Aug 23, 2023

Annual Results for the financial year ended 30 April 2023  22 August 2023 The financial information set out below does not constitute the Company's statutory accounts for the financial year ended 30 April 2023. All figures are based on the audited financial statements for the financial year ended 30 April 2023. The financial information for the financial year ended 30 April 2023 noted below is derived from the financial statements delivered to the UK Listing Authority. The annual report and audited financial statements for the financial year ended 30 April 2023 will shortly be posted to shareholders and will also be available on the company website:www.atlantisjapangrowthfundlimited.com INVESTMENT OBJECTIVE Atlantis Japan Growth Fund Limited (the “Company”) aims to achieve long term capital growth through investment wholly or mainly in listed Japanese equities. INVESTMENT POLICY The Company may invest up to 100% of its gross assets in companies quoted on any Japanese stock exchange including, without limitation, the Tokyo Stock Exchange Prime, Standard and Growth sections, or the regional stock exchanges of Fukuoka, Nagoya and Sapporo. The Company’s benchmark index is the TOPIX Total Return index “benchmark total return index” and the Company will not be restricted to investing in constituent companies of the benchmark. The Company may also invest up to 20% of its Net Asset Value (the “NAV”) at the time of investment in companies listed or traded on other stock exchanges but which are either controlled and managed from Japan or which have a material exposure to the Japanese economy. The Company may also invest up to 10% of its NAV at the time of investment in securities which are neither listed nor traded on any stock exchange or over-the-counter market. In general, investments will be made in equity shares of investee companies, or in debt issued by investee companies. However, the Company may also invest up to 20% of its NAV at the time of investment in equity warrants and convertible debt. The Company will not invest in more than 10% of any class of securities of an investee company. The Company will not invest in derivative instruments save for the purpose of efficient portfolio management. The Company may not invest more than 10% in aggregate of the value of its total assets in other listed closed-ended investment funds except in the case of investment in closed-ended investment funds which themselves have published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds, in which case the limit is 15%. The Company may borrow up to a maximum of 20% of NAV at the time of borrowing. No material change will be made to the investment policy without the approval of shareholders by ordinary resolution. The management and impact of the risks associated with the investment policies are described in detail in the Notes to the Financial Statements (see Note 15). INVESTMENT MANAGER AND INVESTMENT ADVISER Quaero Capital LLP has been appointed as the Investment Manager of the Company since 1 August 2014. Atlantis Investment Research Corporation (“AIRC”) has been appointed as the Investment Adviser to the Company since 1 August 2014. AIRC, established in Tokyo, through Taeko Setaishi, as lead adviser, and her colleagues, advises the Investment Manager on the day-to-day conduct of the Company’s investment business, the role it has played since the launch of the Company in May 1996. CHAIRMAN’S STATEMENT As announced on 11 August 2023, the Board has agreed heads of terms for a proposed combination of the assets of the Company with the assets of Nippon Active Value Fund Plc (“NAVF”) (the “Proposal”). Further details regarding the Proposal are provided in the Strategic Review section below. The past year has continued along the pattern of challenging equity markets and rapid rotations in the global economic and geopolitical theatres. A persistent surge in inflation, fuelled further by the Russian energy sanctions and grain supply chain shortages out of Ukraine, overshadowed the continued resurgence in growth following the pandemic. The US Federal Reserve has led the global move to tighten rates, and equity markets have been closely tied to each signal on the path of interest rates. Despite Japan being the only G7 nation to maintain an easy monetary policy and not raise rates, reaffirmed by the new BOJ Governor Ueda, the equity market has moved much in line with US stocks. Meanwhile, the yen has fallen some 5% against sterling and the dollar reflecting, in part, the widening interest rate differential. Closer to home, we took heart from the enhanced economic policy management by Prime Minister Kishida, after the ruling party success in the Upper House elections last July. Our thoughts were very much with the Japanese at this time, coming closely after the assassination of former Prime Minister, Shinzo Abe who had both re-energised Japan following the 2011 earthquake and pushed for the enhanced corporate governance in Japan. In a challenging environment for growth companies, the Company finished its financial year to 30 April 2023 with the net asset value on a total return basis 4.0% lower than a year earlier. This underperformed the Company’s benchmark, the Topix Total Return (TR) Index which was 7.3% higher in sterling terms. The Company is always seeking to invest in those companies whose growth dynamics have been overlooked by the market, with a focus on delivering sustainable earnings growth over the long-term. Given this and the polarisation of investment style trends, the underperformance of growth stocks by over 7.5% created performance headwinds for the Company. Whilst undeniably challenging over the near term, the Company’s performance over a 5-year period places it in the middle of its peer group. The Company paid out four regular quarterly dividends of 1% of the Company’s net asset value (“NAV”), calculated on the average daily NAV of April 2022. Further, at the end of the financial year, the Company’s discount was 16.0% against 12.2% a year earlier. Market AND Performance The pattern that we saw in the last financial year, where the rotation from growth to value companies took hold, was amplified in the financial year just ended. This masked the strength in the overall market though the pattern of investing behaviour being led by foreign investors, highlighted by investors such as Warren Buffett, was to focus on the globally compelling valuation that was to be found in Japanese stocks. Valuations for growth companies contracted over the period despite their encouraging earnings outlook, their low debt levels and continued robust cash positions. Persistent foreign selling of the Topix Growth Index was amplified by the fears of a global financial crisis stemming from the collapse of regional banks in the US in spite of backstop protection from the US Treasury. This more than offset the positive demand outlook for China’s economy. STRATEGIC REVIEW Following discussions with several of the Company’s biggest shareholders in connection with the Company’s forthcoming continuation vote at this year’s AGM, the Board has recently undertaken a comprehensive strategic review of the future opportunities for your Company. The Board’s key objective in this review was to consider the best long term investment strategy for those of our shareholders who wish to remain invested in the Japanese market, whilst recognising that the current discount attaching to our shares, our recent performance and our relatively modest market capitalisation are problematic in attracting new shareholders to the register. In the course of the Board’s strategic review we identified a number of competing Japanese investment trusts where greater liquidity and a lower discount has been evident, supported by clear, focused and differentiated investment strategies. The Board has agreed heads of terms for a proposed combination of the assets of the Company with the assets of NAVF. NAVF is a top-performing UK investment trust which targets attractive capital growth for its shareholders through active engagement with a focused portfolio of small and mid-cap quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified as being undervalued. The proposed combination with NAVF is expected to improve the enlarged fund's liquidity as well as spreading the fixed costs of operation over a larger pool of assets under management. Implementation of the Proposal is subject to the approval, inter alia, of the Company’s shareholders as well as regulatory and tax approvals and approval by the shareholders of NAVF. A circular providing further details of the Proposal and convening a general meeting to seek the necessary shareholder approvals will be published by the Company as soon as practicable. It is anticipated that the Proposal, if approved, will be implemented in Q3 2023. The Board believes that implementation of the Proposal is in the best interest of shareholders as a whole and that many shareholders will wish to continue to be invested in the enlarged fund. Nevertheless, given the proposed change of investment strategy represented by the Proposal, the Board believes it is appropriate to offer shareholders the opportunity to realise part, or potentially all, of their investment in the Company via a cash exit for up to 25% of the Company's shares in issue, at a 2% discount to the fair value per share of the Company on the effective date of the Scheme. The manager of NAVF has agreed to meet the Company’s reasonable costs of implementing the Proposal. dividend policy The quarterly dividend is set at 1% of the average daily NAV per share in the final month of the preceding financial year and is paid out of capital resources at the end of each calendar quarter. The Board continues to believe that this dividend policy is a fairer way to distribute capital to all shareholders, compared to the previously employed redemption mechanism. The September 2022, December 2022, March 2023 and June 2023 dividend payments were paid to registered shareholders at the rate of 2.15p per share, based on the average daily NAV per share in the final month of the Company’s financial year ended 30 April 2022. As a result of the Company’s performance over the year to April 2023, the average NAV per share for the month of April 2023 was 196p. Thus, the new quarterly dividend rate (subject to the outcome of the Proposal described above) will be at 1.96p for the four dividends payable at the end of September 2023, December 2023, March 2024 and June 2024. Environmental, Social and Governance (ESG) Investment Investing responsibly is at the centre of the Company’s investment philosophy and process. In 2015 the Company’s investment manager, Quaero Capital, became a signatory to the UNPRI to demonstrate commitment to responsible investment. Quaero Capital has since joined the Institutional Investor Group for Climate Change (IIGCC) and the Carbon Disclosure Project (CDP), as it looks to understand and adopt best practice to address climate change. As long-term investors it is important that we understand the environmental, social and governance risks and opportunities affecting the companies in which we invest. Strong relationships built over many years in the market enable us to use our position as long-term investors to encourage transparency and flag areas of high ESG risk. BOARD COMPOSITION Given the support comprising 51% of the Company’s share register, indicated during consultation with major Shareholders ahead of the Proposal, the Board does not anticipate the need for re-election at an AGM. Should this prove necessary, and as reported in 2021, I would be stepping down this year as Chairman of the Company and have been working with my successor, Michael Moule, to ensure a smooth transition and a focus on refreshing board membership. Michael has been a director since February 2018 and, ashould the Proposal not be adopted, Shareholders would be assured of his continued stewardship as Chairman with effect from this year’s AGM. Not including the outgoing Chairman and Philip Ehrmann as detailed above, all Directors would be subject to annual re-election at the AGM on 8 December 2023, should it be required to take place. DISCOUNT management and share buy backs In order to assist in managing the discount at which the Company’s shares trade and to enhance the NAV per share of remaining shareholders, the Company has authority to buy back shares. The Board renewed its existing powers to buy back shares at the 2022 AGM. The Board reviews the discount level on a regular basis and will opportunistically buy back stock if the discount is perceived to be too wide. The discount widened over the period from 12.2% to 16.0%. As part of its discount management policy, during the financial year ended 30 April 2023, the Company exercised its authority to buy back 560,500 shares for holding in Treasury, which represented 1.21% of the issued share capital. At the 2019 AGM, the Board announced that a Continuation Vote will be called every fourth year. The next Continuation Vote would therefore be held at the at the AGM on 8 December 2023, should it be required to take place. GEARING Gearing is defined as the ratio of a company’s long-term debt, less cash held, compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company tends to benefit from any growth of the Company’s investment portfolio above the cost of payment of the prior ranking entitlements of any lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company’s investment portfolio underperforms the cost of those prior entitlements. In order to improve the potential for capital returns to shareholders, the Company currently has access to an overdraft facility with the Company’s Depositary, Northern Trust (Guernsey) Limited, for up to ¥1.5 billion. As at 30 April 2023 the Company’s net gearing level (being the amount of drawn-down bank debt less the cash held on the balance sheet) was 4% compared to 5% at the end of the prior reporting period. The Directors consider it a priority that the Company’s level of gearing should be maintained at appropriate levels with sufficient flexibility to enable the Company to adapt at short notice to changes in market conditions. The Board reviews the Company’s level of gearing on a regular basis. The current maximum that has been set is 20% of the Company’s net assets. The Investment Adviser is encouraged to use the gearing facility and the Company’s cash reserves in order to enhance returns for shareholders. ONGOING CHARGES AND INVESTMENT MANAGEMENT FEE The Board continues to monitor the level of ongoing charges incurred by the Company and for the financial year ended 30 April 2023 the ongoing charges were 1.85% (30 April 2022: 1.65%). The Board will remain vigilant in seeking opportunities for reductions. Details of the ongoing charges are shown in Note 19 to the Financial Statements. A tiered structure for investment management fees was put in place with effect from 5 July 2019, with a fee of 1% on the first £125m of net assets, 0.85% on net assets between £125m and £175m and 0.70% on net assets above £175m. ANNUAL GENERAL MEETING (“AGM”) To create provision for all possible outcomes relating to the Proposal, notice of the Company's AGM accompanies this Annual Report which would, if required, take place on 8 December 2023. In the event that the Proposal is approved by Shareholders at an extraordinary general meeting in Q3, the AGM will be adjourned since the Company will already have completed its merger with NAVF. The Board will update shareholders on the timing of the shareholder meeting to consider the Proposal, once this is confirmed, by notice of meeting and by RNS announcement. OUTLOOK We are entering a transformational period in Japan, with a more persistent inflation outlook than we have seen in decades, which is opening the door for the Bank of Japan to adjust its decades long low interest rate regime. This could herald a sharp reversal in the fortunes of the Japanese yen in the coming year. We have corporates talking of double digit pay increases for graduates and sustained wage inflation across many industries. Furthermore, we have a government and stock exchange committed to enhanced corporate governance focus and to pressing companies to address the poor returns on capital and low ratings on the premium market. This is all at a time when we are seeing resilient earnings recovery, improving customer demand and a domestic economy that has seen a healthy uptick in the post-pandemic environment. In spite of the challenging environment in which our Investment Adviser has been operating over the past few terms, the factors above all support the unrepentant focus on those growth companies that have attractive PER, PBR and yield comparables, particularly those with long-term resilient business models. Given the return of the foreign investor over recent months, we expect their early interest in value to broaden out to the wider market and those businesses that benefit from strong operational moats, demand recovery and the increased infrastructure spend in the key areas of digital transformation, pharmaceutical technology, and the evolving workforce. Your Directors and I continue to believe in the long-term growth potential of the Japanese market given the economic factors set out above which, if realised, would place the sector in a strong position to benefit from the recovery of the global economy and, more particularly, the firming domestic outlook. This sense of optimism is a primary contributor to our conclusions and ultimate proposal arising from the strategic review as outlined earlier in this statement. Investment Adviser’s Report Performance The Company’s Net Asset Value (NAV) per share, calculated in sterling, ended the financial year at 193.4p, down 3.99% YoY on a total return basis, versus the TOPIX Total Return Index return of 7.26%. The company’s discount to NAV ended the period at 16.0%, widening from 12.2%. At financial year end the Company’s net gearing was 4%, narrowing from the previous year’s level of 5%. At the end of April 2023, the Company held 55 stocks, reduced from 66 positions held in the previous year. Sectors that performed positively included Banks, Other Financial and Wholesale Trade. There were strong contributions from small cap engineering consultant INTLOOP (9556 JP), major global supplier of semiconductor manufacturing supplies DISCO (6146 JP), and Sumitomo Mitsui Financial Group (8316 JP) one of Japan’s three major conglomerate banks. Sectors that underperformed included Information and Communications and Electrical Appliances. Detraction from performance came from S-Pool (2471 JP), a provider of special needs employment services, Wacom (6727 JP), manufacturer of touch panels and VisasQ (4490 JP), a leading provider of expert network services. The Company’s performance has continued to suffer from the post-COVID market style shift away from growth towards value. Over the period, the TOPIX Growth Total Return index underperformed the TOPIX Total Return Value index by 7.53%. This appeared to have stabilised towards the end of 2022, although in early 2023 Japan’s value attractions received attention from global investors after Warren Buffet extolled the cheapness of Japanese equities. The portfolio remains entirely invested in the equities of Japanese companies and J-REITS. The Company has no exposure to foreign exchange hedges, nor does it take positions in convertible bonds, or other types of structured financial products. Market comment Inflation and interest rate policy have been significant factors in markets during the period under review. The invasion of Ukraine in February 2022 drove up commodity and energy prices, contributing to global inflation and adding urgency to central bank policy tightening. Japan has been the exception as inflation here has remained largely muted and the Bank of Japan (BoJ) has kept easy monetary policy largely unchanged. The resulting policy divergence with the rest of the world has led to a substantial move in the USD/JPY rate to above ¥150. After decades of stagnant inflation, the BoJ has been reluctant to stifle emergent reflation in the hope that recovery could lead to a more self-sustaining cycle of wage growth and consumption. We have seen encouraging signs on wage hikes among larger companies and it remains to be seen if this will spread more broadly across the corporate sector. Japan has been slower than the western world to exit from its COVID restrictions. Nevertheless, after a significant peak in infections during the summer of 2022, the country began incrementally dismantling its prohibitions since the autumn, removing mask advice and, most significantly, allowing visa-free travel into the country from November 2022. Inbound tourism, which was prior to COVID a significant contributor to domestic consumption, thus picked up in the second half of the financial year. Late reopening and the weak currency have generally provided a favourable environment for older economy cyclical ‘value’ stocks. In 2023, Japan’s lower priced stocks received a further boost from a recurrence of the activist theme in Japan, as the Tokyo Stock Exchange announced it would apply further pressure on Prime-listed companies which consistently trade at a discount to book value. Economic Outlook Japan downgraded COVID-19 to flu status on May 8th 2023. Inbound tourist travel to Japan should continue to recover, helping the domestic economy. Retail sales have continued to provide evidence of domestic recovery, rising 7.2% in March 2023. While the tourism spend is a major boost, the bulk of spending is by domestic consumers supported by low unemployment and improving wages. This may also indicate the emergence of rational expectations of rising prices as opposed to the deflationary mind-set of the last couple of decades. Inflation continues to rise, with March CPI +3.2% YoY. Although it is expected to slow from this summer as commodity/energy price impact fades, there is the suggestion that individuals continue to spend ahead of higher prices expected in the not-too-distant future, a positive development for the economic outlook. On April 9th, the BoJ appointed a new governor Kazuo Ueda, and although he appears unlikely to change policy significantly in the near future, the April 28th BoJ board meeting left its zero-interest rate policy unchanged. Tempering the generally benign outlook, global macro and geopolitical concerns remain, as some US regional banks have continued to stumble, reminding us that tightening monetary policy to contain inflation has real world consequences and is not an exact science. We are cautiously optimistic on the outlook for Japan’s economy, though the FY 3/23 earnings season appears to be resulting in some rather conservative FY 3/24 earnings guidance. Investment Adviser’s Strategy Since the TOPIX Growth TR Index peaked against the corresponding value index in December 2020, it has underperformed by 37.5% to end of April 2023. In one sense, this is easily explained by earnings as the above trend growth of digitalization and e-commerce ‘growth’ sectors has slowed since COVID, while older economy ‘value’ stocks have seen earnings recover strongly as the economy reopened. Further supporting this narrative, the shareholder activism theme has returned to the Japanese market, with several high-profile activist successes, and a natural recovery in shareholder returns as profits have recovered. Without wishing to predict the timing of a recovery in growth, we can at least say that the earnings of companies with structural growth are cheaper than they were, while the gap with book value has narrowed for more cyclical sectors. The Investment Adviser continues to focus on companies which can achieve long term structural growth in earnings, for example those benefiting from structural change and growth areas such as in technology, manufacturing and workflow efficiency, work-style reform, healthcare, infrastructure and unique new business models. The Investment Adviser has not changed its basic approach of frequently meeting with company managements to test their progress and continues to employ a bottom-up approach in its fundamental analysis. FOR THE FINANCIAL YEAR ENDED 30 APRIL 2023 Quaero Capital LLP, which is registered in England as a limited liability partnership, was authorised on 22 July 2014 by the Financial Conduct Authority of the UK as the Company’s Alternative Investment Fund Manager (the “AIFM”) for the purposes of the Alternative Investment Fund Managers Directive (“AIFMD” or the “Directive”). As the Company’s AIFM, Quaero Capital LLP is required to make available an annual report for each financial year of the Company containing the following: A detailed description of the principal risks and uncertainties facing the Company (see Principal Risks and Uncertainties below). A report on the activities of the financial year including an overview of the investment activities and financial performance over the year (see Chairman’s Statement above Investment Adviser’s Report above, Details of Ten Largest Investments below, Schedule of Investments below and Directors’ Report and Statement of Directors’ Responsibilities below). Details of material changes to the information set out under Article 23 of the Directive. To satisfy this requirement, Quaero Capital LLP publishes an Investor Disclosure Document available at www.atlantisjapangrowthfund.com. Certain disclosures in relation to the remuneration of Quaero Capital LLP. To meet these requirements, details of Quaero Capital LLP’s remuneration policy and remuneration disclosures in respect of Quaero Capital LLP’s reporting period for the financial year ended 31 March 2023 are available at www.atlantisjapangrowthfund.com/literature. Details of the leverage employed by the Company. Using the methodologies prescribed under the Directive, the leverage of the Company is disclosed in the following table: AS AT 30 APRIL 2023 The ten largest investments comprise a fair value of £22,998,339 (30 April 2022: £26,026,741) representing 29.1% of Net Asset Value (30 April 2022: 29.8%) with details as below: Internet Initiative Japan (180,000 shares) Internet Initiative Japan (IIJ) was Japan’s first ISP (internet service provider) which gave it a first mover advantage. It initially worked closely with NTT, Japan’s main telecom provider and largest shareholder, which helped establish the firm as the go-to ISP for Japan’s leading enterprises and giving it a large Rolodex of major companies as customers. IIJ’s main businesses are now split between Network Services and System Integration. Its services cover the entire gamut from highly sophisticated cloud software and cyber security to general connectivity infrastructure and MVNO (discount mobile virtual network operator) offerings to support the digital transformation needs of major multi-national corporations to smaller enterprises. The company is well positioned for stable double-digit growth over the coming years. Sumitomo Mitsui Financial Group (SMFG) is one of Japan’s three leading banking groups. While loans have been growing, lending margins have been under pressure in Japan for over ten years, and the impact of the former has finally overcome the latter to generate net interest income growth over the last year, while the prospect of some normalization of domestic monetary policy could boost core earnings growth substantially. Meanwhile SMFG has the highest Common Equity Tier 1 Capital ratio at 13.7%, suggesting upside potential from improved capital efficiency. Japanese banks do not appear to be affected by the particular set of circumstances currently afflicting the US regional banking space. Topcon is a globally present manufacturer of optical devices with applications in ophthalmology and high precision 3D surveying/positioning devices using GPS, networks and lasers. In ophthalmology it has a global top share in 3D Optical Coherence Tomography (OCT) and auto refractometers (Chronos) amongst others. Its precision optical equipment products are automation systems positioning and smart infrastructure for use in civil engineering, construction, and agricultural fields. The shortage of skilled labour in industries such as construction and agriculture is driving demand for automation technology including Topcon’s devices. Infrastructure expansion plans in the US and Europe are a tailwind. We see the potential for Topcon to raise margins substantially over the next few years as new ophthalmic product development costs have peaked and as the smart infrastructure and positioning business grows overseas. Japan Material is a supplier of ultra-pure water, specialty gases and chemicals used in semiconductor and LCD manufacturing. The company’s services include managing the entire process from design to construction, installation and maintenance of specialty equipment, piping, pumps and other infrastructure. The company has a long history with Japan’s top semiconductor related companies including Kioxia (Toshiba), Micron and other manufacturers such as Japan Display. The company is known for its highly skilled staff and has a good track record of supplying total solutions for managing the entire process of laying out the piping to design and maintenance of the gas supply, for advanced semiconductor and electronics manufacturing, to help reduce operating costs. With the recent disruption of supply chains in the semiconductor sector, the Japanese government is supporting the onshoring of production in Japan. Several major projects have ensued between Japanese and Taiwanese semiconductor manufactures as well as other companies who are increasing their investment in Japan. Japan Material has recently acquired land in Kyushu to support semiconductor plants in the region, which should help drive long-term above trend growth for the company. FP Partner is an independent insurance agent selling retail insurance products and providing after-sales services on behalf of a number of insurance companies. It offers products from the majority of domestic and international insurers operating in Japan. As well as insurance product sales, the company has expanded into banking and securities, selling investment trusts and brokering mortgages, and aiming to become a one-stop provider of financial products under the “Money Doctor” brand. The company’s branch and store network now has national coverage and in a fragmented industry the company estimates that it is the second-largest independent insurance agent in Japan. The number of industry agents is contracting nationally, with rising costs of compliance and technology, as well as succession issues with older independent agents driving consolidation and presenting opportunity for larger players such as FP. The company listed in September 2022. Creek & River (180,000 shares) Creek & River’s core businesses are staff agency business, managing temporary staffing and employment of specialists, and a production business accepting outsourced creative production and development. While the agency business began in creative fields such as video production, TV and game design, over time the scope of service has expanded into professional services such as doctors, IT engineers, lawyers, accountants, architects, fashion designers and chefs with the view that Creek & River’s business model is widely applicable. As of the end of February 2023, about 370,000 professionals were registered with the company. The creative business still accounts for over 75% of revenue, but the medical staffing business, providing employment services for medical specialists, generates higher margins and consequently 33% of consolidated operating profit, is growing fast. The majority of medical institutions in Japan are registered as clients. The company’s growth strategy lies in expanding the number of professional services from the current 18 to 50. Alongside staff agency and production C&R has a fast growing Rights business managing the distribution of intellectual property. Disco is a semiconductor production equipment maker and holds the top global share in slicing and dicing, grinding and polishing equipment for semiconductors, electronic components and silicon wafers. The stock also offers some defensive qualities as it also has non-integrated circuit (IC) customers that provides some counter-cyclical protection, and it has a large consumables and maintenance business that generates steady recurring revenues. Disco has benefited from the extension of the current semiconductor cycle and the continued excess demand conditions in maintenance, parts and consumables. Due to the acute semiconductor shortages as a result of the pandemic, and more recently the war in Ukraine, the Japanese government is supporting the onshoring of semiconductor production and strengthening of the industry and supply chains in Japan as a strategic initiative. The same phenomenon is occurring in other countries which is benefiting Disco. The company is also a weak yen beneficiary and has a large orderbook giving it visibility on steady sales growth for the next few years regardless of where we are in the cycle. Amvis is the leader in Japan’s fast-growing hospice care segment. Japan lags many countries in providing specialist end-of-life care for the terminally ill and the potential market for such services is huge. Hospice care reduces the burden on a hospital system which is struggling under the weight of Japan’s ageing society, reducing costs for the state while providing a better environment for patients and their families. This segment does not suffer from the health budget constraints and over-competition of the more generalist nursing home sector. Amvis is the fast-moving operator in this sector, growing from 29 to 58 facilities in the last two years and with plans to double this again over the next three years. It is highly focused on efficiency and profitability giving it the financial resources to pursue its rapid expansion, while increasingly able to hire qualified nursing staff to run its facilities. Shin-Etsu Chemical is a leading global specialty chemical manufacturer with leading global businesses in construction PVC and silicon wafers for microchips; the company also has a world-class supply chain in silicones, cellulose and photoresists. The PVC business is centred on its US subsidiary Shintech. While the company has seen some softness in both the PVC business and the semiconductor wafer businesses, the PVC market has already shown signs of bottoming, while the expanding range of semiconductor applications is expected to drive growth in the longer term. &Do is a small, independent real estate company specializing in home equity withdrawal products, a relatively new financial service category in Japan. Having gained substantial data and expertise through the establishment of a national franchise chain engaged in the traditional businesses of residential property brokerage, property sales and renovation services, &Do has taken an early lead in offering financial products such as reverse mortgage and residential sale & leaseback services. Applying financial technology to its extensive residential property expertise, and in alliance with financial institutions, &Do is able to tap the growing market amongst Japan’s burgeoning senior population for ways to finance their later years. &Do’s services offering them the potential to unlock the equity stored in their homes. NOEL LAMB (Chairman, appointed to the Board on 1 February 2011 and appointed as Chairman on 1 May 2014), British, graduated from Exeter College, Oxford University and is a barrister-at-law. He joined Lazard Brothers & Co Limited in 1987 and from 1992 to1997 he was the managing director of Lazard Japan Asset Management where he was the fund manager for their Japanese equities. In 1997, he moved to the Russell Investment Group where he established the investment management capability of Russell in London. In 2002, he was promoted to Chief Investment Officer in North America where he managed assets of $150bn until his departure in2008. In 2020, he was appointed as a director of Guinness Asset Management Funds and in January 2022 as chairman of Rockwood Strategic plc. PHILIP EHRMANNFCSI (appointed to the Board on 25 October 2013), British, graduated from the London School of Economics with a BSc in Economics. He started his investment career in 1981 specialising in the North American market before heading up Emerging Markets for Invesco Asset Management. In 1995 he joined Gartmore Investment Management to undertake a similar role, before becoming Head of Pacific & Emerging Markets. Whilst at Gartmore he managed the Gartmore Asia Pacific Trust plc, a pan-Asian Investment Trust. In 2006 he moved to Jupiter Asset Management where he was Co-Head of Asia. At the beginning of 2015 he joined Manulife Asset Management as a Senior Managing Director, responsible for overseeing Global Emerging Markets equity portfolios. RICHARD PAVRY(appointed to the Board on 1 August 2016), British, is the Chief Executive Officer at Devon Equity Management Limited. Richard graduated in Natural Sciences from Cambridge University before converting to law. He began his career as a solicitor with Simmons & Simmons, moving to Jupiter Asset Management in 2000 where he served as head of investment trusts. He moved to Devon Equity Management Limited in November 2019. Richard has previously served as a non-executive director of Jupiter Second Split Trust plc and is Chairman of Devon Equity Funds SICAV. MICHAEL MOULE (appointed to the Board on 5 February 2018), British, has a close connection to investment trusts and global investment having managed The City of London Investment Trust plc, The Bankers Investment Trust plc and The Law Debenture Corporation plc during an extensive City career with Touche Remnant and Henderson Global Investors. He was until May 2022 a member of the Investment Committee of The Open University, and was previously Chairman of Polar Capital Technology Trust plc. YUKI SOGA(appointed to the Board on 1 July 2021), Japanese, currently residing in London. Schooled in the UK and a graduate of Somerville College, Oxford, she has spent most of her career to date working in Tokyo. Yuki commenced her career with lawyers Clifford Chance and Herbert Smith and then researched quoted Japanese equities for Arcus and Macquarie. She subsequently became a partner at Indus Capital Tokyo. Since June 2020 Yuki has been running her own research and consulting business. The Strategic Report provides shareholders with enhanced transparency and oversight capabilities when assessing how directors have performed their duties to promote the continued success of the company for shareholders’ collective benefit. This is achieved by providing context to the financial statements, analysis of past performance and insights into the decisions taken to maintain future performance. The Directors submit their Strategic Report, Directors’ Report and Statement of Directors’ Responsibilities, together with the Company’s Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Financial Position, Statements of Cash Flows and the related Notes for the financial year ended 30 April 2023, together the “Audited Financial Statements”. These Audited Financial Statements give a true and fair view and have been properly prepared, in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS EU”). THE COMPANY Atlantis Japan Growth Fund Limited (the “Company”) was incorporated in Guernsey on 13 March 1996. The Company commenced activities on 10 May 1996. The Company is an authorised closed-ended investment scheme registered and domiciled in P.O. Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands. The Company’s equity shares are traded on the London Stock Exchange. As an investment trust, the Company is classified as an Alternative Investment Fund whose Alternative Investment Fund Manager (AIFM), Quaero Capital LLP, is required to be authorised and regulated by the Financial Conduct Authority. The Company is itself subject to the UKLA Listing Rules, Prospectus Rules, Disclosure Guidance and Transparency Rules (“DTR”) and the rules of the London Stock Exchange. RESULTS AND DIVIDENDS As a UK investment trust the Company is subject to the provisions of the Corporation Tax Act 2010. Section 1158 includes a retention test which states that the Company should not retain in respect of any accounting period an amount which is greater than 15% of its income. This has been modified for accounting periods beginning on or after 28 June 2013 such that a negative balance on a company's revenue reserve is taken into account when calculating the amount of distributable income. This is not relevant for the financial year ended 30 April 2023 (30 April 2022: not relevant). Distributions of £3,845,816 were made during the financial year (30 April 2022: £4,511,513) and the Company met the retention test for the financial year ended 30 April 2023. CAPITAL VALUES At 30 April 2023, the value of net assets attributable to shareholders was £79,031,826 (30 April 2022: £87,278,759) and the NAV per share was £1.93 (30 April 2022: £2.11). BUSINESS REVIEW AND TAX STATUS The Company has been formally accepted into the investment trust company regime, subject to the Company continuing to submit appropriate annual tax filings to HM Revenue and Customs. In the opinion of the Directors, the Company has conducted its affairs so as to enable it to maintain ongoing investment trust status, subject to completion of the relevant tax work. DIVIDEND POLICY There is a regular dividend paid to all shareholders on a quarterly basis set at 1% of net asset value at the close of the preceding financial year. The June 2022 dividend was made at the rate of 2.88p per share, being 1% of the average daily NAV per share in the final month of our financial year ended the 30 April 2021. The quarterly dividend will be paid out of capital resources at the end of each calendar quarter. The September 2022, December 2022, March 2023 and June 2023 dividend payments were made at the rate of 2.15p per share, being 1% of the average daily NAV per share in the final month of our financial year ended 30 April 2022. As a result of the Company’s performance over the year to April 2023, the average NAV per share for the month of April 2023 was 196p and so the new quarterly dividend rate ((subject to the outcome of the Proposal described above) will be at 1.96p for the four dividends payable at the end of September 2023, December 2023, March 2024 and June 2024. SHARE BUY-BACKS The Company has been granted the authority to make market purchases of up to a maximum of 14.99% of the aggregate number of ordinary shares in issue at a price not exceeding the higher of (i) 5% above the average of the mid-market values of the ordinary shares for the five business days before the purchase is made, or (ii) the higher of the price of the last independent trade and the highest current investment bid for the ordinary shares. In deciding whether to make any such purchases the Directors will have regard to what they believe to be in the best interests of shareholders as a whole, to the applicable legal requirements and any other requirements in the Articles. The making and timing of any buy-backs will be at the absolute discretion of the Board and not at the option of the shareholders, and is expressly subject to the Company having sufficient surplus cash resources available (excluding borrowed moneys). The Board believes that the effective use of treasury shares can assist the Company in improving liquidity in the Company’s ordinary shares, managing any imbalance between supply and demand and minimising the volatility of the discount at which the ordinary shares trade to their NAV for the benefit of shareholders. It is believed that this facility gives the Company the ability to sell ordinary shares held in treasury quickly and cost effectively, and provides the Company with additional flexibility in the management of the capital base. During the financial year ended 30 April 2023, 560,500 shares were purchased into treasury (30 April 2022: 378,000). The number of shares held in treasury at 30 April 2023 is 5,625,686 (30 April 2022: 5,065,186), the percentage of treasury shares in total is 12.1% (30 April 2022: 10.9%). The Board shall have regard to current market practice for the re-issuance of treasury shares by investment trusts and the recommendations of the Investment Manager and the Investment Adviser. The Board’s current policy is that any ordinary shares held in treasury will not be resold by the Company at a discount to the Investment Manager and the Investment Adviser’s estimate of the prevailing NAV per ordinary share as at the date of issue. The Board will make an announcement of any change in its policy for the re-issuance of ordinary shares from treasury via a Regulatory Information Service approved by the Financial Conduct Authority (“FCA”). VIABILITY STATEMENT The Company’s business model is designed to deliver long term capital growth to its shareholders through investment in readily realisable stocks in the Japanese equity markets. Its plans are therefore based on having no fixed or limited life provided the global equity markets continue to operate normally. The Board has assessed the Company’s prospects over a three year period, notwithstanding its announcement on 11 August 2023 of the proposed combination with NAVF and the material uncertainty described in the Going Concern statement below (that shareholders may choose not to support the Proposal),  the Board considers that this period reflects a balance between looking out over a long-term horizon and the inherent uncertainties of looking out further than three years. In assessing the viability of the Company over the review period the Directors have focused upon the following factors: The requirement to hold a continuation vote at the next AGM; The ongoing relevance of the Company’s investment objective in the current economic environment, considered via an extensive strategic review; The Proposal arising from the strategic review, to combine the assets of the Company with those of NAVF by means of a scheme of reconstruction, which is subject to shareholder and regulatory approvals at the date of this Annual Report; The principal risks detailed below and the steps taken to mitigate these risks; The liquidity of the Company’s underlying portfolio, which is invested in liquid and readily realisable securities; Recent stress testing has confirmed that shares can be easily liquidated, despite continued uncertainty and a volatile economic environment; The level of forecast revenue surplus generated by the Company and its ability to achieve the dividend policy; and The level of gearing is closely monitored by the Board. Covenants are actively monitored and there is adequate headroom in place. Following the strategic review, the Board believes that the Proposal will benefit shareholders and expects that the required approvals will be received at a general meeting of the Company. Should the Proposal not receive the necessary approval, or the Continuation vote not be passed, the Board believes from the work carried out during their review, that other attractive options remain available for shareholders in the Japan sector which can be pursued. Accordingly, taking into account the Company’s current position and its prospects, and the potential impact of its principal risks and uncertainties, 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 three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility (including the possibility of a greater than anticipated economic impact of geopolitical developments), a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment, and the outcome of the general meeting(s), could have an impact on its assessment of the Company’s prospects and viability in the future. GOING CONCERN The Board has considered and sought advice on the appropriateness of continuing to prepare the Financial Statements on a going concern basis. It is worth noting that one option being considered by the Board is in relation to the announcement of the proposed combination of the Company’s assets with the assets of NAVF - which would involve a scheme of reconstruction resulting in the voluntary liquidation of the Company, however, material uncertainties exist in relation to this Proposal, including pending shareholder, regulatory and tax approvals. Notwithstanding the above, a number of attractive options remain available to the Company, and the Board has concluded that it remained appropriate to continue to prepare the Financial Statements on a going concern basis. Additionally, the Company’s assets consist of equity shares in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale. The Board has reviewed the results of stress testing prepared by the Manager in relation to the ability of the assets to be realised in the current market environment. The results of stress testing, which models a sharp decline in market levels, demonstrated that the Company had the ability to raise sufficient funds so as to remain within its debt covenants and pay expenses. The Company does not have a fixed life. However, a resolution on the continuation of the Company will be put to the Company's shareholders as part of the Proposal at the general meetings and AGM at a date to be notified to shareholders in due course. Taking the above factors into consideration, the Board has a reasonable expectation that the Company has adequate resources to continue in operational existence and discharge its liabilities as they fall due for a period of at least twelve months from the date of approval of these financial statements. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. On 11 August 2023, the Board announced its agreement in principle of heads of terms for the proposed combination of the assets of the Company with the assets of NAVF, to be implemented, subject to shareholder approval, through a scheme of reconstruction, resulting in the voluntary liquidation of the Company. More detail can be found in the Chairman’s Statement above, and in the RNS announcement itself. Further information will be set out in a circular to shareholders to be published in due course. The Board believes that the Proposal is in the best interests of shareholders and will recommend that shareholders vote in favour of the relevant resolutions at the extraordinary general meetings to be held in due course in order to implement the scheme. However, due to the requirements for approvals from shareholders of both companies there can be no certainty of the outcome at the date of this Annual Report and, therefore, there remains material uncertainties on the Proposal obtaining the necessary approvals to be enacted. Should the Proposal not receive the necessary shareholder or regulatory approvals and should the Continuation Vote to be put to the subsequent AGM also fail to be approved by shareholders the Board believes, from the work carried out during the strategic review, that other attractive options remain available for shareholders in the Japan fund sector which can be pursued. Accordingly the Board has prepared these financial statements on a going concern basis. PRINCIPAL RISKS AND UNCERTANTIES As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise equity shares (see the Schedule of Investments above for a breakdown). As such, the holding of securities, investing activities and financing associated with the implementation of the investment policy involve certain inherent risks. Events may occur that could result in either a reduction in the Company’s net assets or a reduction of revenue profits available for distribution. Principal risks should include, but are not necessarily limited to, those that could result in events or circumstances that might threaten the company’s business model, future performance, solvency, liquidity and reputation. In deciding which risks are principal risks companies should consider the potential impact and probability of the related events or circumstances, and the timescale over which they may occur. The Board has considered the risks and uncertainties facing the Company and prepares and reviews regularly a risk matrix which documents the significant and emerging risks. Identifying and reporting changes in the operational controls; Identifying and reporting on the effectiveness of controls and remediation of errors arising; and Reviewing the risks faced by the Company and the controls in place to address those risks. Performance Inappropriate investment policies and processes may result in under-performance against the prescribed benchmark index and the Company’s peer group. The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process. The Board also regularly monitors the Company’s investment performance against a number of indices and the AIC Japanese smaller companies’ sub-sector peer group. In addition, certain investment restrictions have been set and these are monitored as appropriate. Discount A disproportionate widening of the discount relative to the Company’s peers could result in loss of value for shareholders. The Board reviews the discount level regularly. Regulatory The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, the Companies (Guernsey) Law, 2008, the UKLA Listing Rules and the Disclosure and Transparency Rules (“DTR”), could lead to a number of detrimental outcomes and reputational damage. The Company conforms with the Alternative Investment Fund Managers Directive (“AIFMD”). The Board relies on the services of the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, and its professional advisers to ensure compliance with the Companies (Guernsey) Law, 2008, the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (“POI Law”), the Authorised Closed-Ended Investment Scheme Rules and Guidance, 2021 (“Authorised Closed-ended Rules”), the UKLA Listing Rules and Prospectus Rules, the DTR and the rules of the London Stock Exchange. Operational Like most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager, Investment Adviser, Company’s Administrator and Depositary. The security, for example, of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements depends on the effective operation of these systems. These are regularly tested, monitored and are reviewed by the Directors at the quarterly board meetings. Financial The financial risks faced by the Company, including the impact of changes in Japanese equity market prices on the value of the Company’s investments, are disclosed in Note 15 to the Financial Statements. The financial risks disclosed in Note 15 are detailed for compliance with IFRS EU. Global Events The geopolitical tension caused by the Russian invasion of Ukraine continues to create uncertainty in the markets and is directly impacting energy costs. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) POLICIES Although the Company does not have specific ESG or sustainability objectives. the Board is convinced that integrating ESG risks into the Company’s financial analysis will support making better decisions for its shareholders. As a long-term investor it is fundamentally important that the Company understands the environmental, social and governance risks and opportunities affecting its investments. The Investment Manager, in consultation with the Investment Adviser, operates an exclusion policy which incorporates exclusion lists to screen investments across all applicable investment strategies. These exclusion lists include any companies involved in the production or distribution of indiscriminate and controversial weapons, in line with international convention. Additionally, companies whose conduct is in systematic and severe breach of UN Global Compact principles are also excluded from investment consideration. Companies that have a significant part of their business exposed to coal mining and coal powered energy without any public plans for significant reduction are also not considered for investment. The Investment Manager and the Investment Adviser support all the Principles of the Japan Stewardship Code for responsible institutional investors and seek to fulfil their stewardship responsibilities under the Code. Whilst using both external and internal analysis, the Investment Manager, in consultation with the Investment Adviser, seeks to vote on all investee companies’ matters in line with its responsible investment philosophy with the aim of contributing positively and promoting the sustainable growth and long-term success of investee companies and stakeholders. UN PRI (United Nations Principles for Responsible Investment) to demonstrate commitment to responsible investment. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society. IIGCC (Institutional Investors Group on Climate Change), which looks to influence corporations to address long term risks associated with climate change. CDP (Carbon Disclosure Project), which looks to influence companies to disclose their carbon footprint and address risks associated with climate change. The project also provides a wealth of environmental data reported by companies. TCFD (Task Force for Climate-related Financial Disclosure). The Investment Manager has signed the statement of support for the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. As such as it will make annual disclosures in line with the recommendation in its annual Sustainability Report, outlining its strategy and its targets. FUTURE PROSPECTS Please see the Chairman’s Statement and the Investment Adviser’s Report above for more information on the future prospects of the Company. SECTION 172 STATEMENT Section 172 of the Companies Act 2006 requires that the Board must act in the way it considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members (i.e. shareholders) as a whole and in doing so, have regard (amongst other matters) to the likely consequences of any decision in the long term; the need to foster the Company’s business relationships with suppliers, customers and others; the impact of the Company’s operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company. Promotion of the Success of the Company As an externally managed investment company, the Company does not have any employees. Instead, key functions are outsourced such as the provision of investment management services to the Investment Manager and other stakeholders support the Company by providing secretarial, administration, depositary, custodial, banking and audit services. The Board seeks to promote a culture of strong governance and to challenge, in a constructive and respectful way, the Company’s advisers and other stakeholders. Consideration of Stakeholder Interests The Directors have regard to the interests of the Company's stakeholders, which include but are not limited to shareholders and service providers. The Directors have taken steps to understand and assess the impact of the Company's operations on these stakeholders. The Company recognizes the importance of maintaining positive relationships with all stakeholders. Ongoing shareholder engagement is vital for the Company's success and the effective execution of its long-term strategy. The Board is dedicated to cultivating and sustaining positive relationships with shareholders, and actively seeks to consider their interests. This allows the Board to incorporate shareholder views into its strategic decision-making and objectives. To establish and nurture strong working relationships, the Company invites its key service providers, such as the Investment Adviser, AIFM, and Company Secretary/Administrator, to attend quarterly Board meetings and present their respective reports. This practice ensures effective oversight of the Company's activities. Additionally, the external auditor is invited to participate in at least one Audit Committee meeting annually. The Chair of the Audit Committee maintains regular communication with the auditor, Investment Adviser, and Administrator to ensure the smooth execution of the audit process. The Board recognizes the importance of engaging with the Company's key service providers beyond scheduled meetings. This includes dedicating time to foster working relationships and ensure the seamless operational functioning of the Company. Furthermore, the AIFM plays a crucial role in the Company's long-term success by engaging the Investment Adviser to provide investment advisory services. The Board regularly monitors the Company's investment performance in alignment with its objectives, investment policy, and strategy. The Board receives and reviews periodic reports and presentations from both the AIFM and Investment Adviser, and seeks to maintain regular contact to foster a productive working relationship. The Directors recognize the importance of environmental stewardship and have taken steps to minimize the Company's impact on the environment. The Company seeks to invest in environmentally responsible companies and engages with investee companies to encourage sustainable practices. Engagement with Stakeholders The Company actively engages with its stakeholders to ensure their voices are heard and considered in decision-making processes. This includes regular communication channels, such as annual general meetings, investor presentations, and periodic reports. The Company also encourages feedback from stakeholders and considers their input when making significant decisions. Directors' Duties and Decision-Making Process The Directors of the Company have fulfilled their duties by exercising reasonable care, skill, and diligence in the best interests of the Company and its shareholders. They have conducted comprehensive analysis and research when making strategic decisions, considering the potential consequences on stakeholders and the long-term sustainability of the Company. In conclusion, the Directors are mindful of their duties under Section 172 of the Companies Act 2006 by promoting the success of the Company, considering the interests of stakeholders, and engaging with them in a meaningful way. The Company remains committed to upholding these principles and continuously enhancing its practices to ensure the sustainable growth and prosperity of the Company and its stakeholders. FOR THE FINANCIAL YEAR ENDED 30 APRIL 2023 The Directors are pleased to present their twenty seventh Annual Report and Audited Financial Statements of the Company for the financial year ended 30 April 2023. PRINCIPAL ACTIVITY The Company is a Guernsey registered authorised closed-ended investment company with UK investment trust status traded on the London Stock Exchange. The Company has a premium listing in the Official List. Trading in the Company’s ordinary shares commenced on 10 May 1996. STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for preparing Financial Statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that financial year. In preparing these Financial Statements, the Directors are required to: –         select suitable accounting policies and then apply them consistently; –         make j