Schroder Japan Growth
Fund plc
Annual Report and Accounts
For the year ended
31 July 2022
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page a
Investment objective
The principal investment objective of the Company is to achieve
capital growth from an actively managed portfolio principally
comprising securities listed on the Japanese stock markets,
with the aim of achieving growth in excess of the TSE First
Section Total Return Index in sterling over the longer term.
Investment policy
The Manager utilises an active stock driven investment
approach, drawing on Schroders’ extensive research resources
in Japan. The portfolio is principally invested in a broad range
of companies quoted on the Tokyo Stock Exchange, the
regional stock markets of Fukuoka, Hiroshima, Kyoto, Nagoya,
Niigata, Osaka and Sapporo and the Japanese over the counter
(OTC) market. Investments may also be made in companies
listed elsewhere but controlled from Japan or with a material
exposure to the Japanese economy. There are no constraints
on size of company or sector allocation. This flexibility will allow
the Manager to take advantage of changes in market
sentiment and in the domestic economic cycle as it develops.
The portfolio is mainly invested in equities but may also be
invested in warrants, convertibles and other derivative
instruments where appropriate. The Company may invest up
to 5% of its assets in securities which are not listed on any stock
exchange, but would not normally make such investment
except where the Manager expects that the securities will
shortly become listed on a Japanese stock market.
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page b
Strategic Report
Governance Financial
Annual General Meeting
Annual Report and Accounts
for the year ended 31 July 2022
1
Strategic Report
Contents
Strategic Report
Financial Highlights 2
10 Year Financial Record 3
Chairman’s Statement 4
Investment Manager’s Review 6
Investment Portfolio 11
Strategic Report 13
Governance
Board of Directors 21
Directors’ Report 23
Audit and Risk Committee Report 26
Management Engagement Committee Report 28
Nomination Committee Report 29
Directors’ Remuneration Report 31
Statement of Directors’ Responsibilities in respect of the
Annual Report and Accounts 33
Financial
Independent Auditor’s Report 34
Income Statement 41
Statement of Changes in Equity 42
Statement of Financial Position 43
Notes to the Accounts 44
Annual General Meeting
Annual General Meeting – Recommendations 58
Notice of Annual General Meeting 59
Explanatory Notes to the Notice of Meeting 60
Definitions of Terms and Performance Measures 62
Shareholder Information Inside back cover
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 1
2
Schroder Japan Growth Fund plc
Financial Highlights
Other financial information
31 July 31 July
2022 2021 % change
Shareholders’ funds (£’000) 281,429 283,859 (0.9)
NAV per share (pence) 230.68 232.40 (0.7)
Share price (pence) 202.00 210.00 (3.8)
Share price discount to NAV per share* (%) 12.4 9.6
Gearing* (%) 11.1 10.4
Year ended Year ended
31 July 31 July
2022 2021 % change
Net revenue attributable to shareholders (£’000) 6,073 5,401 +12.4
Revenue return per share (pence) 4.97 4.38 +13.5
Dividend per share (pence) 4.90 4.30 +14.0
Ongoing Charges* (%) 0.92 0.89
Total returns for the year ended 31 July 2022
1
Source: Thomson Reuters.
2
The measure against which the Company compares its performance. The Benchmark is the TSE First Section Total Return Index in sterling terms.
+1.0%
Net asset value
(“NAV”) per share
total return*
-2.0%
Share price total return*
-1.9%
Benchmark
1, 2
(2021: +25.7%) (2021: +33.7%) (2021: +18.0%)
Some of the financial measures below are classified as Alternative Performance Measures, as defined
by the European Securities and Markets Authority and are indicated with an asterisk (*). Definitions
of these performance measures, and other terms used in this report, are given on page 62, together
with supporting calculations where appropriate.
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 2
Annual Report and Accounts
for the year ended 31 July 2022
3
Strategic Report
At 31 July 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total assets (£'000)
1
193,027 202,254 243,135 270,783 310,493 333,130 318,944 279,365 323,180 318,321
Shareholders' funds (£'000) 172,908 173,455 212,101 226,688 269,304 292,268 273,812 236,128 283,859 281,429
NAV per share (pence) 138.32 138.75 169.67 181.34 215.43 233.80 219.04 189.24 232.40 230.68
Share price (pence) 124.50 123.75 158.75 162.00 195.00 212.00 190.50 161.50 210.00 202.00
Share price discount to NAV
per share* (%) (10.0) (10.8) (6.4) (10.7) (9.5) (9.3) (13.0) (14.7) (9.6) 12.4
Gearing* (%)
2
11.0 12.8 12.5 12.1 11.2 11.7 12.3 13.3 10.4 11.1
For the year ended 31 July 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net revenue after taxation (£'000) 2,354 2,401 2,693 3,898 4,522 5,106 5,994 6,252 5,401 6,073
Net return per share (pence) 1.88 1.92 2.15 3.12 3.62 4.08 4.79 5.00 4.38 4.97
Dividend per share (pence) 1.75 1.80 2.00 2.80 3.50 4.00 4.70 4.90 4.30 TBA
Ongoing charges* (%)
3
1.45 1.36 1.09 1.11 1.00 1.00 1.03 0.92 0.89 0.92
Performance
4
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
NAV total return* 100.0 137.5 139.7 173.1 187.3 225.6 248.7 237.2 209.4 263.2 265.8
Share price total return* 100.0 144.8 145.9 189.9 196.4 240.4 265.8 243.3 211.5 282.7 277.2
Benchmark
5
100.0 129.0 128.7 151.6 175.3 204.8 224.7 226.9 213.2 251.6 246.8
1
Net assets plus borrowings used for investment purposes.
2
Gearing represents borrowings used for investment purposes, less cash, expressed as a percentage of net assets.
3
Ongoing Charges represents the management fee and all other operating expenses excluding finance costs and transaction costs, expressed as a
percentage of the average daily net asset values during the year.
4
Source: Morningstar/Thomson Reuters. Rebased to 100 at 31 July 2012.
5
The Company's Benchmark is the TSE First Section Total Return Index in sterling terms.
*Alternative performance measures.
10 year NAV, share price and benchmark total returns to 31 July 2022
Source: Morningstar/Thomson Reuters. Rebased to 100 at 31 July 2012.
100
150
200
250
300
NAV Total Return
Benchmark
Share Price Total Return
50
31 Jul 12 31 Jul 13 31 Jul 14 31 Jul 15 31 Jul 16 31 Jul 17 31 Jul 18
31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 22
10 Year Financial Record
Definitions of terms and performance measures are given on page 62
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 3
?Performance
I am pleased to report
thatdespite challenging market
conditions relativeperformance
remained strong this year,
building on the strong absolute
and relative returns achieved in
2021.
During the year ended 31July
2022 the Company’s net asset
value (“NAV”) achieved a total
return of 1.0%, outperforming
its Benchmark which produced
a negative total return of -1.9%
over the year. The share price fell -2.0% on a total return basis,
with the discount averaging 11.0% over the year.
Conditional Tender Offer
The Board continues to monitor the Company’s performance
against its tender performance target each year. The Company
has a target to deliver net asset value total return performance
of at least 2% per annum above the benchmark over a four year
period starting from 1 August 2020. Should this target not be
met, the Board will put to shareholders a proposal for a tender
offer of 25% of the issued share capital at a price equal to the
prevailing net asset value less costs. This tender is contingent
on the next continuation vote of the Company at the AGM in
November 2024 being passed.
The Manager has delivered an annualised net asset value total
return of 12.7% over the first two years of the four year period,
compared with 7.6% from the benchmark.
Board Succession
As outlined in the last annual report I will be retiring at the
AGM. Following a recommendation from the Nomination
Committee, the Board has appointed two new directors
following a rigorous selection process involving an external
agency. I am pleased to report that Dr Philip Kay will succeed
me as Chairman and we also welcomed Helena Coles to the
Board. Both Dr Kay and Ms Coles will be put forward for
election by shareholders at the AGM and their biographical
details may be found on page 21 and 22.
Discount and purchase of shares for
cancellation
The Board monitors the discount of the share price to net asset
value and when necessary implements a buyback programme
as part of a wider package of measures to address this. During
the year the Company repurchased a total of 142,700 shares
for cancellation, in line with this policy. Whilst the number of
shares repurchased was small the discount is actively
monitored by the Board, who will be seeking to renew the
share buyback authority granted at the Company’s last AGM to
purchase up to 14.99% of the Company’s issued share capital
for cancellation. Should permission be granted, the Board will
continue to use these buyback powers when appropriate.
In addition to the buyback programme and performance
related tender offer, the Board continues to implement other
measures to address the NAV discount and share price
performance. Among these are a focus on refining the
marketing message to communicate the excellent
performance produced by Masaki Taketsume and his team.
Masaki has made concrete progress in creating a more focused
high conviction, yet balanced portfolio of large and smaller
companies. The highly experienced team, based in Tokyo, has
a differentiated approach investing in the best quality, but
undervalued companies in Japan.
Gearing
The Company continues to maintain both a term loan and
revolving credit facility. The gearing level was 10.4% at the start
of the period and ended at 11.1%, with an average gearing level
of 10.9%. Gearing had a positive effect on performance during
the year. The Company’s gearing continues to operate well
within its pre-agreed limit of 25% of net asset value.
Revenue and dividend
Revenue during the year increased from 4.38p to 4.97p per
share, a rise of 13.5%. In line with its stated policy the Board
will continue to pay out substantially all income to
shareholders. The Board has therefore declared a final
dividend for the year ended 31 July 2022 of 4.90p per share,
representing a increase of 14% over the final dividend paid in
2021. This dividend will be paid on 9 December 2022 to
shareholders on the register on 4 November 2022, subject to
approval by shareholders at the Annual General Meeting
(“AGM”) on 5 December 2022.
Outlook
While the difficult global economic picture will continue to
present challenges to our Manager, we are encouraged by the
performance of the Company’s portfolio during the last year.
We echo his view that his bottom up conviction approach to
investing, whilst also increasingly seeking opportunities in mid
and smaller cap stocks based on the anticipated recovery of
the domestic economy, is well suited to the current
environment.
AGM and shareholder engagement
The AGM will be held at 12.00 p.m. on Monday, 5 December
2022. The Shareholders are asked to cast their votes by proxy.
The Manager will be presenting at a webinar separately from
the AGM on 25 October 2022 at 2 p.m. and all shareholders are
encouraged to sign up on the Company’s website, to hear
the portfolio manager’s view, and to ask questions.
Shareholders can also sign up using this link:
https://registration.duuzra.com/form/SJGAnnualResults2022.
The Board would like shareholders to get in touch via the
Company Secretary with any questions orcomments, so that
Chairman’s Statement
4
Schroder Japan Growth Fund plc
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 4
Annual Report and Accounts
for the year ended 31 July 2022
5
Strategic Report
Chairman’s Statement
the Board can answer theminadvanceofthe AGM. To email,
please use:
amcompanysecretary@schroders.com or write to
us at the Company’s registered office address (Company
Secretary, Schroder Japan Growth Fund plc, 1 London Wall
Place, London EC2Y 5AU). For regular news about the trust,
shareholders are also encouraged to sign up to the Manager’s
investment trusts update by visiting the Company’s website.
Finally, on a personal note, as this is my last Chairman’s
statement, I would like to say how much I have enjoyed working
with my fellow directors and the Schroders team. I will continue
to pay a close interest in the performance of the Company and
have every confidence as I make the transition from Board
Chair to shareholder that the journey will be rewarding.
Anja Balfour
Chairman
13 October 2022
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 5
6
Schroder Japan Growth Fund plc
Investment Manager’s Review
Market background
The Company’s Net Asset Value recorded a small positive total
return for the year to the end 31 July 2022 of +1.0%, whereas
the benchmark declined slightly, with a negative total return of
-1.9% (source: Morningstar, net of fees in GBP, NAV to NAV cum
income return). This extended the period of outperformance
seen in the previous year, with no change in the underlying
strategy.
In Yen terms the Japanese market rose by 4.5% in the
12months, but the Japanese currency weakened across the
period, which led to a lower return from the market in sterling
terms.
Following the Tokyo Olympics in July 2021, the Japanese
government extended Covid-related restrictions throughout
August and September. Public dissatisfaction with the
government’s approach ratcheted up again and the approval
rate for Prime Minister Suga and his cabinet fell to the lowest
levels seen during his 12 months in office. On 3 September
2021, the Prime Minister unexpectedly announced his intention
to resign without contesting the LDP leadership election
scheduled for later that month. This inevitably led to a brief
period of political uncertainty before Mr Kishida ultimately
emerged victorious in the party leadership election.
As the new LDP leader, Mr Kishida became Japan’s 100th prime
minister and was essentially seen as a safe, if unexciting, choice
to guide Japan through its post-Covid recovery. Mr Kishida also
inherited a stronger position in the vaccination programme
which sustained strong momentum in the second half of 2021
after the very slow start.
Under Mr Kishida’s leadership, the expectations for the LDP’s
performance in the subsequent general election in October
2021 were modest at best but, in the event, the party retained
a solid majority.
With the election out of the way, and the Covid related state of
emergency lifted, the political focus shifted to a substantial
fiscal stimulus package, details of which became clearer in
November. However, Japan imported its first known case of
Omicron in December, followed by a sharp pick-up in infections
from January 2022. While we must continue to emphasise that
the absolute number of infections in Japan has remained
remarkably low throughout the pandemic, the emergence of
new variants again demonstrated a higher level of risk
aversion, and each wave of infections has led to renewed
concerns about hospital capacity. In late May 2022, Mr Kishida
did finally announce that the government would relax some
Covid border measures and resume acceptance of overseas
tourists from 10 June, for the first time in around two years.
Although this generated lots of media attention, in reality the
practical constraints on travel will remain significant for some
time and we will probably need to wait until at least the fourth
quarter of the year to see any real impact from inbound
tourism.
In the first half of 2022, aside from the ongoing human tragedy
unfolding in Ukraine, Japan’s equity market was primarily
driven by news flow on monetary policy and currency markets,
together with concerns over the growing possibility of a
USrecession. Comments from the US Federal Reserve ahead
of April’s interest rate increase clearly pointed to a widening
interest rate differential with Japan materialising earlier than
expected. This view was reinforced by the results of the Bank
of Japan’s own policy meeting on 18 April, which confirmed no
change in policy and the maintenance of the existing target of
+/- 25bps for the 10-year bond yield. There was some surprise
in the degree of commitment to this target shown by Governor
Kuroda when he announced more details around the central
bank’s operation of fixed-rate bond purchases. Prior to March,
these operations had been extremely rare, and generally only
deployed at specific moments of significant market stress.
However, Mr Kuroda stated that these fixed-rate operations
would be conducted every day throughout May, virtually
guaranteeing no rise in bond yields, which quickly pushed the
yen through the key psychological 130 level against the
USdollar.
Although the sharp weakening of the yen has prompted
several public statements, the Bank of Japan’s room for
manoeuvre on the exchange rate is, in reality, very limited.
Shortly after the end of the review period, however, the
Ministry of Finance did intervene directly in currency markets
to support the yen. While such action could yield short-term
results it is unlikely to create a long-term trend change in the
absence of a fundamental shift in policy from the Bank of
Japan. Throughout Japan’s two decades of deflation, investors
have generally viewed yen weakness as positive for Japan since
the benefits for exporters were seen to outweigh any potential
inflationary impact, and it seems that Bank of Japan Governor
Kuroda clearly remains very much in favour of this view. Since
May 2022, however, the yen’s weakness has coincided with a
reversal of several other factors, especially mobile telecom
charges, which had been suppressing the year-on-year
inflation rate in the previous 12 months. This soon became
evident in the headline inflation numbers, which showed core
CPI (excluding only fresh food) jumping to 2.2% in June as the
significant reduction in mobile phone charges finally dropped
out of the year-on-year numbers. Although this level is slightly
above the Bank of Japan’s 2% target, the real question remains
whether longer-term inflation expectations move higher in
response, leading to more substantial wage growth as part of
Japan’s normalisation after decades of deflation. Nevertheless,
underlying inflationary pressure in Japan does now appear to
be creeping up, and the year-on-year increase in producer
prices continues to run well ahead of consumer prices.
In July, market events were overshadowed by the shocking
assassination of former Prime Minister Shinzo Abe on 8 July.
Mr Abe, who resigned in August 2020 as Japan’s longest serving
prime minister, was shot while delivering a campaign speech
in Nara, two days ahead of nationwide Upper House elections.
Although Japan has had two Prime Ministers since Mr Abe, he
remained a hugely influential figure within the ruling Liberal
Democratic Party (LDP) and his absence will alter the internal
dynamics of the party. In the immediate aftermath, however,
the resulting strong support shown for the LDP in the Upper
House elections on 10 July has solidified the position of current
Prime Minister Kishida and has improved political stability.
Despite successive delays in Japan’s domestic economic
recovery, and heightened global uncertainty, Japanese
corporations appear to be performing well and quarterly
results announced during the fiscal year ended March 2022
were consistently ahead of expectations. This has been
particularly true for manufacturing sectors that have benefitted
from the global recovery, but non-manufacturing and service
sector profits have also held up despite the successive
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 6
Annual Report and Accounts
for the year ended 31 July 2022
7
Strategic Report
Investment Manager’s Review
restrictions imposed on domestic activity in this period. Around
the end of the fiscal year, there was a further pick-up in global
uncertainty so it was not surprising to see some companies
making overly conservative forecasts for the new fiscal year.
Overall, however, the tone of results and guidance was still
slightly better than expected.
Portfolio performance
The Fund’s bottom-up stock picking approach typically results
in a moderate bias towards an overall “value” style
(emphasising stocks on below-average valuations). This style
has generally supported performance of the fund in the last
12months as the market environment has typically responded
to stock-specific drivers, which has allowed the Fund’s stock
selection to add value.
Although overall market trends in this period have been
dominated by global news flow on monetary policy and Russia’s
invasion of Ukraine, investors have also begun to recognise the
earnings potential for many Japanese companies and
individual stocks have reacted positively to upward revisions in
earnings expectations.
Net gearing in the Fund was 11.1% at the end of July 2022,
having been in a range from 10.4% to 12.1% during the
previous 12 months. The gearing has had a modest positive
impact on Fund performance during the year, which has added
to the gains made from stock selection.
Among individual stocks in the portfolio, the largest positive
contribution came from Tokio Marine, one of Japan’s major
insurers. The stock price has performed consistently well
throughout the last 12 months, reflecting the company’s
improved Return on Equity and higher shareholder
remuneration. There was also a strong performance from NTT,
Japan’s largest telecom service provider. The company is
typically seen as defensive, due to its relatively predictable
earnings, but performance was very strong in the first six
months of 2022, following some restructuring of group
companies that was announced in late 2021.
The Fund’s relative performance in this period also benefited
from the weakness of Softbank Group, the telecom and
investment conglomerate, which is a significant component of
the benchmark, but is not held in the Fund. The stock had been
strongly favoured by investors in 2020, but then
underperformed throughout 2021, resulting in a positive
impact for the Fund in this review period.
Some of these positive impacts on Fund performance were
offset by the underperformance of Ibiden a ceramics producer
specialised in semiconductor packaging. This was mainly
influenced by weakness across the technology sector in the first
half of 2021, especially for stocks related to semiconductor
production.
There was also weakness in Trusco Nakayama, a mid/small-cap
distributor of industrial tools and related supplies. The share
price has reflected the company’s weaker top-line growth due
to the slower than expected recovery of domestic industrial
production, as well as the overall underperformance of
mid/small-cap stocks in the first half of the period. The Fund
maintains no holding in this stock as the real value of Softbank’s
investment holdings is difficult to predict.
Stock selection impact – 12 months to
31July 2022
Largest positive contributions to performance
Company Load Absolute
Security Fund difference return Impact
(%) (%) (%) (%)
Tokio Marine 2.9 2.1 44.4 0.8
Nippon Telegraph
and Telephone 3.5 2.1 31.2 0.6
NGK Spark Plug 1.2 1.1 58.8 0.6
Hitachi Transport
System 0.7 0.6 87.0 0.5
Kureha Chemical 1.3 1.3 34.5 0.4
Total 3.0
Largest negative contributions to performance
Company Load Absolute
Security Fund difference return Impact
(%) (%) (%) (%)
Ibiden 1.5 1.4 -36.3 -0.5
Trusco Nakayama 1.1 -1.1 -37.7 -0.5
Mitsubishi UFJ 0.0 -1.6 24.9 -0.4
Dalichi Sankyo 0.0 -0.8 54.3 -0.4
Koito
Manufacturing 0.9 -1.0 -38.3 -0.3
Total -2.0
Past performance is not a guide to future performance and may not be
repeated.
Securities shown are for illustrative purposes only and should not be
viewed as a recommendation to by or sell.
Source: FactSet. Contributions are purely indicative as FactSet uses
unaudited data. Stock weights are average weights over the period an
returns are expressed in GBP.
Activity
During the 12 month period we added a new position in Rinnai,
which manufactures water heaters. The company’s near-term
earnings have been pressured by the combination of
component shortages and material cost increases, which
resulted in meaningful share price underperformance.
However, the company is now implementing price increases to
offset these higher costs and component shortages should
gradually ease towards the second half of this fiscal year.
Thanks to the ongoing structural shift in US & China towards
more energy efficient tankless boilers, order backlog has been
increasing, which should accelerate their earnings growth once
component shortages improve. The recent share price
underperformance has brought valuations down to low levels.
The forecast Price/Earnings ratio reduces to around 10x, if we
exclude cash of around 45% of market cap. We therefore
concluded that the recent share price weakness is a short-term
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 7
Investment Manager’s Review
overreaction to current conditions and we added a new position
in May.
A new position was added in Nitto Denko. Investors tend to
view the company’s earnings as highly dependent on the LCD
market which has been benefiting from “stay at home” demand
(for LCD TVs, PCs, etc.), which has already matured. This has left
the valuations at a discount against other electric component
and material stocks. However, we believe this is a
misperception, as we see their businesses as more diversified,
with several solid growth drivers such as nucleic acid medicine
CDMO, high-density flexible PCBs as well as profitability
improvements in industrial tapes through product reshuffling.
As a result, we expect Nitto Denko to sustain solid earnings
growth over the mid-term, which should lead to a revaluation
of the share price.
We initiated a position in Yokogawa Electric, which supplies
measurement and control equipment used in factory
automation, especially in industries such as chemicals, food and
oil & gas. The stock looks particularly undervalued against its
global peers given the near-term industry dynamics and the
longer term growth potential from expanding autonomous
solutions.
We also added Ricoh, as we believe other investors have not
yet appreciated the company’s transition towards a full IT
service vendor for small and mid-sized businesses. The current
valuation has been pushed down by shorter-term factors,
including a slower than expected return to office working post-
Covid, which has created an attractive entry point.
A new position in NEC Networks & System Integration was also
added to the portfolio. The company’s main businesses are IT
service and telecommunication engineering and they are
transforming themselves to move up the value chain in both
these areas. In IT service, the company has traditionally been a
subcontractor but they now are more engaged in valued-added
IT service/solutions, including work from home solutions. In
telecommunication engineering, they are improving their value
propositions from simply installing hardware, such as wireless
base stations, to upper-layer services. These management-led
transformations should improve gross margins and lead to
share price revaluation.
An initial position was added in Kohoku Kogyo at its Initial
Public Offering (IPO). This small-cap company is not yet closely
followed by other investors, but has a dominant global market
share in two niche electronic businesses: lead terminals for
aluminium electrolytic capacitors and optical isolators for
undersea optical cables. Valuations at the IPO looked attractive
against other niche technology providers.
Meanwhile, we exited the position in Nabtesco. The original
investment thesis was that Nabtesco, with its dominant market
share in precision reduction gears for industrial robots, would
show a solid earnings growth along with the ongoing
expansion of the market for factory automation. However,
through its new mid-term plan, the company is planning
aggressive growth in spending in all of its business segments.
Given the relatively lacklustre track record in realising benefits
in areas other than the precision reduction gear business, we
are increasingly concerned about its weakening capital
discipline. We therefore concluded that there are better
alternatives to give exposure to the growth in factory
automation, so we decided to sell out of the position.
We sold the position in Pan Pacific International, a retailer
operating under the Don Quijote brand. While we acknowledge
that their earnings may hit a cyclical bottom, we have become
more concerned about their future growth prospects. We feel
their discount store format may be losing some of its
attractiveness to (younger) consumers, who tend to make a
search online to decide on potential purchases, rather than
visiting stores just to find interesting items, which has been the
benefit of Don Quijote’s unique store experience. In addition,
while the recent management changes look reasonable we
wonder if this may hinder the competitiveness of their bottom-
up management where each store manager has a high level of
authority. We decided to sell the position as we felt our
concerns over long-term competitiveness may put further
pressure on the stock’s valuation, which remained at a
premium to the market average.
The position in Miroku Jyoho Service was also sold. The
company is a software and IT service provider which we
expected to benefit from the growth in IT spending by
small/mid-size businesses. However, the earnings recovery has
been slower than expected, which may reflect some market
share losses against emerging cloud-based vendors. We now
have lower confidence about their competitiveness and
management execution, so we have sold out of the position.
Two positions were sold as a result of corporate actions. One
small position was sold in AT Group, which operates Toyota car
dealerships in Aichi prefecture. The company is a classic
example of a “traditional” small-cap value stock in Japan and
saw a 78% gain in February after the announcement of a
management buy-out. The position in Hitachi Transport System
was sold after a steep rise in the share price, triggered by a
buyout proposal from KKR.
Overall, the number of holdings has been further reduced to
66, continuing the trend seen over the last couple of years, as
we look to place more emphasis on higher weightings in stocks
where we have the greatest conviction.
Outlook
The recent rebound in Japan’s industrial production, after some
Shanghai-lockdown induced weakness, has underlined the
relative strength of manufacturing sectors in Japan. The
successive delays in a domestic consumption recovery has
mainly impacted non-manufacturing sectors, although we
would still look for Japan to grow above its long-term trend rate
this year as the large fiscal package, agreed in late 2021, is
implemented. However, we still need to carefully watch the
development of Covid infections as the high level of risk
aversion in Japan could still dictate a more cautious approach
than that seen in Europe. This is likely to be particularly evident
in the very gradual approach to the reopening of Japan’s
borders to foreign travellers.
The strong result for the ruling LDP in July’s Upper House
elections has reinforced the position of Prime Minister Kishida
but, beyond the election, the government faces a range of key
long-term policy decisions. These include fundamental, and
constitutional, questions on defence and a particularly difficult
balancing act on energy policy. The war in Ukraine has thrown
into sharp relief Japan’s dependence on imported energy and
its relative lack of energy security over the long-term, with
8
Schroder Japan Growth Fund plc
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 8
almost all nuclear plants remaining offline since the Fukushima
earthquake in 2011. Although Tokyo has narrowly avoided
power cuts during record high temperatures in the early
summer 2022, Mr Kishida has nevertheless felt empowered to
open up a public discussion on the restarting of nuclear plants.
Looking further ahead, equity investors will need to adjust
gradually to the change in governor at the Bank of Japan as Mr
Kuroda’s term comes to an end in March 2023. With Mr Kuroda
so closely associated with the current policy of yield curve
control, it is hard to envisage any substantive changes in the
near-term. However, before the end of 2022 we could see
technical changes in the way the policy is implemented, which
could indicate more clearly the direction of travel likely to be
seen under his successor.
The main upward pressure on prices in Japan comes from a
combination of higher imported energy costs, coupled with the
sharp weakening of the yen so far this year. Although these
factors could gradually fade from the year-on-year inflation rate
going into 2023, Japan does seem to be heading into a period
of moderate but sustainably positive inflation. While producer
prices have been rising for some time, we have recently seen
more anecdotal evidence of companies looking to pass on
these increases to end-product prices, but consumers remain
very price sensitive after two decades of deflation. Although
some particular sectors may struggle in this environment,
overall margins do appear to be resilient so far and we are
comfortable that aggregate corporate profits for the listed
sector continue to grow. In the immediate future, however, the
heightened global uncertainty may mean that relative market
valuations remain at a discount against this longer-term
outlook for corporate profits. We are also very positive on the
ongoing improvements in corporate governance and the scope
for this to generate real value for investors. Although this is
partly a qualitative assessment through our discussions with
company managements, there are also measurable impacts
such as improving return on equity and a record level of share
buybacks announced in the early part of the current fiscal year.
Policy
With Japan heading into a period of moderate but sustainably
positive inflation, we are particularly focused on the ability of
Japanese companies to re-establish pricing power in order to
protect margins after such a long deflationary period. The
interplay between higher commodity prices, productivity gains
and potential wage increases varies across sectors but, in
general, we are comfortable that margins remain reasonably
resilient, allowing aggregate corporate profits for the listed
sector to continue to grow.
Our internal research continues to produce a range of
opportunities in exciting companies on low valuations, from
which we aim to generate outperformance without building
excessive ‘style’ positions in the Fund. As a result, Fund
performance should continue to be driven by stock-specific
factors.
Environmental, Social and Governance (ESG) factors and
sustainability issues continue to lie at the heart of our research
on Japanese companies, which also incorporates input from our
dedicated Sustainable Investment Team, based in London and
Singapore. We explicitly consider ESG factors across our
investment universe in Japan, which has a direct impact on our
valuation methodology, although we do not restrict our
investment universe by applying any specific exclusions in
particular sectors.
Conclusion
Overall, we have been encouraged by the performance of the
Fund which has continued to respond well as market conditions
in this period generally reflected stock specific factors, despite
significant developments in the global macro background. We
believe the Fund remains well placed for this type of valuation-
driven environment, and therefore anticipate no change in the
strategy. Our research team’s access to company management
continues to generate ideas for investment in individual stocks
across the market cap spectrum, together with insights into
changes in management behaviour and corporate governance.
We do not expect any change in the process by which we form
our conviction views on individual companies and we continue
to see increasing opportunities in mid and small-cap stocks, in
particular, based on the anticipated recovery of the domestic
economy.
The Company’s gearing level is currently 11.2% which reflects
both the number of individual opportunities we see in the
market and our confidence in the outlook for the overall
portfolio.
Sector positions vs. benchmark as at 31 July 2022
% of portfolio Underweight Overweight
Source: Schroders FactSet. Fund position less benchmark weight. Based on
unaudited data. Sectors shown are for illustrative purposes only and should
not be viewed as a recommendation to buy or sell.
Appendix 1
Discrete yearly performance (%)
Total returns %
2017
2018
2019
2020
2021
3.7
3.0
2.7
2.4
-1.5
-2.1
-3.2
-5.3
12.9
3.7
8.0
3.6
1.2
3.2
2.4
12.4
Information & Communication
Glass & Ceramics Products
Machinery
Other Financing Business
Precision Instruments
Banks
Services
Electric Appliances
Annual Report and Accounts
for the year ended 31 July 2022
9
Strategic Report
Investment Manager’s Review
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 9
Share Price +16.1 -12.7 +13.6 +3.8 +6.4
Net Asset Value +15.6 -8.4 +14.6 +9.5 +2.0
TOPIX +0.5 -4.3 -1.0 -5.7 +4.4
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them
may go down as well as up and investors may not get back the amounts originally invested.
Source: Morningstar, net of fees, cum-income NAV with dividends reinvested, GBP. Inception date: 12 July 1994.
The Company can be exposed to different currencies. Changes in foreign exchange rates could create losses.
The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions.
This may result in large changes in the value of the fund, both up or down, which may adversely impact the performance of the fund.
The Company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of
the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.
10
Schroder Japan Growth Fund plc
Investment Manager’s Review
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 10
Annual Report and Accounts
for the year ended 31 July 2022
11
Strategic Report
Stocks in bold are the 20 largest investments, which by value account for 49.6% (2021: 50.3%) of total investments. All investments
are equities.
Investment Portfolio
As at 31 July 2022
£’000 %
Electrical Appliances
Hitachi 10,849 3.5
Ricoh 4,818 1.5
TDK 4,302 1.4
Ibiden 3,968 1.3
Yokogawa Electric 3,253 1.0
Koito Manufacturing 2,244 0.7
Total Electrical Appliances 29,434 9.4
Information and Communication
Nippon Telegraph and Telephone 12,258 3.9
KDDI 6,573 2.1
Otsuka 2,659 0.8
Digital Garage 2,317 0.7
Total Information and
Communication 23,807 7.5
Transportation Equipment
Toyota Motor 16,062 5.1
Toyota Industries 3,683 1.2
Isuzu Motors 3,318 1.1
Yamaha 369 0.1
Total Transportation Equipment 23,432 7.5
Machinery
Amada 4,886 1.6
NGK Spark Plug 4,787 1.5
Nichias 3,948 1.3
Disco 3,946 1.3
Rheon Automatic Machinery 2,927 0.9
Kohoku Kogyo 2,784 0.9
Total Machinery 23,278 7.5
Chemicals
Nippon Soda 4,810 1.5
Kureha Chemical 4,468 1.4
Aica Kogyo 3,971 1.3
NOF 3,499 1.1
Hosokawa Micron 3,211 1.0
Nitto Denko 2,724 0.9
Total Chemicals 22,683 7.2
£’000 %
Wholesale trade
Mitsui & Co. 7,301 2.3
Itochu 6,191 2.0
Fukushima Galilei 2,985 1.0
Trusco Nakayama 2,643 0.8
Total Wholesale Trade 19,120 6.1
Precision Instruments
SMC 5,464 1.7
Rohm 4,761 1.5
Hoya 3,964 1.3
Mimasu Semiconductors 3,189 1.0
Total Precision Instruments 17,378 5.5
Pharmaceutical
Astellas Pharmaceutical 7,460 2.4
Takeda Pharmaceutical 4,913 1.6
Ship Healthcare 3,683 1.2
Total Pharmaceutical 16,056 5.2
Insurance
Tokio Marine 9,069 2.9
T&D Holdings 5,215 1.7
Total Insurance 14,284 4.6
Retail Trade
Seven & i Holdings 9,146 2.9
Paltac 3,196 1.0
Total Retail Trade 12,342 3.9
Real Estate
Mitsui Fudosan 8,873 2.8
Park24 3,464 1.1
Total Real Estate 12,337 3.9
Securities and Commodity
Orix 7,093 2.3
Nomura Research Institute 5,112 1.6
Total Securities and Commodity 12,205 3.9
Other Products
Toho 4,551 1.5
Bandai Namco 4,480 1.4
Miura 2,249 0.7
Total Other Products 11,280 3.6
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 11
12
Schroder Japan Growth Fund plc
Investment Portfolio
As at 31 July 2022
£’000 %
Banks
Sumitomo Mitsui Financial 10,096 3.2
Total Banks 10,096 3.2
Technology
NEC Systems 3,809 1.2
WingArc1st 3,488 1.1
Yokowo 2,499 0.8
Total Technology 9,796 3.1
Services
Recruit Holdings 7,655 2.4
Intage 320 0.1
Total Services 7,975 2.5
Construction
Sanki Engineering 4,046 1.3
Nippon Densetsu Kogyo 3,521 1.1
Total Construction 7,567 2.4
Land Transportation
Sankyu 4,875 1.6
East Japan Railway 2,513 0.8
Total Land Transportation 7,388 2.4
Foods
Asahi Breweries 5,985 1.9
Total Foods 5,985 1.9
£’000 %
Rubber Products
Bridgestone 5,465 1.7
Total Rubber Products 5,465 1.7
Other Financing Business
AEON Financial Services 4,252 1.4
Total Other Financing Business 4,252 1.4
Electric Power and Gas
Nippon Gas 4,217 1.4
Total Electric Power and Gas 4,217 1.4
Oil and Coal products
Eneos 4,085 1.3
Total Oil and Coal products 4,085 1.3
Non-Ferrous Metals
Asahi Holdings 3,012 1.0
Total Non-Ferrous Metals 3,012 1.0
Glass and Ceramics
AGC 3,008 1.0
Total Glass and Ceramics 3,008 1.0
Gas Appliances
Rinnai 2,972 0.9
Total Gas Appliances 2,972 0.9
Total investments 313,454 100.0
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 12
Annual Report and Accounts
for the year ended 31 July 2022
13
Strategic Report
Strategic Report
Business model
The Company is a listed investment trust, that has outsourced
its operations to third party service providers. The Board has
appointed the Manager, Schroder Unit Trusts Limited, to
implement the investment strategy and to manage the
Company’s assets in line with the appropriate restrictions placed
on it by the Board, including limits on the type and relative size
of holdings which may be held in the portfolio and on the use
of gearing, cash, derivatives and other financial instruments as
appropriate. The terms of the appointment are described more
completely in the Directors’ Report. The Manager also promotes
the Company using its sales and marketing teams. The Board
and Manager work together to deliver the Company’s
investment objective, as demonstrated in the diagram above.
The investment and promotion processes set out in the diagram
are described in more detail below.
Investment
Investment process – an overview
The Manager’s Japanese equity investment philosophy is based
on the belief that a competitive advantage can be gained from
in-house research which should translate into superior
investment performance through disciplined portfolio
construction.
The research focuses on long-term value creation and strength
of franchise, targeting undervalued companies where the long-
term growth prospects are not fully priced in. The Manager
prefers companies that can generate and sustain above
average returns on their capital, and also looks for
opportunities in turnaround situations where companies can
improve returns from depressed levels.
The Manager uses a disciplined approach to managing the
portfolio. It has a repeatable process that starts with research
and portfolio construction, and is supported by ongoing
monitoring and portfolio control. The research is based on an
extensive programme of company meetings, over 2,400 each
year.
•
Responsible for
overall strategy and
oversight including
risk management
• Activities centred
on the creation of
shareholder value
Investor
Value
• Manager implements
the investment strategy
by following an
investment process
• Support by strong
research and risk
environment
• Regular reporting and
interaction with the
Board
• Set objectives,
strategy and KPIs
• Appoint Manager
and other service
providers to achieve
objectives
• Marketing and sales
capability of the
Manager
• Support from the
Corporate Broker with
discount/premium
monitoring
Board is focused on
ensuring:
• that the fees
and Ongoing
Charges remain
competitive
• that the vehicle
remains attractive
to investors
Investment
Strategy
Promotion
Competitiveness
Board
• Oversee portfolio
management
• Monitor achievement
of KPIs
• Oversee the use of
gearing
• Oversee discount/
premium monitoring
and the provision of
liquidity through
buybacks and share
issuance
Oversight
The Strategic Report sets out the Company’s strategy for delivering the investment objective (set out on the
inside front cover), the business model, the risks involved and how the Board manages and mitigates those
risks. It also details the Company’s purpose, values and culture, and how it interacts with stakeholders.
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 13
14
Schroder Japan Growth Fund plc
The portfolio manager is Masaki Taketsume. Mr Taketsume has
been part of Schroders since 2007. Whilst he is currently based
in London, he relies heavily on the in-house research team in
Tokyo. Being based in London gives the portfolio manager the
best of both worlds: access to an experienced group of
specialists in Japan and exposure to broader investment input
in London.
Management of the portfolio is “bottom up” and long-term: the
screening process begins with fundamental company analysis
rather than shorter term macroeconomic impacts like changes
in exchange rates. Given the long-term approach, portfolio
turnover tends to be low. A stock will not be bought unless the
Manager has met the management of the company
concerned. Risk monitoring tools check that the bottom-up
approach is on track.
Portfolio construction
An important part of the portfolio construction process is
regular meetings to debate and receive peer group challenge.
These meetings provide a forum to discuss and debate
investment views and strategy, together with stock positions
and stock ideas, and importantly, serve to ensure vigorous
debate.
Portfolio construction for the Company is then the
responsibility of the portfolio manager. His focus is on the
highest conviction stock ideas within the context of an
appropriate risk management framework, while also setting,
in conjunction with the Board, the gearing of the portfolio.
Strategic Report
Sustainability at Schroders
A continually evolving approach
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ESG and Stewardship
Disciplined and repeatable approach
Comprehensive
research
coverage of both
large and small
cap stocks
Monitored &
researched
Companies
graded 1-4
Analysts’
recommendations
Specialist fund
managers
meeting
Exchange of views
Portfolio
construction
Strongest stock ideas
Portfolio control &
monitoring
Schroders’
risk management
Stock selection Portfolio construction and risk management
Integration of ESG into the investment process
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 14
Annual Report and Accounts
for the year ended 31 July 2022
15
Strategic Report
Strategic Report
Schroders has been considering Environmental, Social and
Governance (“ESG”) issues, and sustainability generally, for over
20 years. Schroders has a team of 20+ dedicated ESG analysts
within its Sustainable Investment Team, based in London. They
analyse long-term trends and implications around
sustainability and how this is likely to affect different industries
and stakeholders. The team operates as a central resource to
both disseminate trends and analysis to the rest of the group
and also provides training and input to the Manager’s Japan
equity analysts when they are undertaking their sustainability
work as part of their industry and company research. Schroders
uses research on sustainability to make more complete and
informed investment decisions.
The Manager embeds this thinking on sustainability and ESG
issues into the process for Japanese stock research and
portfolio construction for the Company.
Idea generation is driven by bottom-up, internal research
produced by the Manager’s analysts based in Tokyo. Investment
views are structured around a long-term assessment of quality
and, central to this is an opinion on the sustainability of a
company’s business model. Meetings with management are the
bedrock of this research process and ESG factors are integrated
throughout. These views are explicitly quantified by each analyst
within the proprietary Fair Value Model for each stock under
coverage. By forming a structural element within the Fair Value
Model, the positive and negative scoring applied to ESG factors
contributes symmetrically to the portfolio manager’s views of
both downside risk and upside potential for each stock.
Within the Japanese equity market, where disclosure and
analysis of ESG issues is relatively new, it is critically important to
identify, and differentiate between, early signs of positive
change, even if some of these still appear modest in comparison
to other developed markets. By identifying strengths,
weaknesses and changes in these areas, especially in
governance, the Manager can materially strengthen their
understanding of companies and improve investment
decisions.
ESG factors rank alongside other criteria for assessing the
Manager’s view of a company’s fair value. As a result, provided
there are no “red flags” which would prohibit investment, it is
still possible for some companies with weaker ESG scores to be
included in the portfolio, if other factors are sufficiently positive.
In practice, however, the Company would only take such a
position if the Manager also saw scope for the company to
improve its ESG position. For some individual stocks, such as
tobacco companies, the Manager’s views are strongly
influenced by consideration of social externalities and
regulatory risk, and it is increasingly unlikely that any new
investment would be made in these areas.
Schroders aims to continuously evolve and improve the
investment approach to ensure that these processes remain
forward-looking, especially in relation to ESG factors. The
introduction of the Japanese Stewardship Code in 2014 and the
Corporate Governance Code in 2015, together with subsequent
revisions, has underlined the Japanese authorities’ desire to
drive improvements in corporate governance. Schroders’
Japanese office became a signatory to the Japanese
Stewardship Code in 2014 and in 2015, established a
Stewardship Committee to engage with companies on their
ESG activities with the aim of encouraging best practice and
influencing change over time. The Manager’s commitment to
stewardship and corporate governance is evident in company
research and in the debate that takes place both internally and
when interacting with company management. Looking
forward, further regulation on ESG disclosures is expected in
Japan and the Manager has already begun proactively
engaging with companies on these issues.
The Manager’s local Stewardship Committee is also responsible
for all proxy voting and will discuss any contentious items with
the relevant internal parties. The committee members are also
in regular contact with the proxy voting team in London, to
ensure that views are aligned and that consistent messages are
being sent to companies. All voting records are disclosed as
required by the 2017 revision of Japan’s Stewardship Code.
Engagement at work
Several of the Company’s holdings are included in the
Manager’s focus list for engagement, including Toyota
Industries, which produces automobile components plus
forklift trucks and automation equipment.
We feel their progress on environmental related issues is
slightly better than many of its global peers and the company
holds some key technologies in environmental efficiency.
However, we need to maintain pressure on the company to set
realistic interim targets in order to meet its goal of carbon
neutrality by 2050. In addition we find some challenges in both
Social and Governance factors, especially in terms of
measurable progression in employee relations, cross-
shareholding structures and diversity at the board level.
Nevertheless we believe progress can be made through an
active dialogue with the company, and there is scope for a
significant revaluation of the stock if tangible progress can be
made within a realistic timeframe.
The future
While E&S factors are an important part of the analysis, the
Manager currently places most weight on the assessment of a
company’s governance, and shareholder returns. In recent
years the particular emphasis has been on sustainable
improvements to return on equity and enhanced shareholder
focus, where tangible results have been seen. Progress in these
areas will increasingly be linked to whether a company also has
the ability to adapt to the increasing risks from specific E&S
factors, such as climate change and data security, as well as
being able to demonstrate this clearly to stakeholders.
Investment restrictions and spread of
investment risk
The key restrictions imposed on the Manager are that: a) no
more than 15% of the Company’s total net assets, at the date
of acquisition, may be invested in any one company; b) no more
than 10% of the value of the Company’s gross assets may be
invested in other listed investment companies unless such
companies have a stated investment policy not to invest more
than 15% of their gross assets in other listed companies; c) the
Company will not invest more than 15% of its gross assets in
other listed investment companies or investment trusts; d) no
more than 15% of the Company’s total net assets may be
invested in open-ended funds; and e) no more than 25% of the
Company’s total net assets may be invested in the aggregate
of unlisted investments and holdings representing 20% or
more of the equity capital of any company.
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 15
16
Schroder Japan Growth Fund plc
Strategic Report
In accordance with the investment objective, the Company,
while being invested in a single country, ensures that the
objective of spreading risk has been achieved through portfolio
diversification (66 investments spread over 26sectors at 31July
2022), the largest holding being Toyota Motor at 5.1%.
Promotion
The Company promotes its shares to a broad range of
investors who have the potential to be long-term supporters
of the investment strategy. The Company seeks to achieve this
through its Manager and corporate broker, which promote the
shares of the Company through regular contact with both
current and potential shareholders as well as their advisers.
These activities consist of investor lunches, one-on-one
meetings, regional road shows and attendances at conferences
for professional investors. In addition, the Company’s shares
are supported by the Manager’s wider marketing of investment
companies targeted at all types of investors; this includes
maintaining close relationships with adviser and execution-only
platforms, advertising in the trade press, maintaining
relationships with financial journalists and the provision of
digital information on Schroders’ website. The Board also seeks
active engagement with investors, and meetings with the
Chairman are offered to investors when appropriate.
Shareholders are encouraged to sign up to the Manager’s
Investment Trusts update, to receive information on
the Company directly
https://www.schroders.com/en/uk/
adviser/fund-centre/funds-in-focus/investment-trusts/schroders-
investment-trusts/never-miss-an-update/
.
Details of the Board’s approach to discount management and
share issuance may be found in the Chairman’s Statement on
page2 and in the Annual General Meeting – Recommendations
on page58.
Relations with shareholders
Shareholder relations are given high priority by both the Board
and the Manager. The Company communicates with
shareholders through its webpages and the annual and half
year reports which aim to provide shareholders with a clear
understanding of the Company’s activities and its results.
In addition to the engagement and meetings held during the
year described in “Promotion” on page 16, the chairs of the
Board and committees and the other Directors attend the AGM
and are available to respond to queries and concerns from
shareholders.
Key performance indicators (KPIs)
The Board reviews performance using a number of key
measures, to monitor and assess the Company’s success in
achieving its objective. Further comment on performance can
be found in the Chairman’s statement. The following KPIs are
used:
• NAV performance;
• Share price discount;
• Share price premium; and
• Ongoing charges ratio.
Some KPIs are Alternative Performance Indicators (APIs), and
further details can be found on page 2 and definitions of these
terms on page 62.
Purpose, Values and Culture
The Company’s purpose is to create long-term shareholder
value, in line with the investment objective.
The Company’s culture is driven by its values: Transparency,
Engagement and Rigour, with collegial behaviour and
constructive, robust challenge. The values are all centred on
achieving returns for shareholders in line with the Company’s
investment objective. The Board is responsible for setting
culture and communicating its values to its stakeholders by
demanding high standards from service providers in order to
deliver excellent performance for shareholders. The Board also
promotes the effective management or mitigation of the risks
faced by the Company and, to the extent it does not conflict
with the investment objective, aims to structure the Company’s
operations with regard to all its stakeholders and take account
of the impact of the Company’s operations on the environment
and community. Further details on ESG company engagement
can be found on page 15.
Acting with high standards of integrity and transparency the
Board is committed to encouraging a culture that is responsive
to the views of shareholders and its wider stakeholders. As the
Company has no employees and acts through its service
providers, its culture is represented by the values and
behaviour of the Board and third parties to which it delegates.
The Board aims to fulfil the Company’s investment objective by
encouraging a culture of constructive challenge with all key
suppliers and openness with all stakeholders. The Board is
responsible for embedding the Company’s culture in the
Company‘s operations.
The Board recognises the Company’s responsibilities with
respect to corporate and social responsibility and engages with
its outsourced service providers to safeguard the Company’s
interests. As part of this ongoing monitoring, the Board
receives reporting from its service providers with respect to
their anti-bribery and corruption policies; Modern Slavery Act
2015 statements; diversity policies; and greenhouse gas and
energy usage reporting.
Responsible investment
The Company delegates to its Manager the responsibility for
taking environmental, social and governance issues into
account when assessing the selection, retention and realisation
of investments. The Board expects the Manager to engage with
investee companies on social, environmental and business
ethics issues and to promote best practice. The Board expects
the Manager to exercise the Company’s voting rights in
consideration of these issues.
The Company voted all of its proxy votes in line with the
Manager’s corporate governance policy. This covered 886
resolutions, of which the Company voted against management
recommendations or abstained in 6.12% of cases. Voting
instructions are considered on a case by case basis and are a
result of continued engagement with the Company’s holdings.
Where the Manager believes the interests of minority
shareholders are not adequately protected, they may look to
vote against a variety of issues. These can range from a lack of
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Annual Report and Accounts
for the year ended 31 July 2022
17
Strategic Report
Strategic Report
independence or diversity on Board’s pay packages which are
not aligned with performance and capital issuance requests
which are not in minority shareholder interests.
In addition to the description of the Manager’s integration
of ESG into the investment process and the details in
the Manager’s Review, a description of the Manager’s policy
and its engagement with investee companies on
these matters, can be found on the Schroders website
at
https://www.schroders.com/en/sustainability/active-
ownership/voting/.
The Board notes that Schroders believes that companies with
good ESG management often perform better and deliver
superior returns over time. Engaging with companies to
understand how they approach ESG management is an integral
part of the investment process. Schroders is compliant with the
UK Stewardship Code and its compliance with the principles
therein is reported on its website.
The Board has received reporting from the Manager on the
application of its policy.
Corporate and Social Responsibility
Diversity
As at 31 July 2022, the Board comprised three men and three
women. The Board has adopted a diversity and inclusion policy.
With respect to recruitment of non-executive Directors, the
Company has a strong commitment to appointing diverse
candidates from a broad range of backgrounds and across
genders these behaviours are set down in the policy. It will
encourage any recruitment agencies it engages to find a diverse
range of candidates that meet the objective criteria agreed for
each appointment. Appointments will always be based on merit.
Candidates for Board vacancies are selected based on their skills
and experience, which are matched against the balance of skills
and experience of the overall Board taking into account the
criteria for the role being offered. The Board reviews the
Manager as a service provider annually at the management
engagement committee.
Financial crime policy
The Company continues to be committed to carrying out its
business fairly, honestly and openly operates a financial crime
policy, covering bribery and corruption, tax evasion, money
laundering, terrorist financing and sanctions, as well as seeking
confirmations that the Company’s service providers’ policies are
operating soundly.
Greenhouse gas emissions and energy usage
As the Company outsources its operations to third parties, it
has no significant greenhouse gas emissions and energy usage
to report.
The Board’s commitment to stakeholders – section172
Companies Act 2006 statement
The Board has identified its key stakeholders as the
Company’s shareholders and service providers. The Board
notes the Company has no employees and the impact of its
own operations on the environment and local community is
through the impact its service providers have.
Engagement with key stakeholders assists the Board in
meeting the obligation for Directors to act in a way that
promotes the success of the Company, taking into account
their interests. This statement outlines this engagement and
the impact on decision-making where appropriate, and
cross-refers to the decisions made by the Board during the
year, detailed elsewhere in this report.
As detailed in “Promotion” on page 16 and Relations with
Shareholders on page 16, the Company engages with its
shareholders. The Board considered feedback by
shareholders when making decisions relating to share
buybacks and the dividend.
As detailed in “Purpose, Values and Culture” on page16, the
Board engages with service providers, and receives regular
reporting, either directly, or through the Manager or
Company Secretary, on performance and other matters. The
effect of such engagement, if relevant, is detailed in the
Chairman’s Statement, Managers’ Review, Audit and Risk
Committee Report and Management Engagement
Committee Report.
Principal decisions taken during the year were: (1) buybacks,
(2) strategy and (3) Board changes. For each of these
decisions the Board took into account feedback from
shareholders, either directly or through service providers
and advisers. The Board also took into account the views of
its service providers, including the Manager. The Board is
pleased to report its engagements were constructive and led
to positive outcomes, as detailed in the Chairman’s
Statement and committee reports.
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Schroder Japan Growth Fund plc
Strategic Report
Principal risks and uncertainties
The Board is responsible for the Company’s system of risk management and internal control and for reviewing its effectiveness.
The Board has adopted a detailed matrix of principal risks affecting the Company’s business as an investment trust and has
established associated policies and processes designed to manage and, where possible, mitigate those risks, which are
monitored by the audit and risk committee on an ongoing basis. This system assists the Board in determining the nature and
extent of the risks it is willing to take in achieving the Company’s strategic objectives. Both the principal risks and the monitoring
system are also subject to robust assessment at least annually. The last assessment took place in October 2021.
Although the Board believes that it has a robust framework of internal control in place this can provide only reasonable, and
not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.
Actions taken by the Board and, where appropriate, its committees, to manage and mitigate the Company’s principal risks and
uncertainties are set out in the table below.
Emerging risks and uncertainties
During the year, the Board also discussed and monitored a number of risks that could potentially impact the Company’s ability
to meet its strategic objectives. These were political risk and climate change risk. The Board has determined they are not
currently, as detailed below, sufficiently material for the Company to be categorised as independent principal risks. The Board
receives updates from the Manager, Company Secretary and other service providers on other potential risks that could affect
the Company. The Board were mindful of emerging risks during the year including the conflict in Ukraine, rising inflation, the
threat of a global recession and increasing energy prices although they are not factors which explicitly impacted the Company's
performance.
Political risk includes the impact of geopolitical risk, regional tensions, trade wars and sanctions against companies. Currency
rates and borrowings drawn down by the Company, as well as markets generally, may be affected by geopolitical developments.
During the year, the Board noted that the invasion of Ukraine impacted political tensions, and impacted supply chains and
interest rates. The Board is also mindful that changes to public policy in the US, UK, or in the Asia Pacific region, could impact
the Company in the future. Currency rate and borrowings drawn down by the Company may be affected by geopolitical
developments particularly in relation to movements in sterling versus the yen. Note20 of the financial statements provides
more information on the effect of currency and market price movements.
Climate change risk includes how climate change could affect the Company’s investments, and potentially shareholder returns.
The Board notes the Manager has integrated ESG considerations, including climate change, into the investment process as
detailed in the Strategic Report. The Board will continue to monitor this.
*The “Change” column on the right highlights at a glance the board’s assessment of any increases or decreases in risk during
the year after mitigation and management. The arrows show the risks as increased or decreased.
Risk Mitigation and management Change*
Strategic
The Company’s investment objectives may become out of
line with the requirements of investors, resulting in a wide
discount of the share price to underlying NAV per share.
The appropriateness of the Company’s investment remit is
periodically reviewed and the success of the Company in
meeting its stated objectives is monitored.
The share price relative to NAV per share is monitored and
the use of buy back authorities is considered on a regular
basis.
The marketing and distribution activity is actively reviewed.
Proactive engagement with shareholders.
➔
The Company’s cost base could become uncompetitive,
particularly in light of open-ended alternatives.
The ongoing competitiveness of all service provider fees is
subject to periodic benchmarking against their competitors.
Annual consideration of management fee levels.
➔
Investment management
The Manager’s investment strategy, if inappropriate, may
result in the Company underperforming the market and/or
peer group companies, leading to the Company and its
objectives becoming unattractive to investors.
Review of: the Manager’s compliance with its agreed
investment restrictions, investment performance and risk
against investment objectives and strategy; relative
performance; the portfolio’s risk profile; and whether
appropriate strategies are employed to mitigate any
negative impact of substantial changes in markets.
Annual review of the ongoing suitability of the Manager is
undertaken.
➔
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 18
Annual Report and Accounts
for the year ended 31 July 2022
19
Strategic Report
Strategic Report
Risk Mitigation and management Change*
Financial and currency
The Company is exposed to the effect of market fluctuations
due to the nature of its business. A significant fall in
Japanese equity markets could have an adverse impact on
the market value of the Company’s underlying investments
and, as the Company invests predominantly in assets which
are denominated in yen, its exposure to changes in the
exchange rate between sterling and yen has the potential
to have a significant impact on returns.
The risk profile of the portfolio considered appropriate
strategies to mitigate any negative impact of substantial
changes in markets discussed with the Manager.
The Board considers overall hedging policy on a regular
basis.
➔
Custody
Safe custody of the Company’s assets may be compromised
through control failures by the Depositary.
The depositary reports on safe custody of the Company’s
assets, including cash, and portfolio holdings independently
reconciled with the Manager’s records.
The review of audited internal controls reports covering
custodial arrangements is undertaken.
An annual report from the depositary on its activities,
including matters arising from custody operations is
received.
➔
Gearing and leverage
The Company utilises credit facilities. These arrangements
increase the funds available for investment through
borrowing. While this has the potential to enhance
investment returns in rising markets, in falling markets the
impact could be detrimental to performance.
Gearing is monitored daily and strict restrictions on
borrowings are imposed: gearing continues to operate
within pre-agreed limits so as not to exceed 25% of
shareholders’ funds.
➔
Accounting, legal and regulatory
In order to continue to qualify as an investment trust, the
Company must comply with the requirements of Section
1158 of the Corporation Tax Act 2010.
Breaches of the UK Listing Rules, the Companies Act or
other regulations with which the Company is required to
comply, could lead to a number of detrimental outcomes.
The confirmation of compliance with relevant laws and
regulations by key service providers is reviewed.
Shareholder documents and announcements, including the
Company’s published annual report, are subject to stringent
review processes.
Procedures are established to safeguard against the
disclosure of inside information.
➔
Service provider
The Company has no employees and has delegated certain
functions to a number of service providers, principally the
Manager, Depositary and Registrar. Failure of controls, and
poor performance of any service provider could lead to
disruption, reputational damage or loss.
Service providers are appointed subject to due diligence
processes and with clearly-documented contractual
arrangements detailing service expectations.
Regular reporting is provided by key service providers and
monitoring of the quality of their services provided. The
Directors also receive presentations from the Manager,
depositary and custodian, and the registrar on an annual
basis.
Review of annual audited internal controls reports from key
service providers, including confirmation of business
continuity arrangements and IT controls, and follow up of
remedial actions as required.
➔
Cyber
The Company’s service providers are all exposed to the risk
of cyber attacks. Cyber attacks could lead to loss of personal
or confidential information or disrupt operations.
Service providers report on cyber risk mitigation and
management at least annually, which includes confirmation
of business continuity capability in the event of a cyber
attack.
In addition, the Board received presentations from the
Manager, depositary and custodian, and the registrar on
cyber risk.
The Board noted that following the invasion of Ukraine by
Russia, cyber risk was assessed to be higher, and the Board
sought further assurance from its service providers that
they were able to manage the heightened threat.
➔
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20
Schroder Japan Growth Fund plc
Strategic Report
Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service
providers, and ensures regular communication of the results of monitoring by such providers to the audit and risk committee,
including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to
which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company’s
performance or condition.
No significant control failings or weaknesses were identified from the audit and risk committee’s ongoing risk assessment
which has been in place throughout the financial year and up to the date of this report. The Board is satisfied that it has
undertaken a detailed review of the risks facing the Company.
A full analysis of the financial risks facing the Company is set out in note 20 to the accounts on pages 52 to 57.
Viability statement
The Directors have assessed the viability of the Company over
a five year period, taking into account the Company’s position
at 31 July 2022 and the potential impacts of the principal risks
and uncertainties it faces for the review period. The Directors
have assessed the Company’s operational resilience and they
are satisfied that the Company’s outsourced service providers
will continue to operate effectively, following the
implementation of their business continuity plans.
A period of five years has been chosen as the Board believes
that this reflects a suitable time horizon for strategic planning,
taking into account the investment policy, liquidity of
investments, potential impact of economic cycles, nature of
operating costs, dividends and availability of funding.
In its assessment of the viability of the Company, the Directors
have considered each of the Company’s principal risks and
uncertainties detailed on pages18 and 19 and in particular the
impact of a significant fall in Japanese equity markets on the
value of the Company’s investment portfolio. The Company’s
yen 6.0 billion term loan with Sumitomo Mitsui Banking
Corporation Europe Limited that expired on 16 January 2022
was renewed on similar terms for a further three years. The
Directors also considered the beneficial tax treatment the
Company is eligible for as an investment trust. If changes to
these taxation arrangements were to be made it would affect
the viability of the Company to act as an effective investment
vehicle.
Whilst the Company's articles of association require that a
proposal for the continuation of the Company be put forward
at the AGM in 2024, the Directors have no reason to believe
such a resolution will not be passed by shareholders.
The Directors have considered the Company’s income and
expenditure projections and the fact that the Company’s
investments comprise of readily realisable securities which can
be sold to meet funding requirements if necessary and on that
basis consider that five years is an appropriate time period.
The Directors also considered a stress test in which the
Company's NAV dropped by 50% and noted that, based on the
assumptions in the test, the Company would continue to be
viable over a five year period.
Based on the Company’s processes for monitoring operating
costs, the Board’s view that the Manager has the appropriate
depth and quality of resource to achieve superior returns in the
longer term, the portfolio risk profile, limits imposed on
gearing, counterparty exposure, liquidity risk and financial
controls, the Directors have concluded that there is a
reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due
over the five year period of their assessment.
Going concern
The Directors have assessed the principal risks, the impact of
the emerging risks and uncertainties and the matters referred
to in the viability statement. Based on the work the Directors
have performed, they have not identified any material
uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Company’s
ability to continue as a going concern for the period assessed
by the Directors, being the period to 30 November 2023 which
is at least 12 months from the date the financial statements
were authorised for issue.
By order of the Board
Schroder Investment Management Limited
Company Secretary
13 October 2022
176026 Schroders Japan Growth Fund Annual Report Pt1_176026 Schroders Japan Growth Fund Annual Report Pt1 13/10/2022 17:59 Page 20
Annual Report and Accounts
for the year ended 31 July 2022
Governance
21
Board of Directors
Anja Balfour
Status: Independent Non-Executive Chairman
Length of service: 9years – appointed a director in May 2013 and Chairman in
November 2018
Experience: Mrs Balfour spent over 22 years managing equity portfolios for Stewart
Ivory, Baillie Gifford and Axa Framlington. She is non-executive chairman and
director of The Global Smaller Companies Trust Plc, and non-executive director of
AVI Global Trust plc and Scottish Friendly Assurance, where she chairs the
Investment Committee. She formerly chaired the audit committee of Martin Currie
Asia Unconstrained Trust plc and served as a Trustee of Venture Scotland.
Committee membership: Audit and Risk, Management Engagement (chair) and
Nomination Committees (chair)
Current remuneration: £39,000 per annum (effective from 1 August 2022)
Number of shares held: 49,000*
Alan Gibbs
Status: Senior Independent Non-Executive Director
Length of service: 6 years – appointed a director in February 2016
Experience: Mr Gibbs worked for the Fleming Group, after which he helped set up
and run two Far Eastern brokerages before joining J.O.Hambro (latterly Waverton).
Mr Gibbs is now Chairman of the Burdett Trust and a member of the Advisory
Committee of the M&G Charibond Charities Fixed Interest Common Investment
Fund and a member of the Advisory Committee of the M&G Equities Investment
Fund for Charities.
Committee membership: Audit and Risk, Management Engagement and
Nomination Committees
Current remuneration: £29,000 per annum (effective from 1 August 2022)
Number of shares held: 150,000*
Angus Macpherson
Status: Independent Non-Executive Director
Length of service: 2 years – appointed a director in February 2020
Experience: Mr Macpherson’s experience spans 30 years of working in corporate
finance and capital markets, with Noble, Merril Lynch and Lazard in London, Asia,
New York and Edinburgh. He is currently the non-executive chairman of Pacific
Horizon Investment Trust plc and the non-executive chairman of Henderson
Diversified Income plc. Mr Macpherson is a former director of JP Morgan Elect Plc.
In addition, he is a director of Noble & Company (UK) Limited.
Committee membership: Audit and Risk, Management Engagement and
Nomination Committees
Current remuneration: £29,000 per annum (effective from 1 August 2022)
Number of shares held: 49,440*
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 21
Schroder Japan Growth Fund plc
22
Board of Directors
Belinda Richards
Status: Independent Non-Executive Director
Length of service: 4 years – appointed a director in January 2018
Experience: Mrs Richards is a former senior partner at Deloitte LLP. She is currently
a non-executive director and the chair of the audit and risk committee of Avast plc
and a non-executive director of The Monks Investment Trust plc and Phoenix Group
Holdings plc. Mrs Richards is a former director of Aviva UK Life and Pensions, Balfour
Beatty plc, Grainger plc, Jupiter Fund Management plc, Friends Life Group plc and
Wm Morrison Supermarkets PLC.
Committee membership: Audit and Risk (chair), Management Engagement and
Nomination Committees
Current remuneration: £33,000 per annum (effective from 1 August 2022)
Number of shares held: 4,513
Philip Kay
Status: Chair designate
Length of service: 4 months – appointed a director in March 2022
Experience: Dr Kay has over 40 years’ experience in the Japanese investment
market. He is a former Director of Fidelity Japan Trust plc and of Schroder Securities
Limited and of Smith New Court plc. He is currently Chair of Hansard Global plc, a
London listed financial services business. He is also a Director of CQS Asian Macro
Fund and The Raynar Investment Trust plc.
Committee membership: Audit and Risk, Management Engagement and
Nomination Committees
Current remuneration: £29,000 per annum (effective from 1 August 2022)
Number of shares held: nil
Helena Coles
Status: Independent Non-Executive Director
Length of service: 4 months – appointed a director in March 2022
Experience: Ms Coles has over 20 years’ experience in emerging markets and Asian
equity investment, which includes co-founding a specialist investment boutique,
Rexiter Capital Management, part-owned by State Street Global Advisors. She has
held roles with Fidelity International and the Bank of England. Helena is currently a
non-executive Director of Shaftesbury plc and of JPMorgan Emerging Markets
Investment Trust plc and Independent Investment Advisor to the Joseph Rowntree
Charitable Trust.
Committee membership: Audit and Risk, Management Engagement and
Nomination Committees
Current remuneration: £29,000 per annum (effective from 1 August 2022)
Number of shares held: nil
*Shareholdings are as at 13 October 2022, full details of Directors’ shareholdings are set out in the Remuneration Report on
page 31.
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 22
Annual Report and Accounts
for the year ended 31 July 2022
Governance
23
Directors’ Report
The Directors submit their report and the audited financial
statements of the Company for the year ended 31July 2022.
Directors and officers
Chairman
The Chairman is an independent non-executive director who
is responsible for leadership of the Board and ensuring its
effectiveness in all aspects of its role. The Chairman’s
significant commitments are detailed on page 21. She has no
conflicting relationships.
Company Secretary
Schroder Investment Management Limited provides company
secretarial support to the Board and is responsible for
assisting the Chairman with Board meetings and advising the
Board with respect to governance. The Company Secretary
also manages the relationship with the Company’s service
providers, except for the Manager. Shareholders wishing to
lodge questions in advance of the AGM are invited to do so by
writing to the Company Secretary at the address given on the
back cover or by email:
amcompanysecretary@schroders.com.
Role and operation of the Board
The Board of Directors, listed on pages 21 and 22 is the
Company’s governing body; it sets the Company’s strategy
and is collectively responsible to shareholders for its long-
term success. The Board is responsible for appointing and
subsequently monitoring the activities of the Manager and
other service providers to ensure that the investment
objective of the Company continues to be met. The Board also
ensures that the Manager adheres to the investment
restrictions set by the Board and acts within the parameters
set by it in respect of any gearing. The Strategic Report on
pages 13 to 20 sets out further detail of how the Board reviews
the Company’s strategy, risk management and internal
controls and also includes other information required for the
Directors’ Report, and is incorporated by reference.
A formal schedule of matters specifically reserved for decision
by the Board has been defined and a procedure adopted for
Directors, in the furtherance of their duties, to take
independent professional advice at the expense of the
Company.
The Chairman ensures that all Directors receive relevant
management, regulatory and financial information in a timely
manner and that they are provided, on a regular basis, with
key information on the Company’s policies, regulatory
requirements and internal controls. The Board meets at least
quarterly and receives and considers reports regularly from
the Manager and other key advisers and ad hoc reports and
information are supplied to the Board as required.
The Board is satisfied that it is of sufficient size with an
appropriate balance of diverse skills and experience,
independence and knowledge of the Company, its sector and
the wider investment trust industry, to enable it to discharge
its duties and responsibilities effectively and that no individual
or group of individuals dominates decision making.
The Board has approved a policy on directors’ conflicts of
interest. Under this policy, directors are required to disclose all
actual and potential conflicts of interest to the Board as they
arise for consideration and approval. The Board may impose
restrictions or refuse to authorise such conflicts if deemed
appropriate. No Directors have any connections with the
Manager, shared directorships with other Directors or
material interests in any contract which is significant to the
Company’s business.
Key service providers
The Board has adopted an outsourced business model and
has appointed the following key service providers:
Manager
The Company is an Alternative Investment Fund as defined by
the AIFM Directive and has appointed Schroder Unit Trusts
Limited (“SUTL”) as the Manager in accordance with the terms
of an Alternative Investment Fund Manager (“AIFM”)
agreement. The AIFM agreement, which is governed by the
laws of England and Wales, can be terminated by either party
on sixmonths’ notice or on immediate notice in the event of
certain breaches or the insolvency of either party. As at the
date of this report no such notice had been given by either
party.
SUTL is authorised and regulated by the FCA and provides
portfolio management, risk management, accounting and
company secretarial services to the Company under the AIFM
agreement. The Manager also provides general marketing
support for the Company and manages relationships with key
investors, in conjunction with the Chairman, other Board
members or the corporate broker as appropriate. The
Manager has delegated investment management,
administrative, accounting and company secretarial services
to another wholly owned subsidiary of Schroders plc,
Schroder Investment Management Limited. The Company
Secretary has an independent reporting line to the Manager
and distribution functions within Schroders. The Manager has
in place appropriate professional indemnity cover.
The Schroders Group manages £773.4 billion (as at 30 June
2022) on behalf of institutional and retail investors, financial
institutions and high net worth clients from around the world,
invested in a broad range of asset classes across equities,
fixed income, multi-asset and alternatives.
The Manager is entitled to a fee at the rate of 0.75% per
annum on assets up to and including £200million and 0.65%
per annum thereafter, charged on the net value of the
Company’s assets under management.
The management fee payable in respect of the year ended
31July 2022 amounted to £1,998,000 (2021:£1,934,000).
A marketing support fee of £50,000 per annum is also payable
to the Manager in respect of the promotion of the Company.
The Manager is also entitled to receive a fee for providing
administration, accounting and company secretarial services
to the Company. For those services, it receives an annual fee
of £90,000.
Details of all amounts payable to the Manager are set out in
note17 on page51.
The management engagement committee has reviewed the
performance of the Manager during the year under review and
continues to consider that it has the appropriate depth of
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 23
Schroder Japan Growth Fund plc
24
resource to deliver above average returns over the longer term
and that the continuing appointment of the Manager on the
terms agreed remains in the best interests of shareholders.
Depositary
HSBC Bank plc, which is authorised by the Prudential Regulation
Authority (“PRA”) and regulated by the FCA and the PRA, carries
out certain duties of a depositary specified in the AIFM Directive
including, in relation to the Company, as follows:
– safekeeping of the assets of the Company which are
entrusted to it;
– cash monitoring and verifying the Company’s cash flows;
and
– oversight of the Company and the Manager.
The Company, the Manager and the depositary may
terminate the Depositary Agreement at any time by giving
90 days’ notice in writing. The Depositary may only be
removed from office when a new Depositary is appointed by
the Company.
Revenue, final dividend and dividend
policy
The net revenue return for the year, before finance costs
and taxation, was £6,975,000 (2021: £6,212,000). After
deductingfinance costs and taxation the amount available
for distribution to shareholders was £6,073,000
(2021: £5,401,000) equivalent to net revenue of 4.97p
(2021:4.38p) per ordinary share.
The Directors have recommended the payment of a final
dividend for the year of 4.90p per share (2021:4.30p) payable
on 9 December 2022 to shareholders on the register on
4November 2022, subject to approval by shareholders at the
Annual General Meeting on 5 December 2022.
The Board’s policy is to pay out substantially all the Company’s
revenue.
Compliance with the AIC Code of
Corporate governance
The Board of the Company has considered the principles and
provisions of the AIC Code of Corporate Governance (the “AIC
Code”). The AIC Code addresses the Principles and Provisions set
out in the UK Corporate Governance Code (the “UK Code”), as well
as setting out additional Provisions on issues that are of specific
relevance to the Company. The Board considers that reporting
against the Principles and Provisions of the AIC Code, provides
more relevant information to shareholders.
The AIC Code is available on the AIC website (www.theaic.co.uk).
It includes an explanation of how the AIC Code adopts the
Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
The Financial Conduct Authority requires all UK listed companies
to disclose how they have complied with the provisions of the UK
Code. This statement, together with the Statement of Directors’
Responsibilities, viability statement and going concern statement
set out on page 20, respectively, indicates how the Company has
complied with the principles of good governance of the AIC Code
and its requirements on internal control. The Strategic Report and
Directors’ Report provide further details on the Company’s internal
controls (including risk management), governance and diversity
policy.
The Board is satisfied that the Company’s current governance
framework is compliant with the AIC Code. The remuneration
policy and remuneration of non-executive Directors are
reviewed by the nomination committee and approved by the
Board. The Company has neither executive Directors or
employees, so does not apply the relating principles and
provisions.
Committees
In order to assist the Board in fulfilling its governance
responsibilities, it has delegated certain functions to
committees. The roles and responsibilities of these
committees, together with details of work undertaken during
the year under review, are outlined over the next few pages.
The reports of the audit and risk committee, nomination
committee and management engagement committee are
incorporated, and form part of, the Directors’ Report.
Other required Directors’ Report disclosures
under laws, regulations, and the Code
Status
The Company carries on business as an investment trust. Its
shares are listed and admitted to trading on the premium
segment of the main market of the London Stock Exchange. It
has been approved by HM Revenue & Customs as an
investment trust in accordance with section 1158 of the
Corporation Tax Act 2010, by way of a one-off application and
it is intended that the Company will continue to conduct its
affairs in a manner which will enable it to retain this status.
The Company is domiciled in the UK and is an investment
company within the meaning of section 833 of the Companies
Act 2006. The Company is not a “close” company for taxation
purposes.
It is not intended that the Company should have a limited life
but the Directors consider it desirable that the shareholders
should have the opportunity to review the future of the
Company at appropriate intervals. Accordingly, the articles of
association contain provisions requiring the Directors to put a
proposal for the continuation of the Company to shareholders
at the Annual General Meeting (“AGM”) in 2024 and thereafter
at five yearly intervals.
Share capital and substantial share
interests
As at 7 October 2022, the Company had 121,827,372 ordinary
shares of 10p in issue. No shares are held in treasury.
Accordingly, the total number of voting rights in the Company
as at 7 October 2022 121,827,372. Details of changes to the
Company’s share capital during the year end review are given
in note 14 to the accounts on page 50. All shares in issue rank
equally with respect to voting, dividends and any distribution
on winding up.
The Board noted that the Company’s shareholders
appreciated the Board’s discount management. The Board
agreed to request renewal of the authorities to issue and buy
back shares as described on page 2.
Directors’ Report
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 24
Annual Report and Accounts
for the year ended 31 July 2022
Governance
25
Directors’ Report
The Company has received notifications in accordance with the
Financial Conduct Authority’s (“FCA”) Disclosure Guidance and
Transparency Rule 5.1.2R of the following interests in 3% or more of
the voting rights attached to the Company’s issued share capital.
As at % of total
31 July voting
2022 rights
City of London Investment
Management Company Limited 34,197,365 28.01
1607 Capital Partners, LLC 22,046,570 18.06
Allspring Global Investments,
LLC 9,581,763 7.85
Lazard Asset Management LLC 5,926,190 7.47
Investec Wealth & Investment
Limited 11,751,352 9.42
Wells Capital Management, Inc 6,277,080 5.02
Rathbone Brothers PLC 6,219,182 4.98
Following the period end and at the date of this report, the
following shareholders notified the Company of changes to
their holdings, varying the figures in the table above. In
addition, City of London Investment Management notified the
Company that its holding increased to 29.16% and Investec
Wealth & Investment Limited reduced its position to 4.74%.
The other figures remain the same.
Provision of information to the auditor
The Directors at the date of approval of this report confirm
that, so far as each of them is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
each director has taken all the steps that he or she ought to
have taken as a director in order to make himself or herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
Directors’ attendance at meetings
Four Board meetings are usually scheduled each year to deal
with matters including: the setting and monitoring of
investment strategy; approval of borrowings and/or cash
positions; review of investment performance; the level of
premium or discount of the Company’s shares to NAV per
share and promotion of the Company; and services provided
by third parties. Additional meetings of the Board are
arranged as required.
The number of scheduled and ad hoc meetings of the Board
and its committees held during the financial year, and the
attendance of individual Directors, is shown below. Whenever
possible all Directors attend the AGM.
Audit Management
Nomination and Risk Engagement
Director Board Committee Committee Committee
Anja Balfour 6/6 2/2 2/2 1/1
Helena Coles
1
2/2 1/1 1/1 1/1
Alan Gibbs 6/6 2/2 2/2 1/1
Philip Kay
2
3/3 1/1 2/2 1/1
Angus
Macpherson 6/6 2/2 2/2 1/1
Belinda Richards 6/6 2/2 2/2 1/1
1
Ms Coles was appointed on 30 March 2022.
2
Dr Kay was appointed on 28 March 2022.
The Board is satisfied that the Chairman and each of the other
non-executive Directors commits sufficient time to the affairs
of the Company to fulfil their duties.
Directors’ and officers’ liability insurance
and indemnities
Directors’ and officers’ liability insurance cover was in place for
the Directors throughout the year. The Company’s articles of
association provide, subject to the provisions of UK legislation,
an indemnity for Directors in respect of costs which they may
incur relating to the defence of any proceedings brought
against them arising out of their positions as directors, in
which they are acquitted or judgment is given in their favour
by the court. This is a qualifying third party indemnity
provision and was in place throughout the year under review
and to the date of this report.
By order of the Board
Schroder Investment Management Limited
Company Secretary
13 October 2022
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 25
Schroder Japan Growth Fund plc
26
Audit and Risk Committee Report
The responsibilities and work carried out by the audit and risk committee during the year under review are set out in the
following report. The duties and responsibilities of the committee, which include monitoring the integrity of the Company’s
financial reporting and internal controls, are set out in further detail below, and may be found in the terms of reference which
are set out on the Company’s webpages, www.schroders.co.uk/japangrowth.
All Directors are members of the committee. Belinda Richards is the chair of committee. The Board has satisfied itself that at
least one of the committee’s members has recent and relevant financial experience and that the committee as a whole has
competence relevant to the sector in which the company operates.
The below table sets out how the committee discharged its duties during the year. The committee met twice during the year.
Further details on attendance can be found on page 25. An evaluation of the committee’s effectiveness and review of its terms of
reference was completed during the year.
Significant issues identified during the committee’s review of the Company’s principal risks and uncertainties, and key matters
communicated by the auditor during its reporting are outlined in blue.
Approach
The committee’s key roles and responsibilities are set out below.
Risks and Internal Controls Financial Reports and Valuation Audit
Principal risks
To establish a process for identifying,
assessing, managing and monitoring
emerging and principal risks of the
Company.
Financial statements
To monitor the integrity of the financial
statements of the Company and any
formal announcements relating to the
Company’s financial performance and
valuation. To review the half year report.
Audit results
To discuss any matters arising from the
audit and recommendations made by
the auditor.
Emerging risks and uncertainties
To ensure a robust assessment of the
Company’s emerging and principal risks
and procedures are in place to identify
emerging risks, and an explanation of
how these are being managed or
mitigated.
Internal controls
To undertake a robust annual review of
the adequacy and effectiveness of
internal controls.
Going concern
To review the position and make
recommendations to the Board in
relation to whether it considers it
appropriate to adopt the going concern
basis of accounting in preparing its
annual and half-yearly financial
statements.
Auditor appointment, independence
and performance
To make recommendations to the Board,
in relation to the appointment, re-
appointment, effectiveness and removal
of the external auditor, to review their
independence, and to approve their
remuneration and terms of
engagement. Reviewing the audit plan
and engagement letter.
Ongoing risk review
Half year
report
Audit
planning
Audit
Annual
report
Post-audit
review
Application during the year
Risks and Internal Controls Financial Reports and Valuation Audit
Service provider controls
Reviewing the operational controls
maintained by the Manager, depositary
and registrar.
Recognition of investment income
Considered dividends received against
forecast and the allocation of special
dividends to income or capital.
Effectiveness of the independent
audit process and auditor
performance
Evaluated the effectiveness of the
independent audit firm and process
prior to making a recommendation that
it should be re-appointed at the
forthcoming AGM. Evaluated the
auditor’s performance against agreed
criteria including: qualification;
knowledge, expertise and resources;
independence policies; effectiveness of
audit planning; adherence to auditing
standards; and overall competence was
considered, alongside feedback from the
Manager on the audit process.
Professional scepticism of the auditor
was questioned and the committee was
satisfied with the auditor’s replies.
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 26
Annual Report and Accounts
for the year ended 31 July 2022
Governance
27
Recommendations made to, and approved by, the Board:
As a result of the work performed, the committee has concluded that the annual report for the year ended 31 July 2022, taken
as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the
Company’s position, performance, business model and strategy, and has reported on these findings to the Board. The Board’s
conclusions in this respect are set out in the Statement of Directors’ Responsibilities on page 33.
Having reviewed the performance of the auditors as described above, the committee considered it appropriate to recommend
the firm’s re-appointment. Resolutions to re-appoint Deloitte LLP as auditor to the Company, and to authorise the Directors to
determine their remuneration will be proposed at the AGM.
Belinda Richards
Audit and risk committee chair
13 October 2022
Application during the year
Risks and Internal Controls Financial Reports and Valuation Audit
Internal controls and risk
management
Consideration of several key aspects of
internal control and risk management
operating within the Manager,
depositary and registrar, including
assurance reports and presentations on
these controls.
Calculation of the investment
management fee and performance
fee
Consideration of methodology used to
calculate the fees, matched against the
criteria set out in the AIFM agreement.
Auditor independence
Deloitte LLP has provided audit services
to the Company since it was appointed
on 19June 2019.
The auditors are required to rotate the
senior statutory auditor every five years.
There are no contractual obligations
restricting the choice of external
auditors.
This is the fourth year that the senior
statutory auditor, Chris Hunter has
conducted the audit of the Company’s
financial statements.
Compliance with the investment trust
qualifying rules in S1158 of the
Corporation Tax Act 2010
Consideration of the Manager’s report
confirming compliance.
Overall accuracy of the annual report
and accounts
Consideration of the draft annual report
and accounts and the letter from the
Manager in support of the letter of
representation to the auditor.
Audit results
Met with and reviewed a comprehensive
report from the auditor which detailed
the results of the audit, compliance with
regulatory requirements, safeguards
that have been established, and on their
own internal quality control procedures.
Principal risks
Reviewing the principal risks faced by
the Company and the system of internal
control.
Valuation and existence of holdings
Quarterly review of portfolio holdings
and assurance reports.
Meetings with the auditor
Met the auditors without representatives
of the Manager present. Representatives
of the auditors attended the committee
meeting at which the draft annual report
and accounts was considered.
Fair, balanced and understandable
Reviewed the annual report and
accounts to ensure that it was fair,
balanced and understandable.
Provision of non-audit services by the
auditor
The committee has reviewed the FRC’s
Guidance on Audit Committees and has
formulated a policy on the provision of
non-audit services by the Company’s
auditor. The committee has determined
that the Company’s appointed auditor
will not be considered for the provision
of certain non-audit services, such as
accounting and preparation of the
financial statements, internal audit and
custody. The auditor may, if required,
provide other non-audit services which
will be judged on a case-by-case basis.
The auditor did not provide any non-
audit services to the Company during
the year.
Going concern and viability
Reviewing the impact of risks on going
concern and longer-term viability.
Consent to continue as auditor
Deloitte LLP indicated to the committee
their willingness to continue to act as
auditor.
Audit and Risk Committee Report
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 27
Schroder Japan Growth Fund plc
28
The committee undertook a detailed review of the
Manager’s performance and agreed that it has the
appropriate depth and quality of resource to deliver
superior returns over the longer term.
The committee also reviewed the terms of the AIFM
agreement and agreed they remained fit for purpose.
The committee reviewed the other services provided by
the Manager and agreed they were satisfactory.
The committee reviewed the progress of the company
with respect to the conditional tender offer conditions
and noted that for the financial year the company had
delivered performance in excess over the conditions.
The annual review of each of the service providers was
satisfactory.
The committee noted that the audit and risk committee
had undertaken a detailed evaluation of the Manager,
registrar, and depositary and custodian’s internal
controls.
Application during the year
Oversight of the Manager
The committee:
• reviews the Manager’s performance, over the short-
and long-term, against the Benchmark, peer group
and the market.
• considers the reporting it has received from the
Manager throughout the year, and the reporting
from the Manager to the shareholders.
• assesses management fees on an absolute and
relative basis, receiving input from the Company’s
broker, including peer group and industry figures, as
well as the structure of the fees.
• reviews the appropriateness of the Manager’s
contract, including terms such as notice period.
• assesses whether the Company receives appropriate
administrative, accounting, company secretarial and
marketing support from the Manager.
Oversight of other service providers
The committee reviews the performance and
competitiveness of the following service providers on at
least an annual basis:
• Depositary and custodian
• Corporate broker
• Registrars
• Lender
The committee also receives a report from the
Company Secretary on ancillary service providers, and
considers any recommendations.
The committee notes the audit and the risk committee’s
review of the auditor.
Management Engagement Committee Report
The management engagement committee is responsible for (1) the monitoring and oversight of the Manager’s performance
and fees, and confirming the Manager’s ongoing suitability, and (2) reviewing and assessing the Company’s other service
providers, including reviewing their fees. All Directors are members of the committee.
Anja Balfour is the chair of the
committee. Its terms of reference are available on the Company’s webpages, www.schroders.co.uk/japangrowth.
Approach
Recommendations made to, and approved by, the Board:
• That the ongoing appointment of the Manager on the terms of the AIFM agreement, including the fee, was in the best
interests of shareholders as a whole.
• That the Company’s service providers’ performance remained satisfactory.
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Annual Report and Accounts
for the year ended 31 July 2022
Governance
29
Selection and induction
• Committee prepares a job
specification for each role, and
an independent recruitment
firm is appointed. For the
Chairman and the chairs of
committees, the committee
considers current Board
members too.
• Job specification outlines the
knowledge, professional skills,
personal qualities and
experience requirements.
• Potential candidates assessed
against the Company’s diversity
policy.
• Committee discusses the long
list, invites a number of
candidates for interview and
makes a recommendation to
the Board.
• Committee reviews the
induction and training of new
Directors.
Board evaluation and Directors’ fees
• Committee assesses each director
annually.
• Evaluation focuses on whether each
director continues to demonstrate
commitment to their role and provides a
valuable contribution to the Board during
the year, taking into account time
commitment, independence, conflicts and
training needs.
• Following the evaluation, the committee
provides a recommendation to
shareholders with respect to the annual
re-election of Directors at the AGM.
• All Directors retire at the AGM and their
re-election is subject to shareholder
approval.
• Committee reviews Directors’ fees, taking
into account comparative data and
reports to shareholders.
• Any proposed changes to the
remuneration policy for Directors are
discussed and reported to shareholders.
Succession
• The Board’s succession policy is
that Directors’ tenure will be for
no longer than nine years,
except in exceptional
circumstances, and that each
Director will be subject to
annual re-election at the AGM.
• Committee reviews the Board’s
current and future needs at
least annually. Should any need
be identified the committee will
initiate the selection process.
• Committee oversees the
handover process for retiring
Directors.
Nomination Committee Report
The nomination committee is responsible for (1) the recruitment, selection and induction of Directors, (2) their assessment
during their tenure, and (3) the Board’s succession. All directors are members of the committee. Belinda Richards is the chair
of the committee. Its terms of reference are available on the Company’s webpages, www.schroders.co.uk/japangrowth.
Approach
Oversight of Directors
Selection
Induction
Annual
evaluation
Annual review
of succession
policy
Application
of succession
policy
For application see page 30
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 29
Schroder Japan Growth Fund plc
30
Nomination Committee Report
Recommendations made to, and approved by, the Board:
• That all Directors continue to demonstrate commitment to their roles, provide a valuable contribution to the deliberations
of the Board, remuneration of the Directors was appropriate and Directors remain free from conflicts with the Company
and its Directors, so should all be recommended for re-election by shareholders at the AGM.
• That Directors’ fees be increased to £39,000 for the Chairman, and £29,000 for non-executive Directors and £33,000 for the
audit chair.
• That the Board increase the number of Directors to six which will decrease to five following the AGM to allow for sufficient
handover.
• That the Remuneration Report be put to shareholders for approval.
Application during the year
Board evaluation and Directors’ fees
• The Board evaluation was undertaken in
July 2022.
• The Chairman reported on the
effectiveness of the Board, herself and its
leadership following the internal
evaluation lead by the Chairman and
Senior independent director where
appropriate.
• The committee also reviewed each
Director’s time commitment and
independence by reviewing a complete list
of appointments, including pro bono not
for profit roles, to ensure that each Director
remained free from conflict and had
sufficient time available to discharge each
of their duties effectively. All Directors were
considered to be independent in character
and judgement.
• The committee considered each Director’s
contributions, and noted that in addition to
extensive experience as professionals and
non-executive Directors, each director had
valuable skills and experience, as detailed
in their biographies on pages 21 and 22.
• Based on its assessment, the committee
provided individual recommendations for
each Director’s re-election.
• The committee reviewed Directors’ fees,
using external benchmarking, and
recommended an increase in Directors’
fees, as detailed in the remuneration
report.
Selection and induction
• The committee appointed
Cornforth Consulting, an
independent search agency
with no connections to the
Board, to lead the process of
appointing two new Directors.
• The committee reviewed the
long and short list and invited a
number of candidates for
interview.
• The committee interviewed a
number of candidates and
following that process
appointed Dr Philip Kay as
Chair designate and Ms Helena
Coles as a non-executive
Director. Directors were
selected based on their skills
and experience, their full
biographies are on pages 21
and 22.
Succession
• The committee reviewed the
succession policy and agreed it
was still fit for purpose.
• The committee considered
the future needs of the
Company and the effect of
individual Directors leaving and
whether this would create a
skills/knowledge/experiencegap.
• The committee noted that the
Chairman of the Board will be
retiring at the 2022 AGM.
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Annual Report and Accounts
for the year ended 31 July 2022
Governance
31
Directors’ Remuneration Report
for the year ended 31 July 2022
Introduction
The following remuneration policy is currently in force and is
subject to a binding vote every three years. The next vote will
take place at the 2023 AGM and the current policy provisions
will apply until that date. The below Directors’ annual report
on remuneration is subject to an annual advisory vote. An
ordinary resolution to approve this report will be put to
shareholders at the forthcoming AGM.
At the AGM held on 23 November 2020, 99.95% of the votes
cast (including votes cast at the Chairman’s discretion) in
respect of approval of the Directors’ Remuneration Policy
were in favour, while 0.05% were against and 39,160 votes
were withheld.
Also at the AGM held on 7 December 2021, 99.96% of the
votes cast (including votes cast at the Chairman’s discretion)
in respect of approval of the Directors’ Remuneration Report
for the year ended 31 July 2021 were in favour, while 6.04%
were against and 28,844 votes were withheld.
Directors’ remuneration policy
The determination of the Directors’ fees is a matter
considered by the management engagement committee and
the Board.
It is the nomination committee’s policy to determine the level
of Directors’ remuneration having regard to amounts payable
to non-executive Directors in the industry generally, the role
that individual Directors fulfil in respect of Board and
committee responsibilities, and time committed to the
Company’s affairs, taking into account the aggregate limit of
fees set out in the Company’s articles of association. This
aggregate level of Directors’ fees is currently set at £200,000
per annum.
The Chairman of the Board and the chair of the audit and risk
committee both receive fees at a higher rate than the other
Directors to reflect their additional responsibilities. Directors’
fees are set at a level to recruit and retain individuals of
sufficient calibre, with the level of knowledge, experience and
expertise necessary to promote the success of the Company
in reaching its short and long-term strategic objectives. Any
Director who performs services which in the opinion of the
Directors are outside the scope of the ordinary duties of a
director, may be paid additional remuneration to be
determined by the Directors, subject to the previously
mentioned fee cap.
The Board and its committees exclusively comprise non-
executive directors. No Director past or present has an
entitlement to a pension, and the Company has not, and does
not intend to operate a share scheme for Directors or to
award any share options or long-term performance incentives
to any Director. No Director has a service contract with the
Company. However, Directors have a letter of appointment.
Directors do not receive exit payments and are not provided
with any compensation for loss of office. No other payments
are made to Directors other than the reimbursement of
reasonable out-of-pocket expenses incurred in attending to
the Company’s business.
Implementation of policy
The terms of Directors’ letters of appointment are available for
inspection at the Company’s registered office address during
normal business hours and during the AGM at the location of
such meeting.
The Board did not seek the views of shareholders in setting
this policy. Any comments on the policy received from
shareholders would be considered on a case-by-case basis.
As the Company does not have any employees, no employee
pay and employment conditions were taken into account
when setting this policy and no employees were consulted in
its construction.
Directors’ fees are reviewed annually and take into account
research from third parties on the fee levels of directors of
peer group companies, as well as industry norms and factors
affecting the time commitment expected of the directors. New
Directors are subject to the provisions set out in this
remuneration policy.
Directors’ annual report on
remuneration
This report sets out how the Directors’ remuneration policy
was implemented during the year ended 31July 2022.
Consideration of matters relating
to Directors’ remuneration
Directors’ remuneration was last reviewed by the Board in
June 2022. The members of the Board at the time that
remuneration levels were considered were as set out on
pages21 and 22. Although no external advice was sought in
considering the levels of Directors’ fees, information on fees
paid to directors of other investment trusts managed by
Schroders and peer group companies provided by the
Manager and corporate broker was taken into consideration
as was independent third party research.
Following the review of Directors’ fees by the nomination
committee. The nomination committee proposed an increase
to all Directors’ fees as detailed in its report. The new fees are
effective from 1August 2022. (Chairman £39,000, audit and
risk committee chair £33,000, non-executive directors
£29,000). The Board approved this recommendation.
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Schroder Japan Growth Fund plc
32
Directors’ Remuneration Report
for the year ended 31 July 2022
Fees paid to Directors
The following amounts were paid by the Company to directors for their services in respect of the year ended 31 July 2022 and
the preceding financial year. Directors’ remuneration is all fixed; they do not receive any variable remuneration. The
performance of the Company over the financial year is presented on page 2, under the heading “Financial highlights”.
Change in annual fee
over years ended
Salary/Fees Taxable benefits
1
Total 31 July
2022 2021 2022 2021 2022 2021 2022 2021 2020
Director £ £ £ £ £ £ % % %
Anja Balfour
(Chairman)
38,000 37,000 3,327 624 41,327 37,624 2.7 0.0 2.8
Helena Coles
2
9,487 – – – 9,487 – N/a N/a N/a
Alan Gibbs
28,000 27,000 1,024 – 29,024 27,000 3.7 0.0 2.9
Philip Kay
3
9,640 – – – 9,640 – N/a N/a N/a
Angus Macpherson
28,000 27,000 404 – 28,404 27,000 3.7 0.0 N/a
Belinda Richards 32,100 31,100 404 – 32,504 31,100 3.2 0.0 2.8
Total 145,227 122,100 5,159 624 150,386 122,724
1
Comprise amounts reimbursed for expenses incurred in carrying out business for the Company, and which have been grossed up to include PAYE and
NI contributions.
2
Appointed as a Director on 30 March 2022.
3
Appointed as a Director on 28 March 2022.
The information in the above table has been audited.
Year ended Year ended
31 July 2022 31 July 2021
£'000 £'000 % change
Remuneration payable to Directors 150 123 22.0
Distributions paid to
shareholders – dividends 5,249 6,106 (14.0)
Directors’ share interests
The Company’s articles of association do not require Directors
to own shares in the Company. The interests of Directors,
including those of connected persons, in the Company’s
ordinary shares of 10p each, at the beginning and end of the
financial year under review are set out below.
At 31 July At 31 July
2022 2021
Anja Balfour 49,000 38,000
Helena Coles
1
nil nil
Alan Gibbs 150,000 100,000
Philip Kay
2
nil nil
Angus Macpherson 49,440 49,440
Belinda Richards 4,513 nil
1
Appointed as a Director on 30 March 2022.
2
Appointed as a Director on 28 March 2022.
The information in the above table has been audited. There have been no
changes since the year end.
10-year performance of share price and
benchmark total returns
1
1
Source: Morningstar/Thomson Reuters.
Returned to 100 at 31 July 2012.
Definitions of terms and performance measures are provided
on page62.
Anja Balfour
Chairman
13 October 2022
100
150
200
250
300
31 Jul 12 31 Jul 13 31 Jul 14 31 Jul 15 31 Jul 16 31 Jul 17 31 Jul 18
31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 22
50
Benchmark
Share Price Total Return
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 32
Annual Report and Accounts
for the year ended 31 July 2022
Governance
33
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have prepared the financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland”, and applicable
law). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
the financial statements, the Directors are required to:
– select suitable accounting policies and then apply them
consistently;
– state whether applicable United Kingdom Accounting
Standards, comprising FRS 102, have been followed,
subject to any material departures disclosed and
explained in the financial statements;
– make judgements and accounting estimates that are
reasonable and prudent; and
– prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
company will continue in business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements and
the Directors’ Remuneration Report comply with the
Companies Act 2006.
The Directors are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Manager is responsible for the maintenance and integrity
of the webpage dedicated to the Company. Legislation in the
United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider that the annual report and accounts,
taken as a whole, are fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Board of Directors on pages21 and 22 confirm that, to the
best of their knowledge:
– the Company financial statements, which have been
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 102 “The Financial
Reporting Standard applicable in the UK and Republic of
Ireland”, and applicable law), give a true and fair view of
the assets, liabilities, financial position and profit of the
Company; and
– the Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company, together with a description of
the principal risks and uncertainties that it faces.
On behalf of the Board
Anja Balfour
Chairman
13 October 2022
176026 Schroders Japan Growth Fund Annual Report Pt2_176026 Schroders Japan Growth Fund Annual Report Pt2 13/10/2022 18:02 Page 33
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Schroder Japan Growth Fund plc (the ‘company’):
– have been prepared in accordance with the requirements of the Companies Act 2006.
– give a true and fair view of the state of the company’s affairs as at 31 July 2022 and of its return for the year then ended;
– have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial
Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the Statement
of Recommended Practice issued by the Association of Investment Companies in October 2019 “Financial Statements of
Investment Trust Companies and Venture Capital Trusts”; and
– have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements 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 21.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of
Ireland” (United Kingdom Generally Accepted Accounting Practice) and the Statement of Recommended Practice issued by the
Association of Investment Companies (“SORP”) in October 2019 “Financial Statements of Investment Trust Companies and Venture
Capital Trusts”.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public inter
est
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that we have
not provided any non-audit services prohibited by the FRC’s Ethical Standard to the company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was:
– Valuation and existence of investments.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality The materiality that we used in the current year was £2.81m which was determined on the basis of
1% of net assets.
Scoping We performed our audit scoping based upon quantitative and qualitative risk assessment factors
for each account balance recorded as at 31 July 2022.
Significant changes There have been no significant changes to our audit approach in the current year.
in our approach
34
Schroder Japan Growth Fund plc
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
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Annual Report and Accounts
for the year ended 31 July 2022
35
Financial
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting
included:
– Considering as part of our risk assessment the nature of the company, its business model and related risks, the requirements
of the applicable financial reporting framework and the system of internal control;
– Evaluating the underlying data and key assumptions used to make the assessment, and evaluating the directors’ plans for
future actions in relation to their going concern assessment;
– Assessing the liquidity and ability of the Manager to trade in the investment portfolio to cover operational expenditure as
appropriate; and
– Assessing the appropriateness of the directors’ going concern disclosure in note 1 to the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the company has applied the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors consider
ed
it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 35
36
Schroder Japan Growth Fund plc
Valuation and ownership of investments
Key audit matter
description
The investments of the Company of £313.5m (2021: £313.9m) make up 97.9% (2021: 96.7%) of total
assets of the Company at 31 July 2022.
See the accounting policy in note 1(b) of the Financial Statements and note 10 of the Financial
Statements.
There is a risk that the quoted investments may not be valued correctly or may not represent the
property of the Company. Given the nature and size of the balance and its importance to the
Company, we have considered that there is a potential risk of fraud in this area.
How the scope of our
audit responded to
the key audit matter
We performed the following procedures to address the risk identified:
– obtained an understanding of controls in place over the ownership and valuation of investments,
including a review of the relevant service providers’ internal controls assurance reports;
– agreed 100% of the Company’s investment portfolio at the year end to confirmations received
directly from the custodian, HSBC;
– agreed 100% of the bid prices of quoted investments on the investment ledger at year end to
closing bid prices published by an independent pricing source; and
– evaluated the appropriateness of disclosures in relation to fair value measurements and liquidity
risk.
Key observations Based on the work performed, we concluded that the valuation and ownership of investments were
recorded appropriately.
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
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Annual Report and Accounts
for the year ended 31 July 2022
37
Financial
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality £2.81m (2021: £2.84m)
Basis for 1% of net assets (2021: 1% of net assets)
determining
materiality
Rationale for the We have used net assets as our materiality benchmark as we consider it to be the most relevant
benchmark applied indicator of the company’s performance for the users of the Financial Statements, as well as being
a key driver of shareholder value.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole. Performance materiality was set at
70% of materiality for the 2022 audit (2021: 70%). In determining performance materiality, we considered the following factors:
a. The company’s structure and operating model.
b. The lack of changes to accounting policies during the current period which would require significant judgement.
c. Our experience from prior period audits, where there has not been a history of uncorrected misstatements or controls
deficiencies identified over significant risk areas at the administrator, custodian or manager.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £0.14m
(2021: £0.14m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit scope was determined by obtaining an understanding of the company and its environment, including internal controls,
and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed
directly by the audit engagement team.
7.2. Our consideration of the control environment
A third-party administrator maintains the books and records of the Company. Our audit therefore included obtaining an
understanding of the controls at this service organisation, to the extent that they are relevant to the Company. We obtained an
external auditor’s ISAE 3402 report for the period from 1 April 2021 to 31 March 2022 which documents the suitability of design
and implementation and operating effectiveness of controls. We obtained an understanding of the controls relevant to our audit.
As the reporting date of the Company is 31 July 2022, we have obtained a bridging letter for the period from 1 April 2022 to 31
July 2022 detailing that there have not been any material changes to the internal control environment nor any material deficiencies
Net Assets £281m
Materiality £2.81m
Audit and Risk
Committee
Net Assets
Materiality
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 37
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Schroder Japan Growth Fund plc
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
in the internal controls. We have, however, not relied on the controls report of the administrator given we perform 100% testing
over our significant risk audit areas.
8. Other information
The other information comprises the information included in the annual report, other than
the financial statements and our auditor’s report thereon. The directors are responsible for
the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1.Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
– the nature of the industry and sector, control environment and business performance including the design of the company’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
– results of our enquiries of management and the Audit and Risk Committee about their own identification and assessment of
the risks of irregularities;
– any matters we identified having obtained and reviewed the company’s documentation of their policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged
fraud; and
We have nothing to report in this
regard.
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 38
Annual Report and Accounts
for the year ended 31 July 2022
39
Financial
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
– the matters discussed among the audit engagement team and relevant internal specialists, including IT and financial
instrument specialists, regarding how and where fraud might occur in the financial statements and any potential indicators
of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the valuation and ownership of investments. In common with all audits under
ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the company operates in, focusing on provisions
of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and
Investment Trust Tax Regulations.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements
but compliance with which may be fundamental to the company’s ability to operate or to avoid a material penalty.
11.2.Audit response to risks identified
As a result of performing the above, we identified the valuation and ownership of investments as a key audit matter related to
the potential risk of fraud. The key audit matters section of our report explains the response to that potential risk of fraud.
In addition to the above, our procedures to respond to risks identified included the following:
– reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions
of relevant laws and regulations described as having a direct effect on the financial statements;
– enquiring of management and the Audit and Risk Committee concerning actual and potential litigation and claims;
– performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
– reading minutes of meetings of those charged with governance; and
– in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential
bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of
business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members,
including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
– the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we
have not identified any material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
– the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified set out on page 20;
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Schroder Japan Growth Fund plc
Independent Auditor’s Report to the Members of
Schroder Japan Growth Fund plc
– the directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the
period is appropriate set out on page 20;
– the directors' statement on fair, balanced and understandable set out on page 33;
– the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 18;
– the section of the annual report that describes the review of effectiveness of risk management and internal control systems
set out on page 18; and
– the section describing the work of the Audit and Risk Committee set out on pages 26 and 27.
14. Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept, or returns adequate for our audit
have not been received from branches not visited by us; or
– the financial statements are not in agreement with the accounting records and returns.
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made or the part of the directors’
remuneration report to be audited is not in agreement with the accounting records and
returns.
15. Other matters which we are required to address
15.1 Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were appointed by the board of directors on 10 April 2019
to audit the financial statements for the year ending 31 July 2019 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is 4 years, covering the years ending
31July 2019 to 31 July 2022.
15.2 Consistency of the audit report with the additional report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in accordance
with ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Chris Hunter (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Aberdeen, United Kingdom
13 October 2022
We have nothing to report in
respect of these matters.
We have nothing to report in
respect of these matters.
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 40
Annual Report and Accounts
for the year ended 31 July 2022
41
Financial
2022 2021
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments held at fair value
through profit or loss 2 – (3,439) (3,439) – 52,170 52,170
Net foreign currency gains – 2,076 2,076 – 3,073 3,073
Income from investments 3 8,208 – 8,208 7,308 – 7,308
Other interest receivable and similar income 3 3 – 3 – – –
Gross return/(loss) 8,211 (1,363) 6,848 7,308 55,243 62,551
Investment management fee 4 (599) (1,399) (1,998) (580) (1,354) (1,934)
Administrative expenses 5 (637) – (637) (516) – (516)
Net return/(loss) before finance costs
and taxation 6,975 (2,762) 4,213 6,212 53,889 60,101
Finance costs 6 (81) (189) (270) (80) (186) (266)
Net return/(loss) before taxation 6,894 (2,951) 3,943 6,132 53,703 59,835
Taxation 7 (821) – (821) (731) – (731)
Net return/(loss) after taxation 6,073 (2,951) 3,122 5,401 53,703 59,104
Return/(loss) per share 8 4.97p (2.42)p 2.55p 4.38p 43.55p 47.93p
The “Total” column of this statement is the profit and loss account of the Company. The “Revenue” and “Capital” columns represent
supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no
other items of other comprehensive income and therefore the net return after taxation is also the total comprehensive income
for the year.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or
discontinued in the year.
The notes on pages 44 to 57 form an integral part of these accounts.
Income Statement
for the year ended 31 July 2022
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Schroder Japan Growth Fund plc
Called-up Capital Warrant Share
share Share redemption exercise purchase Capital Revenue
capital premium reserve reserve reserve reserves reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 July 2020 12,478 7 23 3 96,807 119,595 7,215 236,128
Repurchase of the
Company’s own shares
for cancellation (264) – 264 – (5,267) – – (5,267)
Net return after taxation – – – – – 53,703 5,401 59,104
Dividend paid in the year 9 – – – – – – (6,106) (6,106)
At 31 July 2021 12,214 7 287 3 91,540 173,298 6,510 283,859
Repurchase of the
Company’s own shares
for cancellation
(14) – 14 – (303) – – (303)
Net (loss)/return after
taxation
– – – – – (2,951) 6,073 3,122
Dividend paid in the year 9 – – – – – – (5,249) (5,249)
At 31 July 2022 12,200 7 301 3 91,237 170,347 7,334 281,429
The notes on pages 44 to 57 form an integral part of these accounts.
Statement of Changes in Equity
for the year ended 31 July 2022
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Annual Report and Accounts
for the year ended 31 July 2022
43
Financial
2022 2021
Note £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 10 313,454 313,907
Current assets
Debtors 11 1,113 1,003
Cash at bank and in hand 5,626 9,774
6,739 10,777
Current liabilities
Creditors: amounts falling due within one year 12 (1,872) (40,825)
Net current assets/(liabilities) 4,867 (30,048)
Total assets less current liabilities 318,321 283,859
Creditors: amounts falling due after more than one year 13 (36,892) –
Net assets 281,429 283,859
Capital and reserves
Called-up share capital 14 12,200 12,214
Share premium 15
7 7
Capital Redemption reserve 15
301 287
Warrant exercise reserve 15
3 3
Share purchase reserve 15
91,237 91,540
Capital reserves 15
170,347 173,298
Revenue reserve 15 7,334 6,510
Total equity shareholders’ funds 281,429 283,859
Net asset value per share 16 230.68p 232.40p
These accounts were approved and authorised for issue by the Board of Directors on 13 October 2022 and signed on its
behalf by:
Anja Balfour
Chairman
The notes on pages 44 to 57 form an integral part of these accounts.
Registered in England and Wales
Company registration number: 02930057
Statement of Financial Position
at 31 July 2022
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Schroder Japan Growth Fund plc
Notes to the Accounts
for the year ended 31 July 2022
1.
Accounting Policies
(a) Basis of accounting
Schroder Japan Growth Fund plc (“the Company”) is registered in England and Wales as a public company limited by shares. The
company’s registered office is 1 London Wall Place, London EC2Y 5AU.
The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice
(“UK GAAP”), in particular in accordance with Financial Reporting Standard (FRS) 102 “The Financial Reporting Standard applicable
in the UK and Republic of Ireland”, and with the Statement of Recommended Practice “Financial Statements of Investment Trust
Companies and Venture Capital Trusts” (the “SORP”) issued by the Association of Investment Companies in April 2021. All of the
Company’s operations are of a continuing nature.
The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation
of investments held at fair value through profit or loss. The directors believe that the Company has adequate resources to continue
operating to 30 November 2023, which is at least 12 months from the date of approval of these accounts. In forming this opinion,
the directors have taken into consideration: the controls and monitoring processes in place; the Company’s low level of debt and
other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event
of a market downturn; and that the Company’s assets comprise cash and readily realisable securities quoted in active markets.
In forming this opinion, the directors have also considered any potential impact of the COVID-19 pandemic and climate change
on the viability of the Company. Further details of directors’ considerations regarding this are given in the Chairman’s Statement,
Portfolio Managers’ Review, Going Concern Statement, Viability Statement and under the Emerging Risks and uncertainties
heading on page 20.
The Company has not presented a statement of cash flows, as it is not required for an investment trust which meets certain
conditions; in particular that substantially all of the Company’s investments are highly liquid and carried at market value.
The accounts are presented in sterling and amounts have been rounded to the nearest thousand.
The accounting policies applied to these accounts are consistent with those applied in the accounts for the year ended 31 July
2021.
Other than the directors’ assessment of going concern, no significant judgements, estimates or assumptions have been required
in the preparation of the accounts for the current or preceding financial year.
(b) Valuation of investments
The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance
with a documented investment strategy and information is provided internally on that basis to the Company’s board of directors.
Accordingly, upon initial recognition, the investments are designated by the Company as “held at fair value through profit or loss”.
They are included initially at fair value which is taken to be their cost, excluding expenses incidental to purchase which are written
off to capital at the time of acquisition. Subsequently the investments are valued at fair value, which are last traded prices as
quoted on the Tokyo Stock Exchange.
Investments that are unlisted or not actively traded are valued using a variety of techniques to determine their fair value; all such
valuations are reviewed by both the AIFM’s Fair Value Pricing Committee and by the directors. No investments held at the current
or comparative year end have been valued using other techniques.
All purchases and sales are accounted for on a trade date basis.
(c) Accounting for reserves
Gains and losses on sales of investments are included in the income statement and in capital reserves within “gains and losses
on sales of investments”. Increases and decreases in the valuation of investments held at the year end are included in the income
statement and in capital reserves within “investment holding gains and losses”.
Foreign exchange gains and losses on cash and deposit balances and unrealised exchange gains and losses on foreign currency
loans are included in the income statement and in capital reserves.
(d) Income
Dividends receivable are included in revenue on an ex-dividend basis except where, in the opinion of the board, the dividend is
capital in nature, in which case it is included in capital.
Overseas dividends are included gross of any withholding tax.
Where the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the
cash dividend foregone is recognised in revenue. Any excess in the value of the shares received over the amount of the cash
dividend is recognised in capital.
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Annual Report and Accounts
for the year ended 31 July 2022
45
Financial
Deposit interest outstanding at the year end is calculated and accrued on a time apportionment basis using market rates of
interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are allocated wholly to the revenue column of the income statement
with the following exceptions:
– The investment management fee is allocated 30% to revenue and 70% to capital in line with the board’s expected long-
term split of revenue and capital return from the Company’s investment portfolio.
– Expenses incidental to the purchase or sale of an investment are charged to capital. These expenses are commonly referred
to as transaction costs and mainly comprise brokerage commission. Details of transaction costs are given in note 10
onpage 48.
(f) Finance costs
Finance costs, including any premiums payable on settlement or redemption and direct issue costs, are accounted for on an
accruals basis using the effective interest method in accordance with FRS 102.
Finance costs are allocated 30% to revenue and 70% to capital in line with the board’s expected long-term split of revenue and
capital return from the Company’s investment portfolio.
(g) Financial instruments
Cash at bank and in hand may comprise cash and demand deposits which are readily convertible to a known amount of cash and
are subject to insignificant risk of changes in value.
Other debtors and creditors do not carry any interest, are short-term in nature and are accordingly stated at nominal value, with
debtors reduced by appropriate allowances for estimated irrecoverable amounts.
Bank loans and overdrafts are classified as loans and receivables and are initially measured at fair value and subsequently
measured at amortised cost. They are recorded at the proceeds received net of direct issue costs. Finance costs, including any
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis using the effective
interest method.
(h) Taxation
The tax charge for the year is based on amounts expected to be received or paid.
Deferred tax is accounted for in accordance with FRS 102.
Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date.
Deferred tax liabilities are recognised for all taxable timing differences but deferred tax assets are only recognised to the extent
that it is probable that taxable profits will be available against which those timing differences can be utilised.
Tax relief is allocated to expenses charged to the capital column of the income statement on the “marginal basis”. On this basis,
if taxable income is capable of being entirely offset by revenue expenses, then no tax relief is transferred to capital.
Deferred tax is measured at the tax rate which is expected to apply in the periods in which the timing differences are expected to
reverse, based on tax rates that have been enacted or substantively enacted at the accounting date and is measured on an
undiscounted basis.
(i) Foreign currency
In accordance with FRS 102, the Company is required to determine a functional currency, being the currency in which the Company
predominantly operates. The board, having regard to the currency of the Company’s share capital and the predominant currency
in which its shareholders operate, has determined that sterling is the functional currency and the currency in which the accounts
are presented.
Transactions denominated in foreign currencies are converted at actual exchange rates as at the date of the transaction.
Monetary assets, liabilities and equity investments denominated in foreign currencies at the year end, are translated at the rates
of exchange prevailing at the year end.
(j) Dividend payable
In accordance with FRS 102, the final dividend is included in the accounts in the year in which it is paid.
Notes to the Accounts
for the year ended 31 July 2022
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46
Schroder Japan Growth Fund plc
Notes to the Accounts
for the year ended 31 July 2022
(k) Repurchase of Ordinary Shares
The costs of repurchasing Ordinary shares including related stamp duty and transaction costs are taken directly to equity and
reported through the Statement of Changes in Equity as a charge on the share purchase reserve. Share repurchase transactions
are accounted for on a trade date basis.
The nominal value of Ordinary share capital repurchased and cancelled is transferred out of called up share capital and into the
capital redemption reserve.
2. (Losses)/gains on investments held at fair value through profit or loss
2022 2021
£’000 £’000
Gains on sales of investments based on historic cost 17,772 20,136
Amounts recognised in investment holding gains and losses in the previous year
in respect of investments sold in the year (18,239) (9,665)
(Losses)/gains on sales of investments based on the carrying value at the
previous balance sheet date
(467) 10,471
Net movement in investment holding gains and losses (2,972) 41,699
(Losses)/gains on investments held at fair value through profit and loss (3,439) 52,170
3. Income
2022 2021
£’000 £’000
Income from investments:
Overseas dividends 8,208 7,308
Other interest receivable and similar income
Deposit interest 3 –
Total income 8,211 7,308
4. Investment management fee
2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Management fee 599 1,399 1,998 580 1,354 1,934
The basis for calculating the investment management fee is set out in the Report of the Directors on page 23 and details of all
amounts payable to the Manager are given in note 17 on page 51.
5. Administrative expenses
2022 2021
£’000 £’000
Administration expenses 316 220
Directors’ fees
1
145 122
Company secretarial fee
90 90
Marketing support fee
50 50
Auditors’ remuneration for audit services 36 34
637 516
1
Details of all amounts payable to directors are given in the Remuneration Report on page 31.
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Annual Report and Accounts
for the year ended 31 July 2022
47
Financial
6. Finance costs
2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest on bank loans and overdrafts 81 189 270 80 186 266
7. Taxation
2022 2021
£’000 £’000
(a) Analysis of charge for the year:
Irrecoverable overseas tax 821 731
Taxation 821 731
(b) Factors affecting tax charge for the year
The tax assessed for the year is higher (2021: lower) than the Company’s applicable rate of corporation tax for the year of 19%
(2021: 19%).
The factors affecting the tax charge for the year are as follows:
2022 2021
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return/(loss) before taxation 6,894 (2,951) 3,943 6,132 53,703 59,835
Net return/(loss) before taxation multiplied by
the Company’s applicable rate of corporation
tax for the year of 19% (2021: 19%)
1,310 (561) 749 1,165 10,203 11,368
Effects of :
Capital losses/(gains) on investments –
259 259 – (10,496) (10,496)
Income not chargeable to corporation tax
(1,560) – (1,560) (1,388) – (1,388)
Unrelieved expenses
250 302 552 223 293 516
Irrecoverable overseas tax 821 – 821 731 – 731
Taxation for the year 821 – 821 731 – 731
(c) Deferred taxation
The Company has an unrecognised deferred tax asset of £9,947,000 (2021: £7,008,000) based on a prospective corporation tax
rate of 25.0% (2021: 19%). In its 2021 budget, the UK government announced that the main rate of corporation tax would increase
to 25% for the fiscal year beginning on 1 April 2023.
This deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition
of the Company’s portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been
recognised in the accounts.
Given the Company’s status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains
or losses arising on the revaluation or disposal of investments.
Notes to the Accounts
for the year ended 31 July 2022
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48
Schroder Japan Growth Fund plc
Notes to the Accounts
for the year ended 31 July 2022
8. Return/(loss) per share
2022 2021
£’000 £’000
Revenue return 6,073 5,401
Capital (loss)/return (2,951) 53,703
Total return 3,122 59,104
Weighted average number of ordinary shares in issue during the year
122,078,782 123,317,478
Revenue return per share
4.97p 4.38p
Capital (loss)/return per share (2.42)p 43.55p
Total return per share 2.55p 47.93p
9. Dividends
Dividend paid and proposed
2022 2021
£’000 £’000
2021 final dividend of 4.30p (2021: 4.80p) paid out of revenue profits 5,249
1
6,106
2022 2021
£’000 £’000
2022 final dividend proposed of 4.90p (2021: 4.30) to be paid out of revenue profits 5,978 5,252
1
The 2021 final dividend amounted to £5,252,000. However the amount actually paid was £5,249,000 as shares were repurchased and cancelled, after the
accounting date, but prior to the dividend Record Date.
The proposed dividend amounting to £5,978,000 (2021: £5,252,000) is the amount used for the basis of determining whether the Company has satisfied the
distribution requirements of Section 1158 of the Corporation Tax Act 2010. The revenue available for distribution by way of dividend for the year is £6,073,000
(2021; £5,401,000).
10. Investments held at fair value through profit or loss*
2022 2021
£’000 £’000
Opening book cost 243,965 230,172
Opening investment holding gains 69,942 37,908
Opening fair value
313,907 268,080
Analysis of transactions made during the year
Purchases at cost 69,606 79,807
Sales proceeds received
(66,620) (86,150)
(Losses)/gains on investments held at fair value (3,439) 52,170
Closing fair value 313,454 313,907
Closing book cost
264,723 243,965
Closing investment holding gains 48,731 69,942
Closing fair value 313,454 313,907
All investments are listed on a recognised stock exchange.
The Company received £66,620,000 (2021: £86,150,000) from disposal of investments in the year. The book cost of these
investments when they were purchased were £48,848,000 (2021: £66,014,000). These investments have been revalued over time
and until they were sold any unrealised gains/losses were included in the fair value of the investments.
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Annual Report and Accounts
for the year ended 31 July 2022
49
Financial
The following transaction costs, mainly comprising brokerage commissions, were incurred during the year:
2022 2021
£’000 £’000
On acquisitions 16 19
On disposals 14 19
30 38
11. Debtors
2022 2021
£’000 £’000
Securities sold awaiting settlement 800 653
Dividends and interest receivable
295 329
Other debtors 18 21
1,113 1,003
The Directors consider that the carrying amount of debtors approximates to their fair value.
12. Creditors: amounts falling due within one year
2022 2021
£’000 £’000
Bank loan – 39,321
Securities purchased awaiting settlement
1,177 859
Other creditors and accruals 695 645
1,872 40,825
The bank loan at the prior year end comprised a yen 6.0 billion three-year term loan from Sumitomo Mitsui Banking Corporation
Europe Limited, and which carried a fixed rate of interest of 0.64% per annum. This loan expired in January 2022 and was replaced
by a floating rate term loan, detailed in note 13 below.
13. Creditors: amounts falling due after more than one year
2022 2021
£’000 £’000
Bank loan 36,892 –
The bank loan is a yen 6.0 billion three-year term loan from SMBC Bank International plc (formerly Sumitomo Mitsui banking
Corporation Europe Limited), expiring in January 2025 and carrying a floating interest rate, calculated at the daily Compounded
Risk Free Rate, plus a margin. The loan is unsecured, but is subject to certain undertakings and restrictions, all of which have
been complied with. The directors consider that the carrying amount of the loan approximates to its fair value.
In addition to the term loan detailed above, the Company has a yen 2.0 billion credit facility available from Sumitomo Mitsui
Banking Corporation, London Branch, which was undrawn at the year end (2021: undrawn). Further details of the facility are given
in note 20(a)(ii) on page 54.
Notes to the Accounts
for the year ended 31 July 2022
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50
Schroder Japan Growth Fund plc
Notes to the Accounts
for the year ended 31 July 2022
14. Called-up share capital
2022 2021
£’000 £’000
Ordinary shares allotted, called-up and fully paid:
Opening balance of 122,143,262 (2021: 124,776,700) ordinary shares of 10p each
12,214 12,478
Repurchase and cancellation of 142,700 (2021: 2,633,438) shares (14) (264)
Closing balance of 122,000,562 (2021: 122,143,262) shares 12,200 12,214
During the year, the Company purchased 142,700 of its own shares, nominal value £14,270, for cancellation, for a total
consideration of £302,000, representing 0.11% of the shares outstanding at the beginning of the year. The reason for these share
repurchases was to seek to manage the volatility of the share price discount to net asset value per share.
15. Reserves
Year ended 31 July 2022
Capital reserves
Gains and Investment
Capital Warrant Share losses on holding
Share redemption exercise purchase sales of gains and Revenue
premium
1
reserve
1
reserve
1
reserve
2
investments
2
losses
3
reserve
4
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening balance 7 287 3 91,540 100,043 73,255 6,510
Losses on sales of investments based
on the carrying value at the previous
balance sheet date
– – – – (467) – –
Net movement in investment holding
gains and losses
– – – – – (2,972) –
Transfer on disposal of investments – – – – 18,239 (18,239) –
Realised exchange losses on cash and
short-term deposits
– – – – (354) – –
Exchange gains/(losses) on foreign
currency loan
– – – – 4,035 (1,605) –
Management fee and finance costs
allocated to capital
– – – – (1,588) – –
Share repurchases for cancellation – 14 – (303) – – –
Dividend paid – – – – – – (5,249)
Retained revenue for the year – – – – – – 6,073
Closing balance 7 301 3 91,237 119,908 50,439 7,334
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Annual Report and Accounts
for the year ended 31 July 2022
51
Financial
Year ended 31 July 2021
Capital reserves
Investment
Gains and
Capital Warrant Share losses on holding
Share redemption exercise purchase sales of gains and Revenue
premium
1
reserve
1
reserve
1
reserve
2
investments
2
losses
3
reserve
4
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening balance 7 23 3 96,807 82,290 37,305 7,215
Gains on sales of investments based on the
carrying value at the previous
balance sheet date – – – – 10,471 – –
Net movement in investment holding
gains and losses – – – – – 41,699 –
Transfer on disposal of investments – – – – 9,665 (9,665) –
Realised exchange losses on cash and
short-term deposits – – – – (843) – –
Exchange gains on foreign currency loan – – – – – 3,916 –
Management fee and finance costs
allocated to capital – – – – (1,540) – –
Share repurchases for cancellation – 264 – (5,267) – – –
Dividend paid – – – – – – (6,106)
Retained revenue for the year – – – – – – 5,401
Closing balance 7 287 3 91,540 100,043 73,255 6,510
1
These reserves are not distributable.
2
These are realised (distributable) capital reserves which may be used to repurchase the Company’s own shares or distributed as dividends.
3
This reserve comprises holding gains on liquid investments (which may be deemed to be realised) and other amounts which are unrealised. An analysis
has not been made between those amounts that are realised (and may be distributed as dividends or used to repurchase the Company
’s own shares)
and those that are unrealised.
4
The revenue reserve may distributed as dividends or used to repurchase the Company’s own shares.
16. Net asset value per share
2022 2021
Net assets attributable to shareholders (£’000) 281,429 283,859
Shares in issue at the year end 122,000,562 122,143,262
Net asset value per share 230.68p 232.40p
17. Transactions with the Manager
Under the terms of the AlFM Agreement, the Manager is entitled to receive a management fee, a marketing support fee and a
company secretarial fee. Details of the AIFM agreement are given in the Report of the Directors on page 23. Any investments in
funds managed or advised by the Manager or any of its associated companies are excluded from the assets used for the purpose
of the management fee calculation and therefore incur no fee.
The management fee payable in respect of the year ended 31 July 2022 amounted to £1,998,000 (2021: £1,934,000), of which
£502,000 (2021: £507,000) was outstanding at the year end. The marketing support fee payable to the Manager amounted to
£50,000 (2021: £50,000) of which £13,000 (2021: £13,000) was outstanding at the year end. The company secretarial fee payable
to the Manager amounted to £90,000 (2021: £90,000) of which £23,000 (2021: £23,000) was outstanding at the year end.
18. Related party transactions
Details of the remuneration payable to Directors are given in the Remuneration Report on page 32 and details of Directors’
shareholdings are given in the Report of the Directors on page 32. Details of transactions with the Manager are given in note 17
above. There have been no other transactions with related parties during the year (2021: nil).
Notes to the Accounts
for the year ended 31 July 2022
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Schroder Japan Growth Fund plc
19. Disclosures regarding financial instruments measured at fair value
The Company’s financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio. The
Company currently holds no derivative financial instruments.
FRS 102 requires financial instruments to be categorised into a hierarchy consisting of the three levels below.
Level 1 – valued using unadjusted quoted prices in active markets for identical assets.
Level 2 – valued using observable inputs other than quoted prices included within Level 1.
Level 3 – valued using inputs that are unobservable.
Details of the valuation techniques used by the Company are given in note 1(b) on page 44.
At 31 July 2022, all investments in the Company’s portfolio are categorised as Level 1 (2021: same).
The following table sets out the fair value measurements using the FRS 102 hierarchy at 31 July:
2022
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial instruments held at fair value
through profit or loss
Equity investments 313,454 – – 313,454
Investments allocated to Level 2 are valued using unadjusted quoted prices, but in markets which are less active.
2021
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial instruments held at fair value
through profit or loss
Equity investments 313,907 – – 313,907
Investments allocated to Level 2 are valued using unadjusted quoted prices, but in markets which are less active.
20. Financial instruments’ exposure to risk and risk management policies
The investment objective is set out on the inside front cover of this report. In pursuing this objective, the Company is exposed to
a variety of risks that could result in a reduction in the Company’s net assets or a reduction in profits available for dividends.
These risks include market risk (comprising currency risk, interest rate risk and market price risk), liquidity risk and credit risk.
The directors’ policy for managing these risks is set out below. The board coordinates the Company’s risk management policy.
The objectives, policies and processes for managing the risks and the methods used to measure the risks that are set out below,
have not changed from those applying in the comparative year.
The Company’s classes of financial instruments are as follows:
– investments in shares of Japanese companies which are held in accordance with the Company’s investment objective;
– short-term debtors, creditors and cash arising directly from its operations; and
– a credit facility and a term loan, the purpose of which are to manage working capital requirements and to gear the
Company as appropriate.
(a) Market risk
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market
prices. This market risk comprises three elements: currency risk, interest rate risk and market price risk. Information to enable
an evaluation of the nature and extent of these three elements of market risk is given in parts (i) to (iii) of this note, together with
sensitivity analyses where appropriate. The board reviews and agrees policies for managing these risks and these policies have
remained unchanged from those applying in the comparative year. The Manager assesses the exposure to market risk when
making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an
ongoing basis.
Notes to the Accounts
for the year ended 31 July 2022
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Annual Report and Accounts
for the year ended 31 July 2022
53
Financial
(i) Currency risk
The Company’s functional currency and the currency in which it reports, is sterling. However the Company’s assets, liabilities and
income are almost entirely denominated in yen. As a result, movements in the exchange rate will affect the sterling value of those
items.
Management of currency risk
The Manager monitors the Company’s exposure to foreign currencies on a daily basis and reports to the board, which meets on
at least four occasions each year. The Manager measures the risk to the Company of the foreign currency exposure by considering
the effect on the Company’s net asset value and income of a movement in the yen/sterling exchange rate. It is currently not the
Company’s policy to actively hedge against currency risk. However any yen denominated borrowing acts to reduce the exposure
of the Company’s portfolio to the yen/sterling exchange rate. Income is converted to sterling on receipt. The Company may use
short-term forward currency contracts to manage working capital requirements.
Foreign currency exposure
The fair value of the Company’s monetary items that have exposure to the yen at 31 July are shown below. The Company’s
investments (which are not monetary items) have been included separately in the analysis so as to show the overall level of
exposure.
2022 2021
£’000 £’000
Debtors (securities sold awaiting settlement, dividends and interest receivable) 1,093 982
Cash at bank and in hand
1,363 6,867
Creditors (securities purchased awaiting settlement)
(1,177) (859)
Bank loans (including accrued interest payable) (36,905) (39,332)
Foreign currency exposure on net monetary items
(35,626) (32,342)
Investments held at fair value through profit or loss that are equities 313,454 313,907
Total net foreign currency exposure 277,828 281,565
The above year end amounts are broadly representative of the exposure to foreign currency risk during the current and
comparative year.
Foreign currency sensitivity
The following tables illustrate the sensitivity of return after taxation for the year and net assets with regard to the Company’s
monetary financial assets, financial liabilities and exchange rates. The sensitivity analysis is based on the Company’s monetary
currency financial instruments held at each balance sheet date and assumes a 10% (2021: 10%) appreciation or depreciation in
sterling against the yen, which is considered to be a reasonable illustration based on the volatility of exchange rates during the
year.
If sterling had weakened by 10% this would have had the following effect:
2022 2021
£’000 £’000
Income statement – return after taxation
Revenue return
731 650
Capital return (3,582) (3,253)
Total return after taxation for the year (2,851) (2,603)
Net assets (2,851) (2,603)
Notes to the Accounts
for the year ended 31 July 2022
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Schroder Japan Growth Fund plc
Conversely if sterling had strengthened by 10% this would have had the following effect:
2022 2021
£’000 £’000
Income statement – return after taxation
Revenue return
(731) (650)
Capital return 3,582 3,253
Total return after taxation for the year 2,851 2,603
Net assets 2,851 2,603
In the opinion of the Directors, the above sensitivity analysis is broadly representative of the current and comparative year.
(ii) Interest rate risk
Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on variable rate
borrowings when interest rates are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing returns to shareholders. The Company’s gearing policy is to
limit gearing to 25% where gearing is defined as borrowings used for investment purposes, less cash expressed as a percentage
of net assets.
The possible effects on cash flows that could arise as a result of changes in interest rates are taken into account when the Company
borrows on the credit facility. However, amounts drawn down on this facility are for short-term periods and therefore exposure
to interest rate risk is not significant. The Company’s fixed rate, term loan expired during the year and was replaced by a three
year term loan carrying a floating rate of interest, and which is therefore exposed to interest rate changes.
Interest rate exposure
The exposure of financial assets and financial liabilities to floating interest rates, giving cash flow interest rate risk when rates are
re-set, is shown below:
2022 2021
£’000 £’000
Exposure to floating interest rates:
Cash at bank and in hand
5,626 9,774
Creditors: amounts falling due after more than one year
Term loan (36,892) –
Total exposure (31,266) 9,774
The floating rate assets consist of cash deposits on call. Sterling cash deposits at call earn interest at floating rates based on
Sterling Overnight Index Average (“SONIA”) rates, (2021: LIBOR).
The bank loan is a yen 6.0 billion three-year term loan from SMBC Bank International plc (formerly Sumitomo Mitsui banking
Corporation Europe Limited), expiring in January 2025 and carrying a floating interest rate, calculated at the daily Compounded
Risk Free Rate, plus a 0.8% margin. The preceding yen 6.0 billion three-year term loan, which expired in January 2022, carried a
fixed interest rate and therefore did not give rise to any interest rate risk.
During the year, the Company extended its 364 day credit facility arrangement with SMBC, to January 2023. Under the terms of
the agreement, interest is payable at the “Compounded Reference Rate”, being the aggregate of the Daily Non-Cumulative
Compounded Risk Free Reference Rate plus the applicable Credit Adjustment Spread. The facility has not been utilised in the
current or prior year.
The above year end amounts are not representative of the exposure to interest rates during the year as the level of cash balances
has fluctuated. The maximum and minimum exposure during the year was as follows:
2022 2021
£’000 £’000
Maximum debit/minimum credit interest rate exposure during the year – net (debt)/cash (32,845) 8,212
Minimum debit/maximum interest rate exposure during the year – net (debt)/cash (29,697) 12,499
Notes to the Accounts
for the year ended 31 July 2022
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 54
Annual Report and Accounts
for the year ended 31 July 2022
55
Financial
Interest rate sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1.0% (2021: 1.0%) increase
or decrease in interest rates. This level of change is considered to be a reasonable illustration based on observation of current
market conditions. The sensitivity analysis is based on the Company’s monetary financial instruments held at the accounting date
and which are exposed to interest rate movements, with all other variables held constant.
2022 2021
1.0% increase 1.0% decrease 1.0% increase 1.0% decrease
in rate in rate in rate in rate
£’000 £’000 £’000 £’000
Income statement – return after taxation
Revenue return
(54) 54 98 (98)
Capital return (258) 258 – –
Total return after taxation (312) 312 98 (98)
Net assets (312) 312 98 (98)
In the opinion of the Directors, this sensitivity analysis may not be representative of the Company’s future exposure to interest
rate changes due to fluctuations in the level of cash balances and drawings on the credit facility.
(iii) Market price risk
Market price risk includes changes in market prices, other than those arising from interest rate risk, which may affect the value
of the Company’s investments.
Management of market price risk
The Board meets on at least four occasions each year to consider the asset allocation of the portfolio and the risk associated with
particular industry sectors. The investment management team has responsibility for monitoring the portfolio, which is selected
in accordance with the Company’s investment objective and seeks to ensure that individual stocks meet an acceptable risk/reward
profile.
Market price risk exposure
The Company’s total exposure to changes in market prices at 31 July comprised its portfolio of investments as follows:
2022 2021
£’000 £’000
Investments held at fair value through profit or loss 313,454 313,907
The above data is broadly representative of the exposure to market price risk during the year.
Concentration of exposure to market price risk
An analysis of the Company’s investments is given on page 11. The portfolio comprises securities listed on Japanese stock markets.
Accordingly there is a concentration of exposure to that country. However it should be noted that an investment may not be
entirely exposed to the economic conditions in its country of listing.
Market price risk sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase or decrease of
10% (2021: 10%) in the fair values of the Company’s investments. This level of change is considered to be a reasonable illustration
based on observation of current market conditions. The sensitivity analysis is based on the Company’s exposure to market price
risk through its portfolio of investments and includes the impact on the management fee but assumes all other variables are
held constant.
2022 2021
10% increase 10% decrease 10% increase 10% decrease
in fair value in fair value in fair value in fair value
£’000 £’000 £’000 £’000
Income statement – return after taxation
Revenue return
(61) 61 (61) 61
Capital return 31,203 (31,203) 31,248 (31,248)
Total return after taxation and net assets 31,142 (31,142) 31,187 (31,187)
Percentage change in net asset value
11.1% (11.1%) 11.0% (11.0%)
Notes to the Accounts
for the year ended 31 July 2022
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 55
56
Schroder Japan Growth Fund plc
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities that are
settled by delivering cash or another financial asset.
Management of the risk
Liquidity risk is not significant as the Company’s assets comprise mainly readily realisable securities, which can be sold to meet
funding requirements if necessary. Short-term flexibility is achieved through the use of a credit facility. The board’s policy is for
the Company to remain fully invested in normal market conditions and that the credit facility be used to manage working capital
requirements and to gear the Company as appropriate.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the earliest date on which payment can be required are as follows:
2022 2021
Within one Two to three Within one
year years Total year Total
£’000 £’000 £’000 £’000 £’000
Creditors: amounts falling due
within one year
Securities purchased awaiting
settlement
1,177 – 1,177 859 859
Other creditors and accruals
682 – 682 634 634
Interest on term loan
– – 129 129
Term loan
– – – 39,321 39,321
Creditors: amounts falling due after
more than one year
Interest on term loan 295 434 729 – –
Term loan – 36,892 36,892 – –
2,154 37,326 39,480 40,943 40,943
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction could
result in loss to the Company.
Management of credit risk
This risk is not significant and is managed as follows:
Portfolio dealing
The Company invests in markets that operates a “Delivery Versus Payment” settlement process which mitigates the risk of losing
the principal of a trade during settlement. The Manager continuously monitors dealing activity to ensure best execution, which
involves measuring various indicators including the quality of trade settlement and incidence of failed trades. Counterparties
must be pre-approved by the Manager’s credit committee.
Exposure to the Custodian
The Custodian of the Company’s assets is HSBC Bank plc which has Long-Term Credit Ratings of AA- with Fitch and Aa3 with
Moody’s. The Company’s investments are held in accounts which are segregated from the Custodian’s own trading assets. If the
Custodian were to become insolvent, the Company’s right of ownership of its investments is clear and they are therefore protected.
However the Company’s cash balances are all deposited with the Custodian as banker and held on the Custodian’s balance sheet.
Accordingly, in accordance with usual banking practice, the Company will rank as a general creditor to the Custodian in respect
of cash balances.
Credit risk exposure
The following amounts shown in the Statement of Financial Position, represent the maximum exposure to credit risk at the current
and comparative year end.
Notes to the Accounts
for the year ended 31 July 2022
176026 Schroders Japan Growth Fund Annual Report Pt3.qxp_176026 Schroders Japan Growth Fund Annual Report Pt3 13/10/2022 18:05 Page 56
Annual Report and Accounts
for the year ended 31 July 2022
57
Financial
2022 2021
Balance Maximum Balance Maximum
sheet exposure sheet exposure
£’000 £’000 £’000 £’000
Fixed assets
Investments held at fair value through profit or loss
313,454 – 313,907 –
Current assets
Debtors – securities sold awaiting settlement,
dividends and interest receivable
and other debtors
1,113 1,113 1,003 1,003
Cash at bank and in hand 5,626 5,626 9,774 9,774
320,193 6,739 324,684 10,777
No debtors are past their due date and no provision has been made for impairment.
(d) Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried at fair value or the amount in the Statement of Financial Position is a reasonable
approximation of fair value.
21. Capital management policies and procedures
The Company’s objectives, policies and processes for managing capital are unchanged from the preceding year.
The Company’s debt and capital structure comprises the following:
2022 2021
£’000 £’000
Debt
Bank loan 36,892 39,321
Equity
Called-up share capital 12,200 12,214
Reserves 269,229 271,645
281,429 283,859
Total debt and equity 318,321 323,180
The Company’s capital management objectives are to ensure that it will continue as a going concern and to maximise the capital
return to shareholders through an appropriate level of gearing. The board’s policy is to limit gearing to 25%. Gearing for this
purpose is defined as borrowings used for investment purposes, less cash, expressed as a percentage of net assets.
2022 2021
£’000 £'000
Borrowings used for investment purposes, less cash 31,266 29,547
Net assets 281,429 283,859
Gearing 11.1% 10.4%
The board, with the assistance of the Manager, monitors and reviews the broad structure of the Company’s capital on an ongoing
basis. This review includes:
– the planned level of gearing, which takes into account the Manager’s views on the market;
– the need to buy back shares for cancellation, which takes into account the share price discount;
– the opportunity for issues of new shares; and
– the level of dividend distribution in excess of that which is required to be distributed.
Notes to the Accounts
for the year ended 31 July 2022
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Schroder Japan Growth Fund plc
58
Annual General Meeting – Recommendations
The Annual General Meeting (“AGM”) of the Company will
be held on Monday, 5 December 2022 at 12.00p.m. The
formal Notice of Meeting is set out on page59.
The following information is important and requires your
immediate attention. If you are in any doubt about the
action you should take, you should consult an independent
financial adviser, authorised under the Financial Services
and Markets Act 2000. If you have sold or transferred all of
your ordinary shares in the Company, please forward this
document with its accompanying form of proxy at once to
the purchaser or transferee, or to the stockbroker, bank or
other agent through whom the sale or transfer was
effected, for onward transmission to the purchaser or
transferee.
Ordinary business
Resolutions 1 to 10 are all ordinary resolutions. Resolution1 is
a required resolution. Resolution 2 invites shareholders to
approve the final dividend. Resolution 3 concerns the
Remuneration Report set out on page 31. Resolutions4 to 8
invite shareholders to elect and re-elect each of the Directors
for another year, following the recommendations of the
nomination committee, set out on pages 29 and 30 (their
biographies are set out on pages21 and 22). Resolutions9 and
10 concern the re-appointment and remuneration of the
Company’s auditor, discussed in the audit and risk committee
Report on pages26 and 27.
Special business
Resolution 11: Directors’ authority to allot shares
(ordinary resolution) and Resolution12: power to
disapply pre-emption rights (special resolution)
The Directors are seeking authority to allot a limited number
of unissued ordinary shares for cash without first offering them
to existing shareholders in accordance with statutory pre-
emption procedures.
Appropriate resolutions will be proposed at the forthcoming
AGM and are set out in full in the Notice of AGM. An ordinary
resolution will be proposed to authorise the Directors to allot
shares up to a maximum aggregate nominal amount of
£609,137 (being 5% of the issued share capital as at the date
of the Notice of the AGM). A special resolution will also be
proposed to give the Directors authority to allot securities for
cash on a non pre-emptive basis up to a maximum aggregate
nominal amount of £609,137 (being 5% of the Company’s
issued share capital as at the date of the Notice of the AGM).
The Directors do not intend to allot shares pursuant to these
authorities other than to take advantage of opportunities in the
market as they arise and only if they believe it to be
advantageous to the Company’s existing shareholders to do so
and when it would not result in any dilution of NAV per share.
If approved, both of these authorities will expire at the
conclusion of the AGM in 2023 unless renewed, varied or
revoked earlier.
Resolution 13: authority to make market
purchases of the Company’s own shares (special
resolution)
At the AGM held on 7 December 2021, the Company was
granted authority to make market purchases of up to
18,299,127 ordinary shares of 10p each for cancellation. As at
7 October 2022 248,190 shares have been bought back under
this authority granted on 7 December 2021 and the Company
therefore has remaining authority to purchase up to
18,050,937 ordinary shares. This authority will expire at the
forthcoming AGM.
The Directors believe it is in the best interests of the Company
and its shareholders to have a general authority for the
Company to buy back its ordinary shares in the market as they
keep under review the share price discount to NAV and the
purchase of ordinary shares. A special resolution will be
proposed at the forthcoming AGM to give the Company
authority to make market purchases of up to 14.99% of the
ordinary shares in issue as at the date of the Notice of the AGM.
The Directors will exercise this authority only if the Directors
consider that any purchase would be for the benefit of the
Company and its shareholders, taking into account relevant
factors and circumstances at the time. Any shares so purchased
would be cancelled or held in treasury for potential reissue. If
renewed, the authority to be given at the 2021 AGM will lapse
at the conclusion of the AGM in 2023 unless renewed, varied
or revoked earlier.
Recommendations
The Board considers that the resolutions relating to the above
items of special business are in the best interests of
shareholders as a whole. Accordingly, the Board unanimously
recommends to shareholders that they vote in favour of the
above resolutions and the other resolutions to be proposed at
the forthcoming AGM, as they intend to do in respect of their
own beneficial holdings.
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 58
Annual Report and Accounts
for the year ended 31 July 2022
Annual General Meeting
59
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of
Schroder Japan Growth Fund plc will be held on Monday,
5 December 2022 at 12.00 p.m. at 1 London Wall Place,
London EC2Y 5AU to consider the following resolutions of
which resolutions 1 to 11 will be proposed as ordinary
resolutions and resolutions12 to 13 will be proposed as special
resolutions:
1. To receive the Report of the Directors and the audited
Accounts for the year ended 31July 2022.
2. To approve a final dividend of 4.90p per share for the year
ended 31July 2022.
3. To approve the Directors’ Remuneration Report for the
year ended 31July 2022.
4. To approve the re-election of Alan Gibbs as a Director of
the Company.
5. To approve the re-election of Angus Macpherson as a
Director of the Company.
6. To approve the re-election of Belinda Richards as a Director
of the Company.
7. To approve the election of Helena Coles as a Director of
the Company.
8. To approve the election of Philip Kay as a Director of the
Company.
9. To re-appoint Deloitte LLP as auditors to the Company.
10. To authorise the Directors to determine the remuneration
of Deloitte LLP as auditors to the Company.
11. To consider, and if thought fit, pass the following
resolution as an ordinary resolution:
“THAT in substitution for all existing authorities the
Directors be generally and unconditionally authorised
pursuant to section 551 of the Companies Act 2006 (the
“Act”) to exercise all the powers of the Company to allot
relevant securities (within the meaning of section 551 of
the Act) up to an aggregate nominal amount of £609,137
(being 5% of the issued ordinary share capital, excluding
shares held in treasury, as at 7 October 2022) for a period
expiring (unless previously renewed, varied or revoked by
the Company in general meeting) at the conclusion of the
next Annual General Meeting of the Company, but that the
Company may make an offer or agreement which would
or might require relevant securities to be allotted after
expiry of this authority and the Board may allot relevant
securities in pursuance of that offer or agreement.”
12. To consider and, if thought fit, to pass the following
resolution as a special resolution:
“That, subject to the passing of Resolution 11 set out
above, the Directors be and are hereby empowered,
pursuant to Section 571 of the Act, to allot equity securities
(including any shares held in treasury) (as defined in
section 560(1) of the Act) pursuant to the authority given
in accordance with section 551 of the Act by the said
Resolution 12 and/or where such allotment constitutes an
allotment of equity securities by virtue of section560(2) of
the Act as if Section 561(1) of the Act did not apply to any
such allotment, provided that this power shall be limited
to the allotment of equity securities up to an aggregate
nominal amount of £609,137 (representing 5% of the
aggregate nominal amount of the share capital in issue as
at 7 October 2022); and provided that this power shall
expire at the conclusion of the next Annual General
Meeting of the Company but so that this power shall
enable the Company to make offers or agreements before
such expiry which would or might require equity securities
to be allotted after such expiry.”
13. To consider and, if thought fit, to pass the following
resolution as a special resolution:
“THAT the Company be and is hereby generally and
unconditionally authorised in accordance with Section701
of the Companies Act 2006 (the “Act”) to make market
purchases (within the meaning of Section693 of the Act)
of ordinary shares of 10p each in the capital of the
Company (“Share”) at whatever discount the prevailing
market price represents to the prevailing net asset value
per Share provided that:
(a) the maximum number of Shares which may be
purchased is 18,261,923, representing 14.99% of the
Company’s issued ordinary share capital as at
7October 2022 (excluding treasury shares);
(b)
the maximum price (exclusive of expenses) which may
be paid for a Share shall not exceed the higher of;
i) 105% of the average of the middle market
quotations for the Shares as taken from the
London Stock Exchange Daily Official List for the
five business days preceding the date of
purchase; and
ii) the higher of the last independent bid and the
highest current independent bid on the London
Stock Exchange;
(c) the minimum price (exclusive of expenses) which may
be paid for a Share shall be 10p, being the nominal
value per Share;
(d) this authority hereby conferred shall expire at the
conclusion of the next Annual General Meeting of the
Company in 2023 (unless previously renewed, varied
or revoked by the Company prior to such date);
(e) the Company may make a contract to purchase
Shares under the authority hereby conferred which
will or may be executed wholly or partly after the
expiration of such authority and may make a purchase
of Shares pursuant to any such contract; and
(f) any Shares so purchased will be cancelled or held in
treasury.”
By order of the Board
For and on behalf of Registered Office:
Schroder Investment Management Limited 1 London Wall Place,
Registered number: 02930057 London EC2Y 5AU
13 October 2022
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Schroder Japan Growth Fund plc
60
1. Ordinary shareholders are entitled to attend and vote at
the meeting and to appoint one or more proxies, who
need not be a shareholder, as their proxy to exercise all or
any of their rights to attend, speak and vote on their behalf
at the meeting.
A proxy form is attached. If you wish to appoint a person
other than the Chairman as your proxy, please insert the
name of your chosen proxy holder in the space provided
at the top of the form. If the proxy is being appointed in
relation to less than your full voting entitlement, please
enter in the box next to the proxy holder’s name the
number of shares in relation to which they are authorised
to act as your proxy. If left blank your proxy will be deemed
to be authorised in respect of your full voting entitlement
(or if this proxy form has been issued in respect of a
designated account for a shareholder, the full voting
entitlement for that designated account). Additional proxy
forms can be obtained by contacting the Company’s
Registrars, Equiniti Limited, on 08000320641 or +44(0) 121
415 0207 for overseas callers, or you may photocopy the
attached proxy form. Please indicate in the box next to the
proxy holder’s name the number of shares in relation to
which they are authorised to act as your proxy. Please also
indicate by ticking the box provided if the proxy instruction
is one of multiple instructions being given. Completion and
return of a form of proxy will not preclude a member from
attending the Annual General Meeting and voting in
person.
On a vote by show of hands, every ordinary shareholder
who is present in person has one vote and every duly
appointed proxy who is present has one vote. On a poll
vote, every ordinary shareholder who is present in person
or by way of a proxy has one vote for every share of which
he/she is a holder.
The “Vote Withheld” option on the proxy form is provided
to enable you to abstain on any particular resolution.
However it should be noted that a “Vote Withheld” is not a
vote in law and will not be counted in the calculation of the
proportion of the votes ‘For’ and ‘Against’ a resolution.
A proxy form must be signed and dated by the shareholder
or his or her attorney duly authorised in writing. In the
case of joint holdings, any one holder may sign this form.
The vote of the senior joint holder who tenders a vote,
whether in person or by proxy, will be accepted to the
exclusion of the votes of the other joint holder and for this
purpose seniority will be determined by the order in which
the names appear on the Register of Members in respect
of the joint holding. To be valid, proxy form(s) must be
completed and returned to the Company’s Registrars,
Equiniti Limited, Aspect House, Spencer Road, Lancing,
West Sussex BN996DA, in the enclosed envelope together
with any power of attorney or other authority under which
it is signed or a copy of such authority certified notarially,
to arrive no later than 48 hours before the time fixed for
the meeting, or an adjourned meeting. Shareholders may
also appoint a proxy to vote on the resolutions being put
to the meeting electronically at
www.sharevote.co.uk.
Shareholders who are not registered to vote electronically,
will need to enter the Voting ID, Task ID and Shareholder
Reference Number set out in their personalised proxy
form. Alternatively, shareholders who have already
registered with Equiniti’s Shareview service can appoint a
proxy by logging onto their portfolio at
www.shareview.co.uk using their user ID and password.
Once logged in, click
“view” on the “My Investments” page,
click on the link to vote, then follow the on-screen instructions
.
The on-screen instructions give details on how to complete
the appointment process. Please note that to be valid, your
proxy instructions must be received by Equiniti no later
than 12.00 p.m. on 1 December 2022. If you have any
difficulties with online voting, you should contact the
shareholder helpline on 08000320641 (or +44(0) 121 415
0207 for overseas callers).
If an ordinary shareholder submits more than one valid
proxy appointment, the appointment received last before
the latest time for receipt of proxies will take precedence.
Shareholders may not use any electronic address provided
either in this Notice of Annual General Meeting or any
related documents to communicate with the Company for
any purposes other than expressly stated.
Representatives of shareholders that are corporations will
have to produce evidence of their proper appointment
when attending the Annual General Meeting.
2. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006
to enjoy information rights (a “Nominated Person”) may,
under an agreement between him or her and the
shareholder by whom he or she was nominated, have a
right to be appointed (or to have someone else appointed)
as a proxy for the Annual General Meeting. If a Nominated
Person has no such proxy appointment right or does not
wish to exercise it, he or she may, under any such
agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
The statement of the rights of ordinary shareholders in
relation to the appointment of proxies in note 1 above
does not apply to Nominated Persons. The rights
described in that note can only be exercised by ordinary
shareholders of the Company.
3. Pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, the Company has specified that only
those shareholders registered in the Register of Members
of the Company business at 6.30 p.m. on 1 December
2022, or 6.30 p.m. two days prior to the date of an
adjourned meeting, shall be entitled to attend and vote at
the meeting in respect of the number of shares registered
in their name at that time. Changes to the Register of
Members after 6.30 p.m. on 1 December 2022 shall be
disregarded in determining the right of any person to
attend and vote at the meeting.
4. CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service
may do so by using the procedures described in the CREST
manual. The CREST manual can be viewed at
www.euroclear.com. A CREST message appointing a proxy
(a “CREST proxy instruction”) regardless of whether it
constitutes the appointment of a proxy or an amendment
to the instruction previously given to a previously
appointed proxy must, in order to be valid, be transmitted
so as to be received by the issuer’s agent (ID RA19) by the
latest time for receipt of proxy appointments.
Explanatory Notes to the Notice of Meeting
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 60
Annual Report and Accounts
for the year ended 31 July 2022
Annual General Meeting
61
Explanatory Notes to the Notice of Meeting
5. Copies of the terms of appointment of the non-executive
Directors and a statement of all transactions of each
director and of his family interests in the shares of the
Company, will be available for inspection by any member
of the Company at the registered office of the Company
during normal business hours on any weekday (English
public holidays excepted) and at the Annual General
Meeting by any attendee, for at least 15 minutes prior to,
and during, the Annual General Meeting. None of the
Directors has a contract of service with the Company.
6. The biographies of the directors offering themselves for
election and re-election are set out on pages21 and 22 of
the Company’s annual report and accounts for the year
ended 31 July 2022.
7. As at 7 October 2022, 121,827,372 ordinary shares of
10 pence each were in issue (no shares were held in
treasury). Therefore the total number of voting rights of
the Company as at 7October 2022 was 121,827,372.
8. A copy of this notice of meeting, which includes details of
shareholder voting rights, together with any other
information as required under Section 311A of the
Companies Act 2006, is available from the Company’s
webpages,
www.schroders.co.uk/japangrowth.
9. Pursuant to Section 319A of the Companies Act 2006, the
Company must cause to be answered at the Annual
General Meeting any question relating to the business
being dealt with at the Annual General Meeting which is
put by a member attending the meeting, except in certain
circumstances, including if it is undesirable in the interests
of the Company or the good order of the meeting that the
question be answered or if to do so would involve the
disclosure of confidential information.
10. The Company’s privacy policy is available on its webpages.
www.schroders.co.uk/japangrowth. Shareholders can
contact Equiniti for details of how Equiniti processes their
personal information as part of the AGM.
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 61
Schroder Japan Growth Fund plc
62
Definitions of Terms and Performance Measures
The terms and performance measures below are those
commonly used by investment companies to assess values,
investment performance and operating costs. Some of the
financial measures below are classified as Alternative
Performance Measures, as defined by the European
Securities and Markets Authority, and some numerical
calculations are given for those.
Net asset value (”NAV”) per share
The NAV per share of 230.68p (2021: 232.40p) represents the
net assets attributable to equity shareholders of £281,429,000
(2021: £283,859,000) divided by the number of shares in issue
of 122,000,562 (2021: 122,143,262).
The change in the NAV amounted to -0.7%% (2021: +22.8%)
over the year. However this performance measure excludes the
positive impact of dividends paid out by the Company during
the year. When these dividends are factored into the
calculation, the resulting performance measure is termed the
“total return”. Total return calculations and definitions are given
below.
Total return
The combined effect of any dividends paid, together with the
rise or fall in the share price or NAV per share. Total return
statistics enable the investor to make performance
comparisons between investment companies with different
dividend policies. Any dividends received by a shareholder are
assumed to have been reinvested in either the assets of the
Company at its NAV per share at the time the shares were
quoted ex-dividend (to calculate the NAV per share total return)
or in additional shares of the Company (to calculate the share
price total return).
The NAV total return for the year ended 31 July 2022 is
calculated as follows:
Opening NAV at 31/7/21 232.40p
Closing NAV at 31/7/22 230.68p
Dividend NAV on
received XD date XD date Factor
4.3p 4/11/21 248.09p 1.0173
NAV total return, being the closing NAV,
multiplied by the factor, expressed as a
percentage increase in the opening NAV: +1.0%
The NAV total return for the year ended 31 July 2021 is
calculated as follows:
189.24p
Closing NAV at 31/7/21 232.40p
Dividend NAV on
received XD date XD date Factor
4.9p 5/11/20 209.20p 1.0234
NAV total return, being the closing NAV,
multiplied by the factor, expressed as a
percentage increase in the opening NAV: +25.7%
The share price total return for the year ended 31 July 2022 is
calculated as follows:
Opening share price at 31/7/21 210.00p
Closing share price at 31/7/22 202.00p
Share
Dividend price on
received XD date XD date Factor
4.3p 4/11/21 223.00p 1.0193
Share price total return, being the
closing share price, multiplied by
the factor, expressed as a percentage
increase in the opening share price: -2.0%
The share price total return for the year ended 31 July 2021 is
calculated as follows:
Opening share price at 31/7/20 161.50p
Closing share price at 31/7/21 210.00p
Share
Dividend price on
received XD date XD date Factor
4.9p 5/11/20 176.00p 1.0278
Share price total return, being the
closing share price, multiplied by
the factor, expressed as a percentage
increase in the opening share price: +33.7%
Benchmark
The measure against which the Company compares its
performance. The Benchmark is the TSE First Section Total
Return Index in sterling terms.
Discount/premium
The amount by which the share price of an investment trust is
lower (discount) or higher (premium) than the NAV per share.
The discount or premium is expressed as a percentage of the
NAV per share. The discount at the year end amounted to
12.4% (2021: 9.6%), as the closing share price at 202.00p (2021:
210.00p) was 12.4% (2021: 9.6%) lower than the closing NAV of
230.68p (2021: 232.40p).
Gearing
The gearing percentage reflects the amount of borrowings (i.e.
bank loans or overdrafts) which the Company has drawn down
and invested in the market. This figure is indicative of the extra
amount by which shareholders’ funds would move if the
Company’s investments were to rise or fall. This represents
borrowings used for investment purposes, less cash, expressed
as a percentage of net assets. The gearing figure at the year
end is calculated as follows:
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 62
Annual Report and Accounts
for the year ended 31 July 2022
Annual General Meeting
63
Definitions of Terms and Performance Measures
2022 2021
£’000 £’000
Borrowings used for investment
purposes, less cash 31,266 29,547
Net assets 281,429 283,859
Gearing 11.1% 10.4%
Leverage
For the purpose of the Alternative Investment Fund Managers
(AIFM) Directive, leverage is any method which increases the
Company’s exposure, including the borrowing of cash and the
use of derivatives. It is expressed as the ratio of the Company’s
exposure to its net asset value and is required to be calculated
both on a “Gross” and a “Commitment” method. Under the
Gross method, exposure represents the sum of the absolute
values of all positions, so as to give an indication of overall
exposure. Under the Commitment method, exposure is
calculated in a similar way, but after netting off hedges which
satisfy certain strict criteria.
Ongoing Charges
Ongoing Charges is calculated in accordance with the AIC’s
recommended methodology and represents the management
fee and all other operating expenses excluding finance costs
and transaction costs, amounting to £2,635,000 (2021:
£2,450,000), expressed as a percentage of the average daily net
asset values during the year of £285.8 million (2021: 276.3
million).
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 63
Schroder Japan Growth Fund plc
64
Notes
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 64
Shareholder Information
Webpages and share price information
The Company has dedicated webpages, which may be found at
www.schroders.co.uk/japangrowth. The webpages have been
designed to be utilised as the Company’s primary method of
electronic communication with shareholders. It contains details
of the Company’s ordinary share price and copies of annual
reports and other documents published by the Company as
well as information on the Directors, terms of reference of
committees and other governance arrangements. In addition,
the webpages contain links to announcements made by the
Company to the market, Equiniti’s shareview service and
Schroders’ website. There is also a section entitled “How to
Invest”.
The Company releases its NAV on both a cum and ex-income
basis to the market on a daily basis.
Share price information may also be found in the Financial
Times and on the Company’s webpages.
Association of Investment Companies
The Company is a member of the Association of Investment
Companies. Further information on the Association can be
found on its website,
www.theaic.co.uk.
Individual Saving Account (“ISA”) status
The Company’s shares are eligible for stocks and shares ISAs.
Non-Mainstream Pooled Investments
status
The Company currently conducts its affairs so that its shares
can be recommended by IFAs to ordinary retail investors in
accordance with the FCA’s rules in relation to non-mainstream
investment products and intends to continue to do so for the
foreseeable future. The Company’s shares are excluded from
the FCA’s restrictions which apply to non-mainstream
investment products because they are shares in an investment
trust.
Financial calendar
Half year results announced March
Financial year end 31 July
Annual results announced October
Final dividend paid December
Annual General Meeting December
Alternative Investment Fund Managers
(“AIFM”) Directive
Certain pre-sale, regular and periodic disclosures required by
the AIFM Directive may be found either in this annual report or
on the Company’s webpages.
The Company’s leverage policy and details of limits on leverage
required under the AIFM Directive are published on the
Company’s webpages.
Leverage
The Company’s leverage policy and details of its leverage ratio
calculation and exposure limits as required by the AIFM
Directive are published on the Company’s webpages and within
this report. The Company is also required to publish periodically
its actual leverage exposures. As at 31 July 2022 these were:
Leverage exposure Maximum ratio Actual ratio
Gross method 200.0% 126.1%
Commitment method 200.0% 124.6%
Illiquid assets
As at the date of this report, none of the Company’s assets are
subject to special arrangements arising from their illiquid
nature.
Remuneration disclosures
Quantitative remuneration disclosures to be made in this
annual report in accordance with FCA Handbook rule
FUND3.3.5 may also be found in the Company’s AIFM Directive
information disclosure document published on the Company’s
webpages.
Publication of Key Information Document (“KID”)
by the AIFM
Pursuant to the Packaged Retail and Insurance Based Products
(“PRIIPs”) Regulation, the Manager, as the Company’s AIFM, is
required to publish a short KID on the Company. KIDs are
designed to provide certain prescribed information to retail
investors, including details of potential returns under different
performance scenarios and a risk/reward indicator. The
Company’s KID is available on its webpages.
176026 Schroders Japan Growth Fund Annual Report Pt4_176026 Schroders Japan Growth Fund Annual Report Pt4 13/10/2022 18:04 Page 65
www.schroders.co.uk/japangrowth
Directors
Anja Balfour (Chairman)
Alan Gibbs
Angus Macpherson
Belinda Richards
Helena Coles
Philip Kay
Advisers
Alternative Investment Fund Manager
(“Manager”)
Schroder Unit Trusts Limited
1 London Wall Place
London EC2Y 5AU
Investment Manager and Company Secretary
Schroder Investment Management Limited
1 London Wall Place
London EC2Y 5AU
Telephone: 020 7658 3847
Registered Office
1 London Wall Place
London EC2Y 5AU
Depositary and Custodian
HSBC Bank plc
8 Canada Square
London E14 5HQ
Lending Bank
Sumitomo Banking Corporation, London Branch
99 Queen Victoria Street
London EC4V 4EH
Corporate Broker
Winterflood Securities Limited
The Atrium Building
Cannon Bridge
25 Dowgate Hill
London EC4R 2GA
Independent Auditor
Deloitte LLP
Union Plaza
1 Union Wynd
Aberdeen AB10 1SL
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Shareholder Helpline 0800 032 0641*
Website:
www.shareview.co.uk
*Calls to this number are free of charge from UK
landlines.
Communications with shareholders are mailed to the
address held on the register. Any notifications and
enquiries relating to shareholdings, including a change of
address or other amendment should be directed to Equiniti
Limited at the address above.
Shareholder enquiries
General enquiries about the Company should be addressed to
the Company Secretary at the address set out above.
Dealing Codes
ISIN: GB0008022849
SEDOL: 0802284
Ticker: SJG
Global Intermediary Identification Number (GIIN)
7T0909.99999.SL.826
Legal Entity Identifier (LEI)
549300SSPK3AXNJOC673
The Company’s privacy notice is
available on its webpage.
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