share - Basic and Diluted and
Net Asset Value per Ordinary Share - Basic and Diluted
The gain/(loss) per Ordinary Share - Basic and Diluted has been
calculated based on the weighted average number of Ordinary Shares
of 92,452,602 and a net loss of US$15,947,448 (30 June, 2014:
94,284,810 Ordinary Shares and a net gain of US$8,508,016).
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 of 92,452,602 (31 December, 2014: 92,452,602) and
shareholders' funds attributable to equity interests of
US$113,475,991 (31 December, 2014: US$129,423,437).
Note 3 Taxation
The Company has been granted Exempt Status under the terms of
The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 to income
tax in Guernsey. Its liability is an annual fee of GBP1,200 (2014:
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) ("PAM(CI)"), 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$851,576 (30 June, 2014: US$952,064)
of which US$150,262 (30 June, 2014: US$165,307) 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
01.01.2015 01.01.2014
to to
30.06.2015 30.06.2014
In U.S. In U.S.
Dollars Dollars
Administration and secretarial
fees* 141,929 158,677
Custodian's fees and
charges** 53,626 64,992
General expenses 161,035 188,043
Directors' remuneration 61,093 77,183
Auditors'
fees 13,875 17,720
Non-audit
fees 13,750 18,318
445,308 524,933
*The administration and secretarial fees are payable to Northern
Trust International Fund Administration Services (Guernsey) Limited
monthly in arrears at a rate of 0.25% of the Net Asset Value of the
Company as at the last business day of the month. Total
administration and secretarial fees for the period amounted to
US$141,929 (30 June, 2014: US$158,677) of which US$25,044 (30 June,
2014: US$27,551) is due and payable at the period end.
** The custodian's fees and charges are payable to Northern
Trust (Guernsey) Limited monthly in arrears at a rate of 0.08% of
the value of the portfolio of the Company as at the last business
day of the month. Total custodian's fees and charges for the period
amounted to US$53,626 (30 June, 2014: US$64,992) of which US$6,228
(30 June, 2014: US$6,700) is due and payable at the period end.
Note 6 Financial Assets at Fair Value through Profit or Loss
01.01.2015 01.01.2014 01.01.2014
to to to
30.06.2015 31.12.2014 30.06.2014
In U.S. In U.S. In U.S.
Dollars Dollars Dollars
Opening book cost 114,885,517 101,576,898 101,576,898
Purchases
at cost 31,746,128 103,729,025 56,929,895
Proceeds
on sale (50,630,616) (94,952,422) (64,693,306)
Realised gain on sale 8,276,232 4,532,016 6,628,668
Closing book cost 104,277,261 114,885,517 100,442,155
Unrealised (loss)/gain (14,557,826) 9,116,533 (413,115)
Fair value 89,719,435 124,002,050 100,029,040
Note 7 Fair Value Hierarchy
Financial assets at fair value through profit or loss are
carried at fair value. The valuation techniques for valuing
unlisted corporate bonds are described below. Other assets and
liabilities are carried at amortised cost which approximate fair
value.
IFRS 13 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.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
(i) In the principal market for the asset or liability, or
(ii) In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible
by the Company.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Company uses valuation techniques that are appropriate in
the circumstances and for which sufficient data is available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 - Quoted market prices (unadjusted) in an active market
for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For financial instruments that are recognised at fair value on a
recurring basis, the Company determines whether transfers have
occurred between Levels in the hierarchy by re-assessing
categorization, based on the lowest level input that is significant
to the fair value measurement as a whole, at the end of each
reporting period.
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, 2015.
Significant Significant
Quoted
prices observable unobservable
in active
markets inputs inputs
Level 1 Level 2 Level 3 Total
In US Dollars In US Dollars In US Dollars In US Dollars
Financial assets at fair
value
through profit
or loss:
-Equity Securities 80,148,374 - - 80,148,374
-Debt Securities
Corporate bonds - - 125,597 125,597
Loans - - 9,445,464 9,445,464
Total as at 30
June, 2015 80,148,374 - 9,571,061 89,719,435
============== ============== ============== ==============
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, 2014.
Level 1 Level 2 Level 3 Total
In US
In US Dollars In US Dollars In US Dollars Dollars
Financial assets at fair
value
through profit
and loss:
-Equity Securities 67,993,524 - - 67,993,524
-Debt Securities
Corporate
bonds - - 56,008,526 56,008,526
Total as at 31
December, 2014 67,993,524 - 56,008,526 124,002,050
============== ============== ============== ============
The following table presents the movement in level 3 instruments
for the period ended 30 June, 2015 by class of financial
instrument.
Debt
Securities Total
In US Dollars In US Dollars
Opening balance 56,008,526 56,008,526
Purchases 9,665,995 9,665,995
Sales (38,109,761) (38,109,761)
Realised gains during
the period 7,503,673 7,503,673
Unrealised losses during
the period (25,497,372) (25,497,372)
Closing balance 9,571,061 9,571,061
============== ==============
Net unrealised loss for the period
included in the Statement of Comprehensive
Income for level 3 Investments held
at 30 June, 2015 (223,452) (223,452)
============== ==============
The following table presents the movement in level 3 instruments
for the year ended 31 December, 2014 by class of financial
instrument.
Debt
Securities Total
In US
In US Dollars Dollars
Opening balance 15,113,042 15,113,042
Purchases 25,456,088 25,456,088
Sales (9,166,872) (9,166,872)
Realised losses during
the year (494,679) (494,679)
Unrealised gains during
the year 25,100,947 25,100,947
Closing balance 56,008,526 56,008,526
============== ============
Net unrealised gain for the year included
in the Statement of Comprehensive
Income for level 3 Investments held
at 31 December, 2014 24,666,821 24,666,821
============== ============
Valuation techniques
Listed investments
Securities valued based on quoted market prices, in an active
market for identical assets without any adjustments, are included
within Level 1 of the hierarchy and are valued at bid price.
Unlisted Investments
The Company invests in debt securities which are not quoted in
an active market. Transactions in such investments do not occur on
a regular basis. These positions are valued at the Directors
estimate of their fair value in accordance with IFRS 13.
Level 3 valuations are monitored closely by the Investment
Advisor who reports to the Board of Directors on a quarterly basis.
Valuations are based on the most appropriate method for each level
3 investment as at 30 June, 2015 as discussed below.
The Company provided a loan to Link Up KK, a Japanese privately
held company that specialises in telephone marketing and
fulfilment. Link Up also has proven technology in data management
and data mining for marketing purposes. The loan has a 4% annual
rate, which is competitive in the Japanese market. It is secured by
shares in Tri-Stage. Link Up paid the interest due and some
principal of the loan on July 1st, at which time the loan was
extended for three months until October 1, 2015 with the same
terms. As the terms of the loan are similar to others issued in the
Japanese market, the fact that the interest rates in Japan have not
moved and the value of the collateral is sufficient to repay the
principal and accrued interest on the maturity of the loan, the
Directors believe that amortised cost represents fair value.
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 30 June,
2015 are as shown below:
Effect on
Significant unobservable Sensitivity fair value
Description input used In US Dollars
Loan issued to Link Current period
Up KK market rate +1%/-1% (35,180)/35,180
Note 8 Receivables
30.06.2015 31.12.2014
In U.S. In U.S.
Dollars Dollars
Amounts due from brokers 16,853,010 605,775
Dividends receivable - 143,280
16,853,010 749,055
Note 9 Payables
30.06.2015 31.12.2014
In U.S. In U.S.
Dollars Dollars
Amounts due to brokers 456,640 382,899
Other creditors 577,356 349,405
1,033,996 732,304
Note 10 Share Capital, Redemption Reserve & Capital
Redemption Reserve
Authorised Share
Capital 30.06.2015 31.12.2014
In U.S. In U.S.
Number of shares Dollars Dollars
Ordinary Shares of US$0.001
150,000,000 each 150,000 150,000
"C" Ordinary Shares
60,000,000 of US$0.01 each 600,000 600,000
As approved at the AGM on 27 August, 2014, the Company may
purchase a maximum of 14,013,191 Ordinary Shares, equivalent to
14.99% of the issued share capital of the Company as at the date of
the AGM.
During the period, shares were purchased and cancelled as
follows:
Capital
Redemption Redemption
Ordinary Share
Shares Capital Reserve Reserve
Number of In U.S. In U.S. In U.S.
shares Dollars Dollars Dollars
Balance at 1 January,
92,452,602 2015 92,452 85,533,078 323,058
Shares repurchased
and
cancelled during
- the period - - -
Balance at 30
92,452,602 June, 2015 92,452 85,533,078 323,058
Capital
Redemption Redemption
Ordinary Share
Shares Capital Reserve Reserve
Number of In U.S. In U.S. In U.S.
shares Dollars Dollars Dollars
Balance at 1 January,
94,878,602 2014 94,878 88,197,203 320,631
Shares repurchased
and
cancelled during the
(2,426,000) period (2,426) (2,664,126) 2,426
Balance at 31 December,
92,452,602 2014 92,452 85,533,077 323,057
============ ========= ============ ===========
The Redemption Reserve account is a distributable reserve
account which can be used for, among other things, the payment of
dividends, if any. The Directors do not recommend the payment of a
dividend for the period.
The Capital Redemption Reserve is used to cancel the shares of
the Company when they are redeemed or there is a share buyback.
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.
"C" Ordinary Shares do not carry the right to attend or to vote
at general meetings of the Company or to receive dividends and, in
a winding up will participate in any "C" Ordinary Share surplus
assets remaining after the settlement of any outstanding
liabilities of the Company. There were no "C" Ordinary Shares in
issue during the period (31 December, 2014: Nil).
Note 11 Reconciliation of Return on Ordinary Activities to Net
Cash Inflow from Operating Activities
30.06.2015 30.06.2014
In U.S. In U.S.
Dollars Dollars
Return on ordinary activities
for the period (78,070) 911,729
Decrease in dividends receivable and
other receivables 143,280 3,162,181
Increase/(decrease)
in other creditors 227,951 (7,045)
Net cash inflow from operating
activities 293,161 4,066,865
Foreign exchange translation amounts arising in 2014 have been
presented in the comparative column on the face of the statement of
cash flows, and not as a reconciling item in the above note, to
align with the current period presentation, with no net impact on
the net cash inflow.
Note 12 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 PAM(CI) (the "Manager") whose parent company is Prospect
Co., Ltd (Kabushiki Kaisha Prospect ("KKP"), a Japanese
Company).
During the prior year, the Company purchased a convertible bond
issued by Prospect Co., Ltd. As Prospect Co., Ltd is the ultimate
parent of the Manager and therefore a related party, the Company
was required to seek Shareholder approval at an EGM held on 20
November, 2014. The resolution to purchase the investment was duly
passed. During the current period, the bond was fully converted to
shares in Prospect Co., Ltd.
Mr Rupert Evans is a Director of the Manager.
Directors' fees are disclosed in note 5. The basic fee payable
to Directors in 2015 is GBP25,000, the Chairman of the Audit
Committee GBP27,500 and the Chairman of the Board GBP30,000 per
annum (2014: Directors GBP20,000, Chairman of the Audit Committee
GBP22,500, Chairman GBP25,000).
No Directors holding office at 30 June, 2015, 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.
Mr. Curtis Freeze is a Director of PAM(CI), the Manager of The
Prospect Japan Fund Limited, and is the President of Prospect Co
Ltd., the owner of PAMI, the Investment Advisor to The Prospect
Japan Fund Limited and PAM(CI), the Manager of The Prospect Japan
Fund Limited.
Prospect Epicure J-REIT 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 (31 December, 2014: Nil) during the
period from Prospect Epicure J-REIT Value Fund.
Note 13 Segmental Reporting
The Board is responsible for reviewing the Company's entire
portfolio and considers the business to have a single operating
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. 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 Statement.
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 14 Contingent asset
The Company declined to tender its shares for Toho Real Estate,
as the Company believed the true value to be considerably higher
than that stated in the tender offer, and entered into an
arbitration process.
The Company has been involved in court proceedings with Toho
Real Estate arising from the tender offer. In March, 2015 the
Company received notice from the court presiding over its petition
that it had ruled in its favour. The court awarded the Company an
aggregate amount of Yen121,600,000 ($0.99 million). Although an
improvement, this is still significantly discounted to the
Company's view of the fair value of Toho Real Estate and as such,
on 8 April, 2015 the Company filed an appeal against the ruling
which was still ongoing as at 30 June, 2015.
With regard to Yukiguni Maitake, the Company feels that a tender
offer was unfair and feels that the shares were artificially
depressed due to poor management, which resulted in an accounting
violation around the payment of dividends. The holding bank sold
into the TOB and realised the collateral at what the Company
believes to be an unfair price. Alix Partners Asia LLC and Nera
Economic Consulting have been engaged to provide valuations and
although the results have not yet been received, the Company is
convinced the premium paid by Bain was too small by far. Although
at this point it would be difficult to put a per share value on it,
the Company believes a premium closer to 40% vs. the 18.7% paid
would be in line with the market.
Note 15 Subsequent Events
These Unaudited Condensed Financial Statements were approved for
issuance by the Board on 10 August, 2015. Subsequent events have
been evaluated until this date.
No subsequent events have occurred from the Statement of
Financial Position date up to 10 August, 2015.
GENERAL INFORMATION
General
The Company is a close-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 92,452,602 Ordinary
Shares in issue as at 30 June, 2015. The Company's Ordinary Shares
are 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.
The Company is a FATCA compliant organisation with FATCA entity
classification FFI and GIIN L0Q9R3.99999.SL.831.
Investment Objective
The Company's investment objective is to achieve long-term
capital growth from a portfolio of securities primarily of smaller
Japanese companies listed or traded on Japanese Stock Markets. The
aim will be to achieve a long-term capital return on the Company's
portfolio and dividend income will be a secondary consideration in
making investment decisions. Although the Company is not managed to
a benchmark, it measures its performance against the MSCI Japan
Small Cap Index (Total Return) for comparison purposes only.
Investment Restrictions
The following investment restrictions were approved on 5 March,
2014:
(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 25 per cent of
its assets at the time the investment is made 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) invest more than 10 per cent of its assets at the time the
investment is made in closed-end investment funds which are listed
on the Official List maintained by the Financial Conduct Authority
(except to the extent that those investment funds have state
investment policies to invest no more than 15 per cent of their
total assets in other investment funds which are listed on the
Official List) and the Company will not invest more than 15 per
cent of its assets at the time the investment is made in such
funds; or
(vii) the Company may not invest more than 5% of its assets at
the time the investment is made 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; or
(ix) the Company may not enter into borrowings in excess of 20
per cent. of net assets at the time the borrowings are drawn
down.
NAV and Information
The prices of Ordinary Shares and the latest NAV are published
daily in the Financial Times. The price of the Ordinary Shares
appears 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 eighteenth Annual General Meeting of the
Company held on 27 August, 2014, the Board included in the business
to be considered by Shareholders a special resolution that the
Company should be wound up. The resolution was not passed. The
Board will 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 2017.
Directors
Brief biographical details of the Directors are as follows:
Rupert Evans, age 77, 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 72, 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.
Richard Battey, age 63, 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 DMGMRKGKGKZM
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