## Engage. ## Improve. ## Transform. ### Annual Report 2024 01 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Annual Report / Welcome ## Annual Report 2024 ## AVI Japan Opportunity ### Net assets: AN ACTIVE APPROACH TO ## Trust plc (“AJOT” or “the INVESTING RESPONSIBLY ## £212 million* ## Company”) invests in a ### As an active investor, AVI considers ### all drivers relevant to each company’s ## focused portfolio of quality Launch date: ### success, offering suggestions to ## small and mid-cap listed ### enhance sustainable corporate value in ## 23 October 2018 ## companies in Japan that consideration of all stakeholders and in ### Annualised return: the best long-term interest of our clients. ## have a large portion of their We aim to build strong relationships with the ## market capitalisation in cash 8.9%* boards and management of our portfolio companies. Through constructive engagement, ## or realisable assets. † ### Ongoing Charges Ratio : we encourage and expect them to take meaningful action in the context of long-term value creation. ## 1.5%* | | | | | n | | S c | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | i o | | | r e | | | | | | | | c | t | | | e n | | | | | † For all Alternative Performance Measures, please refer | | | r u | | | | | i n | | | | | | | s t | | p i | | | g | | | | to the definitions in the Glossary on pages 74 and 75. | | n | | s | h | P u | | o | | | | | | o | | r d | | r p | | | f | | | | | c | | a | | o | s | | t | | | | | | | w | | | e | | h | | | * Annualised return net of fees (in GBP) as at | | i o | t e | | | | | | e | | | | l | | | | | | | | u | | | | f o | | S | | | | | | | n | | 31 December 2024. | t | | | | | | | | | i | | | r | | | | | | | | | v | | | o | | | | | | | | | e | | | P | ’ | | | | | | | | r s | | | | G | | | | | | | | e | ‘ & P ’ h S i l ‘ o , ’ s E o ‘ p g h n y i n f e D g R A s i n e p l e r s p r i p t e e o a n c i l a r c h r i F c P h Read more about our ESG Perspective on pages 34 and 35 of the Annual Report AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI AVI takes a unique approach to engagement by focusing on driving operational improvements in addition to the typical engagement areas of capital efficiency, corporate governance and investor relations. Norman Crighton, Chairman # Overview of the Year Strategic Report 06 # A New Wave in Japan Strategic Report 08 # Net Asset Value, Share Price and Benchmark ![img-0.jpeg](img-0.jpeg) - AVI Japan Opportunity Trust NAV TR - AVI Japan Opportunity Trust Share Price TR - MSCI Japan Small Cap Index (£ adjusted total return) # Our Performance Strategic Report 03 # CONTENTS # Strategic Report: | Company Performance | 02 | | --- | --- | | Company Overview | 04 | | Chairman's Statement | 06 | | Case Study | 08 | | Our Top 10 Holdings | 10 | | Investment Manager's Report | 12 | | Portfolio Construction | 22 | | AVI Japan Investment Team | 23 | | Investment Portfolio | 24 | | Business Model | 25 | | Stakeholders | 27 | | Key Performance Indicators | 32 | | ESG Policy | 34 | | Principal Risks and Uncertainties | 36 | # Governance: | Directors | 38 | | --- | --- | | Directors' Report | 39 | | Corporate Governance Statement | 41 | | Directors' Remuneration Report | 46 | | Statement of Directors' Responsibilities in Relation to the Annual Report and Financial Statements | 49 | | Report from the Audit Committee | 50 | | Independent Auditor's Report | 52 | # Financial Statements: | Statement of Comprehensive Income | 56 | | --- | --- | | Statement of Changes in Equity | 57 | | Balance Sheet | 58 | | Statement of Cash Flows | 59 | | Notes to the Financial Statements | 60 | # Shareholder Information: | AIFMD Disclosures | 73 | | --- | --- | | Glossary | 74 | | Investing in the Company | 76 | | Company Information | 77 | The Company's website, which can be found at www.ajot.co.uk, includes useful information on the Company, such as price performance, news, monthly and quarterly reports, as well as previous Annual and Half-Year reports. @AVIJapan u'avi-ajot avi-japan-opportunity-trust 02 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Company Performance ## Performance Summary 31 December 2024 31 December 2023 Net Asset Value £211,981,000 £182,943,000 Net Asset Value per Share (total return) for the year* 20.9% 15.8% Share price total return for the year* 19.9% 14.8% Comparator Benchmark MSCI Japan Small-Cap Index (£ adjusted total return) 6.2% 6.9% Portfolio Valuation* | Net Cash as % of Market Cap | 21.2% | 35.8% | | --- | --- | --- | | Net Financial Value as % of Market Cap | 48.4% | 49.6% | | EV/EBIT | 8.7x | 8.7x | | FCF Yield | 6.7% | 4.4% | Year to 31 December 2024 Year to 31 December 2023 Earnings and Dividends | Profit/(loss) before tax | £38.6m | £25.2m | | --- | --- | --- | | Investment income | £4.8m | £4.0m | | Revenue earnings per share | 2.21p | 1.76p | | Capital earnings per share | 25.00p | 15.89p | | Total earnings per share | 27.21p | 17.65p | | Ordinary dividends per share | 2.20p | 1.70p | Ongoing Charge* Management, marketing and other expenses (as a percentage of average Shareholders’ funds) 1.5% 1.5% 31 December 2024 31 December 2023 | Net asset value per share | 155.4p | 130.3p | | --- | --- | --- | | Share price | 152.3p | 127.0p | | Discount (difference between share price and net asset value)* | 2.1% | 2.5% | 2024 Year’s Highs/Lows High Low Net asset value per share 158.6p 122.3p Since 1 NAV TR (GBP) inception 2024 2023 2022 2021 2020 2019 2018 AJOT 69.9% 20.9% 15.8% -4.3% 12.3% -1.4% 19.0% -4.0% MSCI Japan Small Cap 23.5% 6.2% 6.9% -1.0% -1.4% 3.2% 14.7% -6.0% Relative 47.9% 14.7% 8.8% -3.4% 13.7% -4.6% 4.3% 2.0% 1 Since inception on 23 October 2018. * For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75. AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI # Net Asset Value, Share Price* and Benchmark ![img-1.jpeg](img-1.jpeg) # Premium or Discount to Net Asset Value (%) ![img-2.jpeg](img-2.jpeg) * For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75. 04 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Company Overview ## Finding Compelling Opportunities in Japan ### OUR PURPOSE ### COMPANY OBJECTIVES AND STRATEGY ### Discovering overlooked and under- ### AJOT aims to provide Shareholders with total returns in excess of the MSCI ### researched investment opportunities, ### Japan Small Cap Index in GBP (“MSCI Japan Small Cap”), through the ### utilising shareholder engagement to ### active management of a focused portfolio of equity investments listed or ### unlock long-term value. ### quoted in Japan, which have been identified by Asset Value Investors Limited ### as undervalued and typically have a significant proportion of their market ### capitalisation held in cash, listed securities and/or other realisable assets. ### ABOUT ASSET ### VALUE INVESTORS ### The Company has appointed Asset ### Value Investors Limited (“AVI” or the ### “Investment Manager”) as its Alternative ### Investment Fund Manager. Asset Value Investors (“AVI”) has been investing in Japan for three decades. AVI focuses on undervalued companies with resilient and growing earnings, that are overlooked by investors due to non-fundamental factors. By utilising 40 years of capital markets experience, having analysed and met with hundreds of Japanese companies across a wide variety of industries, AVI works with management teams, making suggestions on how to grow long- term corporate value and address share price undervaluation. AVI’s engagement focuses on four main areas of From left to right: Shuntaro Shimizu, Luke Hutcherson, Nicola Takada Wood, Kaz Sakai improvement: capital efficiency, ESG, shareholder communication and operational strategy. While AVI seeks to unlock this value through By investing in companies whose corporate AVI seeks to work privately and collaboratively proactive engagement with management and value should grow over time, AVI can be patient with management teams, if progress is not made, capitalising on the increased focus on corporate in its engagement to unlock value. AVI will consider sharing its ideas with other governance, balance sheet efficiency and Benchmark Shareholders in a public forum. returns to Shareholders in Japan. The MSCI Japan Small Cap Index. The companies in the portfolio are selected The Association of Investment Companies ### Capital Structure for their high quality, whether having strong (“The AIC”) prospects for profit growth or economically As at 31 December 2024, the Company’s issued The Company is a member of The AIC. resilient earnings. share capital comprised 137,198,943 Ordinary Shares of 1p each, of which 825,716 were held in treasury and therefore total voting rights attached ### to Ordinary Shares in issue were 136,373,227. As KEY PERFORMANCE INDICATORS (“KPIs”) at 1 April 2025 it comprised 137,198,943 Ordinary Shares, 1,075,716 of which were held in treasury, ### NAV Performance* (2024), 1 Year: Discount/Premium* (2024): and therefore total voting rights attached to Ordinary Shares in issue were 136,123,227. ## 20.9% (2023: 15.8%) (2.1)% ### Japan Economic Snapshot: Range during the period: Since Inception ("SI") 69.9% | | | | Relative to | | | | (6.7)% 1.2% | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 8.9% | SI Annualised | | | | | Japan | | Global | | | | | | 1 | | th | | | | | | GDP | | $4.1tn 4 | | largest | | | | 2 Population 125m 1.5% ### Ongoing Charges* (2024), Peer Group NAV Performance Fortune Global 500 ### 31 December 24: (2024): Companies 41 8.2% AVI Japan Opportunity 20.9% ## 1.5% (2023: 1.5%) (9.6)% Baillie Gifford Shin Nippon 1 World Bank Data (2023). 2 Source: International Monetary Fund (2024). Nippon Active Value 15.2% * For definitions, see Glossary on pages 74 to 75 AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 05 ### OUR CORE VALUES ### WHAT DO WE INVEST IN? ### AJOT aims to achieve long-term capital growth by engaging with its concentrated ### portfolio of Japanese equities to unlock value. ### Engaged ### Sector Breakdown (% of Portfolio): Building relationships with companies, actively working together to improve shareholder value. ### Concentrated Our portfolio of 15-25 holdings means we devote ample resources to research and engagement for every investment. ### Long-term A three to five-year horizon aligns our interests with those of management. ### Unique Discovering overlooked and under-researched Consumer Durables and Apparel 22% investment opportunities to unlock long-term value. Capital Goods 15% Materials 15% Consumer Discretionary, Distribution and Retail 12% | Health Care Equipment and Services 11% | | Experienced | | --- | --- | --- | | Software and Services | 7% | Investing in the Japanese market for over | | Real Estate Management and Development 6% | | two decades, with a dedicated team in | | Media and Entertainment 4% | | London and Tokyo. | Technology Hardware and Equipment 3% Telecommunication Services 3% Household and Personal Products 2% ### RESPONSIBLE INVESTORS ### What do we invest in? Managed at AVI. Visit the website at: h i p P d s u r www.assetvalueinvestors.com We believe that the integration of ESG and r p o a s e w e sustainability considerations into our investment t S strategy is not only integral to comprehensively ### Annual General Meeting | understanding each investment’s ability to | ’ | | | | --- | --- | --- | --- | | | ‘ G | | | | create long-term value, but is also aligned with | & | P | The Company’s Annual General Meeting (“AGM”) | | | ’ | h | | | our values as responsible investors. | S ‘ | i l | will be held at 11.30 a.m. on Tuesday, 20 May | o | , ’ | s | | | --- | --- | --- | | E | o | 2025 at the offices of the Association of Investment | | ‘ | p | | | g | h | | | n | y | Companies, 9th Floor, 24 Chiswell Street, London, | i n fi EC1Y 4YY. Shareholders will be able to submit e D questions to the Board and AVI ahead of the AGM and answers to these, as well as AVI’s presentation, A s will be made available on the Company’s website. p l e p r i p o a c c r i n Please refer to the Notice of AGM for further h P information and the resolutions which will be proposed at this meeting. 06 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Chairman’s Statement ### Overview of the Year Your Manager, AVI, has continued its constructive approach to active engagement with portfolio On behalf of the Board of Directors (“the Board”), companies to unlock value. AVI takes a unique I am pleased to present the Annual Report for 2024 approach to engagement by focusing on driving for AVI Japan Opportunity Trust Plc (“AJOT” or operational improvements in addition to the typical “Company”). Since AJOT was launched in October engagement areas of capital efficiency, corporate 2018, market-wide reform in Japan has continued governance and investor relations. AVI’s investment to advance, which is supportive of your Manager’s team builds constructive relationships with the constructive engagement strategy. In 2024, management of every portfolio company, holding regulators stepped up the pressure on companies numerous meetings with senior executives and to improve key issues that are depressing board directors every year. Private engagement valuations in Japan, such as poor corporate remains AVI’s preferred approach to driving governance, capital efficiency and shareholder reform; however, public engagement is also an communication. Faced with evidence of undeniable important element of the strategy, with two portfolio change afoot, foreign investors’ views are shifting companies, Aichi Corporation and SK Kaken, from Japan being a perennially cheap market to the subject of public engagement in 2024. The one with not only room for rapid growth but with preferred approach of private engagement has ### NORMAN CRIGHTON the means to catalyse it. led to notable successes, with detailed letters or 2024 was an eventful year in Japan, during which ### Chairman, Non-Executive Director presentations sent to 17 portfolio companies over the Liberal Democratic Party relinquished its the year. ### Joined the Board in 2018 majority in the House of Representatives, the Bank ### Dividend of Japan (“BoJ”) ended its ultra-loose monetary policy by symbolically increasing its benchmark As provided for in the Prospectus at the IPO, the rate to 0.25% (increased to 0.50% post-period Company intends to distribute substantially all the end), and the Tokyo Stock Exchange (“TSE”) net revenue arising from the portfolio. The Company ## AVI takes a unique piled pressure on underperforming companies by paid an interim dividend of 1.00p per share in publishing its monthly “name and shame” list. November 2024, and the Board has elected to ## approach to propose a final dividend of 1.20p per share, bringing It was another buoyant year for Japanese equity ## engagement by focusing total dividends for the year ended 31 December markets, with the MSCI Japan returning +20.7% 2024 to 2.20p per share (2023: 1.70p per share). over 2024 in Japanese Yen (“JPY”). Large names ## on driving operational ### again outperformed their smaller counterparts, Investment Strategy with the MSCI Japan Small Cap index rising a still ## improvements in AJOT listed in October 2018 to take advantage respectable +16.4% in JPY. of the highly attractive opportunity to invest ## addition to the typical AJOT’s performance in 2024 continued the in under-valued, over-capitalised Japanese impressive outperformance seen in 2023. AJOT small-cap equities with strong underlying ## engagement areas | | returned +20.9% in GBP and +32.4% in JPY. | business fundamentals. Active engagement | | --- | --- | --- | | of capital efficiency, | It outperformed its benchmark over the calendar | and corporate action are the keys to unlocking | | | year by 14.7% in GBP and +16.2% in JPY. The | valuation anomalies, and AJOT’s track record has | | corporate governance | weak Yen, which fell by -8.8% relative to the | | demonstrated the potential absolute and relative Pound over 2024, continued to be a headwind to returns this approach can deliver. ## and investor relations. sterling-based returns. Since its inception, AJOT Over six years since launch, your Company has has delivered returns of +69.9% in GBP versus performed well in the face of multiple headwinds: +23.5% in GBP for the benchmark. In JPY terms, lacklustre performance of small-cap stocks (MSCI the since inception returns are significantly higher, Small Cap Japan has underperformed its larger at +130.0% vs +67.1% for the benchmark. MSCI Japan brethren by over 30% in JPY); a It is particularly encouraging in terms of returns marked depreciation of the Japanese Yen which and the investment manager’s strategy that four has detracted -60% from GBP returns; and a portfolio companies received tender offer bids turbulent global environment encompassing a during the year, as well as one receiving advance pandemic, rapidly rising interest rates and multiple notice of a tender offer bid. geopolitical events. The Board remains confident that AVI is well placed to continue executing the strategy and that there are still plenty of mispriced investment opportunities to discover. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 07 ### In June, Yoshi Nishio and I attended the AGM of Outlook SK Kaken, becoming the first foreign investors The TSE has continued to disclose a list of to do so. We were likely the first shareholders to companies on a monthly basis that have provided ask questions at the AGM. It is hoped that this information regarding actions to implement increased level of direct interaction with a company policies conscious of the cost of capital and that had previously been reluctant to meet with AVI share price. In 2024, the TSE increase the level will bear fruit in the future. The Directors also took of accountability for companies by critiquing the the opportunity to meet with several other portfolio quality of disclosures and highlighting key points for companies as well as our PR agents in Japan. foreign investors, such as the availability of English ### Share Premium and Issuances disclosures. As at 31 December 2024, your Company’s There are several other tailwinds for the strategy, shares were trading at a discount of -2.1% to Net including the unwinding of cross-shareholdings, Asset Value (“NAV”) per share. The Board monitors increasing shareholder activism, private equity | the premium/discount and carefully manages it by | firms targeting the Japanese market, and the | | --- | --- | | periodically issuing or buying back shares. During | Japanese government encouraging unsolicited | | 2024, no new shares were issued, while | acquisition offers. | 4,063,475 shares were bought back during the The mounting pressure for corporate reform will year. As of 31 December 2024, 137,198,943 not subside in 2025. AJOT’s focus on finding shares were in issue, a pleasing increase from the attractively valued, durable companies and using 80,000,000 shares at AJOT’s launch. active engagement to unlock value holds it in The Directors believe that the performance of the good stead to benefit from the changing tide. The Company since IPO should be attractive to a larger portfolio is well-positioned with a concentrated pool of investors and are exploring avenues to yet diverse collection of high-quality, lowly valued grow AJOT. companies, with multiple levers for re-ratings. As a Board, we are confident that AJOT can build ### Realisation Opportunities on its successful track record of engagement At the launch of the Company in October 2018, and will continue to deliver attractive returns for the Prospectus published at that time stated that investors. AJOT’s portfolio companies currently the Directors may, at their discretion, offer a full have 48% of their market cap covered by net cash or a partial Exit Opportunity to Shareholders in and investment securities and trade at a weighted October 2022 and every two years thereafter. The average 8.7x EV/EBIT multiple. rationale behind including the Exit Opportunity in During the year, Yoshi Nishio and Katya Thomson the Prospectus was to ensure that if the original resigned from the Board to be replaced by Andrew investment thesis did not generate the expected Rose and Tom Yoritaka. I would like to take this returns, or if circumstances had changed to make opportunity to welcome both Andrew and Tom to Japan unattractive, then Shareholders would be the Board, as well as thank Yoshi and Katya for offered the opportunity to exit at close to NAV if their contribution to the success of the Company they wished. since the IPO. In light of its keen focus on corporate governance, In the coming weeks, I will be meeting any the Board announced its intention to offer the institutional investors who would like to sit down Exit Opportunity on an annual basis (rather than with me, and I hope to see as many Shareholders biennially), on that same discretionary basis, from as possible at our AGM in May. The Board October 2024. The Board therefore expects to and I remain available to all our Shareholders – offer another Exit Opportunity to Shareholders in institutional and retail – who may wish to discuss October 2025 and every twelve months thereafter. an issue or ask a question. As always, please The Exit Opportunity was structured as a full feel free to reach out to me directly at norman. Tender Offer in 2024, allowing eligible Shareholders crighton@ajot.co.uk or contact our broker, Singer to sell 100% of their share capital at a two per Capital Markets, to arrange a meeting. cent. discount to NAV. This resulted in 2.58% of the issued share capital being tendered by Shareholders choosing to exercise the opportunity to exit. ### Debt Structure and Gearing Norman Crighton Chairman As described in the Prospectus, the Board 4 April 2025 supports the use of gearing to enhance portfolio performance. The Company has in place a ¥2.93 billion debt facility, which was renewed on 2 April 2024. As at 31 December 2024, ¥2.93 billion of the facility had been drawn and net gearing stood at +4.5%. On 28 March 2025, the Source / Araya Industrial Co Ltd facility size was increased to ¥6.6 billion. 08 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Case Study ## A New Wave in Japan ### A NEW WAVE ### Evidence of corporate reform’s ### impact is mounting, and we ### would argue that Japan is ### not only already irrevocably ### transformed, but that we are also ### at the beginning of a sea change ### in corporate culture which will ### have a long-term and far-reaching ### impact on the Japanese market. ### Tailwinds for Shareholder ### Constructive Engagement The market environment in Japan is more attractive and supportive of a constructive engagement strategy than previously, with several key tailwinds, including the following: ## 01. ### Further pressure from the TSE ### requesting improved disclosure ### around capital efficiency. ## 02. ### Unwinding of cross-shareholdings. ## 03. ### Increasing shareholder activism ### impact. ## 04. ### Private equity firms targeting the ### Japanese market with dry powder. ## 05. ### The Japanese government ### encouraging unsolicited acquisition ### offers. ### Recent Governance Reform: | | 2014 | | 2018 | | | 2021 | | | 2023 | | 2024 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Stewardship Code | | Revised Corporate | | | TSE Market | | | METI revises | | TSE published a | | | | | Governance Code | | Structure Reform | | | | guidelines for | | list of companies | | | | | | | | | | Corporate Takeovers | | | disclosing plans | | | | 2012 | | | 2015 | | 2020 | | 2022 | | | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Abenomics | | | Introduced | | METI M&A | | Transition from | | | TSE enhanced | | | Introduced | | | Corporate | | Guidelines | | First Section | | | disclosure for | | | | | Governance Code | | | | | | to Prime | companies in parent- | | | Read more at: subsidiary relationships www.assetvalueinvestors.com/insight/the-corporate-governance-wave-in-japan-capitalising-on-change/ AVI Japan Opportunity Trust plc / Annual Report 2024 S FS SI 2 # **NICOLA TAKADA WOOD** Managing Director Japan ![img-3.jpeg](img-3.jpeg) Although corporate governance reform famously formed late Prime Minister Abe's third arrow, the initial rumblings of change have taken over a decade to not only gain momentum, but to begin to be recognised by foreign investors. 1. **What are the main driving forces for the corporate governance reform in Japan?** 2. Abe's lasting legacy has been supported and cemented by a truly extraordinary coordinated and orchestrated effort from the Tokyo Stock Exchange ("TSE"), the Government, the Bank of Japan, and large domestic asset owners to drive change. The TSE's "name and shame"¹ list of companies who are and, more importantly, who are not taking measures to improve their valuations, is all the more astonishing because it was implemented by a Japanese regulator. This measure alone brought 50% of Japan's c.4,000 listed companies who are trading below 1x PBFR² firmly into the TSE's crosshairs. In another power move, the Ministry of Economy, Trade and Industry ("METI") released guidelines in 2023 to promote corporate takeovers. These guidelines emphasise that credible takeover offers must be considered and cannot simply be dismissed. Since then, a number of high-profile unsolicited takeover bids have been launched (e.g. Nidec and Makino Milling, Bain and KKR for Fuji Soft). 1. **Are there any particular structures the reforms address?** 2. Parent-subsidiaries are an area of focus for the TSE where they are making solid progress. Listed subsidiaries often exist purely for the convenience of the parent company, and will have limited, if any, pricing power or real agency over business strategy. The number of parent-child subsidiaries peaked at 407 in 2006 and has since steadily dropped to 219 in 2024. The Alps Logistics buyout in 2024³ at a 194% TOB premium is an example of the opportunities presented by the existence of parent-subsidiaries. 3. **Is private equity playing a part in Japan?** 4. Over the last few years, large global private equity players have opened offices in Tokyo, actively researching and assessing the market. They have been waiting for the corporate governance seeds sown over a decade ago to bear fruit. Meanwhile, smaller domestic firms have emerged, contributing to an increasingly healthy and sophisticated private equity industry. In 2024, takeover bids in Japan hit an 18-year high, reflecting a significant uptick in activity at a strategy level. Four of our portfolio companies were acquired out over the year. This acceleration in private equity is a direct result of engagement and activism, which has driven change at corporate management level across the market. 5. **What is your view towards small-cap companies in this wave of change?** 6. Small-cap companies in Japan are often known for their weak or utterly lacking shareholder communication in Japanese, let alone English. Alongside their infamously overcapitalised balance sheets, this lack of coverage, knowledge, and access to the small-cap universe is part of the reason why these companies trade at a significant discount to their Japanese and global peers. This makes them an attractive hunting ground for market inefficiencies for those that do the work. 1. **Can you share with us AVI's outlook towards the Japanese market?** 2. Historically, small-caps in Japan have consistently outperformed their larger counterparts, but that pattern was disrupted two years ago when the Yen dramatically weakened by over 30%. The Bank of Japan is under increasing pressure from domestic consumers and companies to ease imported inflation resulting from the weak Yen and has committed to a slow and steady normalisation of monetary policy. The question is how long a weak Yen will weigh on small-caps, and what will happen when we see that pressure start to be released. 3. **How does AVI's approach create value amid this wave of change?** 4. We believe that our engagement and constructive activist approach is particularly suited to Japanese companies. The idea of self-help has percolated slowly through the market over the past ten years, and there is a growing subset of companies who want to improve their valuations, but are not sure how. This is again especially pertinent in the small to mid-cap space. Thoroughly assessing management prior to investment is a key part of our process. Our team meets with directors, non-executive directors, employees, and industry experts to gamer as comprehensive a picture as possible of a company's "engageability". Building strong relationships with the company and maintaining an intense pace of engagement are key pillars of our approach. The team meets each company on average 2-3 times a quarter and conducting approximately 200 meetings in total per year. The Japan strategy's idiosyncratic returns and outperformance over both the small-cap index and the net cash universe are testament to the thoroughness of our process and our efforts to avoid low-quality companies that, even with a push, will likely continue to stagnate. 1 On March 2023, Tokyo Stock Exchange, Inc. ("TSE") requested that all listed companies on the Prime and Standard Markets take "action to implement management that is conscious of cost of capital and stock price". 2 Tokyo Stock Exchange website, as of 19 February 2025. 3 Toyo Kazai newspaper, April 2024. 10 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Our Top 10 Holdings ## Focus on Small and Mid-cap Businesses ### 67.8% ### The top ten equity investments make 1 2 3 4 5 6 ### up 67.8% of the net assets*, with ### operating businesses spread across % of net assets % of net assets ### a range of sectors. | | 01. | 10.6% | 02. | 10.3% | | --- | --- | --- | --- | --- | | | | EV/EBIT | | EV/EBIT | | * For definitions, see Glossary on pages 74 and 75. | | 12.5x | | 9.4x | Source / Source / ### Beenos BEENOS Inc. TSI Holdings TSI Holdings Co Ltd ### Top 10 Share of Net Assets ## 104.2% | | Incl. gearing | Beenos operates e-commerce platforms | TSI Holdings is an apparel holding company | | --- | --- | --- | --- | | | | allowing overseas consumers to purchase | with a diversified collection of brands including | | | | Japanese products. A significant portion of | Pearly Gates, HUF and Margaret Howell. Its | | | | Beenos’ profits is derived from its global | unique focus on athleisure and outdoor wear | | | | e-commerce platform, primarily centred | sets it apart from competitors, but it trades | | | | around a service called “Buyee”, which enables | at a steep discount due to a bloated balance | | | | overseas customers to purchase from popular | sheet. Substantial asset backing of net cash, | | % of AJOT net assets | | e-commerce sites in Japan, such as Yahoo! | investment securities and real estate obscure | | | | Japan and Rakuten. In December 2024, | the quality of the underlying business. | Top 10 67.8% Beenos received advance notice of a tender Other holdings 36.4% offer bid at a +19% premium. 104.2% | | % of net assets | | % of net assets | | --- | --- | --- | --- | | 06. | 5.4% | 07. | 5.3% | | | EV/EBIT | | EV/EBIT | | | 5.1x | | 2.5x | Source / Source / Araya ### Takuma Araya Industrial Takuma Co Ltd Industrial Co Ltd Takuma builds and operates waste treatment Araya Industrial is engaged in the manufacturing plants for local municipalities in Japan, and and selling of high-quality, high-performance with a tight labour market, there is a trend of iron, stainless steel pipes, and other products outsourcing the operation of these plants to using metal processing technology Roll Forming. the constructor on decade-long contracts. Araya Industrial’s customer base is diversified, Our strong conviction lies in Takuma’s shifting with significant exposure to stable growth business model, towards recurring revenue sectors such as semiconductors and public streams from maintenance and operation sector construction, particularly for stainless Visit our investment platforms: contracts. Almost half of Takuma’s balance sheet products, which are major contributors to www.assetvalueinvestors.com/ajot/ assets are held in cash and listed securities, the company’s profits. Net cash, investment how-to-invest/platforms/ accounting for just over 60% of the market cap. securities, and real estate cover over 85% of the market cap. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 11 ### 36.4% ### 6 7 8 9 10 | | % of net assets | % of net assets | | % of net assets | | --- | --- | --- | --- | --- | | 03. 04. | 8.5% | 7.6% | 05. | 6.2% | | | EV/EBIT | EV/EBIT | | EV/EBIT | | | 1.2x | 21.0x | | 8.7x | | Kurabo | | | Aoyama Zaisan | Source / Aoyama | | | Source / Kurabo | Source / Eiken | | Zaisan Networks | | Industries Eiken Chemical | Industries Ltd | Chemical Co Ltd | Networks | Company Ltd | | Kurabo Industries is a diversified conglomerate | Eiken Chemical is a manufacturer of medical | AZN is a wealth management consultancy with | | --- | --- | --- | | with significant real estate and investment | diagnostics equipment, operating a high-quality | a specialist focus on areas such as property, | | securities, which accounted for 106% of its | business with a proven track record of growing | succession planning, corporate finance, and | | market cap at the time of investment in early | sales. Eiken Chemical holds a dominant market | strategic management of individual assets. | | 2024, which has subsequently fallen to 86% | position in colon cancer screening, with an | AZN is set to benefit from the ageing Japanese | | following +47% share price growth. Engaged | overwhelming global market share in excess | population, as the need for inheritance and | | in the textile, chemical, advanced technology, | of 70%. Eiken Chemical is set to experience | business succession consulting is on the rise. | | food & service, and real estate businesses, | structural growth from the ageing population, | AZN has successfully maintained an operating | | Kurabo has achieved stable revenues, while its | and with an open shareholder register, the | margin of over 30% and a double-digit annual | | operating margin has doubled in recent years. | company is a potential takeover target. | profit growth rate. | | | % of net assets | | % of net assets | | % of net assets | | --- | --- | --- | --- | --- | --- | | 08. | 4 .9% | 09. | 4.6% | 10. | 4.4% | | | EV/EBIT | | EV/EBIT | | EV/EBIT | | | 5.8x | | 8.7x | | 9.6x | | | | Aichi | | Sharing- | | | | Source / | | Source / gilaxia via | | Source / SHARING- | | Konishi | Konishi Co Ltd | Corporation | Getty Images | technology | TECHNOLOGY INC | | Konishi specialises in the manufacture and sale | Aichi Corporation is a manufacturer of | Sharingtechnology operates one of the largest | | --- | --- | --- | | of synthetic adhesives and sealants, primarily | construction machinery such as aerial work | life service matching platforms in Japan, | | serving the civil engineering construction sector. | platforms, digger derricks, and other special- | connecting a variety of user needs with high- | | Konishi manufactures the No.1 household | purpose vehicles. In addition to the sale of | quality services. With nearly 200 specialised | | adhesive brand in Japan, “Bond”. The company | specialised machinery, Aichi Corporation also | websites and over 6,000 external service | | also produces adhesives and repair materials for | provides maintenance services, which account | providers, the most frequent services catered | | civil engineering infrastructure projects, as well | for nearly a quarter of total sales and offer | for include lost keys, lawn mowing, and termite | | as industrial chemicals and synthetic resins. The | higher profit margins. The company is a listed | control. There are several tailwinds to support | | company has substantial asset backing, with | subsidiary of Toyota Industries, which owns over | continued growth, including the declining | | net cash, investment securities, and real estate | 50% of the shares. | Japanese population and the projected increase | | covering more than 30% of the market cap. | | in the number of single-person households. | 10 ● ● ● ● AVI Japan Opportunity Trust plc / Annual Report 2024 Strategic Report / Investment Manager's Report # Manager's Commentary ![img-4.jpeg](img-4.jpeg) JOE BAUERNFREUND Portfolio Manager Looking ahead, we remain confident in the potential for further outperformance, as we continue to focus on high-conviction investments in undervalued companies and drive the catalyst for change. Last year's Manager's Commentary concluded with the assertion that "the potential for alpha generation has never been higher, and we are excited by the abundant opportunities in the year ahead". Given your Company's strong performance in 2023, this statement required a certain level of confidence in our ability to capitalise on the opportunities of 2024. We are pleased to report that this optimism proved to be warranted. In 2024, AJOT's NAV rose by an impressive +20.9% (in GBP), significantly outpacing the benchmark, which returned +6.2%. It was a year full of activity, both within the portfolio and in the broader Japanese market. Following their impressive returns in 2023, Japanese indices booked another buoyant year, with the MSCI Japan Small Cap Index and MSCI Japan Index up +16.4% and +20.7% respectively (in JPY). As with last year, headline performance favoured large-cap value stocks, mainly attributable to the continued depreciation of the Japanese Yen. Over the last two years, the persistent devaluation of the Yen has driven earnings at large multinational exporters, with Topix Core 30 companies outperforming the Topix Small Cap section by +27% during that period. Despite this formidable headwind for our predominantly domestically oriented companies, the portfolio managed to deliver an impressive +32.4% return (in JPY). The volatility seen across the equity, bond and foreign exchange markets in late July and early August reinforced our conviction in the resilience of the strategy, and 2024 proved to be a year in which keeping your head was paramount. In the market turmoil that followed the Bank of Japan's ("BoJ") benchmark rate hike (by 15bps), the managers increased some positions into the weakness and were reassured when the portfolio recovered to pre-hike levels within a month. Given the corresponding currency volatility that ensued, it is important to remind shareholders that around 80% of AJOT portfolio company revenues derive from the domestic market and are therefore positioned to benefit from a stronger Yen. Given the changing macroeconomic environment in Japan and the BoJ's slowly-but-surely approach to policy tightening, we believe there is potential for foreign investors to shift their focus toward smaller companies that are shielded from the possibility of further Yen strength. An additional tailwind for small-cap names could be reforms brought into the NISA (Japanese ISA) programme in January. The original NISA programme was introduced in 2014 to encourage a shift from Japanese households' cash assets into securities. The Government has proposed plans to double NISA purchases over five years, by more than doubling the amount of tax-free investment that can be made by individuals and extending their period of use. NISA purchases enjoyed a strong start in 2024, but with Japanese households still holding cash assets of over a quadrillion$^{1}$ Yen (£5 trillion), this trend is likely to unfold over years rather than months. In late September, the revolving door of Japanese leadership swung once again, with Shigeru Ishiba being appointed as the new Prime Minister and leader of the Liberal Democratic Party ("LDP"). Since the election, Ishiba has demonstrated a clear commitment to fiscal stimulus, emphasising the need for greater investment over to savings. We anticipate that the Ishiba administration will follow a path similar to that of former Prime Minister Kishida. Consequently, we do not foresee this leadership transition disrupting Japan's ongoing corporate governance reforms or our engagement strategies with portfolio companies. Down the road at the Tokyo Stock Exchange ("TSE"), CEO Yamaji-san seems to have the proverbial bit between his teeth, as he continues to implement truly ground-breaking reforms for listed companies. In January, the TSE began publishing on its website the now infamous "name and shame" list of corporates who are taking measures to improve their share prices, and crucially, those who are not. Later in the year, that list was refined to scrutinise the quality of disclosures and improve accountability of companies who say they will implement measures, even listing examples of company "bad practices". The TSE has also focused its attention on the characteristically Japanese structures of parent-child listed subsidiaries and cross-shareholdings. We are witnessing subsidiaries being acquired or subsumed, with the opportunities for such moves amplified by the unwinding of cross-shareholdings. The Tokyo bourse is keen to untangle the web of cross-shareholdings that have developed over decades among parent-child subsidiaries, suppliers, clients, business affiliates and in some cases, even personal relationships. These cross-shareholdings can lock a meaningful percentage of voting stock into shareholders allied with company management, effectively creating a de facto poison pill and disadvantaging minority shareholders. 1 ¥10 trillion in 1H2024, Morningstar Research, July 2024. 2 Bank of Japan quarterly survey, 18 December 2024. AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI We are invested in a number of situations where cross-shareholdings make up at least part of the Notional Vendor Finance ("NVF") on the balance sheet, and selling down those cross shareholdings and using proceeds to buy back shares is often a first port of call when engaging with boards on capital efficiency. The TSE have promised further measures in 2025, and we eagerly anticipate the unveiling of their plans. Meanwhile, private equity interest in Japan continues to grow, with global funds further expanding their Japanese presence and levels of activity. In October, KKR founder Henry Kravis famously cited his co-founder George Roberts in a Nikkei op-ed, saying "If I were 30 years old today and I could speak Japanese, I'd go to Japan" and we would agree. The overlooked, asset-backed, quality small-cap companies that AJOT typically invests in have proven to be an attractive universe for private equity to deploy their burgeoning keg of "dry powder". We exited four positions during the year through tender offer bids at average premiums of +83% to the undisturbed share prices. In parallel with the developing constructive backdrop, your Company's stock selection and active, constructive engagement with portfolio companies continued to bear fruit. Throughout the year, we continued to identify compelling opportunities in Japan's small-cap market, which remains under-researched and underperforming relative to large caps. This presented us with abundant opportunities to selectively add promising companies to the portfolio. Over the course of 2024, AJOT added 13 new positions, which collectively contributed +16.1% to performance. These companies are typically undervalued and offer significant upside potential, with each positioned for improvements in governance, capital allocation and operational efficiency. We also engaged extensively on shareholder communication, board independence, tenure, and diversity, as well as environmental and social issues. Our engagement with portfolio companies remains a core part of our strategy. We filed shareholder proposals with several companies, including SK Kaken, where we have now filed proposals for four consecutive years. Our investment team's focus and commitment to active engagement remain resolute, as evidenced by over 150 meetings with corporate management in 2024 on top of extensive presentations and letters. These efforts and improvements have not gone unnoticed by the market, and we have seen share price appreciation in accordance with engagement successes. Moreover, we are pleased to report that four portfolio companies received tender offer bids in 2024. Conveyor belt and parking system provider NC Holdings, held by AJOT since 2021, was bought out by domestic private equity firm and large shareholder Miri Capital in June. This was followed by food seasonings maker Yaizu Suisan Kagaku and a listed subsidiary, Alps Logistics, in May, as well as entertainment company Sun Corporation with a partial tender offer bid. Alps had been in the portfolio since inception in 2018 and was another private equity buyout at a 194% premium to the undisturbed pre-rumour share price. Finally, e-commerce player Beenos received an advanced notice of a tender offer from strategic buyer LY Corporation in December. Corporate action and private equity activity are clearly gaining momentum in Japan, which should continue to be a boon for our strategy next year and beyond. At the end of 2024, the portfolio's EV/EBIT ratio stood at 8.7x versus 14.7x for the MSCI Small Cap benchmark, with net-financial value (NFV) accounting for 48% of the portfolio's weighted market cap. These metrics underscore the significant discounts at which AJOT's portfolio companies trade relative to their peers, largely due to issues such as over-capitalised balance sheets, poor IR disclosure and poor governance. This dislocation creates a fertile environment for our activist approach, which seeks to unlock value through engagement and operational improvements. Looking ahead, we remain confident in the potential for further outperformance, as we continue to focus on high-conviction investments in undervalued companies and drive the catalyst for change. The lack of research coverage of small-caps and their relative underperformance to large-caps continue to present us with abundant opportunities. We remain committed to selectively adding the most promising companies to our concentrated portfolio of 15-25 holdings. 14 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Investment Manager's Report continued ## Contributors Contribution (GBP) % of net assets ## 01 | 7.5% | 10.6% | | --- | --- | | EV/EBIT | NFV/Market Cap | | 12.5x | 44% | C ### Beenos Beenos, an operator of e-commerce platforms allowing overseas consumers to purchase Japanese products, was the largest contributor in 2024, adding +754bps to performance as its share price rose +178%. A significant portion of Beenos’ profits is derived from its Global E-commerce platform. This is primarily centred around a service called “Buyee”, which enables overseas customers to purchase items from popular e-commerce sites in Japan, such as Yahoo! Japan, Mercari, and Rakuten. Buyee’s gross merchandise value has experienced robust growth at an annual rate of +31%. Beenos’ strong performance over the year was capped off by the announcement on 18 December that it had received advanced notice of a tender offer bid of ¥4,000 per share at a +19% premium to the previous day’s closing price. Beenos’ performance was supported by the weakening of the Yen, however, a reversal of this trend could harm the company’s profits. AJOT’s performance will not be impacted, assuming the aforementioned tender offer is successfully completed. We initiated our position in Beenos in January 2024, with several other constructive engagement funds and other investors joining AVI on the shareholder register following AVI’s first large ownership declaration in February. As a large shareholder owning about 10% of the voting rights of Beenos, we have engaged extensively with the board of Beenos on ways to enhance sustainable long-term corporate value. Beenos serves as another example of how AJOT’s concentrated portfolio of asset-backed small to mid-caps can benefit from AVI’s active engagement strategy against a backdrop of rapidly increasing corporate activity in Japan. At year end, Beenos is the largest holding in the portfolio, accounting for 10.6% of AJOT’s NAV. The investment has generated an ROI of +125% for an IRR of +188%. ### BEENOS Inc ### Following AVI’s initial ### 5% stake declaration, ### several other activists ### Indexed Share Price ### followed suit. With ### activists owning a ### combined 40% of ### the company, ### LY Corporation placed ### a tender offer bid for ### 300 the company at a ### 19% premium to the 250 ### share price. 200 Source / BEENOS Inc 150 Since position in AJOT initiated (Jan 2024) 100 50 Jan 24 Mar 24 May 24 Jul 24 Sep 24 Nov 24 AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 15 Contribution (GBP) % of net assets Contribution (GBP) % of net assets ## 02 03 | 4.4% | N/A | 3.0% | 8.5% | | --- | --- | --- | --- | | EV/EBIT | NFV/Market Cap | EV/EBIT | NFV/Market Cap | | N/A | N/A | 1.2x | 89% | ### Kurabo C C ### Alps Logistics Industries Alps Logistics, a provider of logistics services such as warehousing and Kurabo Industries, a diversified conglomerate, was another significant distribution, was the second largest contributor, adding +438bps to contributor to performance, adding +298bps as its share price increased performance, having received a tender offer bid in February 2024. +105%. News first broke in Q1 2024 that parent Alps Alpine was considering selling Initially founded as a textiles business, the company is now also engaged in its 49% stake, due to a deterioration in its business. To address the cash flow chemical, advanced technology, food & service, and real estate businesses. gap in their mid-term plan, they announced earlier in the year their intention to Kurabo Industries has a history of stable revenues, while it has doubled its explore asset sales. operating margin in recent years. In a takeover bid that reflects the true underlying value of the company The company has significant real estate and investment securities backing, and showcases the stark valuation differential between listed and private which accounted for 106% of its market cap at the time of investment in companies in Japan, KKR-controlled Logisteed paid a 194% premium to the early 2024, subsequently falling to 89% due to share price growth. During the undisturbed, pre-rumour price in February to privatise Alps Logistics. year, Kurabo made improvements in the chemical and advanced technology segment, leading to improved profit margins especially for its semiconductor We believe this premium was reflective of the true value of the company, with business. Alps Logistics being one of eight portfolio companies to be privatised since AJOT’s inception. Alps Logistics was held in the portfolio since AJOT inception Much of our engagement to date has focused on encouraging management in 2018, and during this time, AVI’s engagement with management focused to address its asset-heavy balance sheet, improve capital efficiency, and focus on ways to enhance corporate value and address the parent/child subsidiary resources on the successful advanced technology and chemicals segments, relationship with Alps Alpine. rather than laggards such as the textiles business. We have been pleased to see the early results of the company’s transformation in November 2024, Over the more than five-year holding period, the investment in Alps Logistics when Kurabo announced an increase in dividends to a 35% payout ratio and generated an ROI of +332% for an IRR of +39%. share buybacks amounting to 5.3% of its shares outstanding. Since initiating our position in January 2024, the investment has generated an ROI of +40% for an IRR of +81%. We see substantial upside remaining to the current share price, and accordingly, Kurabo Industries accounted for 8.5% of AJOT’s NAV at year end as the third largest position. ### Indexed Share Price Indexed Share Price 250 800 700 600 0 200 500 400 300 Since position in AJOT initiated (Oct 2018 at inception) Since position in AJOT initiated (Jan 2024) 150 200 100 100 Jan 24 Mar 24 Jul 24May 24 Sep 24 Nov 24 Oct 18 Oct 19 Oct 20 Oct 21 Oct 22 Oct 23 16 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Investment Manager's Report continued ## Contributors continued Contribution (GBP) % of net assets Contribution (GBP) % of net assets ## 04 05 | 2.6% | 10.3% | 2.0% | 6.2% | | --- | --- | --- | --- | | EV/EBIT | NFV/Market Cap | EV/EBIT | NFV/Market Cap | | 9.4x | 70% | 8.7x | 29% | ### Aoyama ### Zaisan C C ### TSI Holdings Networks TSI Holdings (“TSI”), the apparel holding company and second largest position Aoyama Zaisan Networks (“AZN”) was the fifth largest contributor during the in AJOT, saw its share price rise by +47% in 2024, contributing 255bps to year, adding 200bps to performance as its share price rose by 89%. performance as the fourth largest contributor. AZN specialises in providing wealth management consulting services across As noted in our Q2 newsletter, TSI announced a new mid-term plan in April, areas such as property, succession planning, corporate finance, and strategic which, for the first time, disclosed a quantified shareholder return. The plan management of individual assets. AZN is set to benefit from the ageing aims for a 4% dividend on equity target by FY27/3, coupled with an ambitious Japanese population as the need for inheritance and business succession business optimisation plan to elevate operating margins to 6% (from the consulting is on the rise. current 1%). In November, AZN disclosed favourable earnings, with EBIT and revenue As TSI’s largest shareholder, holding 10% of the vote across AVI funds, we increasing year-over-year by 39% and 24%, respectively. Importantly, for the were pleased to see that the company had actioned many of our suggestions. first time, the company also announced a buyback programme, equal to 6% TSI has received substantial constructive and private engagement from us this of the market cap, aiming to prevent dilution caused by the most recent share year, and we commend management for their proactive approach in listening exchange deal with audit firm Chester Group. This aligns with AZN’s belief that to shareholders. its capital allocation policy should be a core focus of the company. With net cash and investment securities accounting for more than 70% of At the time we initiated our investment in March 2024, AZN’s stock price had the market cap, capital efficiency has been a key focus of our engagement been flat for the past five years, despite operating income continuing to grow with the company. After period-end, TSI sold its former headquarters building, steadily and non-operating assets expanding to approximately 47% of market located in central Tokyo, for a price higher than the company’s appraisal value cap as of the end of December 2023. and equivalent to approximately 30% of its market cap. Since initiating our position in AZN, the investment has generated an ROI At year end, TSI Holdings accounted for 10.3% of NAV, reflecting our of +34% for an IRR of +75%. We anticipate unlocking substantial upside to conviction in the potential upside to be unlocked through AVI’s constructive the current share price through our constructive engagement initiatives with engagement with management. TSI Holdings was added to the portfolio in management. At year end, AZN accounted for 6.2% of AJOT’s NAV as the July 2022, and the investment has so far generated an ROI of +114% for an fifth largest holding. IRR of +51%. ### Indexed Share Price Indexed Share Price 200 350 300 250 150 200 Since position in AJOT initiated (Jul 2022) Since position in AJOT initiated (Mar 2024) 150 100 100 Mar 24 Apr 24 Jul 24 Aug 24 Sep 24 Oct 24 Nov 24May 24 Jun 24 Dec 24 Jul 22 Oct 22 Jan 23 Jul 23 Oct 23 Jan 24 Jul 24 Oct 24 AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 17 ### TSI HOLDINGS ### AVIREX is one of TSI Holdings’ ### diverse range of apparel brands. Source / TSI Holdings Co Ltd 10 ● ● ● ● AVI Japan Opportunity Trust plc / Annual Report 2024 Strategic Report / Investment Manager's Report continued # Detractors continued | 06 | Contribution (GBP) -1.4% EV/EBIT 17.6x | % of net assets 3.6% NFV/Market Cap 15% | | --- | --- | --- | | Nihon Kohden | | 9 | Nihon Kohden, a manufacturer of medical electronics, was the largest detractor over the year, reducing performance by -145bps as its share price fell -2%. Nihon Kohden released its much-anticipated mid-term plan in May 2024, which we had been engaging on behind the scenes. It was a comprehensive and ambitious plan that caught the market by surprise; a 70-year-old, conservative medical company putting forward a transformation plan was certainly unexpected. While we were pleased, it was less surprising for us, as we have been in regular dialogue with the founder's grandson and President, whom we identified as both motivated and possessing sufficient power to drive corporate reform. Towards the summer of 2024, however, Nihon Kohden saw its operating margin decline due to headwinds to the hospital sector in Japan. Having previously been a top five holding, by year end, Nihon Kohden accounted for 3.6% of AJOT's NAV. We trimmed the longstanding position, noting the change in the hospital sector environment. AVI has engaged successfully with Nihon Kohden throughout the holding period on matters such as capital efficiency and corporate governance, with the ambitious mid-term plan disclosed in May 2024 as the culmination of our engagement. During Q4 2024, we strategically reallocated capital to more promising opportunities, which have greater scope for improvements through our constructive engagement with management. We have; held Nihon Kohden in the portfolio since September 2022, generating an ROI of +35% for an IRR of +17% to date. Post-period end, we exited the position fully in February 2025. ![img-5.jpeg](img-5.jpeg) Since position in AJOT initiated (Sep 2022) ![img-6.jpeg](img-6.jpeg) AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI | 07 | Contribution (GBP) -1.3% EV/EBIT 10.8x | % of net assets 1.7% NFV/Market Cap 3% | | --- | --- | --- | | Jade Group | | 0 | Jade Group ("JADE"), an operator of apparel e-commerce sites, was the second largest detractor over the year, detracting -126bps from performance as its share price declined -28% amidst uncertainty surrounding the post-merger integration (PMI) of Magaseek, which it acquired in early 2024. Investor relations and adequate communication with investors is one of the core agendas of the corporate reform occurring in Japan. The TSE is pushing for companies to improve their disclosure, particularly to foreign investors, with substantial discounts applied to the valuations of companies failing to meet the rising expectations. After making an acquisition as pivotal as Magaseek, which JADE initially expected to double gross merchandise value and operating profits within two financial years, JADE left the market disappointed by the lack of consistent disclosure. During Q2 2024, JADE's share price was strong on the back of a press release made in July, which showed signs of successful post-merger integration of Magaseek in a demonstration of improved IR communications, an area in which much of our recent engagement had focused. Unfortunately, since the announcement in July 2024, JADE has not made adequate disclosures around the significant acquisition, leaving shareholders and prospective investors in the dark on its progress. In its FY25 Q2 presentation material released in October 2024, rather than provide a clear timeline for cost-cutting measures, management alluded to cross-sales as the likely method to revitalise sales to meet the FY25 forecast. This sent the share price down nearly -15% in the week that followed, and it drifted a further -11% lower to year end. Operating income guidance was revised downward post-period end. Since we initiated our position in November 2021, JADE has made several acquisitions in pursuit of its ambitious growth path to cement itself as the No.2 player in Japan's ¥2.4 trillion fashion e-commerce market. We have supported management in pursuing this growth. However, with the market-wide reform occurring in Japan, the importance of investor relations cannot be understated, and we believe JADE needs to make immediate improvements to meet the market's rising expectations. We maintain consistent sell discipline with each of our investments as the situation changes since our initial investment thesis. Accordingly, with net cash reduced following several M&A transactions, uncertainty around plans for margin improvement through PMI, and management's apparent lack of urgency to enhance IR disclosure, we have reduced our position in JADE to 1.7% of NAV at year end. We will closely monitor the situation, as JADE maintains potential for strong earnings growth in the coming years. To date, the investment has been successful, supported by our engagement strategy and timing, and we have generated an ROI of +32% for an IRR of +14% over the more than three-year holding period. ![img-7.jpeg](img-7.jpeg) Since position in AJOT initiated (Nov 2021) 08 AVI Japan Opportunity Trust plc / Annual Report 2024 # Strategic Report / Investment Manager's Report continued # Detractors continued | 08 | Contribution (GBP) -1.1% EV/EBIT 5.1x | % off net assets 5.4% NFV/Market Cap 53% | | --- | --- | --- | | Takuma | | 9 | Takuma, a waste treatment plant engineering company for local municipalities, reduced performance by -106bps, as the third largest detractor saw its share price decline by -4% over the year. Takuma has built 120 waste treatment facilities in Japan, 60% of which already have operating contracts, leaving further room for expansion over the coming years. With a tight labour market, there is a trend of outsourcing the operation of these plants to the constructor on decade-long contracts. This trend underpins our investment thesis for Takuma, with the business gradually shifting towards recurring maintenance and operation contracts. In May 2024, the market was left disappointed by the announcement of Takuma's underwhelming mid-term plan, with the share price declining by -12.0% in the subsequent day of trading. Positively, the mid-term plan demonstrated improved transparency around quantitative targets (such as orders intake and ROE targets), and, for the first time, disclosed a disciplined shareholder returns policy. This included a 50% payout policy, a 4% dividend on equity target, and the intention to buy back 3.8% of shares outstanding this year, with a similar amount during the following two years. However, the next three years' profit guidance left much to be desired, with next year's conservative operating profit guidance of ¥11.2 billion falling short of the consensus estimate of ¥13.4 billion. Having faced much criticism from the stock market and with AVI's patient, constructive engagement, Takuma decided to upgrade its mid-term plan in November 2024, increasing the ROE target and shareholder returns. Having so far achieved an ROI of +18% and an IRR of +13% in our near two-year holding period, we will continue engaging with management on methods to enhance capital policy and improve operating efficiency. We see substantial upside to the current share price, with Takuma's 5.4% weight as the sixth largest position in AJOT reflective of our conviction. ![img-8.jpeg](img-8.jpeg) Since position in AJOT initiated (Apr 2023) ![img-9.jpeg](img-9.jpeg) AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI 31 | 09 | Contribution (GBP) -1.0% EV/EBIT 7.2x | % of net assets 2.0% NFV/Market Cap 34% | | --- | --- | --- | | Shin-Etsu Polymer | | 0 | Shin-Etsu Polymer, a manufacturer of moulded plastics and a listed subsidiary of Shin-Etsu Chemical, reduced performance by -98bps as we reduced our position, although its share price rose modestly by +1%. The companies' business operations are intertwined, and the management of both companies have indicated that they are aware of some of the key parent-subsidiary listing issues. Beyond the prospect of a buyout by Shin-Etsu Chemical, our interest in Shin-Etsu Polymer stems from its discounted valuation and its growing wafer carrier cases business. Much of AVI's engagement with Shin-Etsu Polymer has focused on ways to rectify its poor corporate governance and low valuation. After meeting with the company in 2024, we lost some conviction in management's ambition to grow corporate value and in the company taking adequate steps to address the conflicts and corporate governance shortcomings of its parent-subsidiary relationship. We continue to believe that the parent-subsidiary relationship is harming Shin-Etsu Polymer's corporate value and that, as many listed subsidiaries in Japan have done already, it should be eliminated. With abundant opportunities in our under-research investment universe, we reduced our position in Shin-Etsu Polymer to 2.0% of AJOT's NAV by year end. This is in line with our commitment to focus our engagement efforts on companies where we see potential for immediate improvements through implementing our suggestions, as we drive catalysts to unlock substantial value. To date, the investment has generated an ROI of +56% for an IRR of +19%. ![img-10.jpeg](img-10.jpeg) Since position in AJOT initiated (Dec 2021) ## Portfolio Trading Activity In a busy year of trading, which saw 13 new names enter the portfolio, turnover was an elevated 68% due to four portfolio companies receiving tender offer bids, as well as one receiving an advance notice of a tender offer bid. On an adjusted basis for these buyouts, as well as trades in three regional banks, turnover was in line with the historical average (35%) at 38%. The approximate holding period for our strategy is three to five years, however, this may be shortened by catalysts such as tender offers, as a result of our active engagement approach. The largest purchases over the period were in new positions to the portfolio in 2024, namely Kurabo Industries, Aoyama Zaisan Networks, Beenos, Araya Industrial and Raito Kogyo. Four of these names were top 10 positions by year end. The largest sale during 2024 was Alps Logistics, which, as discussed above, received a tender offer in February at a +194% premium to the undisturbed share price. NC Holdings, which also received a tender offer during the year, was the second largest sale. Outside of these, the largest sales were in longstanding positions such as Nihon Kohden, Digital Garage and Shin-Etsu Polymer. 22 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Portfolio Construction The objective of AVI’s portfolio construction is to create a AVI picks stocks that meet our investment criteria and once we decide to invest, a minimum position size of approximately 2% of the portfolio is initiated. ### concentrated position in about 15-25 holdings, facilitating a In determining position sizes, AVI is mindful of liquidity and the likely timing ### clear monitoring process of the entire portfolio. of any catalysts to unlock value. A key consideration is the make-up of the shareholder register, a proxy for how receptive management might be to our suggestions. The portfolio is diverse in the industries within it, however, we are sector agnostic and select investments based on quality and value. ### PORTFOLIO VALUE BY SECTOR EQUITY PORTFOLIO VALUE ### BY MARKET CAPITALISATION | | 2024 | 2023 | | 2024 | 2023 | | --- | --- | --- | --- | --- | --- | | Consumer Durables and Apparel | 22% | 23% | <£250mn 29% 17% | | | | Capital Goods | 15% | 19% | £250mn - £500mn 32% 21% | | | | Materials | 15% | 16% | £500mn - £750mn 30% 21% | | | | Consumer Discretionary, Distribution and Retail | 12% | 12% | £750mn - £1bn 3% 29% | | | | Health Care Equipment and Services | 11% 10% | | 1bn - £2.5bn 4% 11% | | | | Software and Services | 7% | 5% | >£2.5bn | 2% 1% | | | Real Estate Management and Development | 6% | 5% | | | | | Media and Entertainment | 4% | 4% | | | | | Technology Hardware and Equipment | 3% | 3% | | | | | Telecommunication Services | 3% | 2% | | | | | Household and Personal Products | 2% | 1% | | | | ### AVERAGE VOTING OWNERSHIP OF TOP 10 CONCENTRATION ### PORTFOLIO COMPANIES ACROSS ALL (% OF NET ASSETS) ### AVI FUNDS 7.0% 80% 6.0% 5.0% 70% 4.0% 60% 3.0% 50% 2.0% 40% Dec 18 Dec 19 Dec 20 Dec 21 Dec 24Dec 23Dec 22 Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Jun 24 Dec 24Dec 23 AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 23 ### Strategic Report / AVI Japan Investment Team ### Outlook ### AVI JAPAN INVESTMENT TEAM The combination of rising pressure from regulators and activists in 2024 presents a compelling ### From left to right: Kaz Sakai (Head of Japan Research), opportunity to unlock substantial value in small ### Joe Bauernfreund (Portfolio Manager), Luke Hutcherson to mid-cap Japanese companies in 2025 and ### (Investment Analyst), Nicola Takada Wood (Managing Director beyond. With several key tailwinds and a deeply ### Japan), Shuntaro Shimizu (Senior Investment Analyst) under researched market, our conviction in the strategy remains as high as ever. We look forward to continuing our active engagement with companies to drive the catalysts needed to grow long-term corporate value and generate significant alpha. Joe Bauernfreund Asset Value Investors Limited 4 April 2025 24 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Investment Portfolio ### As at 31 December 2024 | | | | % of | | Market | | % of | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Stock Exchange | investee | | Cost | value | | AJOT | NFV/Market | | | | | | | | | | | | | | 1 | | 1 | | Company | Identifer | company | | £’000* | £’000 | net assets | | capitalisation | | EV/EBIT | | Beenos TSE: 3328 8.2% 10,002 22,445 10.6% 44% 12.5 TSI Holdings TSE: 3608 5.3% 11,866 21,894 10.3% 70% 9.4 Kurabo Industries TSE: 3106 3.5% 13,265 18,043 8.5% 89% 1.2 Eiken Chemical TSE:4549 3.8% 13,355 16,100 7.6% 20% 21.0 Aoyama Zaisan Networks TSE: 8929 5.4% 10,016 13,062 6.2% 29% 8.7 Takuma TSE: 6013 1.6% 11,378 11,390 5.4% 53% 5.1 Araya Industrial TSE: 7305 7.1% 9,781 11,182 5.3% 85% 2.5 Konishi TSE: 4956 2.2% 8,393 10,400 4.9% 32% 5.8 Aichi Corporation TSE: 6345 1.8% 7,291 9,789 4.6% 47% 8.7 Sharingtechnology TSE: 3989 8.9% 8,556 9,451 4.4% 18% 9.6 Top 10 investments 103,903 143,756 67.8% Atsugi TSE: 3529 10.5% 7,162 8,913 4.2% 123% Raito Kogyo TSE: 1926 1.6% 8,128 8,635 4.1% 49% 4.6 Wacom TSE: 6727 1.5% 10,548 7,857 3.7% 14% 8.6 Nihon Kohden TSE: 6849 0.4% 6,868 7,533 3.6% 15% 17.6 DTS TSE: 9682 0.8% 5,752 7,371 3.5% 21% 10.7 Tecnos Japan TSE: 3666 8.8% 6,408 7,322 3.5% 29% 6.7 SK Kaken TSE: 4628 0.9% 9,445 6,738 3.2% 80% 2.0 Broadmedia TSE: 4347 10.2% 6,018 6,547 3.1% 40% 12.0 Rohto Pharmaceutical TSE: 4527 0.1% 5,291 4,340 2.0% 7% 16.6 Shin Etsu Polymer TSE: 7970 0.6% 3,669 4,340 2.0% 34% 7.2 Top 20 investments 173,192 213,352 100.7% Jade Group TSE: 3558 4.1% 3,822 3,674 1.7% 3% 10.8 Helios Techno Holding TSE: 6927 3.0% 3,093 3,363 1.6% 62% 3.7 A-One Seimitsu TSE: 6156 1.0% 517 476 0.2% 57% 31.6 Total investments 180,624 220,865 104.2% Other net assets and liabilities (8,884) (4.2%) Net assets 211,981 100.0% * Please refer to Glossary on pages 74 and 75. 1 Estimates provided by AVI. For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75. AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI Strategic Report / Business Model # Business Model ## Company Status The Company is registered as a public limited company under the Companies Act 2006 and is an investment company under Section 833 of the Companies Act 2006. It is a member of The AIC. The Company was incorporated on 27 July 2018 and listed on the London Stock Exchange on 23 October 2018. The Company has been approved as an investment trust under Sections 1158/1159 of the Corporation Tax Act 2010. The Directors are of the opinion, under advice, that the Company continues to conduct its affairs as an Approved Investment Trust under the Investment Trust (Approved Company) (Tax) Regulations 2011. The Company qualifies as an Alternative Investment Fund in accordance with the Alternative Investment Fund Managers Directive ("AIFMD"). ## Investment Objective The Company's investment objective is to provide Shareholders with a total return in excess of the MSCI Japan Small Cap Index, through the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by AVI as undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or realisable assets. ## Investment Policy The Company invests in a diversified portfolio of equities listed or quoted in Japan which are considered by the Investment Manager to be undervalued and where cash, listed securities and/or realisable assets make up a significant proportion of the market capitalisation. AVI seeks to unlock this value through proactive engagement with management and taking advantage of the increased focus on corporate governance and returns to shareholders in Japan. The Board has not set any limits on sector weightings or stock selection within the portfolio. Whereas it is not expected that a single holding (including any derivative instrument) will represent more than 10% of the Company's gross assets at the time of investment, the Company has discretion to invest up to 15% of its gross assets in a single holding, if a suitable opportunity arises. No restrictions are placed on the market capitalisation of investee companies, but the portfolio is weighted towards small and mid-cap companies. The portfolio normally consists of between 15 and 25 holdings although it may contain a lesser or greater number of holdings at any time. The Company may invest in exchange traded funds, listed anywhere in the world, in order to gain exposure to equities listed or quoted in Japan. On acquisition, no more than 15% of the Company's gross assets will be invested in other UK listed investment companies. The Company may also use derivatives for gearing and efficient portfolio management purposes. The Company will not be constrained by any index benchmark in its asset allocation. ## HOW WE INVEST ### Portfolio Characteristics 1. Undervalued and Surplus Cash 2. Small to Mid-Cap Focused with sufficient liquidity 3. High Quality Businesses 4. Engagement Prospects ### Defining our Universe c.3,900 Listed Japanese Companies 1. Over-capitalised, with significant net financial value¹ 2. Sufficient average daily traded value 3. Low EV/EBIT relative to peers, typically <10x 4. Sector agnostic, typically excl. financial sector c.800 Companies in the AJOT Universe 1 Net Financial Value ("NFV") = cash + investment securities - net debt - minority interest. ## How we Generate Returns 1. Value Growth At the core of all AVI's investments are attractive businesses with durable earnings growth. 2. Discount Tightening Occurs when the share price rises more than the NAV. 3. Compounding Effect When these two sources of returns occur simultaneously, an attractive compounding effect enhances investment returns. ![img-11.jpeg](img-11.jpeg) Theoretical example of how returns are generated in an AJOT investment. 26 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Business Model continued ### Borrowing Policy Management fees are charged in accordance with Fulfilling this duty naturally supports the Company the terms of the management agreement, and in achieving its investment objective and helps to The Company may use borrowings for settlement provided for when due. The Investment Manager ensure that all decisions are made in a responsible of transactions, to meet ongoing expenses and is entitled to an annual fee of 1% per annum of the and sustainable way. In accordance with the may be geared through borrowings and/or by lesser of the Company’s NAV or the Company’s requirements of the Companies (Miscellaneous entering into long-only contracts for difference market capitalisation, invoiced monthly in arrears. Reporting) Regulations 2018, the Company or equity swaps that have the effect of gearing The IMA requires AVI to invest not less than 25% explains how the Directors have discharged their the Company’s portfolio to seek to enhance of the management fee in shares in the Company. duty under Section 172 below. performance. Management fees paid during the year were To ensure that the Directors are aware of, and The aggregate of borrowings and long-only £1,835,000 and the number of shares held by AVI understand, their duties, they are provided with contracts for difference and equity swap exposure is set out in note 16. the pertinent information when they first join the will not exceed 25% of NAV at the time of J.P. Morgan Europe Limited was appointed Board, as well as receive regular and ongoing drawdown of the relevant borrowings or entering as Depositary under an agreement with the updates and training on the relevant matters. into the relevant transaction, as appropriate. It is Company and AVI dated 6 September 2018 They also have continued access to the advice expected that any borrowings entered into will (the “Depositary Agreement”). The Depositary and services of the Company Secretary, and, principally be denominated in JPY. | | Agreement is terminable on 90 calendar days’ | when deemed necessary, the Directors can seek | | --- | --- | --- | | Hedging Policy | notice from either party. | independent professional advice. The schedule | | The Company does not hedge its currency | | of matters reserved for the Board, as well as the | JPMorgan Chase Bank, London Branch, has exposure using financial instruments such as terms of reference of its committees, are reviewed been appointed as the Company’s Custodian derivatives, forward contracts, or options. Although on at least an annual basis and further describe under an agreement dated 6 September 2018 there are no current plans to hedge investments Directors’ responsibilities and obligations and (the “Custodian Agreement”). The Custodian denominated in JPY, the Investment Manager and include any statutory and regulatory duties. The Agreement is terminable on 90 calendar days’ the Board will periodically review this policy. Audit Committee has the responsibility for the notice from the Company or 180 calendar days’ ongoing review of the Company’s risk management notice from the Custodian. ### Material Changes to the Investment systems and internal controls and, to the extent ### Policy MUFG Corporate Governance Limited was that they are applicable, risks related to the appointed as corporate Company Secretary on No material change will be made to the Company’s matters set out in Section 172 are included in the 27 July 2018. The current annual fee is £79,000, investment policy without Shareholder approval. In Company’s risk register and are subject to periodic which is subject to an annual RPI increase. The the event of a breach of the Company’s investment and regular reviews and monitoring. agreement may be terminated by either party on six policy, the Directors will announce through a ### months’ written notice. Decision making Regulatory Information Service the actions which Waystone Administration Solutions (UK) The importance of stakeholder considerations, have been taken to rectify the breach. Limited has been appointed to provide general in particular in the context of decision-making, is ### Management Arrangements administrative functions to the Company. taken into account at every Board meeting. All The Company has an independent Board of The Administrator receives an annual fee of discussions involve careful consideration of the Directors which has appointed AVI, the Company’s £119,000. The agreement can be terminated by longer-term consequences of any decisions and Investment Manager, as Alternative Investment either the Administrator or the Company on six their implications for stakeholders. Examples of Fund Manager (“AIFM”) under the terms of an months’ written notice, subject to an initial term of decisions made by the Board on this basis include Investment Management Agreement (“IMA”) dated one year. the buyback of 425,716 shares during the year 6 September 2018. The IMA is reviewed annually under review in order to control the discount, as by the Board and may be terminated by one year’s the Board believes that this is in the interest of ### DIRECTORS’ DUTIES notice from either party subject to the provisions for Shareholders as a whole. Norman Crighton and earlier termination as stipulated therein. Yoshi Nishio visited Japan in June 2024, primarily ### Overview The portfolio is managed by Joe Bauernfreund, the to attend and ask questions at the AGM of The Directors’ overarching duty is to act in Chief Executive Officer and Chief Investment Officer SK Kaken, one of the investee companies. They good faith and in a way that is the most likely of AVI. He also manages AVI Global Trust PLC, and also took the opportunity to meet with several to promote the success of the Company as AVI’s open-ended and segregated portfolios across portfolio companies and our Japanese PR set out in Section 172 of the Companies Act 2006 Family Holding Companies and Japan strategies. firm. These meetings contributed to a deeper (“Section 172”). In doing so, Directors He conducts regular visits to Japan, engaging with understanding between the Company and those must take into consideration the interests of prospective and current investments, which he has visited. Additionally, the decision to offer the the various stakeholders of the Company, done for over 15 years. realisation opportunity annually was based on the impact the Company has on the community the Investment Manager’s recommendation, and and the environment, take a long-term view accepted after extensive discussions with the on consequences of the decisions they make, Broker and shareholders. as well as aim to maintain a reputation for high standards of business conduct and fair treatment between the members of the Company. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 27 ### Strategic Report / Stakeholders ## Stakeholders The Board seeks to understand the needs and priorities of the Following thorough review, it was concluded that, as the Company is an externally managed investment company and does not have any employees ### Company’s stakeholders and these are taken into account or customers, its key stakeholders comprise its Shareholders and service ### during all its discussions and as part of its decision-making. providers. The section on the pages following discusses why these ### The Board has discussed which parties should be considered stakeholders are considered of importance to the Company and the actions ### as stakeholders of the Company. taken to ensure that their interests are taken into account. ### Stakeholder Importance Board Engagement Continued Shareholder support and The Company has over 200 Shareholders, including institutional and engagement are critical to the existence of the retail investors. The Board is committed to maintaining open channels of Company and the delivery of the long-term communication and to engaging with Shareholders in a manner which they strategy of the Company. find most meaningful, in order to gain an understanding of the views of Shareholders Shareholders. These include: Annual General Meeting The Company welcomes and encourages attendance and participation from Shareholders at the AGM. Shareholders have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. Shareholders who are unable to attend the AGM in person are offered the opportunity to submit questions via email. The Investment Manager attends the AGM and provides a presentation on the Company’s performance and the future outlook, which is made available on the Company’s website following the meeting. The Company values any feedback and questions it may receive from Shareholders ahead of and during the AGM and will take action or make changes, when and as appropriate; Publications The Annual Report and Half-Year results are made available on the Company’s website and the Annual Report is circulated to Shareholders. These reports provide Shareholders with a clear understanding of the Company’s portfolio and financial position. This information is supplemented by the daily calculation and publication of the NAV per share and a monthly factsheet and quarterly reports which are available on the Company’s website and the publication of which is announced via a Regulatory Information Service. Feedback and/or questions the Company receives from the Shareholders help the Company evolve its reporting, aiming to render the reports and updates transparent and understandable; Shareholder Meetings Unlike trading companies, Shareholder meetings often take the form of meeting with the Investment Manager rather than members of the Board. Shareholders are able to meet with the Investment Manager throughout the year and the Investment Manager provides information on the Company and videos on the Company’s website and via various social medial channels. Feedback from all meetings between the Investment Manager and Shareholders is shared with the Board. The Chairman, the Chairman of the Audit Committee or other members of the Board are available to meet with Shareholders to understand their views on governance and the Company’s performance where they wish to do so. With assistance from the Investment Manager, the Chairman seeks meetings with Shareholders who might wish to meet with him and Shareholders can contact him through our broker, Singer Capital Markets; 28 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Stakeholders continued ### Stakeholder Importance Board Engagement Shareholder Concerns In the event Shareholders wish to raise issues or concerns with the Directors, they are welcome to do so at any time by writing to the Chairman at the registered office. Other members of the Board are Shareholders continued also available to Shareholders if they have concerns that have not been addressed through the normal channels; Exit Opportunities The Directors may, at their discretion, offer Shareholders the opportunity to exit the Company at close to NAV on a regular basis. In October 2024, the Company offered Shareholders the chance to tender some or all of their shares for sale at a two per cent. discount to NAV. At the general meeting held in December 2024, Shareholders approved the Exit Opportunity, with approximately 2.6% of Shareholders electing to tender their shares. Given the Board’s strong commitment to corporate governance, the Directors intend to offer the Exit Opportunity annually, instead of every two years. Consequently, the Board expects to offer another Exit Opportunity to Shareholders in October 2025 and every 12 months thereafter; Investor Relations updates At every Board meeting, the Directors receive updates from the Company’s broker on the share trading activity, share price performance and any Shareholders’ feedback, as well as an update from the Investment Manager on any publications or comments by the press. To gain a deeper understanding of the views of its Shareholders and potential investors, the Investment Manager also undertakes regular Investor Roadshows. Any pertinent feedback is taken into account when Directors discuss the share capital, any possible fundraisings or the dividend policy and actioned as and when appropriate. The willingness of the Shareholders, including the partners and staff of the Investment Manager, to maintain their holdings over the long-term period is another way for the Board to gauge how the Company is meeting its objectives and suggests the presence of a healthy corporate culture. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 29 ### Stakeholder Importance Board Engagement Service Providers Holding the Company’s shares offers investors Maintaining a close and constructive working relationship with the an investment vehicle through which they can Investment Manager is crucial, as the Board and the Investment Manager obtain exposure to AJOT’s diversified portfolio both aim to continue to achieve consistent, long-term returns in line with the The Investment Manager of small to mid-cap Japanese equities. The investment objective. Important components in the collaboration with the Investment Manager’s performance is critical Investment Manager, representative of the Company’s culture, are: for the Company to successfully deliver its • encouraging open discussion with the Investment Manager, allowing investment strategy and meet its objective time and space for original and innovative thinking; to provide Shareholders with a total return in • the Chairman has frequent conversations with the Investment Manager excess of the MSCI Japan Small Cap Index to talk through any matters discussed by the Board between scheduled through active management of the portfolio meetings, as well as any matters raised by the Investment Manager; and engagement with portfolio companies. • the IMA requires AVI to invest not less than 25% of the management fee in shares in the Company and to hold these for a minimum of two years which ensures that the interests of Shareholders and the Investment Manager are well aligned; • recognising the alignment of interests mentioned above, adopting a tone of constructive challenge, balanced with robust negotiation of the Investment Manager’s terms of engagement if those interests should not be fully congruent; • drawing on Board members’ individual experience and knowledge to support the Investment Manager in its monitoring of and engagement with portfolio companies; and • willingness to make the Board members’ experience available to support the Investment Manager in the sound long-term development of its business and resources, recognising that the long-term health of the Investment Manager is in the interests of Shareholders in the Company. In order to function as an investment trust The Board maintains regular contact with its key external providers and with a premium listing on the London Stock receives regular reporting from them, both through the Board and committee Exchange, the Company relies on a diverse meetings, as well as outside of the regular meeting cycle. Their advice as The Administrator, the range of reputable advisers for support in well as their needs and views are routinely taken into account. The Board Company Secretary, the meeting all relevant obligations. formally assesses their performance, fees and continuing appointment at Registrar, the Depositary, least annually, to ensure that the key service providers continue to function the Custodian and the at an acceptable level and are appropriately remunerated to deliver the Corporate Broker expected level of service. Each year, all key service providers are asked to complete a questionnaire regarding the matters discussed above, the results of which are discussed during a formal review of service providers at the March Board meeting. The Audit Committee reviews and evaluates the control environment in place at each service provider and also requests confirmation that key service providers have the relevant policies in place, including those on business continuity, cyber security and fraud prevention. 30 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / Stakeholders continued ### Stakeholder Importance Board Engagement Other Stakeholders Availability of funding and liquidity are crucial Therefore, the Company aims to demonstrate to lenders that it is a well- to the Company’s ability to take advantage of managed business, capable of consistently delivering long-term returns. investment opportunities as they arise. Lender Where relevant, the evolving practice and When deemed relevant, the Company will engage with proxy advisers support (or lack thereof) of proxy adviser regarding resolutions that will be proposed to the Company’s Shareholders agencies are considered by the Directors, as at AGMs and, based on feedback received, incorporate changes to future Proxy Advisers the Company aims to build a good reputation Annual Reports to enhance disclosures. and maintain high standards of corporate governance, which contribute to the long- term sustainable success of the Company. The Company can only operate with the The Company follows voluntary and best-practice guidance, and regularly approval of its regulators who have a considers how it meets various regulatory and statutory obligations and how legitimate interest in how the Company any governance decisions it makes can have an impact on its stakeholders, Regulators operates in the market and treats its both in the shorter and in the longer term. Shareholders. The above mechanisms for engaging with stakeholders are kept under review by the Directors and are discussed on a regular basis at Board meetings, to ensure that they remain effective. AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI 11 # CULTURE The Directors agree that establishing and maintaining a healthy corporate culture within the Board and in its interaction with the Investment Manager, Shareholders and other stakeholders, will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness, debate and integrity through ongoing dialogue and engagement with its service providers, principally the Investment Manager. The Board strives to ensure that its culture is in line with the Company's purpose, values and strategy. The Company has a number of policies and procedures in place to assist with maintaining good corporate governance, including those relating to diversity, Directors' conflicts of interest and Directors' dealings in the Company's shares. The Board assesses and monitors compliance with these policies, as well as the general culture of the Board, regularly through Board meetings and in particular during the annual evaluation process (for more information see the performance evaluation section on page 44). The Board seeks to appoint the best possible service providers and evaluates their service on a regular basis as described on page 29. The Board considers the culture of the Investment Manager and other service providers, including their policies, practices and behaviour, through regular reporting from these stakeholders and in particular during the annual review of the performance and continuing appointment of all service providers. # ENVIRONMENTAL, SOCIAL AND GOVERNANCE MATTERS As an investment trust without employees, the Company's own direct environmental impact is minimal and as such, the Company is also not required to report against the TCFD framework. The Company has minimal direct greenhouse gas emissions to report from its operations (2023: minimal), nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 or the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. Where a large company does not consume more than 40,000 kWh of energy in a reporting period, it qualifies as a low energy user and is exempt from reporting under these regulations. This exemption applies to the Company. The Company's operations are delegated to third-party service providers, and the Company has no employees. The Board seeks assurances, at least annually, from its suppliers that they comply with the provisions of the UK Modern Slavery Act 2015 and maintain adequate safeguards in keeping with the provisions of the Bribery Act 2010 and Criminal Finances Act 2017. The Directors do not have service contracts. For the majority of the year, the Board comprised four Directors, two males and two females. However, one Director tendered their resignation at the end of September 2024 and a second Director tendered their resignation post year end. To facilitate the search for a new Director, the Company engaged the services of an external search consultant, Nurole. At the time of writing this report, the Board had successfully recruited two new Directors. Further information on the Board's policy on diversity and recruitment of new Directors is contained on page 42. Both the Board and AVI recognise that social, human rights, community, governance and environmental issues have an effect on its investee companies. The Board supports AVI in its belief that good corporate governance will help to deliver sustainable long-term Shareholder value. AVI is an investment management firm that invests on behalf of its clients and its primary duty is to produce returns for its clients. AVI seeks to exercise the rights and responsibilities attached to owning equity securities in line with its investment strategy. A key component of AVI's investment strategy is to understand and engage with the management of public companies. AVI's Stewardship Policy recognises that Shareholder value can be enhanced and sustained through the good stewardship of executives and boards. It therefore follows that in pursuing Shareholder value AVI will implement its investment strategy through proxy voting and active engagement with management and boards. Further details on AVI's environmental, social and governance policy can be found on pages 34 and 35. AVI became a supporter of the Task Force on Climate-related Financial Disclosures ("TCFD") in May 2021 and a signatory to the UN-supported Principles for Responsible Investment ("PRI") on 9 April 2021. The PRI is the world's leading proponent of responsible investment which entails the following commitments, developed by an international group of institutional investors. As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that ESG issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, Asset Value Investors Limited commits to the following: - to incorporate ESG issues into investment analysis and decision-making processes; - to be an active owner and to incorporate ESG issues into our ownership policies and practices; - to seek appropriate disclosure on ESG issues by the entities in which we invest; - to promote acceptance and implementation of the Principles within the investment industry; - to work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the Principles; and - to report on our activities and progress towards implementing the Principles. ![img-12.jpeg](img-12.jpeg) AVI became a signatory to the UN-supported Principles for Responsible Investment ("PRI") on 9 April 2021. AVI Japan Opportunity Trust plc / Annual Report 2024 # Strategic Report / Key Performance Indicators # Key Performance Indicators The Company's Board meets regularly and at each meeting reviews performance against a number of key measures. In selecting these measures, the Directors considered the key objectives and expectations of typical investors in an investment trust such as the Company. These indicators are Alternative Performance Measures ("APMs"). ## NAV Total Return Performance$^{1}$ 1 Year*: **20.9%** Since Inception ("SI") 69.9% 8.9% SI Annualised The Directors regard the Company's NAV total return as the overall measure of value delivered to Shareholders by the Investment Manager over the long term. Total return reflects both the NAV growth of the Company and also dividends paid to Shareholders. Since the launch on 23 October 2018, the Company's NAV has increased by 69.9%, resulting in an annualised return of 8.9%. The Investment Manager's investment style is such that performance is likely to deviate materially from that of any broadly based equity index. The Board considers the most useful comparator to be the MSCI Japan Small Cap Index. Since the launch on 23 October 2018, the benchmark has increased by 23.5%, resulting in an annualised return of 3.5%. For the year ended 31 December 2024, the Company's NAV increased by 20.9% while the MSCI Japan Small Cap Index increased by 6.2%. A full description of performance and the investment portfolio is contained in the Investment Manager's Report, commencing on page 12. ## Discount/Premium$^{1}$ Discount, 31 December 2024: **-2.1%** Premium, High for the period 1.2% Discount, Low for the period -6.7% The Board believes that an important driver of an investment trust's discount or premium over the long term is investment performance. However, there can be volatility in the discount or premium. Therefore, the Board seeks Shareholder approval each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium. During the period under review, nil new shares were issued under the authorisation granted at the AGM. During the year, 425,716 shares were bought back into treasury under the authorisation granted at the AGM. As at 1 April 2025, the Company had 137,198,943 shares in issue. The Company has a successful discount control policy whereby if, under normal market conditions, the four-month average share price discount to NAV is greater than -5%, the Company will buy back shares with the intention of reducing the discount to a level no greater than -5%. Since IPO, the Company has bought back shares on 12 occasions under this policy. ## Peer Group NAV Performance Total Return AIC Japanese Smaller Companies Sector* AVI Japan Opportunity 20.9% (9.6)% Baile Gifford Shin Nippon Nippon Active Value 15.2% The Board is aware of other investment trusts in The AIC Japanese Smaller Companies Sector. Each investment trust has its own focus and strategy, which will differ from the one implemented by AVI. The Company's activist approach aligns with the focus on corporate governance reform taking place in Japan. ## Ongoing Charges$^{1}$ 31 December 2024: **1.5%** 31 December 2023 1.5% The Board continues to be conscious of expenses and aims to maintain a sensible balance between good service and costs. Each year, the Board reviews in detail the costs incurred and ongoing commercial arrangements with each of the Company's key suppliers. The majority of the ongoing charges ratio is attributed to the fees paid to the Investment Manager. This fee is reviewed annually, and the Board believes that the cost is reasonable, given the Investment Manager's activist approach to fund management and the resources required to provide the level of service. The Company adheres to The AIC guidance in calculating its ongoing charges ratio. ## Going Concern The Directors have assessed the Company's ability to continue as a going concern based on detailed profit and loss and cash flow forecasts, covering the period up to and including 31 December 2025. These forecasts have been "stressed" for inflation, as well as a severe and sudden downturn in market conditions, under which it is assumed that the investment portfolio will lose 45% of its value. Even under this extreme "stress" scenario, the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of at least 12 months from the date these financial statements were approved). The Directors also regularly assess the resilience of key third-party service providers, most notably the Investment Manager and Fund Administrator. The Directors do not have any concerns about the financial viability of the Company's third-party service providers. * Returns are for the year to 31 December 2024. 1 For all Alternative Performance Measures, please refer to the definitions in the Glossary on pages 74 and 75. AVI Japan Opportunity Trust plc / Annual Report 2024 G FS SI ## Going Concern continued Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance) and the Exit Opportunity in October 2025 as discussed in the viability statement below. Therefore, the financial statements have been prepared on a going concern basis. ## Viability The Directors believe five years to be a reasonable time horizon to consider the continuing viability of the Company, reflecting a balance between a longer-term investment horizon and the inherent shorter-term uncertainties within equity. The Company is an investment trust whose portfolio is invested in readily realisable listed securities and with some short-term cash deposits. The five-year time horizon takes into account that the Directors may, at the Board's discretion, offer Shareholders an opportunity to exit the Company at close to NAV in October 2025 and every year thereafter under a revised policy as announced in October 2024 (previously, every two years). In November 2024, the Company announced it would offer Shareholders the opportunity to tender some or all of their shares for sale. The Company received applications from eligible shareholders to tender an aggregate of 3,637,759 shares, equivalent to 2.58% of the Company's issued share capital at that time. The Board, together with its advisers, intends to canvass opinion from Shareholders in the months leading up to October 2025 when making the decision regarding any potential Exit Opportunity. However, the Board does not currently expect a significantly higher percentage of Shareholders to exercise this option to exit in 2025. The Directors have reviewed the Shareholders of the Company, Shareholder feedback, the current market position, and performance, in forming this expectation. The following facts support the Directors' view of the viability of the Company: - in the year under review, expenses (including finance costs and taxation) were adequately covered by investment income and there is no expectation that these expenses would significantly increase over the next five years. In addition, cash flow forecasts have been prepared and stress tested to simulate: a) inflation at 20% and b) a 45% fall in the value of the investment portfolio. These forecasts illustrate that the Company would continue to hold sufficient cash even under the most severe stress scenarios; - the Company's investment portfolio is made up of listed equities; - the Company has short-term debt of ¥2.9 billion (£14.9 million) through an unsecured revolving credit facility. Following an extension for two years and two months to 5 April 2024 on the same terms, the facility was further renewed for another two years to 2 April 2026. In the unlikely event that the facility cannot be extended beyond 2 April 2026, the Board has reviewed detailed liquidity analysis and is comfortable that the debt could be repaid from available cash and liquid investments, should this be necessary. This debt was covered over 15 times as at the end of December 2024 by the Company's total assets. The Directors are of the view that, subject to unforeseen circumstances, the Company will have sufficient resources to meet the costs of annual interest and eventual repayment of principal on this debt; and - the Company has a large margin of safety over the covenants on its debt. The Company's viability depends on the Japanese and the global economy and markets continuing to function. The Directors also consider the possibility of a wide-ranging collapse in corporate earnings and/or the market value of listed securities. To the latter point, it should be borne in mind that a significant proportion of the Company's expenses are investment management fees, which would reduce if the market value of the Company's assets were to fall. In arriving at its conclusion, the Board has taken account of the potential effects of another global event (e.g. similar to the COVID-19 pandemic or the invasion of Ukraine) on the value of the Company's assets, income from those assets and the ability of the Company's key suppliers to maintain effective and efficient operations. In order to maintain viability, the Company has a robust risk control framework which follows the FRC guidelines and has the objectives of reducing the likelihood and impact of: poor judgement in decision-making, risk-taking that exceeds the levels agreed by the Board, human error or control processes being deliberately circumvented. Taking the above into account, and the potential impact of the principal risks as set out on pages 36 and 37, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of approval of this Annual Report. 34 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Strategic Report / ESG Policy ## ESG Perspective ### OUR PURPOSE ### ABOUT ASSET VALUE INVESTORS ### Helping our clients to make the most of ### their financial future. The people at Asset Value Investors are committed ### S ### c to leveraging our long heritage, stewardship ### r e ### n e ### i o n ### t i and expertise to make investing responsible, ### c n ### r u g ### t i p P o accessible and profitable for everyone – individuals, ### s s h u ### n r f ### r d p t ### o a o h families, institutions, private companies, and ### c w s e ### e e ### o t u listed companies. Financial returns matter and we ### l i ### S n ### o i recognise our position of influence in questioning ### f v ### t e ### r ### r the practices of the companies we invest in for a ### o s ### P e more sustainable future. ### ’ ### G ### ‘ ### & P ### ’ OUR PHILOSOPHY ### h ### S il ### ‘ ### , o ### ’ s ### We are fundamentally committed ### E o ### ‘ ### p to supporting long-term sustainable ### g h ### n i y ### businesses that will grow and participate ### n ### f in the prosperity of the economy, ### e ### D with a responsible approach to the ### environment, society, and governance. We believe that the integration of ESG and sustainability considerations into our investment ### R A ### s g strategy is integral to comprehensively ### e p e n ### s p l i ### r i p r ### e o e understanding each investment’s ability ### a a c t ### c i n i l ### r h r ### c P F to create long-term value. ### h ### OUR PRINCIPLES ### We are aligned with the PRI’s belief that ### an economically efficient, sustainable ### It is our view that a responsible approach to the environment, society and ### global financial system is a necessity for ### governance is key to long-term sustainable businesses. This guiding principle is ### long-term value creation. ### embedded not only in our investment philosophy but in how we manage Asset Such a system will reward long-term responsible ### Value Investors as a company. investment and better align investors with the broader objectives of society. AVI became a Our primary goal is to reduce emissions, People are the most important asset at AVI. signatory to the UN-supported Principles for however we are also researching appropriate We recognise that our industry has traditionally Responsible Investment (“PRI”) on 9 April 2021. methods to offset unavoidable emissions. been skewed towards a less diverse workforce. In doing so, we have confirmed our belief in our We are actively challenging this. ### AVI's 2024 emissions from commuting duty to act in the best long-term interests of our ### Diversity of workforce: beneficiaries. ### and business travel: ## 164.5 tonnes CO e* OUR APPROACH ### 2 * Calculated in accordance with GHG Protocol Standards ### (distance-based method). As research-driven value investors, we ### seek to truly understand each company | We believe that shareholders and stakeholders | | | | | in our portfolio and the context within | | --- | --- | --- | --- | --- | --- | | need not be in conflict. | | | | | which it operates on a case-by-case | | Employees with equity ownership | | | | | basis. | | | | 2024 | 2024 | | | | in AVI: | | | | | AVI has built ESG factors into its proprietary | | | Number | | | % | | database and implemented a number of processes Male 15 62.5 to support the integration of ESG considerations ## 29.2% Female 9 37.5 into each stage of the investment process. * Data as at 31 December 2024. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 35 ### Controversy Monitoring ### DEFINING ‘E’, ‘S’ & ‘G’ Pre-Investment Supported by ISS Norms-Based Research, we also closely monitor any controversies and potential Exclusionary screening is not our guiding ### Drawing on the World Economic violations of international norms and standards framework, however there are certain ### Forum’s “21 core metrics”, AVI has associated with our universe. Whilst our hope exceptions to this. AVI will not invest in a ### identified the factors that we believe company with direct involvement in: is that controversies do not occur, they can be ### are the most material and relevant a marker of how well a company’s policies are • Tobacco ### to our investments and developed a integrated into business operations and culture, • Controversial Weapons ### bespoke ESG monitoring system to highlighting vulnerabilities or structural problems • Pornography ### track the performance and progress of and indicating where improvements can be made. Or companies that engage in child labour or ### our portfolio companies against defined human exploitation as defined by the relevant ### ESG metrics. International Labour Organisation conventions. ### PROXY VOTING Prior to investment we: ### As responsible, active stewards of Assess a company’s exposure to ESG risks ### E ### capital, we vote carefully and thoughtfully and opportunities, including climate-related risks and opportunities. ### We define Environmental sustainability within the at every AGM. context of: Identify whether the company is involved in any actual or potential violations of ### • Environmental Impact AJOT 2024 Proxy Voting Record international norms and standards supported • Tackling Climate Change ### Total voted by ISS EGG’s Norm-Based Research. • Sustainable Management $ ## 100% ### S ### 100% Investment Period Our Social focus is divided into: ESG monitoring system built into our ### Against management proprietary database to ensure ESG factors • Dignity and Equality are considered alongside financial analysis. • Wellbeing and Development ## 24% Ongoing ESG assessments of portfolio • Community Engagement companies’ performance against defined 24% ESG metrics. A scoring system is used to assess trends and highlight potential areas for ### With management ### G engagement. Our approach to Governance includes: Tailored questionnaires sent to all ## 76% companies based on our assessments to • Quality of Governing Body 76% request additional ESG information and • Corporate Strategy promote improved sustainability disclosure. • Ethical Behaviour ### Against ISS* Ongoing controversy monitoring following a clear engagement pathway if companies ## 19% are flagged. ### OUR STEWARDSHIP Constructive engagement with boards and 19% ### Good stewardship should be viewed as management to help sustainably increase corporate value by building resilience to ESG ### a continuous practice and is essential With ISS* risks and promoting responsible business ### to preserving and enhancing long-term practices. ## value. 81% Active engagement is at the core of our investment 81% strategy and our ESG monitoring system plays an important role in helping us to identify potential areas of engagement. As long-term investors, our aim is to build constructive relationships with the AVI became a signatory to the UN-supported boards and management of the companies in Principles for Responsible Investment (“PRI”) which we invest, addressing issues and offering on 9 April 2021. suggestions to sustainably improve corporate value in consideration of all stakeholders and in the best long-term interest of our clients. * ISS (Institutional Shareholder Services) is an organisation that provides proxy advisory services. While AVI utilises ISS’ research, it has different voting policies and is not bound to vote in line with ISS guidance where it feels the guidance is not in shareholders’ best interests. 4 ● ● ● ● AVI Japan Opportunity Trust plc / Annual Report 2024 ## Strategic Report / Principal Risks and Uncertainties The Board has a robust ongoing process for identifying, evaluating and managing the emerging and principal risks and uncertainties faced by the Company, including those that could threaten its business model, future performance, solvency or liquidity. The Board considers the following as the principal risks faced by the Company and the following controls are in place to manage or mitigate these risks: ### Risk Level Key: Increased Decreased No Change | Risk Area | Controls and Mitigation | Risk Level | | --- | --- | --- | | **Investment Objective** The Company may be unsuccessful in achieving its investment objective, leading to a potential loss of demand for its shares. | The Company has a clearly defined strategy and investment remit. The portfolio is managed by a highly experienced Investment Manager, supported by a strong team. The Board relies on the Investment Manager's skills and judgement to make investment decisions based on thorough research and analysis of individual stocks and sectors. The Board regularly reviews the portfolio's performance against the Company's Benchmark Index, its competitors, and market outlooks. The Board ensures that there is regular dialogue with major investors, primarily through the Company's broker and the Investment Manager; it follows up on any concerns and regularly reviews the discount control policy. | ● | | Investment opportunities matching the criteria encapsulated in the investment objective may become less available in the future. | The Board monitors the portfolio's composition, performance and development. Should appropriate opportunities diminish, the Board will consider the future of the Company and may recommend that the Company's investments are sold, it is wound up and cash returned to Shareholders. | ● | | **Gearing** The use of borrowings by the Company has the effect of amplifying the gains or losses the Company experiences. A significant fall in portfolio value could cause gearing levels to exceed pre-set limits, requiring the Company to sell investments at short notice. | The Board and the Investment Manager regularly review gearing, as well as the effect of interest rate movements on the Company's finances and the Company's ongoing compliance with the loan covenants. Aggregate borrowings may not exceed 25% of net assets. The Company has in place a two-year ¥2.9 billion (£16.3 million) unsecured revolving facility agreement which was extended in February 2024 to 5 April 2024 on the same terms while renewal terms were being agreed. The facility was renewed for two years on 2 April 2024. As at 31 December 2024, ¥2.9 billion (£14.8 million) of the facility had been drawn. Interest is payable at a rate equal to TONAR plus 1.55%. As at 31 December 2024, gearing stood at 4.5%. | ● | | **Reliance on the Investment Manager and Other Service Providers** The Company has no employees and relies on a number of third-party service providers, principally the Investment Manager, Registrar, Administrator, and Custodian / Depository. It is dependent on the effective operation of its service providers' control systems with regard to the security of the Company's assets, dealing procedures, accounting records and the maintenance of regulatory and legal requirements. | The Board carries out regular reviews of the delegated services to ensure their continued competitiveness and effectiveness, which include assessment of the providers' control systems, whistleblowing, anti-bribery and corruption policies and business continuity plans. The likelihood of this risk occurring has reduced during the year as the relationships with service providers have been proven over the years since launch and the monitoring processes utilised by the Board are well established. | ● | | The Company is heavily reliant on the Investment Manager's processes, both in terms of making investment decisions and compliance with the investment policy. | The Investment Manager has an established investment process which has proven to be successful within the AVI Global Trust plc portfolio. The Board evaluates the investment process and compliance with investment limits and restrictions in conjunction with its portfolio review at every Board meeting. | ● | AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 37 ### Risk Area Controls and Mitigation Risk Level Cyber Security The Board monitors the preparedness of its service providers in general and requests ###  The Company has limited direct exposure to and reviews updates from key service providers on cyber security and other matters. cyber risk. However, the Company’s operations Following this review, the Board remained satisfied that the risk is given due priority. or reputation could be affected if any of its service providers suffered a major cyber security breach. Portfolio Liquidity The Investment Manager monitors trading volumes and prices, and looks to ensure ###  The market for smaller Japanese stocks can be that a proportion of the portfolio is invested in readily realisable assets. illiquid. The Company is exposed to the risk that The Board also receives updates on the liquidity of the portfolio and the current level it will not be able to sell its investments at the of liquidity of the Company on a regular basis. Following review of the liquidity analysis, current market value or on a timely basis, when the Board considered that this risk has reduced during the year. the Investment Manager chooses or is required to do so to meet financial liabilities. Foreign Exchange The Company does not hedge its currency exposure using financial instruments such ###  The functional and presentation currency of the as derivatives, forward contracts, or options. However, the Investment Manager and Company is Pounds Sterling. All investments the Board continuously monitor currency movements and exposure. held and income derived from these investments The revolving credit facility is denominated in Yen and therefore the effect of Yen are denominated in Japanese Yen. Certain exchange rate movements on the drawn down facility will be offset against the assets. costs of the Company are impacted by the underlying value of the investments denominated in Japanese Yen and converted to Pounds Sterling. The Company is subject to currency risk on exchange rate movements between Pounds Sterling and Japanese Yen. Global/Climate/Systemic The Board continuously monitors global developments and their potential impact ###  Unforeseen global disruption, such as a on the Company; it scrutinises the performance of the Investment Manager and is pandemic, climate and nature change-related aware of emerging risks and has a robust process for addressing them. All key service event, geopolitical conflict or systemic technology providers are asked to provide updates on business continuity, anti-bribery and failure, could lead to dramatically increased corruption, and information security processes on an annual basis. market and Company share price volatility. Fraud and cyber security vulnerability could increase for key service providers. Concentrated Share Register The Investment Manager, the Company’s Broker and the Board have a good ###  A substantial portion (around 36%) of the understanding of the investor base and have good lines of communication with Company’s shares are held by two major investors in general and a direct communication channel with the major Shareholders Shareholders, City of London Investment in particular. Management and Finda Telecoms Oy. A concentrated share register can potentially present issues with regards to voting or liquidity. Approval of Strategic Report The Strategic Report has been approved by the Board and is signed on its behalf by: Norman Crighton Chairman 4 April 2025 38 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Governance / Directors ## Your Board ### NORMAN CRIGHTON MARGARET STEPHENS ANDREW ROSE TOM YORITAKA ### Chairman, Non-Executive Director Non-Executive Director Non-Executive Director ### Non-Executive Director | Date of Appointment: | Date of Appointment: | Date of Appointment: | Date of Appointment: | | --- | --- | --- | --- | | 27 July 2018 | 5 September 2018 | 12 February 2025 | 12 February 2025 | | External Appointments: | External Appointments: | External Appointments: | External Appointments: | | RM Infrastructure Income plc and | VH Global Energy Infrastructure plc | – | – | | Harmony Energy Income Trust plc. | and Sequoia Economic Infrastructure | | | Income Fund Limited. | Experience and Contribution: | Experience and Contribution: | Experience and Contribution: | Experience and Contribution: | | --- | --- | --- | --- | | Norman Crighton is an experienced | Margaret is a non-executive board | Andrew retired from Schroders in | Tom is a venture capital investor, | | public company director, having | member and chair of the audit | 2019 after a distinguished 38-year | software executive, and board | | served on the boards of nine | and risk committee of VH Global | career specialising in Japanese | member with over 30 years of | | closed-end funds and one operating | Energy Infrastructure plc and a | equities. His career included | experience in the technology industry | | company. Presently, Norman is | non-executive director of Sequoia | 11 years in Tokyo over three separate | in the UK, North America and Japan. | | also non-executive chair of | Economic Infrastructure Income | secondments, where he was | He invests in early-stage technology | | RM Infrastructure Income plc and | Fund Limited. She was a partner of | involved in various research and fund | and science-backed startups, and | | Harmony Energy Income Trust plc. | KPMG until 2016, having qualified | management responsibilities across | working closely with founders and | | | as a Chartered Accountant in | the market capitalisation spectrum. | co-investors, many of whom are | Norman has extensive fund 1988. From 2007, she played a His specific responsibilities included leading venture capital funds or experience, having previously been key role in building KPMG’s Global managing several open and closed- C-suite executives of multinational Head of Closed-end Funds at Infrastructure Practice, also leading end Japanese equity funds, as well companies. He also sits on the Jefferies International and Investment UK and international due diligence as institutional portfolios. Board of Trustees of SOAS University Manager at Metage Capital Limited, | | and structuring services on major | | of London, as well as on boards | | --- | --- | --- | --- | | leveraging his 32 years of experience | | After retirement from full-time fund | | | | merger and acquisition transactions | | of various technology industry | | in investment trusts. His career | | management, Andrew served as a | | | | and public private partnerships. | | organisations in the UK. | | in investment banking covered | | non-executive director and member | | Margaret was a trustee director research, sales, market making and of the Audit and Supervisory Previously, Tom served in software of the Nuclear Liabilities Fund and proprietary trading, servicing major Committee at Uhuru Corporation in product and corporate development chair of the audit committee until international institutional clients over Tokyo for three years. executive roles at Cisco Systems, January 2024, non-executive board 15 years. His work in many countries Yahoo! and Microsoft in the US. Early Andrew is a British citizen, fluent in member and chair of the audit and included restructuring closed-end in his career, he worked as a strategy reading and speaking Japanese, and risk assurance committee of the funds, as well as several IPOs. As consultant at The Boston Consulting resides in the United Kingdom. Department for Exiting the European a fund manager, Norman managed Group in the US and Japan. Union and was also a board portfolios of closed-end funds on Tom is fluent in English and trustee of the London School of a hedged and unhedged basis Japanese. He holds dual British/ Architecture. Margaret is British and covering developed and emerging American citizenship and resides in resident in the United Kingdom. markets. the United Kingdom. A NA N A AN N ### Committee membership Committee Chair A Audit Committee N Nomination and Remuneration Committee AVI Japan Opportunity Trust plc / Annual Report 2024 SR FS SI # Governance / Directors' Report The Directors present their report and the audited financial statements for the year ended 31 December 2024. The Investment Portfolio on page 24, the Corporate Governance Statement on pages 41 to 42, Report from the Audit Committee on pages 50 and 51 and the Shareholder Information on pages 74 to 76 form part of the Report of the Directors. # Directors The current Directors of the Company are listed on page 38. Norman and Margaret served throughout the review period. During the period, Yoshi Nishio and Katya Thomson also served as Directors, with the former resigning on 30 September 2024 and the latter after the year end, on 21 January 2025. Andrew Rose and Tom Yoritaka were appointed as Directors with effect from 12 February 2025. As set out on page 44, the Board conducts an annual review of each Director and of the Board as a whole. The Board considers all Directors to contribute effectively, possess the necessary skills and experience, and remain committed to their roles as non-executive Directors of the Company. Following the performance review, it was agreed that Norman and Margaret would stand for re-election, and Tom and Andrew would stand for election. The Board recommends the re-election and election of each Director. The Company has provided indemnities to the Directors in respect of costs or other liabilities which they may incur in connection with any claims relating to their performance or the performance of the Company whilst they are Directors. The beneficial interests of the current Directors and their connected persons in the securities of the Company as at 31 December 2024 are set out in the Directors' Remuneration Report on page 48. # Share Capital The Company's share capital comprises Ordinary Shares with a nominal value of 1p each. The voting rights of the shares on a poll are one vote for each share held. There are no restrictions on the transfer of the Company's Ordinary Shares or voting rights, no shares which carry specific rights with regard to the control of the Company and no agreement which the Company is party to that affects its control following a takeover bid. To the extent that they exist, the revenue profits of the Company (including accumulated revenue reserves) are available for distribution by way of dividends to the holders of the Ordinary Shares. Upon a winding-up, after meeting the liabilities of the Company, the surplus assets would be distributed to the Shareholders pro rata to their holding of Ordinary Shares. At 31 December 2024, there were 137,198,943 Ordinary Shares of 1p each in issue, of which 825,716 were held in treasury, and therefore the total voting rights attaching to Ordinary Shares in issue were 136,373,227. In the period from 1 January 2025 to 1 April 2025 250,000 Ordinary Shares were bought back and held in treasury and therefore the voting rights attaching to Ordinary Shares as at 1 April 2025 were 136,123,227. The Directors intend to seek annual authority from Shareholders to allot new Ordinary Shares, to disapply pre-emption rights of existing Shareholders and to buy back Ordinary Shares for cancellation or to be held in treasury. # Issues of Shares At the AGM held on 1 May 2024, the Company was granted authority to allot up to 28,167,340 Ordinary Shares on a non-pre-emptive basis. This authority is due to expire at the Company's forthcoming AGM on 20 May 2025. As at 31 December 2024, the remaining authority to allot Ordinary Shares under the authority granted at the AGM held on 1 May 2024 was 28,167,340 Ordinary Shares and this remained the same as at 1 April 2025. The Company has a block listing of Ordinary Shares to be listed to the Official List of the FCA and admitted to trading on the equity shares in commercial companies category. # Shares Buybacks Carried out During the Year | Date | No of shares | Price paid per share (pence) | Total value (£m) | % of total SO | | --- | --- | --- | --- | --- | | 12/12/2024 | 3,637,759* | 152 | 5.54 | 2.58% | | 19/11/2024 | 290,716 | 140 | 0.41 | 0.21% | | 15/03/2024 | 100,000 | 128 | 0.13 | 0.07% | | 14/03/2024 | 35,000 | 127 | 0.04 | 0.02% | | **Total** | **4,063,475** | | | | * Relating to shares bought back and cancelled as part of the tender offer, discussed below. # Purchase of Shares At the general meeting held on 1 May 2024, the Company was granted authority to purchase up to 14.99% of the Company's Ordinary Shares in issue as at the close of business on 13 March 2024, such authority to expire on conclusion of the 2025 AGM. During the year, 425,716 Ordinary Shares were bought back for an aggregate amount of £584,000 (nominal value £4,257, representing 0.3% of the called up share capital as at the start of the period) under this authority in order to control the discount. As at 31 December 2024, authority to buy back a further 28,176,340 Ordinary Shares remained. # Sale of Shares from Treasury At the AGM held on 1 May 2024, the Company was authorised to waive pre-emption rights in respect of treasury shares, such authority to expire on conclusion of the 2025 AGM. At the start of the year, 400,000 Ordinary Shares were held in treasury. The Company bought back 425,716 shares during the year, resulting in 825,716 shares being held in treasury as at 31 December 2024. Following the year end, a further 250,000 shares were bought back and as at the date of this report, 1,075,716 shares were held in treasury. # Exit Opportunity At a General Meeting held on 10 December 2024 the Company was granted authority to purchase up to 100% of the Company's Ordinary Shares in issue at the close of business on 15 November 2024, or such other number as shall be equal to the number of Ordinary Shares in issue immediately prior to the commencement of the General Meeting on 10 December 2024. The Company received applications from eligible Shareholders to tender an aggregate of 3,637,759 shares, representing 2.58% of the issued Ordinary Share capital, at a price of 152.37 pence. The Ordinary Shares bought back were cancelled. For more information on the Exit Opportunity please see page 7. 10 AVI Japan Opportunity Trust plc / Annual Report 2024 ## Governance / Directors' Report continued ### Related Party Transactions The Company's related parties in the year were its Directors, the Investment Manager and Finda Telecoms Oy as the Company's largest Shareholders. There have been no material transactions between the Company and its Directors during the year and the only amounts paid to them were in respect of expenses and remuneration for which there were no outstanding amounts payable. Directors' shareholdings are disclosed on page 48. In relation to the provision of services by the Investment Manager, other than fees payable by the Company in the ordinary course of business and the facilitation of marketing activities with third parties, there have been no material transactions with the Investment Manager affecting the financial position of the Company during the year under review. More details on transactions with the Investment Manager, including amounts outstanding at 31 December 2024 and shares held by AVI, are given in note 16 on page 72. Finda Telecoms Oy is deemed to be a significant shareholder holding in the Company's issued share capital. During the year under review, no transactions took place between the Company and Finda Telecoms Oy. ### Interests in Share Capital At 31 December 2024, the following holdings representing more than 3% of the Company's voting rights had been reported to the Company in accordance with the Disclosure Guidance and Transparency Rules. This information was correct at the date of notification, however it should be noted that these holdings may have changed since notified to the Company and may not therefore be wholly accurate statements of actual holdings as at 31 December 2024. However, notification of any change is not required until the next applicable threshold is crossed. For the sake of completeness, other holdings which exceed three per cent. but where no notification has been received, are also included. | | Number of Ordinary Shares | Percentage of voting rights | | --- | --- | --- | | Finda Telecoms Oy | 30,000,000 | 22.00% | | City of London Investment Management Company Limited | 18,072,623 | 13.25% | | Hargreaves Lansdown | 7,319,448 | 5.37% | | Investec Wealth & Investment Limited | 6,590,086 | 4.83% | | Charles Stanley | 5,714,712 | 4.19% | | 1607 Capital Partners | 5,455,260 | 4.00% | Between 31 December 2024 and 4 April 2025, Finda Telecoms Oy notified the Company of an increase in their voting rights to 22.04%, while City of London Investment Management Company Limited's voting rights decreased to 12.76%. As at 31 December 2024, AVI Ltd & AVI employees owned 3 million shares. ### Dividends The Directors are proposing a final dividend of 1.20p per share for the year to 31 December 2024. Subject to the approval of Shareholders at the forthcoming AGM, the proposed final ordinary dividend will be payable on 23 May 2025 to Shareholders on the register at the close of business on 25 April 2025. The ex-dividend date will be 24 April 2025. ### Financial Instruments The Company utilises financial instruments, which comprise equity investments, cash balances, receivables, payables and borrowings. The risks identified arising from the financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency risk), liquidity risk and credit and counterparty risk. The Company may also enter into derivative transactions to manage risk. The Board and Investment Manager consider and review the risks inherent in managing the Company's assets which are detailed in note 15. ### Annual General Meeting ("AGM") The AGM will be held on Tuesday 20 May 2025 at the offices of the Association of Investment Companies, 9th Floor, 24 Chiswell Street, London, EC1Y 4YY. The Notice of Meeting and details of the resolutions to be put to the AGM are contained in the circular sent to Shareholders with this report. ### Directors' Statement as to Disclosure of Information to Auditor Each of the Directors, who were all members of the Board at the date of approval of this report, confirms that to the best of his or her knowledge and belief, there is no information relevant to the preparation of the Annual Report of which the Company's Auditors are unaware and he or she has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company's Auditors are aware of that information. ### Listing Rule 6.6.4 Listing Rule 6.6.4 requires the Company to include certain information specified in Listing Rule 6.6.1R in a single identifiable section of the Annual Report or a cross reference table indicating where the information is set out. The Directors confirm that no disclosures are required in relation to Listing Rule 6.6.1R. ### Other Information Information on future developments and financial risks is detailed in the Strategic Report. On 28 March 2025, the Company formally agreed with the Bank of Nova Scotia to increase the notional size of the Revolving Credit Facility to JPY 6.6 billion, representing approximately 15% of the NAV based on end-of-February figures. The Company released an announcement regarding a proposed transaction with Fidelity Japan Trust plc ("FJV") on 3 April 2025, setting out a written proposal for an acquisition of assets submitted to the FJV Board during 2024, such that FJV shareholders can independently assess FJV's performance and consider the alternative solution presented to their board. Under the proposal, FJV shareholders would be offered the choice of (i) rolling their investment into new shares to be issued by AJOT and/or (ii) electing for a cash exit, capped at 25 per cent. of FJV's shares in issue (excluding treasury shares). At the time of writing, there can be no certainty that engagement will progress, that heads of terms will be agreed, or whether this proposed transaction will take place. Further details of post balance sheet events can be found in note 17. By order of the Board For and on behalf of MUFG Corporate Governance Limited AVI Japan Opportunity Trust plc / Annual Report 2024 SR FS SI 11 # Governance / Corporate Governance Statement The Corporate Governance Statement forms part of the Report of the Directors. # Applicable Corporate Governance Codes The Company is committed to high standards of corporate governance. This statement, together with the Statement of Directors' Responsibilities on page 49, indicates how the Company has applied, for the year under review, the principles of recommended governance of the Financial Reporting Council's ("FRC") 2018 UK Corporate Governance Code (the "UK Code") and The AIC's Code of Corporate Governance issued in 2019, (the "AIC Code"), which complements the UK Code and provides a framework of best practice for investment trusts. The Board welcomed the 2024 AIC Code published in August 2024 following the publication of the 2024 UK Code. The Company will report against the 2024 AIC Code for the year ending 2025 with the exception of provision 34, which relates to internal controls and will be reported against in the Annual Report for the year ending 2026. The Board considers that reporting against the principles and provisions of the AIC Code, which includes the UK Code, offers Shareholders comprehensive information about the Company's Corporate Governance compliance. The UK Code is available on the FRC website (www.frc.org.uk). The AIC Code is available on the AIC website (www.theaic.co.uk) and includes an explanation of how the AIC Code adapts the principles and provisions set out in the UK Code to make them relevant for investment companies. # Statement of Compliance The UK Code includes provisions relating to: the role of the chief executive; executive directors' remuneration; management performance; remuneration and succession planning; workforce policies (including remuneration) and practices; and the need for an internal audit function. For the reasons explained in the AIC Code, the Board considers that these provisions are not relevant to the Company, being an externally managed investment company with no employees. The Company has therefore not reported further in respect of these provisions. The Board is responsible for ensuring the appropriate level of corporate governance and considers that the Company has complied with the principles and provisions of the AIC Code during the year under review except as disclosed below: - provision 14: No senior independent director has been appointed. All the Directors have different qualities and areas of expertise on which they lead, and concerns can be conveyed to another Director if Shareholders do not wish to raise concerns with the Chairman or the Chair of the Audit Committee. Any other Director will chair the Board or Nomination and Remuneration Committee meeting when the annual evaluation of the Chairman's performance, his re-election or the recruitment of his successor is discussed; - provision 17: As all of the Directors are independent of the Investment Manager, the Board is of the view that there is no requirement for a separate management engagement committee. The Board as a whole will review the terms of appointment and performance of the Investment Manager and the Company's other third-party service providers (other than the Auditor who is reviewed by the Audit Committee); - provision 23: Directors are not appointed for a specified term, as all Directors are non-executive and the Board believes that a Director's performance and their continued contribution to the running of the Company is of greater importance and relevance to Shareholders than the length of time for which they have served as a Director of the Company. Each Director is subject to the election and re-election provisions set out in the Articles, which provide that a Director appointed during the year is required to retire and seek election by Shareholders at the next AGM following their appointment. Thereafter the Directors intend to offer themselves for re-election annually but, under the Articles, are only required to submit themselves for re-election at least once every three years. Directors who have served for more than nine years will be subject to annual re-election, provided that the Nomination and Remuneration Committee and the Board remain satisfied that the relevant Director's independence is not impaired by their length of service. # Role of the Board A management agreement between the Company and the Investment Manager sets out the matters over which the Investment Manager has authority. This includes management of the Company's assets and some marketing services. The Board is collectively responsible for the success of the Company and a formal schedule of matters reserved to the Board for decision has been approved, which is available on the Company's website: www.ajot.co.uk. This includes strategy and management, Board and committee membership and other appointments, appointment and oversight of delegates, corporate structure and share capital, remuneration, financial reporting and controls, company contracts, internal controls, corporate governance and policies. The Board is responsible for the approval of annual and half-year results and other public documents and for ensuring that such documents provide a fair, balanced and understandable assessment of the Company's position and prospects. The Board's role is to provide leadership within a framework of prudent and effective controls that enable risk to be assessed and managed. It is responsible for setting the Company's standards and values and for ensuring that its obligations to its Shareholders and other stakeholders are understood and met. The Board sets the Company's strategic aims (subject to the Company's Articles of Association, and to such approval of the Shareholders in General Meeting as may be required from time to time) and ensures that the necessary resources are in place to enable the Company's objectives to be met. The Articles of Association may only be amended by way of a special resolution of shareholders. The Board meets formally at least four times a year, with additional ad hoc Board or Committee meetings arranged when required. The Directors have regular contact with the Investment Manager and Company Secretary between formal meetings. Full and timely information is provided to the Board to enable it to function effectively and to allow Directors to discharge their responsibilities. At each meeting the Directors follow a formal agenda, which includes a review of the Company's NAV, share price, premium, financial position, gearing levels, peer group performance, investment performance, asset allocation and transactions and any other relevant business matters to ensure that control is maintained over the affairs of the Company. The Board monitors compliance with the investment restrictions required by the FCA and s1158 of the Corporation Tax Act 2010, the Company's objective, investment, borrowing and hedging policies and reviews the investment strategy. The Board regularly receives reports from the Investment Manager on marketing and investor relations. The proceedings at all Board and Committee meetings are fully recorded through a process that allows any Director's concerns to be recorded in the minutes. 42 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Governance / Corporate Governance Statement continued Role of the Board continued In accordance with Listing Rule 6 Annex 1R, the below tables, in prescribed There is an agreed procedure for Directors to take independent professional format, show the gender and ethnic background of the Directors at the advice if necessary and at the Company’s expense. This is in addition to the year end. access that every Director has to the advice and services of the Company Number Secretary, MUFG Corporate Governance Limited, which is responsible to the Number of of senior Board for ensuring that Board procedures are followed, and that applicable Board Percentage positions on rules and regulations are complied with. Gender identity members on the Board the Board* Board Composition Men 1 33.33% 1 The Board is chaired by Norman Crighton, and consists of four non-executive Directors. All members of the Board are regarded as Women 2 66.67% 1 independent of the Investment Manager and the Chairman. The Directors have a breadth of investment, financial and professional experience relevant to Not specified/prefer not to say – – the Company’s business and brief biographical details of each Director are set | out on page 38. | | | | | Number of | | | --- | --- | --- | --- | --- | --- | --- | | A review of Board composition and balance is included as part of the annual | | Number of | | | | senior | | performance evaluation of the Board, details of which may be found below. | | | Board | Percentage | positions on | | | | Ethnic background | members | | on the Board | the Board* | | The Directors recognise the benefits of Board diversity and continually review the Board’s and individual Directors’ effectiveness. They aim to balance White British or other White knowledge of the Company, diversity and continuity in their relationship with (including minority white groups) 3 100% 2 the Investment Manager. The Board has adopted a Diversity Policy to ensure Directors bring a wide range of skills, knowledge, experience, backgrounds, Mixed/Multiple Ethnic Groups – – – and perspectives. While the Board does not set specific targets, diversity is Asian/Asian British – – – considered when evaluating the skills, knowledge and experience needed for each Board vacancy. The Board has established objectives to achieve Black/African/Caribbean/ diversity: Black British – – – • all Board appointments will be made on merit, in the context of the skills, Other ethnic group, background, knowledge and experience that are needed for the Board to including Arab – – – be effective; and • long lists of potential non-executive Directors should include diverse Not specified/prefer not to say – – – candidates of appropriate merit. * Listing Rule 6.6.6(9) includes only the positions of chair, chief executive, senior independent The terms and conditions of Directors’ appointments are set out in formal director and chief financial officer in this category. Other than the Chairman of the Board, the letters of appointment, copies of which are available for inspection on request Company does not have these roles, as it is an externally managed investment trust without at the Company’s registered office during normal business hours and at the employees and therefore this target is not applicable. The Company has chosen to report against this target by including the position of Audit Committee Chair as a senior position. Company’s AGM. The data in the above tables was collected through self-reporting by the The Board notes the FCA’s rules on diversity and inclusion on company Directors, who were asked to indicate which of the categories specified boards included in Listing Rule 6.6.6 (9-11), which are as follows: in the prescribed tables were most applicable to them. • At least 40% of individuals on the Board to be women; On 30 September 2024, the number of Directors was reduced to three. • At least one senior Board position to be held by a woman; and Since the period end, one additional Director resigned, and two non-executive • At least one individual on the Board to be from a minority ethnic Directors were appointed, effective 12 February 2025. The Board has background. consistently met the target of having at least one individual from a minority ethnic background, except between October 2024 and early February 2025. At the time of this report, the Board comprised four members, including one individual from a minority ethnic background. As at the date of this report, the gender breakdown is as follows: one female (25%) and three males (75%). Responsibilities of the Chairman, the Board and its Committees The Chairman leads the Board and is responsible for its overall effectiveness in directing the affairs of the Company. The Company has adopted a document setting out the responsibilities of the Chairman, which is available on the website: www.ajot.co.uk. Tenure Directors are generally initially appointed by the Board, until the following AGM when, as required by the Company’s Articles of Association, they will stand for re-election by Shareholders. Thereafter, a Director’s appointment is subject to an annual performance evaluation and the approval of Shareholders at each AGM, in accordance with corporate governance best practice. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 43 Tenure continued The prescribed procedures have been followed in deciding whether, and on Under the Articles of Association, Shareholders may remove a Director before what terms, to authorise situational conflicts, and the Board believes that the end of his or her term by passing a special resolution at a meeting, and the system it has in place for reporting and considering situational conflicts may by ordinary resolution appoint another person who is willing to act to be continues to operate effectively. The Chairman has had no relationship that a Director in his or her place. A special resolution is passed if more than 75% may have created a conflict between his interests and those of the Company’s and an ordinary resolution if more than 50% of the votes cast, in person or by Shareholders. proxy, are in favour of the resolution. Induction and Training In accordance with the above and the AIC Code, all Directors will stand for On appointment, the Company Secretary provides all Directors with induction re-election and or election at the 2025 AGM. The contribution and training. The training covers the Company’s investment strategy, policies performance of the Directors seeking re-election was reviewed by the and practices. The Directors are also given regular briefings on changes in Nomination and Remuneration Committee at its meeting in March 2025, law and regulatory requirements that affect the Company and the Directors. which recommended to the Board their continuing appointment. It is the Chairman’s responsibility to ensure that the Directors have sufficient The Board has adopted a formal tenure policy for Directors based on a knowledge to fulfil their role and Directors are encouraged to attend industry continual review of performance. The Board does not believe that length of and other seminars covering issues and developments relevant to investment service in itself necessarily disqualifies a Director from seeking reappointment trust companies. Regular reviews of Directors’ training needs are carried out but, when making a recommendation, the Board takes into account the by the Chairman by means of the evaluation process described below. ongoing requirements of the UK Corporate Governance Code, including the The Directors have access to the advice and services of the Company need to refresh the Board and its Committees. It is not anticipated that any Secretary through its appointed representative, who is responsible for of the Directors would normally serve in excess of nine years. In exceptional general secretarial functions and for assisting the Company with compliance circumstances, which would be fully explained to Shareholders at the time, a with its continuing obligations as a company that falls under the Equity one or two-year extension might be appropriate. Shares (Commercial Companies) category. The Company Secretary is also Similarly, it is not anticipated that the Chairman will normally serve in excess responsible for ensuring good information flows between all parties. of nine years. However, in exceptional circumstances, which would be fully Directors’ Insurance and Indemnifcation explained at the time, a one or two-year extension might be appropriate, given Directors’ and Officers’ liability insurance cover was in place throughout the the entirely non-executive nature of the Board and in particular where the year and remains in place at the date of this report. The Company’s Articles of Chairman has not been appointed in his position for the entire duration of his Association provide, subject to the provisions of UK legislation, an indemnity tenure as a Director. As with all Directors, the continuing appointment of the for Directors in respect of costs which they may incur relating to the defence Chairman is subject to ongoing review of performance, including a satisfactory of any proceedings brought against them arising out of their positions as annual evaluation, annual re-election by Shareholders and may be further Directors, in which they are acquitted or judgment is given in their favour by subject to the particular circumstances of the Company at the time he or she the Court. The Company has granted indemnity to Directors to the extent intends to retire from the Board. permitted by law in respect of liabilities that may attach to them in their Board Independence capacity as Directors of the Company. All Directors are non-executive, have a range of other interests and are not Board Committees dependent on the Company itself. At the Nomination and Remuneration The Board delegates certain responsibilities and functions to the Audit Committee meeting in March 2025, the Directors reviewed their independence Committee and the Nomination and Remuneration Committee. Both and confirmed that all Directors remain wholly independent of the Investment Committees comprise all Directors. The terms of reference for these Manager. The Board has determined that all Directors are independent in Committees are available on the website www.ajot.co.uk or via the Company character and judgement and that their individual skills, broad business Secretary. experience and knowledge and understanding of the Company are of great A separate Management Engagement Committee has not been established benefit to Shareholders. as the Board consists of only independent non-executive Directors. The There were no contracts subsisting during or at the end of the year in which investment management agreement and performance of the Investment a Director of the Company is or was materially interested and which is or was Manager is reviewed by the Board as a whole on a regular basis, ensuring significant in relation to the Company’s business. No Director has a contract that the terms are fair and reasonable and that its continuance, given the of service with the Company and there are no agreements between the Company’s performance over both short and longer terms, is in the best Company and its Directors concerning compensation for loss of office. interests of the Company and its Shareholders. The Board as a whole also Directors’ Conflicts of Interest reviews the terms of appointment and performance of the Company’s other The Company’s Articles of Association permit the Board to consider and, if it service providers. sees fit, to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the interests of the Company (“situational conflicts”). A schedule of interests for each Director is maintained by the Company and reviewed at every Board meeting. The Board has a formal system in place, in line with the Articles of Association for Directors, to declare any new situational conflicts to be considered for authorisation by those Directors who have no interest in the matter being considered. In deciding whether to authorise a situational conflict, the non-conflicted Directors act honestly and in good faith with a view to the best interests of the Company and they may impose limits or conditions when giving the authorisation, or subsequently, if they think this is appropriate. Any situational conflicts considered, and any authorisations given, are recorded in the relevant meetings’ minutes and the register of interests. 44 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Governance / Corporate Governance Statement continued Audit Committee With the appointment of Andrew and Tom, further changes are planned in the The Audit Committee comprises all Directors. Throughout the year under coming years to refresh the entire Board. The Nomination and Remuneration review, the Audit Committee was chaired by Katya Thomson and following Committee has scheduled these Board changes in a manner which will at her resignation after the year end, Margaret Stephens succeeded her in times result in the Board consisting of five Directors, to ensure an orderly this role. Both Katya and Margaret are chartered accountants. The other handover of in particular the functions of the Chair of the Audit Committee Audit Committee members bring a combination of financial, investment and and the Chairman of the Board. Further information on succession planning other experience gained throughout their careers. The Board is satisfied and recruitment will be provided in future Annual Reports, as and when that at least one of the Audit Committee members has recent and relevant appropriate. financial experience. The Audit Committee as a whole is considered to have Board and Committee Meeting Attendance competence relevant to the sector. All members of the Audit Committee are The table details the number of scheduled Board and Committee meetings independent. The Chairman of the Board is a member of the Audit Committee held during the year under review and the number of meetings attended by but, in line with the AIC Code, does not chair it and was considered each Director. independent upon appointment. The Chairman’s membership of the Audit Nomination and Committee is considered appropriate given his extensive knowledge of the Audit Remuneration Investment Trust sector. Names Board Committee Committee The Report of the Audit Committee, which forms part of this Corporate Governance Statement, can be found on pages 50 and 51. Norman Crighton 4(4) 2(2) 2(2) Nomination and Remuneration Committee Margaret Stephens 4(4) 2(2) 2(2) The Nomination and Remuneration Committee, consisting of all of the Directors and chaired by Margaret Stephens, meets at least annually. Katya Thomson* 4(4) 2(2) 2(2) The Nomination and Remuneration Committee is responsible for setting Yoshi Nishio* 3(3) 2(2) 1(1) Directors’ fees in line with the Remuneration Policy set out on page 46, which is subject to periodic Shareholder approval. The Nomination and * Ms Thomson resigned on 21 January 2025, while Mr Nishio resigned on 30 September 2024. Remuneration Committee is also responsible for ensuring that the Board has Since the period end, two non-executive Directors, Andrew Rose and Tom an appropriate balance of skills and experience to carry out its duties, to select Yoritaka have been appointed, effective 12 February 2025. and propose suitable candidates for appointment when necessary and for The number in brackets denotes the number of meetings each Director was making recommendations regarding the re-election of existing Directors. entitled to attend. When considering succession planning and tenure policy, the Nomination The Directors also met on an ad hoc basis during the year to undertake and Remuneration Committee bears in mind the balance of skills, knowledge, business, such as discussing the renewal of the Company’s loan facility, experience, gender and diversity of Directors, the achievement of the the tender offer, and approving the tender offer circular. They also reviewed Company’s investment objective and compliance with the Company’s portfolio developments with the Investment Manager. Articles of Association and the AIC Code. The Nomination and Remuneration Committee keeps the Company’s needs under continual review and will make Performance Evaluation recommendations when the recruitment of additional non-executive Directors In January 2025, the Nomination and Remuneration Committee conducted an is required. Once a decision is made to recruit additional Directors to the internal performance review of the effectiveness of the Board, its Committees, Board, a formal job description is drawn up, based on a review of the skills the Chairman and the Directors. required to complement those of the remaining Directors. At the time of this The review was carried out by way of questionnaires completed by the report, the Company had engaged the services of an independent external Directors. The results were collated and a report detailing the responses was consultancy with no connection to the Company, Nurole, and successfully considered by the Committee along with considering areas of focus and recruited two non-executive Directors: Andrew Rose and Tom Yoritaka. We improvement for 2026. warmly welcome them on board. This process was facilitated by the Company Secretary, MUFG Corporate The Nomination and Remuneration Committee also reviews and recommends Governance Limited. The scope of the questionnaire was designed to cover to the Board the Directors seeking re-election and election. Recommendation all aspects of the Board’s operation, including the management of meetings, is not automatic and will follow an annual performance evaluation of the Board, the strengths and independence of the Board and the Chairman, individual its Committees and individual Directors and consideration of the Director’s Directors and the performance of its Committees, each Director’s perspective independence. The evaluation of individual Directors takes into account on the Board’s future priorities, training requirements and the way the Board whether they have devoted sufficient time and contributed adequately to works as a team. the work of the Board and its Committees. The evaluation of the Board and The Committee concluded that the evaluation demonstrated that the its Committees considers the balance of experience, skills, independence, composition of the Board and its Committees continued to be appropriate and corporate knowledge, its diversity, including gender, and how it works it provided adequate supervision, oversight and challenge. together. Internal Control The Nomination and Remuneration Committee met in March 2025 to carry out The Board has overall responsibility for the Company’s system of internal its annual review of the Board, its composition and size and its Committees, control and for reviewing its effectiveness. The Audit Committee supports the the results of which are detailed in the Performance Evaluation paragraph on Board in continuously monitoring of the internal control and risk management this page. Two of the current Directors have served for a period of six years. framework. The Board has established an ongoing process for identifying, Their tenure is considered by the Nomination and Remuneration Committee as evaluating and managing the principal and new or emerging risks faced part of the review of succession planning. by the Company. The process accords with the FRC’s guidance on Risk Management, Internal Control and Related Business and Financial Reporting published in September 2014. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 45 Internal Control continued Accountability and Relationship with AVI The risk management process and system of internal control were in operation The Statement of Directors’ Responsibilities in respect of the Financial throughout the year and up to the date of this report. The system is designed Statements is set out on page 49, the Independent Auditors’ Report on pages to meet the specific risks faced by the Company, considering its reliance on its 52 to 55 and the Viability Statement on page 33. service providers and their internal controls. Therefore, the system manages The Board has delegated contractually to external third parties, including rather than eliminates the risk of failure to achieve the Company’s business the Investment Manager, the management of the investment portfolio, the objectives providing reasonable but not absolute assurance against material custodial services (including the safeguarding of the assets), the day-to-day misstatement or loss. accounting and cash management, company secretarial and administration In arriving at its judgement of the risks the Company faces, the Board, through requirements and registration services. Each of these contracts was entered the Audit Committee, has considered the Company’s operations in light of the into after full and proper consideration by the Board of the quality and cost following factors: of the services offered, including the control systems in operation in so far as they relate to the affairs of the Company. Further information on management • the nature and extent of risks which it regards as acceptable for the arrangements can be found on page 26. Company to bear within its overall business objective; • the threat of such risks becoming reality; The Board receives and considers regular reports from the Investment Manager and ad hoc reports and information are supplied to the Board as • the Company’s ability to reduce the incidence and impact of risk on its required. The Investment Manager takes decisions as to the purchase and performance; and sale of individual investments. The Investment Manager also ensures that all • the extent to which third parties operate the relevant controls. Directors receive, in a timely manner, all relevant management, regulatory and The Company maintains a risk matrix which identifies key risks faced by the financial information. Company and has controls in place to mitigate those risks. The risks are Representatives of AVI attend Board meetings, enabling the Directors to assessed based on their likelihood, the impact on the business if they occur probe further on matters of concern. The Board and the Investment Manager and the effectiveness of the controls in place to mitigate them. This risk matrix operate in a supportive, co-operative and open environment. is reviewed twice a year by the Audit Committee and as necessary at other Continued Appointment of the Investment Manager times. The Board considers the arrangements for the provision of investment The Directors confirm that they have carried out a robust assessment of the management and other services to the Company on an ongoing basis. In Company’s emerging and principal risks as identified by the Board, which are addition to the monitoring of investment performance at each Board meeting, set out on pages 36 and 37, as well as the controls in place to manage or an annual review of the Company’s investment performance over both the mitigate those risks. short and longer terms is undertaken. The Board reviews financial information produced by the Investment Following an annual review, it is the Directors’ opinion that the continuing Manager and the Administrator regularly. Most functions for the day-to-day appointment of AVI, the Investment Manager, on the existing terms, is in the management of the Company are subcontracted, and the Directors therefore best interests of the Company and its Shareholders as a whole. obtain assurances and information, including internal control reports, from key By order of the Board third-party suppliers regarding the internal systems and controls operated in their respective organisations. During the year under review, the Board also For and on behalf of MUFG Corporate Governance Limited requested and reviewed updates from key service providers on business continuity, cyber security and fraud prevention. By the means of the procedures set out above, the Board confirms that it has reviewed, and is satisfied with, the effectiveness of the Company’s system Company Secretary of internal control for the year ended 31 December 2024, and to the date of 4 April 2025 approval of this Annual Report and Financial Statements. During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore, a confirmation in respect of necessary actions has not been considered appropriate. Internal Audit Function As the Company is an externally managed investment company with day-to-day management and administrative functions being outsourced to third parties, and as the Company does not have executive Directors, employees or internal operations, the Board does not consider it necessary to establish an internal audit function, as it believes the existing system of monitoring and reporting by the third parties to be appropriate and sufficient. 10 AVI Japan Opportunity Trust plc / Annual Report 2024 # Governance / Directors' Remuneration Report ## Directors' Remuneration Policy The Remuneration Policy provides details of the remuneration policy for the Directors of the Company. The Remuneration Policy was approved by Shareholders at the AGM of the Company held on 3 May 2022. The Remuneration Policy is provided below and will be put to Shareholders at the 2025 AGM as an ordinary resolution. The Directors consider the Remuneration Policy to remain fit for purpose and are proposing no amendments. The Company follows the recommendation of the AIC Code of Corporate Governance that non-executive Directors' remuneration should reflect the time commitment and responsibilities of the role. The Board's policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole and be determined from time to time at the Board's discretion with reference to comparable organisations and appointments. All Directors are non-executive, appointed under the terms of letters of appointment. There are no service contracts in place. The Company has no employees. In line with the majority of investment trusts and the AIC Code, there are no performance conditions attached to the remuneration of the Directors as the Board does not consider such arrangements or benefits necessary or appropriate for non-executive Directors. The Board has set three levels of fees: one for a Director and additional fees for the Chair of the Audit Committee and the Chairman of the Board. Fees are reviewed annually in accordance with the above policy. Annual fees are prorated where a change takes place during a financial year. The fee for any new Director appointed to the Board will be determined on the same basis. In addition to the annual fee, under the Company's Articles of Association, any Director who is requested to perform services which, in the opinion of the Board, go beyond the ordinary duties of a director, may be paid such extra remuneration as the Board may in its discretion decide in addition to or in substitution for any other remuneration that they may be entitled to receive. Should any extra remuneration be paid during the year, details of the events, duties and responsibilities that gave rise to the additional Directors' fees would be disclosed in the Annual Report. Directors are also entitled to reimbursement of reasonable fees and expenses incurred by them in the performance of their duties. The approval of Shareholders would be required to increase the aggregate annual Directors' remuneration limit of £250,000, as set out in the Company's Articles of Association. None of the Directors has any entitlement to pensions or pension-related benefits, medical or life insurance schemes, share options, long-term incentive plans, or performance-related payments. No Director is entitled to any other monetary payment or any assets of the Company, except in their capacity (where applicable) as Shareholders of the Company. Directors' Letters of Appointment expressly prohibit any entitlement to payment on loss of office. Directors' and Officers' liability insurance cover is maintained by the Company, at its expense, on behalf of the Directors. The Company has also provided indemnities to the Directors in respect of costs or other liabilities they may incur in connection with any claims relating to their performance or the performance of the Company while they are Directors. The Company is committed to ongoing Shareholder dialogue. Any views expressed by Shareholders on the fees paid to Directors will be taken into consideration by the Board when reviewing the Directors' Remuneration Policy and during the annual review of Directors' fees. ## Report on Implementation This Report is prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008 as amended in August 2013. The report also meets the relevant requirements of the Companies Act 2006 (the "Act") and the Listing Rules of the FCA and describes how the Board has applied the principles relating to Directors' remuneration. The Company's Auditors are required to report on certain information contained within this report; where information set out below has been audited it is indicated as such. All Directors are non-executive, and the Company has no chief executive officer or employees; as such some of the reporting requirements contained in the Regulations are not applicable and have not been reported on, including the requirement for a future policy table and an illustrative representation of the level of remuneration that could be received by each individual Director. It is believed that all relevant information is disclosed within this report in an appropriate format. The Board may amend the level of remuneration paid to individual Directors within the parameters of the Remuneration Policy. ## Statement from the Chair of the Nomination and Remuneration Committee Directors' remuneration is determined by the Nomination and Remuneration Committee, at its discretion, within an aggregate set amount per annum. This aggregate ceiling had been set at £250,000 in the Company's Articles of Association and in the Remuneration Policy as approved on 2 May 2022 and being put to shareholders for approval at the 2025 AGM. The Nomination and Remuneration Committee comprises all Directors and is chaired by Margaret Stephens. Each Director abstains from voting on their own individual remuneration. The Board has not been provided with advice or services by any person in respect of its consideration of the Directors' remuneration. During the year the Board carried out a review of the level of Directors' fees in accordance with the Remuneration Policy. As part of this review, the Board considered the Company's performance, the demands placed on Directors' time and the level of fees being paid to non-executive directors in the Company's peer group. The review concluded that the fees being paid were consistent with the market rates for the work performed. Consequently, effective 1 January 2025, fees were adjusted in line with the Consumer Price Index ("CPI"). Fees were increased to £45,800 (previously £45,000) per annum for the Chairman, £41,700 (previously £41,000) per annum for the Chairperson of the Audit Committee and £38,600 (previously £38,000) per annum for other Directors. The Board is satisfied that the changes to the remuneration of the Directors are compliant with the Directors' Remuneration Policy. There have been no other major decisions on Directors' remuneration or any other changes to the remuneration paid to each individual Director in the year under review. ## Directors' Emoluments (audited information) Directors are only entitled to fixed fees at such rates as are determined by the Board from time to time and in accordance with the Directors' Remuneration Policy as approved by the Shareholders. None of the Directors has any entitlement to pensions or pension-related benefits, medical or life insurance schemes, share options, long-term incentive plans, or performance-related payments. No Director is entitled to any other monetary payment or any assets of the Company. Accordingly, the Single Total Figure table below does not include columns for any of these items or their monetary equivalents. Directors' and Officers' liability insurance is maintained and paid for by the Company on behalf of the Directors. AVI Japan Opportunity Trust plc / Annual Report 2024 SR FS SI 17 # **Directors' Emoluments (audited information) continued** In line with market practice, the Company has agreed to indemnify the Directors in respect of costs, charges, losses, liabilities, damages and expenses, arising out of any claims or proposed claims made for negligence, default, breach of duty, breach of trust or otherwise, or relating to any application under Section 1157 of the Companies Act 2006, in connection with the performance of their duties as Directors of the Company. The indemnities would also provide financial support from the Company should the level of cover provided by the Directors' and Officers' liability insurance maintained by the Company be exhausted. The Directors who served during the year received the following emoluments: # **Single Total Figure Table (audited information)** | Name of Director | Fees paid* | | Taxable benefits | | Total | | % change 2023-2024 | % change 2022-2023 | % change 2021-2022 | % change 2020-2021 | % change 2019-2020 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | | | | | | | Norman Crighton^{1} | 55,000 | 40,500 | – | – | 55,000 | 40,500 | 35.8% | 8.0% | 5.3% | 1.8% | 12.7% | | Margaret Stephens | 38,000 | 35,100 | – | – | 38,000 | 35,100 | 8.3% | 8.0% | 6.1% | 2.1% | 15.2% | | Katya Thomson^{2} | 41,000 | 37,800 | – | – | 41,000 | 37,800 | 8.5% | 8.0% | 5.7% | 1.9% | 15.2% | | Yoshi Nishio^{1, 2} | 38,500 | 35,100 | – | – | 38,500 | 35,100 | 9.7% | 8.0% | 6.1% | 2.1% | 13.9% | | | 172,500 | 148,500 | – | – | 172,500 | 148,500 | 16.2% | 8.0% | 5.8% | 2.0% | 14.2% | \* Excluding employer's National Insurance Contribution. 1 Received an additional, non-recurring remuneration of £10,000 in respect of meetings attended in Japan. 2 Ms Thomson resigned on 21 January 2025, while Mr Nishio resigned on 30 September 2024. Since the period end, two non-executive Directors have been appointed, effective 12 February 2025. # **Sums Paid to Third Parties (audited information)** None of the fees referred to in the above table were paid to any third party in respect of the services provided by any of the Directors. # **Other Benefits** Taxable benefits – Article 105 of the Company's Articles of Association provides that Directors are entitled to be reimbursed for reasonable expenses incurred by them in connection with the performance of their duties and attendance at Board and General Meetings or any other meeting which they, as Directors, are entitled to attend. Pensions-related benefits – Article 106 permits the Company to provide gratuities or pensions or similar benefits for Directors of the Company. However, no pension schemes or other similar arrangements have been established and no Director is entitled to any pension or similar benefits. # **Performance** The chart below illustrates the total Shareholder return for a holding in the Company's shares, as compared to the MSCI Japan Small Cap (£ adjusted total return), which the Board has adopted as the measure for both the Company's performance and that of the Investment Manager for the year, over the period ![img-13.jpeg](img-13.jpeg) 4 AVI Japan Opportunity Trust plc / Annual Report 2024 # Governance / Directors' Remuneration Report continued since inception of the Company. # Relative Importance ofi Spend on Pay The table below shows the proportion of the Company's income spent on pay. | | 2024 £'000 | 2023 £'000 | Difference £'000 | | --- | --- | --- | --- | | Spend on Directors' fees* | 173 | 149 | 24 | | Distribution to Shareholders | 3,036 | 2,390 | 646 | | Management fee and other expenses** | 2,830 | 2,508 | 322 | * As the Company has no employees the total spend on remuneration comprises only the Directors' fees. ** Note: the items listed in the table above are as required by the Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 s.20, with the exception of the management fee and other expenses, which has been included because the Directors believe it will help Shareholders' understanding of the relative importance of the spend on pay. The figures for this measure are the same as those shown in note 3 to the financial statements. # Statement ofi Directors' Shareholding and Share Interests (audited information) Neither the Company's Articles of Association nor the Directors' Letters of Appointment require a Director to own shares in the Company. The interests of the Directors and their connected persons in the equity and debt securities of the Company at 31 December 2024 are shown in the table below: | Name of Director | Ordinary Shares | | --- | --- | | Norman Crighton | 26,575 | | Yoshi Nishio* | – | | Margaret Stephens | 10,000 | | Katya Thomson* | 10,000 | | Total | 46,575 | * Ms Thomson resigned on 21 January 2025, while Mr Nishio resigned on 30 September 2024. Andrew Rose, who was appointed as a Director following the year end, holds 60,000 shares as at the date of this report. There have been no other changes to Directors' interests between 31 December 2024 and the date of this Report. # Statement ofi Voting at AGM At the 2024 AGM, 49,994,647 votes (99.78%) were received voting for the resolution seeking approval of the Directors' Remuneration Report, 110,120 (0.22%) were against, none were at the Chairman's discretion and 200 were withheld; the percentages of votes excludes votes withheld. In relation to the approval of the Remuneration Policy which was most recently approved at the 2022 AGM, A total of 42,292,385 votes (99.33%) were received in favor of the resolution, 98,679 votes (0.23%) were against, 187,917 votes (0.44%) were at the Chairman's discretion, and 4,500 votes were withheld. The percentages of votes excludes votes withheld. # Annual Statement On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, I confirm that the above Report on Remuneration Implementation summarises, as applicable, for the year to 31 December 2024: - (a) the major decisions on Directors' remuneration; - (b) any discretion which has been exercised in the award of Directors' remuneration; - (c) any substantial changes relating to Directors' remuneration made during the year; and - (d) the context in which the changes occurred and decisions have been taken. A resolution to approve this Directors' Remuneration Report will be proposed at the AGM to be held on 20 May 2025. Margaret Stephens Chair ofi the Nomination and Remuneration Committee 4 April 2025 AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 49 ### Governance / Statement of Directors' Responsibilities in Relation to ### the Annual Report and Financial Statements The Directors are responsible for preparing the Annual Report and the Website Publication Financial Statements in accordance with UK adopted international accounting The Directors are responsible for ensuring the Annual Report and the Financial standards and applicable law and regulations. Statements are made available on a website. Financial statements are published on the Company’s website in accordance with legislation in the Company law requires the Directors to prepare financial statements for each United Kingdom governing the preparation and dissemination of financial financial year. Under that law the Directors are required to prepare the financial statements, which may vary from legislation in other jurisdictions. The statements and have elected to prepare the Company financial statements maintenance and integrity of the Company’s website is the responsibility of the in accordance with UK adopted international accounting standards. Under Directors. The Directors’ responsibility also extends to the ongoing integrity of company law the Directors must not approve the financial statements, unless the financial statements contained therein. they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period. Directors’ Responsibilities Pursuant to DTR4 The Directors confirm to the best of their knowledge: In preparing these financial statements, the Directors are required to: • The Financial Statements have been prepared in accordance with the • select suitable accounting policies and then apply them consistently; applicable set of accounting standards, and give a true and fair view of the • make judgements and accounting estimates that are reasonable and assets, liabilities, financial position and profit and loss of the Company. prudent; • The Annual Report includes a fair review of the development and • state whether they have been prepared in accordance with UK adopted performance of the business and the financial position of the Company, international accounting standards, subject to any material departures together with a description of the principal risks and uncertainties that they disclosed and explained in the financial statements; face. • prepare the financial statements on the going concern basis, unless it is In the opinion of the Board, the Annual Report and Financial Statements, inappropriate to presume that the Company will continue in business; and taken as a whole, is fair, balanced and understandable and it provides the • prepare a Directors’ report, a strategic report and Directors’ remuneration information necessary to assess the Company’s position and performance, report which comply with the requirements of the Companies Act 2006. business model and strategy. The Directors are responsible for keeping adequate accounting records that Directors’ Statement as to the Disclosure of Information to Auditor are sufficient to show and explain the Company’s transactions and disclose All of the current Directors have taken all the steps that they ought to have with reasonable accuracy at any time the financial position of the Company taken to make themselves aware of any information needed by the Company’s and enable them to ensure that the financial statements comply with the auditors for the purposes of their audit and to establish that the auditors are Companies Act 2006. aware of that information. The Directors are not aware of any relevant audit They are also responsible for safeguarding the assets of the Company information of which the auditors are unaware. and hence for taking reasonable steps for the prevention and detection of For and on behalf of the Board fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company’s position and performance, business model and strategy. Norman Crighton Chairman 4 April 2025 50 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Governance / Report from the Audit Committee I am pleased to present the Audit Committee Report for the year ended 31 • considered the appropriate level of dividend to be paid by the Company December 2024. During this period, Katya Thomson served as the Chair of for recommendation to the Board; and the Audit Committee (the “Committee”). We would like to extend our heartfelt • examined in detail the methodology and assumptions applied in valuing thanks to her for her leadership and dedication from the IPO in 2018 until the assets of the Company. January 2025. Following the year end, the Committee has received and discussed We met twice during the year and once following the year-end. The with the Auditor their report on the results of the audit and reviewed this Company’s Auditors are invited to attend meetings as necessary, and Annual Report and Financial Statements, discussed the appropriateness representatives of the Investment Manager may also be invited. of the accounting policies adopted and recommended these to the Board for Details of the composition of the Committee are set out in the Corporate approval. Governance Statement on page 43. Signifcant Issues Responsibilities of the Committee The Committee considered the following key issues in relation to the The Committee’s responsibilities are set out in formal terms of reference which Company’s financial statements during the year. A more detailed explanation are available on the Company’s website and are reviewed at least annually. of the consideration of the issues set out below, and the steps taken to The Committee’s primary responsibilities are set as follows: manage them, is set out in the principal risks and uncertainties on pages 36 and 37. • to monitor the integrity of the financial statements of the Company, including its Annual and Half-Yearly reports and any other formal Valuation of Investments announcements of the Company relating to its financial performance, The Committee considered the valuation of the investment portfolio. The and to review and report to the Board on significant financial reporting Company’s portfolio currently consists of quoted investments, which are issues and judgements which those statements contain, having regard to valued by reference to their bid prices on the relevant exchange. Any future matters communicated to it by the Auditor; unquoted or illiquid investments will be valued by the Directors based on recommendations from the Investment Manager’s pricing committee. • to review the Half-Yearly and Annual Reports; • to review the Company’s internal financial controls and the internal control Maintaining Internal Controls and risk management systems of the Company and its third-party service The Committee has carefully considered the internal control systems. As providers; the Company relies heavily on third-party suppliers, the Committee monitors the services and control levels of all of its suppliers on an ongoing basis, as • to make recommendations to the Board in relation to the appointment explained below. of the external Auditor and their remuneration; • to review the scope, results, cost effectiveness, independence and Going Concern and Long-term Viability of the Company objectivity of the external Auditor; The Committee considered the Company’s financial requirements for the next 12 months and concluded that it has sufficient resources to meet its • to develop and implement policy on the engagement of the external commitments. Consequently, the financial statements have been prepared Auditor to supply non-audit services and consider relevant guidance on a going concern basis. The Committee also considered the longer-term regarding the provision of non-audit services by the external audit firm; viability statement within the Annual Report for the year ended 31 December and 2024, covering a five-year period, and the underlying factors and assumptions • to review circulars issued in respect of major non-routine and corporate which contributed to the Committee deciding that this was an appropriate transactions. length of time to consider the Company’s long-term viability. The Company’s Activities in the Year viability statement can be found on page 33. During the year, the Committee has: Internal Controls • conducted a detailed review of the internal controls and risk management The Committee carefully considers the internal control systems by continually systems of the Company and its third-party service providers; monitoring the services and controls of its third-party service providers. • reviewed the service levels provided by the Company’s Custodian and The Committee reviewed the risk matrix at both of its meetings held during the Depositary; year under review, updating it where appropriate. The results of this ongoing • considered the emerging and principal risks facing the Company and the process, as well as the principal risks identified and controls put in place to mitigating controls in place; manage or mitigate these risks, are detailed on pages 36 and 37 of this report. • carried out a detailed review of the external Auditor’s performance The Committee received a report on internal control and compliance from during the 2023 audit; the Investment Manager and the Company’s other service providers, and no significant matters of concern were identified. • agreed the audit plan and fees with the Auditor in respect of the Annual Report for the year ended 31 December 2024, including the principal The Company does not have an internal audit function. During the year, the areas of focus; Committee reviewed whether an internal audit function would be of value and • reviewed the Company’s Half-Yearly Report and financial statements, concluded that this would provide minimal additional comfort at considerable discussed the appropriateness of the accounting policies adopted and extra cost to the Company. While the Committee believes that the existing recommended these to the Board for approval; systems of monitoring and reporting by third parties remain appropriate and adequate, it will continue, on an annual basis, to actively consider possible • assessed whether it was appropriate to prepare the Company’s financial areas within the Company’s controls environment that may need a detailed statements on a going concern basis and made recommendations to the review. Board. This review included challenging the assumptions on viability of the Company and reviewing stress tests focused on its ability to continue to meet its liabilities; AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 51 External Auditor Independence and Objectivity of the Auditor BDO LLP has been the Auditor to the Company since launch in 2018. No The Committee has considered the independence and objectivity tender for the audit of the Company has been undertaken. In accordance of the Auditor. £nil non-audit fees were paid to BDO LLP during the year with the Competitions and Markets Authority Order, a competitive audit to 31 December 2024 (2023: £nil). The Committee is satisfied that the Auditor tender must be carried out at least every ten years. The Company is has fulfilled its obligations to the Company and its Shareholders and remains therefore required to carry out a tender no later than in respect of the financial independent and objective. year ending 31 December 2029. The Committee reviews the continuing Appointment of the Auditor appointment of the Auditor on an annual basis and gives regular consideration Following consideration of the performance of the Auditor, the services to the Auditor’s fees and independence, along with matters raised during each provided during the year and a review of its independence and objectivity, the audit. Committee has recommended to the Board the reappointment of BDO LLP The Audit Partner is due to rotate every five years. This is the fourth year the as Auditor to the Company. current Audit Partner is in place. The Audit Committee specifically considered and discussed with the Auditor the impact of the Exit Opportunity as well as the outstanding renewal of the revolving credit facility and confirmed that the Company had the necessary Margaret Stephens liquidity to repay the revolving credit facility in the unlikely event that this could Chair of the Audit Committee not be renewed. Key audit matters raised by the Auditor are detailed in their 4 April 2025 report on pages 52 and 53, as well as the materiality threshold. Audit Fees and Non-audit Services Provided by the Auditor In accordance with the Company’s non-audit services policy, the Audit Committee reviews the scope and nature of all proposed non-audit services before engagement, to ensure that auditor independence and objectivity are safeguarded. The policy includes a list of non-audit services which may be provided by the Auditor provided there is no apparent threat to independence, as well as a list of services which are prohibited. Non-audit services are capped at 70.0% of the average of the statutory audit fees for the preceding three years. Information on the fees paid to the Auditor is set out in note 3 to the financial statements on page 63. Effectiveness of the External Audit The Audit Committee monitors and reviews the effectiveness of the external audit carried out by the Auditor, including a detailed review of the audit plan and the audit results report, and makes recommendations to the Board on the re-appointment, remuneration and terms of engagement of the Auditor. This review takes into account the experience and tenure of the audit partner and team, the nature and level of services provided, and confirmation that the Auditor has complied with independence standards. During the year to 31 December 2024, the Committee carried out a detailed review of the quality and effectiveness of the 2023 audit. The review was based on feedback requested from the Investment Manager, the Administrator and the Company Secretary and discussions with the Auditor. No issues were identified with regards to the effectiveness of the external audit. Any concerns with effectiveness of the external audit process would be reported to the Board. 2/4 AVI Japan Opportunity Trust plc / Annual Report 2024 ## Governance / Independent Auditor's Report to the Members of AVI Japan Opportunities Trust plc ### Opinion on the financial statements In our opinion the financial statements: - give a true and fair view of the state of the Company's affairs as at 31 December 2024 and of its profit for the year then ended; - have been properly prepared in accordance with UK adopted international accounting standards; and - have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of AVI Japan Opportunity Trust plc (the 'Company') for the year ended 31 December 2024 which comprise Statement of Comprehensive Income, Statement of Changes in Equity, Balance Sheet, Statement of Cash Flows and Notes to the Financial Statements, including material accounting policy information. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards. ### Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee. ### Independence Following the recommendation of the audit committee, we were appointed by the Board of Directors on 8 October 2018 to audit the financial statements for the year ended 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including reminders and reappointments is six years, covering the years ended 31 December 2019 to 31 December 2024. We remain independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Company. ### Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included: - Evaluating the appropriateness of the Directors' method of assessing the going concern in light of economic and market conditions by reviewing the information used by the Directors in completing their assessment; - Assessing the appropriateness of the Directors' assumptions and judgements made by comparing the prior year forecasted costs to the actual costs incurred to check that the projected costs are reasonable; - Assessing the appropriateness of the Directors' assumptions and judgements made in their base case and stress tested forecasts including consideration of the available cash resources relative to forecast expenditure and commitments; - Challenging the Directors' assumptions and judgements made in their forecasts by performing an independent analysis of the liquidity of the portfolio; - Reviewing the loan agreements to identify the covenants and assessing the likelihood of them being breached based on the Directors' forecasts and our sensitivity analyses; and - We reviewed the Directors' assessment of the potential impact of the 'exit opportunity' as well as the related disclosures presented. 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 Company's reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. ### Overview | Key audit matters | 2024 | 2023 | | --- | --- | --- | | | ✓ | ✓ | | Valuation and ownership of quoted investments | | | | Materiality | Company financial statements as a whole £2.12m (2023: £1.8m) based on 1% (2023: 1%) of net assets | | ### An overview of the scope of our audit Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. ### Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 53 How the scope of our audit addressed the Key audit matter key audit matter Valuation and ownership of The investment portfolio at the year-end comprised of We responded to this matter by testing the valuation and quoted investments quoted equity investments held at fair value through ownership of the whole portfolio of quoted investments. (Note 8 on page 65) profit or loss. We performed the following procedures: We considered the valuation and ownership of • Confirmed the year-end bid price was used by investments to be a significant audit area as investments agreeing to independently obtained externally represent the most significant balance in the financial quoted prices; statements and underpin the principal activity of the • Assessed if there were contra indicators, such Company. as liquidity considerations, to suggest bid price is Given the nature of the portfolio is such that it comprises not the most appropriate indication of fair value solely level 1 investments, we do not consider the by considering the realisation period for individual use of bid price to be subject to significant estimation holdings; uncertainty. However, there is a risk that the bid price • Recalculated the valuation by multiplying the number used as a proxy for fair value of investments held at the of shares held per the statement obtained from the reporting date is inappropriate. custodian by the valuation per share; and There is also a risk of error in the recognition of • Obtained direct confirmation of the number investment holdings such that those recognised do not of shares held per equity investment from the appropriately reflect the ownership of the Company. custodian regarding all investments held at the balance sheet date. For these reasons and the materiality to the financial statements as a whole, they are considered to be a key Key observations: area of our overall audit strategy and allocation of our Based on our procedures performed we did not identify resources and hence a Key Audit Matter. any matters to suggest the valuation or ownership of the quoted equity investments was not appropriate. Our application of materiality Based on our professional judgement, we determined materiality for the We apply the concept of materiality both in planning and performing our audit, financial statements as a whole and performance materiality as follows: and in evaluating the effect of misstatements. We consider materiality to be Company fnancial statements 2024 2023 the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the Materiality £2,120,000 £1,820,000 financial statements. Basis for determining materiality 1% of Net assets In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, Rationale for the benchmark As an investment trust, the net performance materiality, to determine the extent of testing needed. Importantly, applied asset value is the key measure of misstatements below these levels will not necessarily be evaluated as performance for users of the financial immaterial as we also take account of the nature of identified misstatements, statements. and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Performance materiality £1,590,00 £1,360,000 Basis for determining 75% of materiality performance materiality Rationale for the percentage The level of performance materiality applied for performance applied was set after having considered materiality a number of factors including the expected total value of known and likely misstatements and the level of transactions in the year. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £106,000 (2023: £36,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. 54 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Governance / Independent Auditor's Report continued ### to the Members of AVI Japan Opportunities Trust plc Other information Other Companies Act 2006 reporting The Directors are responsible for the other information. The other information Based on the responsibilities described below and our work performed during comprises the information included in the Annual Report other than the the course of the audit, we are required by the Companies Act 2006 and ISAs financial statements and our auditor’s report thereon. Our opinion on the (UK) to report on certain opinions and matters as described below. financial statements does not cover the other information and, except to Strategic report In our opinion, based on the work undertaken in the the extent otherwise explicitly stated in our report, we do not express any and Directors’ course of the audit: form of assurance conclusion thereon. Our responsibility is to read the other report information and, in doing so, consider whether the other information is • the information given in the Strategic Report and the materially inconsistent with the financial statements or our knowledge obtained Directors’ Report for the financial year for which the in the course of the audit, or otherwise appears to be materially misstated. If financial statements are prepared is consistent with we identify such material inconsistencies or apparent material misstatements, the financial statements; and we are required to determine whether this gives rise to a material misstatement • the Strategic Report and the Directors’ Report have in the financial statements themselves. If, based on the work we have been prepared in accordance with applicable legal performed, we conclude that there is a material misstatement of this other requirements. information, we are required to report that fact. In the light of the knowledge and understanding of the We have nothing to report in this regard. Company and its environment obtained in the course of the audit, we have not identified material misstatements Corporate governance statement in the Strategic Report or the Directors’ Report. The UK Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Directors’ In our opinion, the part of the Directors’ Remuneration Statement relating to the Company’s compliance with the provisions of the remuneration Report to be audited has been properly prepared in UK Corporate Governance Code specified for our review. accordance with the Companies Act 2006. Based on the work undertaken as part of our audit, we have concluded that Matters on We have nothing to report in respect of the following each of the following elements of the Corporate Governance Statement is which we matters in relation to which the Companies Act 2006 materially consistent with the financial statements or our knowledge obtained are required requires us to report to you if, in our opinion: during the audit. to report by • adequate accounting records have not been kept, exception or returns adequate for our audit have not been Going concern • The Directors’ statement with regards to the received from branches not visited by us; or and longer- appropriateness of adopting the going concern • the financial statements and the part of the term viability basis of accounting and any material uncertainties Directors’ Remuneration Report to be audited are identified set out on page 50; and not in agreement with the accounting records and • The Directors’ explanation as to their assessment returns; or of the Company’s prospects, the period this • certain disclosures of Directors’ remuneration assessment covers and why the period is specified by law are not made; or appropriate set out on page 50. • we have not received all the information and Other Code • Directors’ statement on fair, balanced and explanations we require for our audit. provisions understandable set out on page 49; Responsibilities of Directors • Board’s confirmation that it has carried out a As explained more fully in the Statement of Directors’ Responsibilities, the robust assessment of the emerging and principal Directors are responsible for the preparation of the financial statements and for risks set out on pages 36 and 37; being satisfied that they give a true and fair view, and for such internal control • The section of the annual report that describes the as the Directors determine is necessary to enable the preparation of financial review of effectiveness of risk management and statements that are free from material misstatement, whether due to fraud or internal control systems set out on pages 44 and error. 45; and In preparing the financial statements, the Directors are responsible for • The section describing the work of the audit assessing the Company’s ability to continue as a going concern, disclosing, committee set out on page 44. 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. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS SI 55 Auditor’s responsibilities for the audit of the fnancial statements Our procedures in respect of the above included: Our objectives are to obtain reasonable assurance about whether the financial • We performed a review of estimates and judgements applied by statements as a whole are free from material misstatement, whether due management in the financial statements to assess their appropriateness to fraud or error, and to issue an auditor’s report that includes our opinion. and the existence of any systematic bias; Reasonable assurance is a high level of assurance, but is not a guarantee • We considered the opportunity and incentive to manipulate accounting that an audit conducted in accordance with ISAs (UK) will always detect a entries and tested the relevant adjustments made in the period end material misstatement when it exists. Misstatements can arise from fraud or financial reporting process; error and are considered material if, individually or in the aggregate, they could • We considered if there were any significant transactions outside the reasonably be expected to influence the economic decisions of users taken on normal course of business and found none; and the basis of these financial statements. • We performed a review of unadjusted differences, for indications of bias or Extent to which the audit was capable of detecting irregularities, including deliberate misstatement. fraud We also communicated relevant identified laws and regulations and potential Irregularities, including fraud, are instances of non-compliance with laws fraud risks to all engagement team members who were all deemed to have and regulations. We design procedures in line with our responsibilities, appropriate competence and capabilities and remained alert to any indications outlined above, to detect material misstatements in respect of irregularities, of fraud or non-compliance with laws and regulations throughout the audit. including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not Non-compliance with laws and regulations detecting a material misstatement due to fraud is higher than the risk of not Based on: detecting one resulting from error, as fraud may involve deliberate • Our understanding of the Company and the industry in which it operates; concealment by, for example, forgery, misrepresentations or through collusion. • Discussion with the Investment Manager and those charged with There are inherent limitations in the audit procedures performed and the governance; and further removed non-compliance with laws and regulations is from the events • Obtaining an understanding of the Company’s policies and procedures and transactions reflected in the financial statements, the less likely we are to regarding compliance with laws and regulations; become aware of it. we considered the significant laws and regulations to be Companies Act 2006, A further description of our responsibilities is available on the Financial the FCA listing and DTR rules, the principles of the AIC Code of Corporate Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. Governance, industry practice represented by the AIC SORP, the applicable This description forms part of our auditor’s report. accounting framework, and qualification as an Investment Trust under UK tax Use of our report legislation as any non-compliance of this would lead to the Company losing This report is made solely to the Company’s members, as a body, in various deductions and exemptions from corporation tax. accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit Our procedures in respect of the above included: work has been undertaken so that we might state to the Company’s members • Agreement of the financial statement disclosures to underlying supporting those matters we are required to state to them in an auditor’s report and for documentation; 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 • Enquiries of management and those charged with governance relating to members as a body, for our audit work, for this report, or for the opinions we the existence of any non-compliance with laws and regulations; have formed. • Reviewing minutes of meeting of those charged with governance throughout the period for instances of non-compliance with laws and regulations; and • Reviewing the calculation in relation to Investment Trust compliance to check that the Company was meeting its requirements to retain their Chris Meyrick (Senior Statutory Auditor) Investment Trust Status. For and on behalf of BDO LLP, Statutory Auditor Fraud London, UK We assessed the susceptibility of the financial statement to material 4 April 2025 misstatement including fraud. BDO LLP is a limited liability partnership registered in England and Wales (with Our risk assessment procedures included: registered number OC305127). • Enquiry with the Investment Manager, the Administrator and those charged with governance regarding any known or suspected instances of fraud; • Obtaining an understanding of the Company’s policies and procedures relating to: – Detecting and responding to the risks of fraud; and – Internal controls established to mitigate risks related to fraud. • Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud; and • Discussion amongst the engagement team as to how and where fraud might occur in the financial statements. Based on our risk assessment, we considered the areas most susceptible to be management override of controls. 56 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Statement of Comprehensive Income ### For the year ended 31 December 2024 For the year ended 31 December 2024 For the year ended 31 December 2023 | | Revenue | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | return | return | Total | | return | return | Total | | Notes | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Income Investment income 2 4,761 – 4,761 3,956 – 3,956 Gains on investments held at fair value 8 – 36,663 36,663 – 23,115 23,115 Exchange losses on currency balances – (1,106) (1,106) – (1,158) (1,158) 4,761 35,557 40,318 3,956 21,957 25,913 Expenses Investment management fee 3 (187) (1,684) (1,871) (162) (1,460) (1,622) Other expenses 3 (959) – (959) (886) – (886) Proft before fnance costs and tax 3,615 33,873 37,488 2,908 20,497 23,405 Finance costs 4 (30) (267) (297) (18) (163) (181) Exchange gains on revolving credit facility 4 – 1,422 1,422 – 1,933 1,933 Proft before taxation 3,585 35,028 38,613 2,890 22,267 25,157 Taxation 5 (488) – (488) (418) – (418) Proft for the year 3,097 35,028 38,125 2,472 22,267 24,739 Earnings per Ordinary Share (pence) 7 2.21 25.00 27.21 1.76 15.89 17.65 The total column of this statement is the Income Statement of the Company prepared in accordance with UK-adopted international accounting standards. The supplementary revenue and capital columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies (“AIC SORP”). All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. There is no other comprehensive income, and therefore the profit for the year after tax is also the total comprehensive income. The accompanying notes are an integral part of these financial statements. FS AVI Japan Opportunity Trust plc / Annual Report 2024 GSR SI FS 57 ### Financial Statements / Statement of Changes in Equity ### For the year ended 31 December 2024 | Ordinary | | | Capital | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Share | redemption | | | Share | Special | Capital | Revenue | | | | | capital | | reserve | premium | | reserve* | reserve* | | reserve** | Total | | | £’000 | | £’000 | | £’000 | £’000 | £’000 | | £’000 | £’000 | For the year ended 31 December 2024 Balance as at 31 December 2023 1,408 – 64,255 77,144 38,195 1,941 182,943 Tender Offer Ordinary Shares bought back and cancelled (36) 36 – (5,543) – – (5,543) Tender Offer costs – – – (364) – – (364) Ordinary Shares bought back and held in Treasury – – – (584) – – (584) Total comprehensive income for the period – – – – 35,028 3,097 38,125 Ordinary dividends paid – – – – – (2,596) (2,596) Balance as at 31 December 2024 1,372 36 64,255 70,653 73,223 2,442 211,981 For the year ended 31 December 2023 Balance as at 31 December 2022 1,375 – 60,155 77,153 15,928 1,784 156,395 Issue of Ordinary Shares 33 – 4,099 – – – 4,132 Expenses of share issues – – (76) – – – (76) Ordinary Shares issued from treasury – – 77 1,125 – – 1,202 Ordinary Shares bought back and held in treasury – – – (1,134) – – (1,134) Total comprehensive income for the year – – – – 22,267 2,472 24,739 Ordinary dividends paid – – – – – (2,315) (2,315) Balance as at 31 December 2023 1,408 – 64,255 77,144 38,195 1,941 182,943 * Distributable reserves. Within the balance of the capital reserve, £32,411,000 (31 December 2023: £15,452,000) relates to realised gains which is distributable. The remaining £40,812,000 (31 December 2023: £22,743,000) relates to unrealised gains on investments and is non-distributable. ** Revenue reserve is fully distributable. The accompanying notes are an integral part of these financial statements. 58 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Balance Sheet ### For the year ended 31 December 2024 | | | As at | | As at | | --- | --- | --- | --- | --- | | | 31 December | | 31 December | | | | | 2024 | | 2023 | | Notes | | £’000 | | £’000 | Non-current assets Investments held at fair value through profit or loss 8 220,865 185,857 220,865 185,857 Current assets Receivables 9 1,256 388 Cash and cash equivalents 5,403 13,430 6,659 13,818 Total assets 227,524 199,675 Current liabilities Revolving credit facility 11 – (16,301) Other payables 10 (664) (431) (664) (16,732) Total assets less current liabilities 226,860 182,943 Non-current liabilities Revolving credit facility 11, 12 (14,879) – Net assets 211,981 182,943 Equity attributable to equity Shareholders Ordinary Share capital 13 1,372 1,408 Capital redemption reserve 36 – Share premium 64,255 64,255 Special reserve 70,653 77,144 Capital reserve 73,223 38,195 Revenue reserve 2,442 1,941 Total equity 211,981 182,943 Net asset value per Ordinary Share –basic and diluted (pence) 14 155.44 130.27 Number of shares in issue excluding treasury 13 136,373,227 140,436,702 These financial statements were approved and authorised for issue by the Board of AVI Japan Opportunity Trust plc on 4 April 2025 and were signed on its behalf by: Norman Crighton The accompanying notes are an integral part of these financial statements. Registered in England & Wales No. 11487703 FS AVI Japan Opportunity Trust plc / Annual Report 2024 GSR SI FS 59 ### Financial Statements / Statement of Cash Flows ### For the year ended 31 December 2024 | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2024 | | 2023 | | | £’000 | | £’000 | Reconciliation of proft before taxation to net cash inflow from operating activities Profit before taxation 38,613 25,157 Gains on investments held at fair value through profit or loss (36,663) (23,115) (Increase)/decrease in other receivables (434) 132 Exchange gains on revolving credit facility (1,422) (1,933) Exchange losses on currency balances 1,147 1,162 Interest paid 283 200 Increase/(decrease) in other payables 25 (30) Taxation paid (488) (418) Net cash inflow from operating activities 1,061 1,155 Investing activities Purchases of investments (121,417) (55,633) Sales of investments 122,846 56,966 Net cash inflow from investing activities 1,429 1,333 Financing activities Dividends paid (2,596) (2,315) Issue of Ordinary Shares – 4,132 Issue of Ordinary Shares from treasury – 1,202 Cost of share issues – (76) Payments for Ordinary Shares bought back and held in treasury (584) (1,134) Payments for Tender Offer Ordinary Shares bought back and cancelled (5,543) – Tender Offer costs (364) – Drawdown of revolving credit facility – 2,703 Interest paid (283) (200) Cash (outflow)/inflow from fnancing activities (9,370) 4,312 (Decrease)/increase in cash and cash equivalents (6,880) 6,800 Reconciliation of net cash flow movement Cash and cash equivalents at beginning of year 13,430 7,792 Exchange losses on currency balances (1,147) (1,162) (Decrease)/increase in cash and cash equivalents (6,880) 6,800 Cash and cash equivalents at end of year 5,403 13,430 Dividends received 4,388 4,131 Interest paid 303 149 The accompanying notes are an integral part of these financial statements. 20 AVI Japan Opportunity Trust plc / Annual Report 2024 # Financial Statements / Notes to the Financial Statements For the year ended 31 December 2024 1 ## 1. General Information and Accounting Policies AVI Japan Opportunity Trust plc is a public limited company incorporated on 27 July 2018 and registered in England and Wales. The principal activity of the Company is that of an investment trust company within the meaning of Sections 1158/1159 of the Corporation Tax Act 2010 and its investment approach is detailed in the Strategic Report. The Company commenced trading and was listed on the London Stock Exchange on 23 October 2018. The Company's financial statements have been prepared in accordance with UK-adopted international accounting standards and the AIC SORP. ### Basis of Preparation The financial statements of the Company have been prepared for the year ended 31 December 2024. In order to better reflect the activities of an investment trust company and in accordance with guidance issued by The AIC, supplementary information which analyses the Statement of Comprehensive Income between items of revenue and a capital nature has been prepared alongside the Statement of Comprehensive Income. The Company invests in Japan with subsequent cash flows (dividend receipts and interest payments) being received in Japanese Yen, however the Directors consider the Company's functional currency to be Pounds Sterling as the shares of the Company are listed on the London Stock Exchange, it is regulated in the United Kingdom, principally having its Shareholder base in the United Kingdom, and pays dividend and expenses in Pounds Sterling. The Directors have chosen to present the financial statements in Pounds Sterling rounded to the nearest thousand, except where otherwise indicated. ### Going concern The financial statements have been prepared on a going concern basis and on the basis that approval as an investment trust company will continue to be met. The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for a period of at least 12 months from the date when these financial statements were approved. In making the assessment, the Directors of the Company have considered the likely impacts of international and economic uncertainties on the Company, operations and the investment portfolio. The Directors also regularly assess the resilience of key third-party service providers, most notably the Investment Manager and Fund Administrator. These include, but are not limited to, geopolitical events, the conflicts in Ukraine and the Middle East and global economic uncertainties. The Directors noted that the Company, with the current cash balance and holding a portfolio of listed investments, is able to meet the obligations of the Company as they fall due. The surplus cash enables the Company to meet any funding requirements and finance future additional investments. The revolving credit facility (extended to 2 April 2026) is fully utilised at year end. The Company is able to repay the facility at its own discretion from available cash and liquid investments. The Investment Manager assesses the exposure to risk when making each investment decision, and monitors cash flows and the performance of the portfolio on a daily basis. The Company is a closed-ended fund, where assets are not required to be liquidated to meet day-to-day redemptions. The Directors have completed stress tests assessing the impact of changes in market value, inflation and income with associated cash flows. In making this assessment, they have considered severe but plausible downside scenarios (including the Tender Offer) and simulated a 50% reduction in NAV during April 2025, the impact on future cash flows as a result of this through to December 2029. The conclusion was that in a severe but plausible downside scenario the Company could continue to meet its liabilities. Whilst the economic future is uncertain, and the Directors believe that it is possible the Company could experience further reductions in income and/or market value, and changes in expenses, the opinion of the Directors is that this should not be to a level which would threaten the Company's ability to continue as a going concern. The Directors may, at their discretion, offer an Exit Opportunity to Shareholders on an annual basis, with the next Exit Opportunity expected to made available to Shareholders in October 2025, and every 12 months thereafter. The Board may, in its total discretion, elect not to operate the Exit Opportunity in whole or in part if, in its reasonable opinion, it has become impractical or inappropriate without materially harming the interests of Shareholders as a whole. The Directors are not aware of any material uncertainties that may cast significant doubt on the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, borrowing facilities and investment commitments (of which there are none of significance). Therefore, the financial statements have been prepared on the going concern basis. ### Segmental Reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. The Company invests in companies listed in Japan on recognised exchanges. ### Accounting Developments In the current year, the Company has applied a number of amendments to UK-adopted international standards that are mandatorily effective for an accounting period that begins on or after 1 January 2024. The updates incorporated: - Classification of Liabilities as Current or Non-current – Amendments to IAS 1; - Non-current Liabilities with Covenants – Amendments to IAS 1; and - Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7. The adoption of the changes in accounting standards has had no material impact on these or prior years' financial statements. FS AVI Japan Opportunity Trust plc / Annual Report 2024 GSR SI FS 61 1 ### 1. General Information and Accounting Policies continued ### Accounting Developments continued There are amendments to IAS/IFRS that will apply from 1 January 2025 as follows: • Lack of Exchangeability – Amendments to IAS21. There are amendments to IAS/IFRS that will apply from 1 January 2026 as follows: • Classification and Measurement of Financial Instruments – Amendments to IFRS 9 and IFRS 7; and • Annual Improvements to IFRS Accounting Standards. There are amendments to IAS/IFRS that will apply from 1 January 2027 as follows: • IFRS 18 Presentation and Disclosure in Financial Statements. The Company intends to adopt the standards in the reporting period when they become effective. The adoption of these standards impacts the Company’s accounting policy disclosure to the financial statements. Critical Accounting Judgements and Key Sources of Estimation Uncertainty The preparation of financial statements in conformity with UK-adopted international accounting standards requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Statement of Comprehensive Income and the disclosure of contingent assets at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The areas requiring judgement and estimation in the preparation of the financial statements are: recognising and classifying unusual or special dividends received as either revenue or capital in nature; allocation of expenses between capital and income and setting of the level of dividends paid and proposed. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods. There are no further significant judgements or estimates in these financial statements. Investments The investment objective of the Company is to provide Shareholders with a total return in excess of the MSCI Japan Small Cap Index in GBP, through the active management of a focused portfolio of equity investments listed or quoted in Japan which have been identified by the Investment Manager as undervalued and having a significant proportion of their market capitalisation held in cash, listed securities and/or realisable assets. The investments held by the Company are measured “at fair value through profit or loss”. All gains and losses are allocated to the capital return within the Statement of Comprehensive Income as “Gains or losses on investments held through profit or loss”. Also included within this heading are transaction costs in relation to the purchase or sale of investments. When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date. All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which is the bid price. The Company derecognises a financial asset only when the contractual right to the cash flows from the asset expire, or when it transfers the financial asset and subsequently all the risks and rewards of ownership to another entity. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable, and the cumulative gain or loss that had been accumulated is recognised in profit or loss. All investments for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy in note 15. Foreign currency Transactions denominated in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the date of transaction. Items which are denominated in foreign currencies are translated at the rates prevailing on the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as exchange gain or loss in the capital reserve or revenue reserve depending on whether the gain or loss is capital or revenue in nature. Cash and Cash Equivalents Cash comprises cash in hand and balances held in interest bearing accounts revalued for exchange rate movements. For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. Revolving Credit Facility The revolving credit facility is shown at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange rates is included in the capital reserve and shown in the capital column of the Statement of Comprehensive Income. Income Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company’s right to receive payment is established. Dividends from overseas companies are shown gross of any withholding taxes. Irrecoverable withholding taxes are disclosed within taxation in the Statement of Comprehensive Income. Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as a capital or revenue receipt, the Board reviews all relevant information as to the reasons for the sources of the dividend on a case-by-case basis. When the Company has elected to receive scrip dividends in the form of additional shares, rather than cash, the amount of the cash dividend forgone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column. All other income is accounted for on a time-apportioned accruals basis and is recognised in the Statement of Comprehensive Income. 62 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Notes to the Financial Statements continued ### For the year ended 31 December 2024 1 ### 1. General Information and Accounting Policies continued Expenses and Finance Costs Expenses incurred directly in relation to arranging debt finance are amortised over the term of the finance. All expenses and finance costs are accounted for on an accruals basis. On the basis of the Board’s expected long-term split of total returns the Company charges 90% of its management fee and finance costs to capital. Taxation The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary differences between the treatment of certain items for accounting and taxation purposes. The tax charge consists of overseas tax not recoverable. Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the “marginal” basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account. Dividends Payable to Shareholders Dividends to Shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date. Capital redemption reserve The capital redemption reserve represents non-distributable reserves that arise from the cancellation of shares. Share Premium The share premium account represents the accumulated premium paid for shares issued above their nominal value less issue expenses. This is a reserve forming part of the non-distributable reserves. The following items are taken to this reserve: • costs associated with the issue of equity; and • premium on the issue of shares. Special Reserve The special reserve was created by the cancellation of the share premium account by order of the court and forms part of the distributable reserves. The following items are taken to this reserve: • Tender Offer costs and Tender Offer shares cancelled; and • costs of share buybacks; and • crediting the cost of share buybacks for shares reissued. Capital Reserve The following are taken to the capital reserve through the capital column in the Statement of Comprehensive Income: Capital reserve – other, forming part of the distributable reserves: • gains and losses on the disposal of investments; • issue expenses on revolving credit facility; • exchange differences of a capital nature; and • expenses, together with the related taxation effect, allocated to this reserve in accordance with the above policies. Capital reserve – investment holding gains, not distributable: • increase and decrease in the valuation of investments held at the year end. Revenue Reserve The revenue reserve represents the surplus of accumulated profits and is distributable by way of dividends. Derivatives Derivatives, including Total Return Swaps, are classified as financial instruments at fair value with open positions included in current assets/liabilities. Derivatives are derecognised when the contract expires or on the trade on which the contract is sold. Changes in fair value of derivative instruments are recognised as they arise in the capital column of the Statement of Comprehensive Income. The fair value is calculated by either the quoted price (if listed) or a broker using models with inputs from market prices. On disposal or expiry, realised gains and losses are also recognised in the Statement of Comprehensive Income as capital items. Cash flows relating to the derivatives underlying security are reflected within the revenue account. Cost of financing derivatives is allocated in accordance with the Company’s accounting policy, with 90% charged to capital and 10% charged to revenue. FS AVI Japan Opportunity Trust plc / Annual Report 2024 GSR SI FS 63 432 ### 2. Income | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2024 | | 2023 | | | £’000 | | £’000 | Income from investments Overseas dividends* 4,880 4,179 Bank and deposit interest (3) (16) Exchange losses on receipt of income** (116) (207) Total income 4,761 3,956 * Overseas dividends are shown gross. ** Exchange movements arise from ex-dividend date to payment date. ### 3. Investment Management Fee and Other Expenses Year ended 31 December 2024 Year ended 31 December 2023 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Management fee 187 1,684 1,871 162 1,460 1,622 Other expenses: Directors’ emoluments – fees 173 – 173 149 – 149 Directors’ insurances and other expenses 20 – 20 18 – 18 Directors’ National Insurance Contributions 19 – 19 16 – 16 Auditor’s remuneration – audit services 58 – 58 51 – 51 Marketing 210 – 210 190 – 190 Printing and postage costs 29 – 29 32 – 32 Registrar fees 20 – 20 28 – 28 Custodian fees 26 – 26 22 – 22 Depositary fees 33 – 33 33 – 33 Advisory and professional fees 311 – 311 296 – 296 Regulatory fees 39 – 39 33 – 33 Irrecoverable VAT – – – (11) – (11) Sundry expenses 21 – 21 29 – 29 Total other expenses 959 – 959 886 – 886 The management fee of 1% per annum is calculated on the lesser of the Company’s NAV or Market Capitalisation at each quarter end. The Investment Manager will invest 25% of the management fee it receives in shares of the Company (through open market purchases) and will hold these for a minimum of two years. ### 4. Finance Costs Year ended 31 December 2024 Year ended 31 December 2023 | Revenue | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | JPY revolving credit facility (30) (267) (297) (18) (163) (181) Exchange gains on JPY revolving credit facility* – 1,422 1,422 – 1,933 1,933 * Revaluation of revolving credit facility. Details of the revolving credit facility are set out in notes 10, 11 and 12. 64 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Notes to the Financial Statements continued ### For the year ended 31 December 2024 5 6 ### 5. Taxation Year ended 31 December 2024 Year ended 31 December 2023 | Revenue | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Analysis of charge for the year Overseas tax not recoverable* 488 – 488 418 – 418 Tax charge for the year 488 – 488 418 – 418 The tax assessed for the year is the standard rate of corporation tax in the United Kingdom of 25%. The differences are explained below: Year ended 31 December 2024 Year ended 31 December 2023 | Revenue | | Capital | | Revenue | | Capital | | | --- | --- | --- | --- | --- | --- | --- | --- | | | return | return | Total | | return | return | Total | | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Return on ordinary activities after interest payable but before appropriations 3,585 34,987 38,572 2,890 22,267 25,157 Profit before taxation multiplied by the standard rate of corporation tax of 25% (2023: 23.5%) 896 8,747 9,643 680 5,237 5,917 Effects of: – Tax – exempt overseas investment income (1,192) – (1,192) (983) – (983) – Foreign exchange losses/(gains) not taxable 1 (69) (68) 49 (182) (133) – Losses on investments and exchange losses on capital items – (9,166) (9,166) – (5,437) (5,437) – Excess management expenses carried forward 287 421 708 246 344 590 – Movement in non-trading loan relationship deficit not utilised 8 67 75 8 38 46 – Overseas tax not recoverable 488 – 488 418 – 418 Tax charge for the year 488 – 488 418 – 418 At 31 December 2024, the Company had unrelieved tax losses of £14,594,000 (31 December 2023: £11,463,000) that are available to offset future taxable revenue. A deferred tax asset of £3,649,000 (31 December 2023: £2,866,000), which has been calculated using a corporation tax rate of 25% (2023: 25%), has not been recognised because the Company is not expected to generate sufficient taxable income in future periods to utilise these tax losses. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to continue for the foreseeable future to meet) the conditions for approval as an investment trust company. ### 6. Dividends | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2024 | | 2023 | | | £’000 | | £’000 | Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 December 2023 of 0.85p (2022: 0.80p) per Ordinary Share 1,193 1,118 Interim dividend for the year ended 31 December 2024 of 1.00p (2023: 0.85p) per Ordinary Share 1,403 1,197 2,596 2,315 FS AVI Japan Opportunity Trust plc / Annual Report 2024 GSR SI FS 65 76 8 ### 6. Dividends continued Set out below are the interim and final dividends paid or proposed on Ordinary Shares in respect of the financial year, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered: | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2024 | | 2023 | | | £’000 | | £’000 | Interim dividend for the year ended 31 December 2024: 1.00p (2023: 0.85p) per Ordinary Share 1,403 1,197 Proposed final dividend for the year ended 31 December 2024 of 1.20p (2023: 0.85p) per Ordinary Share 1,633* 1,193 3,036 2,390 * Based on shares in circulation on 1 April 2025. ### 7. Earnings per Ordinary Share – Basic and Diluted The earnings per Ordinary Share is based on the Company’s net profit after tax of £38,125,000 (year ended 31 December 2023: profit of £24,739,000) and on 140,095,962 (year ended 31 December 2023: 140,094,621) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year. The earnings per Ordinary Share detailed above can be further analysed between revenue and capital as follows: Year ended 31 December 2024 Year ended 31 December 2023 Revenue Capital Total Revenue Capital Total Net profit (£’000) 3,097 35,028 38,125 2,472 22,267 24,739 Weighted average number of Ordinary Shares 140,095,962 140,094,621 Earnings per Ordinary Share – basic and diluted (pence) 2.21 25.00 27.21 1.76 15.89 17.65 There are no dilutive instruments issued by the Company. ### 8. Investments Held at Fair Value Through Profit or Loss 31 December 2024 31 December 2023 Unrealised Derivatives Equities Liability Total Equities Total £’000 £’000 £’000 £’000 £’000 Financial assets held at fair value Opening book cost 163,409 – 163,409 160,623 160,623 Opening investment holding gains 22,448 – 22,448 3,700 3,700 Opening fair value 185,857 – 185,857 164,323 164,323 Movement in the year: Purchases at cost: Equities 121,626 – 121,626 55,710 55,710 Sales proceeds: Equities (123,420) 139 (123,281) (57,291) (57,291) – realised gains/(losses) on equity sales and close of total return swaps 19,009 (139) 18,870 4,367 4,367 Increase in investment holding gains 17,793 – 17,793 18,748 18,748 Closing fair value 220,865 – 220,865 185,857 185,857 Closing book cost 180,624 – 180,624 163,409 163,409 Closing investment holding gains 40,241 – 40,241 22,448 22,448 Closing fair value 220,865 – 220,865 185,857 185,857 66 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Notes to the Financial Statements continued ### For the year ended 31 December 2024 8 9 ### 8. Investments Held at Fair Value Through Profit or Loss continued | Year ended | | Year ended | | | --- | --- | --- | --- | | 31 December | | 31 December | | | | 2024 | | 2023 | | | £’000 | | £’000 | Transaction costs Cost on acquisition 69 32 Cost on disposals 65 33 134 65 Analysis of capital gains Gains on sales of financial assets based on historical cost 18,870 4,367 Movement in investment holding gains for the year 17,793 18,748 Net gains on investments held at fair value 36,663 23,115 The Company received £123,281,000 (year ended 31 December 2023: £57,291,000) from investments sold in the year. The book cost of these investments when they were purchased was £104,411,000 (year ended 31 December 2023: £52,924,000). These investments have been revalued over time and until they were sold, any unrealised gains or losses were included in the fair value of the investments. The Company has 12 investments of 3% or more of the equity capital of the investee companies, which are set out in the table below. % of investee Company company Atsugi 10.5 Broadmedia 10.2 Sharingtechnology 8.9 Tecnos Japan 8.8 Beenos 8.2 Araya Industrial 7.1 Aoyama Zaisan Networks 5.4 TSI Holdings 5.3 Jade Group 4.1 Eiken Chemical 3.8 Kurabo Industries 3.5 Helios Techno Holding 3.0 ### 9. Receivables 2024 2023 £’000 £’000 Trade receivables, prepayments and other debtors Due from brokers 758 324 Other receivables and prepayments 498 64 1,256 388 No receivables are past due or impaired. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G SI 10 11 12 ## 10. Current Liabilities | | 2024 £'000 | 2023 £'000 | | --- | --- | --- | | Revolving credit facility | – | 16,301 | | **Trade payables, accruals and short-term borrowings** | | | | Management fees | 170 | 133 | | Interest payable | 61 | 70 | | Due to brokers | 287 | 79 | | Accrued expenses | 146 | 149 | | | 664 | 431 | | **Total current liabilities** | **664** | **16,732** | ## 11. Revolving Credit Facility | | Year ended 31 December 2024 | | Year ended 31 December 2023 | | | --- | --- | --- | --- | --- | | | ¥'000 | £'000 | ¥'000 | £'000 | | Opening balance | 2,930,000 | 16,301 | 2,465,000 | 15,532 | | Proceeds from amounts drawn | – | – | 465,000 | 2,703 | | Exchange rate movement | – | (1,422) | – | (1,934) | | Closing balance | 2,930,000 | 14,879 | 2,930,000 | 16,301 | | Maximum facility available | 2,930,000 | 14,879 | 2,930,000 | 16,301 | On 2 February 2024 the Company extended the revolving credit facility ("the facility") on the same terms to 5 April 2024 while renewal terms were being agreed. On 2 April 2024 the facility was renewed for a further two years to 2 April 2026, for a total facility size of ¥2.9 billion (the facility size was increased to ¥6.6 billion on 28 March 2025). Interest charged is the aggregate of the Margin 1.55% (previously 1.15%) and the Daily Non Cumulative Compounded Risk Free Rate ("RFR") that day payable bi-annually. RFR being the Tokyo Overnight Average Rate ("TONAR") (previously where TONAR – the reference rate was less than zero it was deemed to be zero). The current estimated aggregate interest rate is 1.78% (previously 1.15%) and estimated effective rate 1.78% (previously 1.15%). Commitment fees of 0.5% (previously 0.325% on undrawn balances if over 50% of the facility is drawn down, 0.375% if less than 50% is drawn down) are charged on undrawn balances payable quarterly. As at the date of this report, the Company has fully utilised the facility. Under the terms of the facility covenants, remaining the same, the net assets shall not be less than £75 million; and the adjusted total net assets to borrowing ratio shall not be less than 4.5:1. The facility is shown at amortised cost and revalued for exchange rate movements. Any gain or loss arising from changes in exchange rates are included in the capital reserves and shown in the capital column of the Statement of Comprehensive Income. Interest costs are charged to capital and revenue in accordance with the Company's accounting policies. Costs of £18,000 were incurred in relation to the extension of the facility. ## 12. Non-Current Liabilities | | 2024 £'000 | 2023 £'000 | | --- | --- | --- | | Revolving credit facility | 14,879 | – | | **Total** | **14,879** | **–** | 68 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Notes to the Financial Statements continued ### For the year ended 31 December 2024 1413 15 ### 13. Share Capital | | As at 31 December 2024 | | | As at 31 December 2023 | | | | --- | --- | --- | --- | --- | --- | --- | | | Ordinary Shares of 1p each | | | Ordinary Shares of 1p each | | | | | | Nominal | | | Nominal | | | | Number | | value | Number | | value | | Allotted, called up and fully paid | of shares | | £’000 | of shares | | £’000 | Balance at beginning of year 140,836,702 1,408 137,461,702 1,375 Ordinary Shares bought back – Tender Offer (3,637,759) (36) – – Issue of Ordinary Shares – – 3,375,000 33 137,198,943 1,372 140,836,702 1,408 Treasury shares: Balance at beginning of year 400,000 400,000 Issue of Ordinary Shares from treasury – (985,000) Buyback of Ordinary Shares into treasury 425,716 985,000 Balance at end of year 825,716 400,000 Total Ordinary Share capital excluding treasury shares 136,373,227 140,436,702 During the year ended 31 December 2024, no Ordinary Shares (31 December 2023: 4,360,000) were issued for a net consideration of £nil (31 December 2023: £5,258,000), including no Ordinary Shares issued from treasury (31 December 2023: 985,000). During the year, 425,716 Ordinary Shares (31 December 2023: 985,000) were bought back and placed in treasury for an aggregate consideration of £584,000 (31 December 2023: £1,134,000). Exit Opportunity During the year, the Company offered an Exit Opportunity, allowing eligible Shareholders to tender all or part of their holdings. The Board intends to offer this Exit Opportunity to Shareholders annually, at its discretion. In the 2024 Exit Opportunity, the Company received applications from eligible Shareholders to tender a total of 3,637,759 shares, representing 2.58% of the issued Ordinary Share capital, at a price of 152.37 pence per share. These Ordinary Shares were bought back and cancelled for an aggregate consideration of £5,907,000. ### 14. NAV per Ordinary Share The NAV per Ordinary Share is based on net assets of £211,981,000 (31 December 2023: £182,943,000) and on 136,373,227 (31 December 2023: 140,436,702) Ordinary Shares, being the number of Ordinary Shares in issue excluding Treasury Shares at the year end. 31 December 2024 31 December 2023 | NAV per | Net asset | | NAV per | Net asset | | | --- | --- | --- | --- | --- | --- | | Ordinary | | value | Ordinary | | value | | Share | attributable | | Share | attributable | | | Pence | | £’000 | Pence | | £’000 | Basic and diluted 155.44 211,981 130.27 182,943 ### 15. Financial Instruments and Capital Disclosures Investment Objective and Policy The investment objective of the Company is to achieve a total return through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying NAV. The Company’s investment objective and policy are detailed on page 25. The Company’s financial instruments comprise equity investments, cash balances, receivables, payables and borrowings. The Company makes use of borrowings to achieve improved performance in rising markets. Risks The risks identified arising from the financial instruments are market risk (which comprises market price risk, interest rate risk and foreign currency risk), liquidity risk and credit and counterparty risk. The Company may also enter into derivative transactions to manage risk. The Board and Investment Manager consider and review the risks inherent in managing the Company’s assets which are detailed below. Market Risk Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company’s business. It represents the potential loss which the Company might suffer through holding market positions by way of price movements, interest rate movements, exchange rate movements and systematic risk (risk inherent to the market, reflecting economic and geopolitical factors). The Investment Manager assesses the exposure to market risk when making each investment decision and these risks are monitored by the Investment Manager on a regular basis and the Board at quarterly meetings with the Investment Manager. AVI Japan Opportunity Trust plc / Annual Report 2024 SR G SI 15 ## 15. Financial Instruments and Capital Disclosures continued ### Market Price Risk Market price risk (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of investments. Adherence to investment policies mitigates the risk of excessive exposure to any particular type of security or issuer. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis, with the objective of maximising overall returns to shareholders. The assessment of market risk is based on the Company's portfolio as held at the year end. The Company has experienced volatility in the fair value of investments during recent years due to geopolitical events. The Company has used 10% to demonstrate the impact of a reduction/increase in the fair value of the investments and the impact upon the Company that might arise from future events. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with the objective of maximising overall returns to Shareholders. If the fair value of the Company's investments at the year end increased or decreased by 10%, then it would have had an impact on the Company's capital return through (losses)/gains on investments held at fair value, impacting profit/(loss) and the NAV by £22,086,000 (31 December 2023: £18,586,000). ### Foreign Currency The value of the Company's assets and the total return earned by the Company's Shareholders can be significantly affected by foreign exchange rate movements as most of the Company's assets are denominated in currencies other than Pounds Sterling, the currency in which the Company's financial statements are prepared. Income denominated in foreign currencies is converted to Pounds Sterling upon receipt. The JPY exchange rate at 31 December 2024 was ¥196,915:£1 (31 December 2023: ¥179,74:£1). ### Currency Risk | | GBP £'000 | JPY £'000 | Total £'000 | | --- | --- | --- | --- | | **At 31 December 2024** | | | | | Receivables | 122 | 1,134 | 1,256 | | Cash and cash equivalents | 13 | 5,390 | 5,403 | | JPY revolving credit facility | – | (14,879) | (14,879) | | Payables | (316) | (348) | (664) | | Currency exposure on net monetary items | (181) | (8,703) | (8,884) | | Investments held at fair value through profit or loss | – | 220,865 | 220,865 | | **Total net currency exposure** | **(181)** | **212,162** | **211,981** | | | GBP £'000 | JPY £'000 | Total £'000 | | --- | --- | --- | --- | | **At 31 December 2023** | | | | | Receivables | 64 | 324 | 388 | | Cash and cash equivalents | 311 | 13,119 | 13,430 | | JPY revolving credit facility | – | (16,301) | (16,301) | | Payables | (282) | (149) | (431) | | Currency exposure on net monetary items | 93 | (3,007) | (2,914) | | Investments held at fair value through profit or loss | – | 185,857 | 185,857 | | **Total net currency exposure** | **93** | **182,850** | **182,943** | A 5% decline in Sterling against foreign currency denominated (i.e. non Pounds Sterling) assets and liabilities held at the year end would have increased the net assets and exchange gains and losses, impacting profit/(loss) by £10,608,000 (31 December 2023: £9,143,000). A 5% rise in Sterling against foreign currency denominated assets and liabilities held at the year end would have decreased the net assets and exchange gains and losses, impacting profit/(loss) by £10,608,000 (31 December 2023: £9,143,000). ### Interest Rate Risk Interest rate movements may affect: - the level of income receivable on cash deposits; and The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions. The exposure at 31 December of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates. 70 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Financial Statements / Notes to the Financial Statements continued ### For the year ended 31 December 2024 15 ### 15. Financial Instruments and Capital Disclosures continued Interest Rate Risk continued | 31 December | | 31 December | | | --- | --- | --- | --- | | | 2024 | | 2023 | | | £’000 | | £’000 | Exposure to floating interest rates Cash and cash equivalents 5,403 13,430 JPY revolving credit facility (14,879) (16,301) If the above level of cash and JPY revolving credit facility was maintained for a year, a 1% increase in interest rates would decrease the revenue return and net assets by £95,000 (£15,000). Management proactively manages cash balances. If there was a fall of 1% in interest rates. The total effect would be a change in profit/(loss) and the NAV, through a cost increase/revenue reduction, of £95,000 (31 December 2023: £15,000). The estimated current interest rate chargeable on the revolving credit facility (the “facility”) is 1.78% and the estimated effective interest rate 1.78%. The effective rate chargeable for a year on the current drawn down balance of ¥2.9 billion is £265,000. The facility has been extended to 2 April 2026, after which it will be renewed when terms have been agreed. Liquidity Risk Liquidity risk is mitigated by the fact that the Company has £5,403,000 (2023: £13,430,000) cash at bank, the assets are readily realisable, which can be easily sold to meet funding commitments and further short-term flexibility is available through the use of bank borrowings. The current revolving credit facility is repayable on 2 April 2026, or prior to that date at the discretion of the Company. Repayment may be completed through cash repayments, further borrowings and/or disposal of investments. Unlisted investments, if any, in the portfolio are subject to liquidity risk which is taken into account by the Directors when arriving at their valuation. The Company is a closed-ended fund, assets do not need to be liquidated to meet redemptions, and sufficient liquidity is maintained to meet obligations as they fall due. The remaining contractual payments on the Company’s financial liabilities at 31 December 2024, based on the earliest date on which payment can be required and current exchange rates at the Balance Sheet date undiscounted amounts, were as follows: In more than 1 year but not | In 1 year | | more than | | | | --- | --- | --- | --- | --- | | | or less | | 2 years | Total | | | £’000 | | £’000 | £’000 | At 31 December 2024 Revolving credit facility – (14,879) (14,879) Payables (664) – (664) (664) (14,879) (15,543) In more than 1 year but not | In 1 year | more than | | | | --- | --- | --- | --- | | or less | | 2 years | Total | | £’000 | | £’000 | £’000 | At 31 December 2023 Revolving credit facility (16,301) – (16,301) Payables (431) – (431) (16,732) – (16,732) Credit Risk Credit risk is mitigated by diversifying the counterparties through which the Investment Manager conducts investment transactions. The credit standing of all counterparties is reviewed periodically, with limits set on amounts due from any one counterparty. As at 31 December 2024, cash was held with J.P. Morgan Chase Bank (A2* Moody’s credit rating). The total credit exposure represents the carrying value of cash and receivable balances and totals £6,660,000 (31 December 2023: £13,818,000). AVI Japan Opportunity Trust plc / Annual Report 2024 SR G SI 15 ## 15. Financial Instruments and Capital Disclosures continued ### Fair Values of Financial Assets The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value is the amount at which the asset could be sold or the liability transferred in an orderly transaction between market participants, at the measurement date, other than a forced or liquidation sale. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant assets as follows: - Level 1 – valued using quoted prices unadjusted in active markets for identical assets or liabilities. - Level 2 – valued by reference to valuation techniques using observable inputs for the asset or liability other than quoted prices included within Level 1. - Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data for the asset or liability. The table below sets out fair value measurements of financial instruments as at the year end, by the level in the fair value hierarchy into which the fair value measurement is categorised. | Financial assets at fair value through profit or loss at 31 December 2024 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | --- | --- | --- | --- | --- | | Equity investments | 220,865 | – | – | 220,865 | | | 220,865 | – | – | 220,865 | | Financial assets at fair value through profit or loss at 31 December 2023 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | Equity investments | 185,857 | – | – | 185,857 | | | 185,857 | – | – | 185,857 | There have been no transfers during the year between Levels 1, 2 and 3. ### Capital Management Policies and Procedures The structure of the Company's capital is described on page 39 and details of the Company's reserves are shown in the Statement of Changes in Equity on page 57. The Company's capital management objectives are: - to ensure that it will be able to continue as a going concern; - to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying NAV, through an appropriate balance of equity capital and debt; and - to maximise the return to Shareholders while maintaining a capital base to allow the Company to operate effectively and meet obligations as they fall due. The Board, with the assistance of the Investment Manager, regularly monitors and reviews the broad structure of the Company's capital on an ongoing basis. These reviews include: - the level of gearing, which takes account of the Company's position and the Investment Manager's views on the market; and - the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are set out in the Strategic Report. The Company is subject to externally imposed capital requirements: - as a public company, the Company is required to have a minimum share capital of £50,000; and - in accordance with the provisions of Sections 832 and 833 of the Companies Act 2006, the Company, as an investment company: - is only able to make a dividend distribution to the extent that the assets of the Company are equal to at least one and a half times its liabilities after the dividend payment has been made; and - is required to make a dividend distribution each year such that it does not retain more than 15% of the income that it derives from shares and securities. These requirements are unchanged since last year and the Company has complied with these requirements at all times since commencing trading on 23 October 2018. AVI Japan Opportunity Trust plc / Annual Report 2024 ## Financial Statements / Notes to the Financial Statements continued For the year ended 31 December 2024 16 17 ### 16. Related Party Disclosures and Investment Management Fees Fees paid to the Company's Directors are disclosed in the Directors' Remuneration Report on page 47 and in note 3 on page 63. The Company paid management fees to AVI during the year amounting to £1,835,000 (2023: £1,613,000). As at the year end, £170,000 remained outstanding in respect of management fees (2023: £133,000). At 31 December 2024, AVI held 1,890,000 Ordinary Shares (2023: 1,500,000 Ordinary Shares) of the Company. Finda Telecoms Oy and City of London Investment Management Company Limited ("City of London"), significant Shareholders of the Company, are deemed to be related parties of the Company for the purposes of the Listing Rules by virtue of their holding in the Company's issued share capital. During the year under review, no material transactions took place between the Company and Finda Telecoms Oy or City of London. As at 31 December 2024, the Company had not been notified of any change to Finda Telecoms Oy's holding. At 31 December 2024, Finda Telecoms Oy's holding represented 22% of the voting rights. City of London informed the Company on 16 December 2024 that its holding had increased to 13.25% of the voting rights from 12.88% on 6 November 2024. As at 1 April 2025, no further notifications have been received from either of the significant Shareholders. ### 17. Post Balance Sheet Events The Company on 28 March 2025 increased its unsecured revolving credit facility to ¥6.6 billion (£34.5 million) from ¥2.93 billion (£14.9 million). The Company released an announcement regarding a proposed acquisition of assets from Fidelity Japan Trust plc ("FJV") on 3 April 2025, setting out a written proposal submitted to the FJV Board during 2024, such that FJV shareholders can independently assess FJV's performance and consider the alternative solution presented to their board. Under the proposal, FJV shareholders would be offered the choice of (i) rolling their investment into new shares to be issued by AJOT and/ or (ii) electing for a cash exit, capped at 25 per cent. of FJV's shares in issue (excluding treasury shares). At the time of writing, there can be no certainty that engagement will progress, that heads of terms will be agreed, or whether this proposed transaction will take place. AVI Japan Opportunity Trust plc / Annual Report 2024 GSR FS SI 73 ### Shareholder Information / AIFMD Disclosures The Company’s AIFM is Asset Value Investors Limited. The AIFMD requires certain information to be made available to investors in AIFs before they invest and requires that material changes to this information be disclosed in the annual report of each AIF. Those disclosures that are required to be made pre-investment are included within an AIFMD Investor Disclosure Document. This, together with other necessary disclosures required under AIFMD, can be found on the Company’s website www.ajot.co.uk. All authorised AIFMs are required to comply with the AIFMD Remuneration Code. The AIFM’s remuneration disclosures can be found on the Company’s website www.ajot.co.uk. 32 AVI Japan Opportunity Trust plc / Annual Report 2024 # Shareholder Information / Glossary # Alternative Performance Measure ("APM") An APM is a numerical measure of the Company's current, historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial framework. The definitions below are utilised for the measures of the Company, the investment portfolio and underlying individual investments held by the Company. Certain of the metrics are to look through to the investments held, excluding certain non-core activities, so the performance of the actual core of the investment may be evaluated. Where a company in the investment portfolio holds a number of listed investments these are excluded in order to determine the actual core value metrics. # Comparator Benchmark The Company's Comparator Benchmark is the MSCI Japan Small Cap Index, expressed in Sterling terms. The benchmark is an index which measures the performance of the Japan Small-Cap equity market. The weighting of index constituents is based on their market capitalisation. Dividends paid by index constituents are assumed to be reinvested in the relevant securities at the prevailing market price. The Investment Manager's investment decisions are not influenced by whether a particular company's shares are, or are not, included in the benchmark. The benchmark is used only as a yardstick to compare investment performance. # Cost The book cost of each investment is the total acquisition value, including transaction costs, less the value of any disposals or capitalised distributions allocated on a weighted average cost basis. # Derivatives The Company may use a variety of derivative contracts to gain long and short exposure. This enables the Company to gain exposure to specific securities and markets with reduced capital requirements enhancing returns where the underlying asset grows in value (or losses if falls in value). Total Return Equity Swaps (which are synthetic equities) are valued by reference to the market values of the investments' underlying securities. The sources of the return under the Equity Swap contracts (e.g. notional dividends, financing costs, interest returns and realised and unrealised gains and losses) are allocated to the revenue and capital accounts in alignment with the nature of the underlying source of income. # Discount/Premium (APM) If the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price of 152.3p (2023: 127.0p) from the NAV per share of 155.4p (2023: 130.3p) and is usually expressed as a percentage of the NAV per share, 2.1% (2023: 2.5%). If the share price is higher than the NAV per share, this situation is called a premium. The discount and performance are calculated in accordance with guidelines issued by The AIC. The discount is calculated using the net asset values per share inclusive of accrued income. # Earnings Before Interest and Taxes ("EBIT") EBIT is equivalent to profit before finance costs and tax set out in the Statement of Comprehensive Income. # Enterprise Value ("EV") Enterprise Value reflects the economic value of the business by taking the market capitalisation less cash, investment securities and the value of treasury shares plus debt and net pension liabilities. # Enterprise Value ("EV")/Earnings Before Interest and Taxes ("EBIT") A multiple based valuation metric that takes account of the excess capital on a company's balance sheet. For example, if a company held 80% of its market capitalisation in NFV (defined under Net Financial Value/Market Capitalisation), and had a market capitalisation of 100 and EBIT of 10, the EV/EBIT would be 2x, (100-80)/10. # Enterprise Value ("EV") Free Cash Flow Yield ("EV FCF Yield") A similar calculation to free cash flow yield, except the free cash flow excludes interest and dividend income and is divided by enterprise value. This gives a representation for how overcapitalised and undervalued a company is. If a company were to pay out all of its NFV (defined under Net Financial Value/Market Capitalisation) and the share price remained the same, the EV FCF Yield would become the FCF yield. For example, take a company with a market capitalisation of 100 that had NFV of 80 and FCF of 8. The FCF yield would be 8%, 8/100, but if the company paid out all of its NFV the FCF yield would become 40%, 8/(100-80). This gives an indication of how cheaply the market values the underlying business once excess capital is stripped out. # Free Cash Flow ("FCF") Yield Free cash flow is the amount of cash profits that a business generates, adjusted for the minimum level of capital expenditure required to maintain the company in a steady state. It measures how much a business could pay out to equity investors without impairing the core business. When free cash flow is divided by the market value, we obtain the free cash flow yield. # Gearing (APM) Gearing refers to the ratio of the Company's debt to its equity capital. The Company may borrow money to invest in additional investments for its portfolio. If the Company's assets grow, the Shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The gearing of 7.0% (31 December 2023: 8.9%) represents borrowings of £14,879,000 (31 December 2023: £16,301,000) expressed as a percentage of Shareholders' funds of £211,981,000 (31 December 2023: £182,943,000). The gearing of 4.5% (31 December 2023: 1.6%) represents borrowings net of cash of (£9,476,000) (31 December 2023: (£2,915,000)) expressed as a percentage of Shareholders' funds of £211,981,000 (31 December 2023: £182,943,000). AVI Japan Opportunity Trust plc / Annual Report 2024 SR G FS # **NAV/Share Price Total Return (APM)** NAV total return is calculated by assuming that dividends paid out are re-invested into the NAV on the ex-dividend date. This is accounted for in the "Effect of reinvesting dividends" line. The NAV used here includes debt marked to fair value and is inclusive of accumulated income. | NAV total return over 1 year | Page | 31 December 2024 | 31 December 2023 | | | --- | --- | --- | --- | --- | | Closing NAV per share (p) | | 155.4 | 130.3 | a | | Dividends paid out (p) | 64 | 1.9 | 1.7 | b | | Effect of reinvesting dividends (p) | | 9.2 | 5.8 | c | | Adjusted NAV per share (p) | | 166.5 | 137.7 | d= a+b+c | | Opening NAV per share (p) | | 137.7 | 119.0 | e | | NAV total return (%) | | 20.9% | 15.8% | +(d/e)-1 | | Share price total return over 1 year | Page | 31 December 2024 | 31 December 2023 | | | --- | --- | --- | --- | --- | | Closing price per share (p) | | 152.3 | 1.27 | a | | Dividends paid out (p) | 64 | 1.9 | 1.7 | b | | Effect of reinvesting dividends (p) | | 0.2 | 0.2 | c | | Adjusted price per share (p) | | 154.4 | 128.8 | d= a+b+c | | Opening price per share (p) | | 127.0 | 112.3 | e | | Share price total return (%) | | 21.5% | 14.8% | +(d/e)-1 | # **Net Asset Value ("NAV")** The NAV is Shareholders' funds expressed as an amount per individual share. Shareholders' funds are the total value of all of the Company's assets, at their current market value, having deducted all liabilities and prior charges at their par value, or at their asset value as appropriate. The total NAV per share is calculated by dividing the NAV by the number of Ordinary Shares in issue. # **Net Cash/Market Capitalisation** Net cash is equal to cash less debt. It is a measure of the excess cash on a company's balance sheet and, by implication, how much value the market attributes to the core operating business. Net cash = cash – debt. For example, the implied valuation of the core operating business of a company trading with a net cash/market capitalisation of 100% is zero. # **Net Financial Value ("NFV")/Market Capitalisation** Net Financial Value is equal to net cash, less minority interest, plus investment securities (less capital gains tax) plus investment real estate assets (after tax). Net Financial Value ("NFV") = cash + investment securities – net debt – minority interest. A measure of the excess cash on a company's balance sheet and, by implication, how much value the market attributes to the core operating business. For example, the implied valuation of the core operating business of a company trading with a NFV/market capitalisation of 100% is zero. # **Ongoing Charges Ratio (APM)** The Company's Ongoing Charges Ratio is its annualised expenses (excluding finance costs and certain non-recurring items) of £2,810,000 (2023: £2,485,000) being investment management fees of £1,871,000 (2023: £1,622,000) and other expenses of £959,000 (2023: £886,000) less non-recurring expenses of £20,000 (2023: £23,000) expressed as a percentage of the average daily net assets of £193,417,000 (2023: £166,887,000) of the Company during the year. # **Portfolio Discount** A proprietary estimate of how far below fair value a given company is trading. For example, if a company with a market capitalisation of 100 had 80 NFV and a calculated fair value of the operating business of 90, we would attribute it a discount of -41%, 100/(90+80) -1. This indicates the amount of potential upside. The company trading on a -41% discount has a potential upside of +69%, 1/(1-0.41). # **Portfolio Yield** The weighted-average dividend yield of each underlying company in AJOT's portfolio. # **Return on Equity ("ROE")** A measure of performance calculated by dividing net income by Shareholder equity. # **ROE ex Non-Core Financial Assets** Non-core financial assets consists of cash and investment securities (less capital gains tax) less debt and net pension liabilities. The ROE is calculated as if non-core financial assets were paid out to Shareholders. Companies with high balance sheet allocations to non-core, low yielding financial assets have depressed ROEs. The exclusion of non-core financial assets gives a fairer representation of the true ROE of the underlying business. # **Total Return – NAV and Share Price Returns** The combined effect of any dividends paid, together with the rise or fall in the share price or NAV. Total return statistics enable the investor to make performance comparisons between investment trusts with different dividend policies. Any dividends received by a Shareholder are assumed to have been reinvested in either additional shares in the Company or in the assets of the Company at the prevailing NAV, in either case at the time that the shares begin to trade ex-dividend. # **Treasury Share** When a share is bought back it may be cancelled immediately or held (at zero value) as a Treasury Share. Shares that are held in treasury can be reissued for cash at minimal cost. The Company will only reissue shares from treasury at a price at or above the prevailing NAV per share. # **Weight** Weight is defined as being each position's value as a percentage of net assets. # **Weighted-average Discount (APM)** The weighted-average discount is calculated as being the sum of the products of each holding's weight in AJOT's portfolio times its discount. AVI calculates an estimated sum-of-the-parts NAV per share for each holding in AJOT's portfolio. This NAV is compared with the share price of the holding in order to calculate a discount. # **Weighted Average Shares (APM)** The weighted average shares outstanding is calculated by multiplying the outstanding number of shares after each share issue and buy back of shares during the year with the time weighted portion. The total of the weighted average of shares in issue excluding Treasury shares during the year is 140,095,962. 76 AVI Japan Opportunity Trust plc / Annual Report 2024 ### Shareholder Information / Investing in the Company The Company’s Ordinary Shares are listed on the London Stock Exchange and can be bought directly on the London Stock Exchange or through the platforms listed on www.ajot.co.uk/how-to-invest/platforms/. Share Prices The share price is published daily in The Financial Times, as well as on the Company’s website: www.ajot.co.uk. Dividends Shareholders who wish to have dividends paid directly into a bank account, rather than by cheque to their registered address, can complete a mandate form for the purpose. Mandate forms may be obtained from Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA on request or downloaded from Equiniti’s website www.shareview.com. The Company operates the BACS system for the payment of dividends. Where dividends are paid directly into Shareholders’ bank accounts, dividend tax vouchers are sent to Shareholders’ registered addresses. Change of Address Communications with Shareholders are mailed to the last address held on the share register. Any change or amendment should be notified to Equiniti Limited using the contact details given above, under the signature of the registered holder. Daily NAV The daily NAV of the Company’s shares can be obtained from the London Stock Exchange or via the website: www.ajot.co.uk. AVI Japan Opportunity Trust plc / Annual Report 2024 GSR FS SI 77 ### Shareholder Information / Company Information | Directors | Custodian | Registered Offce | Secretary | | --- | --- | --- | --- | | Norman Crighton (Chairman) | J.P. Morgan Chase Bank | Central Square | MUFG Corporate Governance Limited | | Andrew Rose | National Association | 29 Wellington Street | Central Square | | (Appointed 12 February 2025) | London Branch | Leeds | 29 Wellington Street | | Margaret Stephens | 25 Bank Street | United Kingdom | Leeds | | Ekaterina (Katya) Thomson | Canary Wharf | LS1 4DL | United Kingdom | | (Resigned 21 January 2025) | London | | LS1 4DL | Registrar and Transfer Offce Thomas (Tom) Yoritaka E14 5JP Equiniti Limited Solicitors (Appointed 12 February 2025) Depositary Aspect House Stephenson Harwood LLP Yoshi Nishio J.P. Morgan Europe Limited Spencer Road 1 Finsbury Circus (Resigned 30 September 2024) | | 25 Bank Street | Lancing | London | | --- | --- | --- | --- | | Administrator | Canary Wharf | West Sussex | EC2M 7SH | | Waystone Administration Solutions | London | BN99 6DA | | | (UK) Limited | E14 5JP | | | Registrar’s Online Platform Broadwalk House Investment Manager and AIFM www.shareview.co.uk Southernhay West Asset Value Investors Limited Registrar’s Shareholder Helpline Exeter 2 Cavendish Square Tel. 0371 384 2030 EX1 1TS London Lines are open 8.30am to 5.30pm, Auditor W1G 0PU Monday to Friday. BDO LLP | 55 Baker Street | Registrar’s Broker Helpline | | --- | --- | | London | Tel. 0906 559 6025 | | W1U 7EU | Calls to this number cost £1 per | | Corporate Broker | minute from a BT landline, other | | Singer Capital Markets | providers’ costs may vary. 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