LEI: 213800JOFEGZJYS21P75

31 March 2022

Nippon Active Value Fund plc

Final Results to 31 December 2021

Nippon Active Value Fund plc ("NAVF" or the "Company") is pleased to announce its audited results for the year from 1 January 2021 to 31 December 2021.

INVESTMENT OBJECTIVE, FINANCIAL INFORMATION AND PERFORMANCE SUMMARY

INVESTMENT OBJECTIVE

The investment objective of the Company is to provide Shareholders with attractive capital growth through the active management of a focussed portfolio of quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified by the Investment Adviser as being undervalued.

¹ This is measured on a cum income basis.

² These are Alternative Performance Measures ("APM"), which is "a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework". Definition of these and other APMs used in this report, together with how these APMs have been calculated are disclosed in this report.

³Total returns are stated in GBP sterling, including dividend reinvested.

Chairman's Statement

Overview of the year  

I am pleased to present the second annual report of Nippon Active Value Fund (the "Company"), covering the year ended 31 December 2021.

By the end of the year total assets had risen by £39.0 million, which includes subscriptions of £14.0 million from the secondary issue in November. The year-end Net Asset Value ("NAV") was 137.90 pence per share, an encouraging rise of 21.4% over the year and 37.9% since the Company's launch on February 2020. While we do not target a particular index benchmark, for comparison, the MSCI Japan Small Cap Index returned -1.9% in Sterling terms over the year and +4.5% since the launch date.   The Company focuses on special situations rather than building a portfolio that reflects the broad Japanese economy and therefore returns are expected to differ markedly from the wider index.

In 2021 the share price discount to NAV ranged from a discount of 9.9% to a premium of 4.2%. The closing share price on 31 December 2021 was 134.0, a discount of 2.8% to NAV. It is the Board's intention to use the authority approved in the secondary issue prospectus to issue further new shares at a premium when appropriate.

For most of 2021 the equity market was led by companies with superior growth prospects. Since the year end, in common with global markets, Japanese equities corrected sharply as investors became increasingly concerned about inflationary pressures and geopolitical developments. Growth stocks have been a particular focus of profit-taking. Your Company has a concentrated portfolio invested in companies which trade at significantly lower valuations than the market as a whole, where the manger is trying to unlock value through extensive corporate and, at times, activist engagement. This strategy has proven defensive so far in 2022 in relative terms compared to the wider Japan stock market during an unsettled market environment. Our Investment Advisor, Rising Sun Management Limited (the "Investment Adviser" or "RSM"), highlights some of our investments in their report.

As detailed in the interim report, from time to time the Company invests alongside other vehicles advised by RSM. This enables the Company to build significant positions in slightly larger companies in which the Company on its own would not be able to build a large enough position to command the attention of management. At the end of 2021 your Company held nine investments on that basis.

Dividend

The Company's intention is to achieve its returns primarily through capital appreciation. As such, no specific dividend policy has been established and any distributions will be made entirely at the discretion of the Board, taking into consideration the requirement to ensure the Company's compliance with the rules relating to and maintaining the Company's investment trust status.

The Board is pleased to have declared on 31 March 2022, an interim dividend for the year ended 31 December 2021 of 1.95 pence (2020: 0.85 pence) per Ordinary Share. The dividend will be payable on 26 April 2022 to Shareholders who appear on the register by close of business on 8 April 2022, with an ex-dividend date of 7 April 2022. The Board will not target a dividend for future years but will substantially pay out distributable income for any particular period by way of dividend.

COVID-19

At the time of writing the report, it is still difficult to arrange short term business trips to Japan and our advisors based outside Japan have continued to hold virtual meetings. They have been able to continue engagement with our target companies without difficulty. Our local resources have proved invaluable: The President of RSM has been joined in Tokyo by a dedicated investment analyst. Your Company also has an advisory agreement for research input from Dalton KK's experienced Tokyo team. Accordingly, the Board is satisfied that Rising Sun Management have been able to carry out their due diligence and engagement effectively, despite the travel restrictions.

Japanese Corporate Governance Developments

Shareholder activism can no longer be categorised as a predominately foreign strategy setting criteria for listing on the Standard or more prestigious Prime Markets. There were a significant number of mergers and acquisitions and shareholder resolutions in 2021 from both domestic and foreign investors. In September SBI, a Japanese financial services group, bid for Shinsei Bank, the first hostile takeover of a major bank. The central government, one of Shinsei's major shareholders, declined to support the bank's defensive measures and the bid was successfully concluded in December 2021. 

The Corporate Governance Code was revised in June 2021 and Japanese listed companies are now required to disclose more transparent information concerning board diversity, ESG and measures to protect shareholder rights. Notably, proposals requesting improved shareholder returns rose from 13% of total resolutions in 2020 to 22% in 2021.

The first stage of the reorganisation of the Tokyo Stock Exchange has begun. Although there is an extended transition period before companies that fail to meet the new listing criteria are excluded from the new Prime Market, our Advisors expect that the possibility of an eventual demotion from the more prestigious market segment will encourage target companies to support recommendations designed to increase their market capitalisation and returns to all stakeholders.

ESG

Our Investment Advisors do not select investments based on companies' environmental or social policies. Their focus is on engaging with companies on governance issues to encourage them to improve oversight, returns to shareholders and use of capital. The Investment Manager's Report contains more details on the ESG characteristics of the portfolio.

Annual General Meeting ("AGM")

Your Company's AGM is scheduled for 10 June 2022 at 12:00 noon (British Summer Time) and will be held at 6th Floor, 125 London Wall, London, EC2Y 5AS. Even if you intend to attend the AGM, all shareholders are encouraged to cast their vote by proxy and to appoint the "Chair of the Meeting" as their proxy. Details of how to vote, either electronically, by proxy form or through CREST, can be found in the Notes to the Notice of the AGM.

Shareholders are invited to send any questions for the Board or Investment Adviser in advance by email to NAVFCoSec@PraxisIFM.com by close of business on 8 June 2022.

Outlook

The Company seeks to take advantage of the corporate governance reforms in Japan introduced over the past fifteen years. Former Prime Minister Abe's original reforms have been accepted by his two successors and we believe that an activist strategy will continue to generate superior returns compared to the broader market.

RSM focuses on companies that have excess capital over and above that required for the operation of their business and seeks to persuade companies to distribute excess cash to shareholders by repurchasing their shares in the market or paying out larger cash dividends. The results of their discussions with management is increasingly apparent in portfolio returns. The Investment Report gives some case studies of investments made and the results of engagement with the holdings that have been disclosed to the market.

Although market conditions are likely to remain volatile until there is a resolution of the conflict in Ukraine, we remain confident of the potential for significant returns from our current investment portfolio and of the prospects for identifying attractive new targets. Our advisers will continue to seek out undervalued opportunities with the potential to unlock value to all shareholders, a strategy which we believe can generate strong absolute returns in a wide range of market environments. 

Rosemary Morgan

Chair

30 March 2022

Investment Adviser's Report

Results

Statistics as at 31 December 2021

Share Price                                                         134.00p

NAV                                                                       137.90p

Discount                                                              2.83%

Total Shareholder Funds                               £156 million

Portfolio Composition

Having enjoyed a mostly strong run throughout calendar 2021, the Company made several trading decisions in the last three months to rebalance the portfolio and set it up for the year ahead:

·    We sold our position in Sakai Ovex into the buyout of that company;

·    We sold out of DKK TOA through a block trade to another large investor; and

·    We sold Japan Securities Finance in the open market.

At year-end we decided to reduce our holding in Hirano Tecseed: the Company has been operating at capacity given continued growing demand in the car industry for lithium-ion batteries and this has driven a powerful rally in the share price. We sold into strength at a price that reflects our estimate of fair value, more than doubling our money.

On the buy-side, we are increasing our purchases of Mitsuboshi Belting and Intage Holdings (in conjunction with Michael 1925 LLC), Vital KSK, Ebara Jitsugyo and Chiyoda Integre. We have also begun to purchase four new stocks: Meisei Industry, Meiko Transport, Chino Corp and Super Tool. There are now 21 stocks in the portfolio, with several more under consideration.

In the new financial year, the Zoom lines have been running hot with several Zoom meetings. Unfortunately, the Omicron variant has conspired to once again prevent any travel to Japan, which has frustrated any face-to-face meetings (at least for the non-Japanese directors of RSM) since the start of the Covid pandemic. Nevertheless, we have managed to continue our virtual dialogue with the managements of Ebara Jitsugyo and Intage Holdings, as well as engaging with Chiyoda Integre for the first time. As ever, these sessions were cordial and go a long way to helping both sides understand our respective views.

Intage Holdings - case study:

Intage Holdings Inc (4326)

Intage was part of the original suite of stocks that the Company invested in from February 2020. We first met the management team on Zoom in June 2020 (the same month in which Earle was incorporated on the 29 June) and found them more 'switched-on' than many of our other companies. In our first letter to Intage, we suggested the concept of a management buyout ("MBO"), amongst other ideas, in order to align the Company and shareholders' economic interests more closely. We sent this in March 2021 when the investor group of NAVF and Earle together held 6.47% of the Company's outstanding shares. The response was the anticipated very polite: 'Thank you for your suggestion--it is very interesting but no, we do not want to do an MBO'. At the time the share price was around yen 1300.

In late June 2021, we asked Intage to agree to sign a non-disclosure agreement ("NDA") with us to preserve mutual confidentiality. This allowed us to send another MBO proposal, this time with a price attached. They wanted various changes to the terms and, in negotiating these, we inserted the right to unilaterally withdraw. The agreement finally was signed in mid-July 2021. On 19^th July 2021, with the share price at Y1550, we sent our proposal that the Company undertake an MBO at Yen 1750. The investor group owned 7.56% of the Company's common stock at this point. The response was unaltered, causing us to exercise our right to withdraw from the NDA on 23^rd August 2021. By then, Michael 1925 LLC had joined the investor group.

Despite some of our specific misgivings, Intage is a well-run company, and this, plus a 2.5% share buy-back (as recommended by RSM, albeit we would have preferred it to be bigger), propelled the share price last Autumn to a high point of Yen 2057 on 1^st November 2021. We considered exiting and taking the profit at this point, but the trading volumes in Intage were too thin to have allowed us to make an appreciable dent in our overall investor group position. A combination of lacklustre forward guidance and very difficult markets (which still prevail at the time of writing in late January 2022), allowed the stock price to decline to a low point on 3^rd January 2022 of yen 1603. We decided to pursue more direct tactics. On 18^th January 2022 the investor group disclosed in a new filing in Tokyo that our total holding in Intage has now reached 4,112,000 shares or 10.17% of the outstanding, making us the Company's largest shareholder. We prepared a new MBO proposal letter, and, in another (slightly less cordial!) Zoom meeting with the Company, warned them that if they did not engage with our suggested process within a week (they did not), we would make it public and publish it on the Company's website, as well as issuing a press release on the London Stock Exchange's news feed via RNS and to all the principal financial newswires. This we did on Thursday 27^th January 2022.

Individual stocks commentary:

Teikoku Electric (6333)

·    RSM wrote to the new President & CEO Mr Koroyasu on 25^th October 2021 recommending our usual menu of strategies the company might adopt to increase economic alignment with that of shareholders, including encouraging consideration of an MBO

·    The company's written response, more terse than normal, declined our suggestions

·    RSM will make shareholder proposals to the AGM which will be forwarded in April 2022

·    An analysis of their shareholder register is underway

Chiyoda Integre (6915)

·    RSM wrote to the Chairman and President, Mr Koike, on 17^th December 2021 to provide advanced warning that we would be submitting proposals to the forthcoming AGM and to recommend consideration of an MBO (especially as Company will not have PRIME listing after TSE re-organisation)

·    Our proposals were formally submitted on 14^th January 2022 for the March AGM: they related to increased provision of restricted stock and larger buy-backs

·    We held a friendly Zoom meeting with senior management - they insisted STANDARD listing status was the Board's choice and asked questions about our MBO proposal: they had never considered this path in the past and asked whether we are long-term investors

·    RSM is aware that there are other activists on the Company's share register

Ebara Jitsugyo (6328)

·    RSM wrote to Chairman and CEO Mr Suzuki on 14^th December 2021 to congratulate company on achieving PRIME listing status, to advocate the granting of more restricted stock and the sale of cross shareholdings, and to advise them we would be making proposals to their forthcoming AGM

·    We did not push for a MBO, as we have discussed this with company previously and both sides understand each other's position

·    We held a friendly Zoom meeting on 11^th January 2022, in which the company discussed policies re dividend target, buy-backs, cross-shareholdings and new directors

·    On 14^th January 2022, we formally submitted proposals for the March AGM relating to increased provision of restricted stock and larger buy-backs and the appointment of RSM's President as new external director

Soda Nikka Co (8158)

·    The company has been granted PRIME status providing it submits an Improvement Plan under new TSE guidelines by March 2023

·    It needs to increase market value or it will be demoted to STANDARD listing status

·    RSM last wrote to the company in Q4 2021

Vital KSK (3151)

·    This is the poorest performer in NAVF's portfolio

·    The company is run very poorly and trades on negative Enterprise Value

·    Consequently, it is deeply undervalued

·    RSM will write to the company in Q1 2022

Mitsuboshi Belting (5192)

·    RSM wrote to the new Chairman (recently promoted from CEO) Mr Kakiuchi on 15^th December 20221 emphasising the attractions of a MBO given the long lead times of auto sector and pressure on their traditional products over time

·    A Zoom call will be arranged in Q1 2022

ESG

The area where we are most active and aligned with ESG sentiment is that concerning governance, where clear guidance has emerged over time from Japanese governmental and financial regulatory reform. Corporate governance reform was a genesis for the Nippon Active Value Fund plc and continues to be the prime mover in our investment rationale. It is the basis of the activist 'stick' with which we regularly 'beat' our investee companies. This happens across a broad selection of issues from the need for diversity and independence in the construction of modern boards and senior management teams to the more efficient and economically aligned allocation of capital with the interests of both shareholders and internal and external stakeholders generally. The successive measures of corporate governance reform initiated by the Abe regime, and continued under his successors, have and will continue to provide an invaluable lever for our Company, and others like ours, to throw light on the inadequacies and ignorance of management in many smaller Japanese companies. It would not be an exaggeration to say that promoting better governance is the driver and watchword of our investment policy.

It is also worth noting that several portfolio holdings are actively engaged in efforts to improve environmental conditions and processes, such as Ebara Jitsugyo, while others are important in generating social cohesion and a better understanding of public perceptions, most notably Intage Holdings.

Outlook

According to an analysis by our broker, Shore Capital, at 31 December 2021 Nippon Active Value Fund plc was the top rated investment vehicle in its sector based on the London market over six and twelve months. While this is clearly gratifying, it is only the beginning. Our successes over the last year have reinforced in the minds of the Rising Sun Management Investment Committee the efficacy of our model of activist engagement with portfolio companies. We are both 'friendly' and firm. We are not afraid to push our ideas for improvement in the behaviour of individual management teams, whether through formal proposals to company AGMs or private dialogue via meetings and correspondence. Where we feel we are being ignored or not taken sufficiently seriously, we have been willing to bring our campaign into the public arena, as has been seen recently in connection with Intage Holdings. The investor group we represent (discussed above) owns over 10% of this company, making it the largest shareholder, and we will be heard. I am optimistic that we are entering the endgame in our involvement with Intage. It has proven an object lesson for both of us. What we have learned will put us in good stead for future challenging engagements. We are long-term investors and we want the best for our investee companies, but, above all, we want the best for our investors. We are moving along several active tracks where we are expecting company initiatives that should markedly improve investment returns. However, as has always been our policy, we believe actions speak louder than words, and we will not be outlining our specific plans until they have yielded outcomes that we can present to shareholders.

Separately, we have made the strategic decision to divest companies designated as Category 3 by the regulators (companies defined as operating in core business sectors, which have the most stringent filing requirements and restrictions on foreign shareholder proposals), as we simply have less room to manoeuvre with them. This process is ongoing.

Rising Sun Management Limited

30 March 2022

Portfolio

As at 31 December 2021

Investment Policy, Results and Other Information

Investment objective

The investment objective of the Company is to provide Shareholders with attractive capital growth through the active management of a focussed portfolio of quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified by the Investment Adviser as being undervalued.

Investment policy

The Company will invest in a highly concentrated portfolio of shares issued by quoted companies which have the majority of their operations in, or revenue derived from Japan, and which the Investment Adviser deems attractive and undervalued and typically where (i) cash constitutes a significant proportion of the investee company's market capitalisation; and (ii) the relevant company has no controlling or majority shareholders.

The Board will not set any limits on sector weightings or stock selection within the portfolio. The Board

will apply the following restrictions on the size of its investments:

·    not more than 30 per cent. of the Gross Asset Value at the time of investment will be invested in

the securities of a single issuer (such restriction does not, however, apply to investment of cash

held for working capital purposes and pending investment or distribution in near cash equivalent instruments including securities issued or guaranteed by a government, government agency or instrumentality of any EU or OECD Member State or by any supranational authority of which one or more EU or OECD Member States are members); and

·    the value of the four largest investments at the time of investment will not constitute more than

75 per cent. of the Gross Asset Value.

The Company will not be constrained by any index benchmark in its asset allocation.

Additionally, while the Company intends that the majority of its investments will be in quoted companies, it may also make investments in unquoted companies and the Company may become invested in unquoted companies as a result of corporate actions or commercial transactions undertaken by quoted companies. The Company will only make investments in unquoted companies in order to maintain or improve its position in relation to a business which operated through a quoted entity at the time of the Company's initial investment in that business. In any event, the Company will only make an investment in an unquoted company if the aggregate interest of the Company in unquoted companies at the time of such investment is not more than 10 per cent. of the Net Asset Value of the Company at that time.

This will mean that, if a quoted portfolio company is delisted or an unquoted investment is revalued with the effect of increasing the Company's interest in unquoted investments to above 10 per cent. of the Company's Net Asset Value at that time, the Company will not be in breach of its investment policy and will not have to divest itself of any unquoted investments. However, while the Company's interest in unquoted investments remains above 10 per cent. of its Net Asset Value, the Company will not be able to make any further investments in unquoted companies.

Investment restrictions

There are no restrictions placed on the market capitalisation of investee companies, but it is expected that the portfolio will be weighted towards small cap companies with market capitalisations of up to US$1 billion. Once fully invested, the portfolio is expected to have up to 20 holdings although there is no guarantee that this will be the case and it may contain a lesser or greater number of holdings at any time.

The Company intends to acquire large minority stakes of typically 4.9 to 25.0 per cent. in each investee company. Nevertheless, in certain limited circumstances the Company may acquire a larger stake in an investee company if the investment case so warrants. The Company will not, however, acquire any stake which could cause a change in its status as an investment trust under Chapter 4 of Part 24 of the Corporation Tax Act 2010.

The Company will comply with the following investment restrictions for so long as they remain requirements of the Listing Rules (relevant elements of which the Company has voluntarily undertaken to comply):

·    neither the Company, nor any of its subsidiaries will conduct any trading activity which is significant in the context of the Group as a whole;

·    no more than 10 per cent., in aggregate, of the value of the total assets of the Company will be invested in other listed closed-ended investment funds; and

·    the Company must, at all times, invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with the published investment policy.

Treasury policy

Until the Company is fully invested, and pending re-investment or distribution of cash receipts, the Company will invest in cash, cash equivalents, near cash instruments and money market instruments.

The Company expects to maintain any non-operational cash balances in Japanese yen.

The Company may also use derivatives for gearing and efficient portfolio management purposes.

Gearing Policy

The Company  may use borrowings and other gearing to seek to enhance investment returns at a level (not exceeding 20 per cent of the Company's net assets calculated at the time of drawdown) which the Directors, the AIFM and Rising Sun consider to be appropriate. It is expected that gearing will primarily comprise bank borrowings, public bond issuance or private placement borrowings, although overdraft or revolving credit facilities may be used to increase acquisition and cash flow flexibility.  The company is in the process of arranging an overdraft facility of between £20 to £25 million with The Northern Trust Company ("Northern Trust"). The Company expects all debt to be denominated in Japanese yen.

Hedging Policy

Although the Company does not currently intend to enter into any arrangements to hedge its underlying currency exposure to investments denominated in Japanese yen, it may in future, at its discretion, enter into currency hedging arrangements using futures, forwards, swaps or other derivative instruments.

Dividend policy

The Company's intention is to look to achieve its results primarily through capital appreciation. As such, no specific dividend policy has been established and any distributions will be made entirely at the discretion of the Board.

Distribution policy

The Company believes that the substantial undervaluation of Japanese equities, coupled with an activist strategy designed to unlock underlying value should allow the Company to achieve significant investment results over time. Given the nature of this strategy, however, it is possible that such returns could be "lumpy" and unpredictable. Accordingly, the Company will target results primarily through capital appreciation. No specific dividend policy will be established in the first instance and any distributions will be made entirely at the discretion of the Board. Notwithstanding the foregoing, the Company will make such distributions as may be required to ensure compliance with the rules relating to investment trusts.

Key performance indicators ("KPIs")

The Board measures the Company's success in attaining its investment objective by reference to the following KPIs:

(i) Long term capital growth

The Board considers the NAV and Share price total return figures to be the best indicator of performance over time and this therefore is the main indicator of performance used by the Board.  The NAV and Share price total return for the year ended 31 December 2021 was 22.3% and 26.8% respectively (31 December 2020: 13.6% and 6.5% respectively).

(ii) Revenue return per Share

The Company's revenue return per Ordinary Share based on the weighted average number of shares in issue during the year was 2.15p (31 December 2020: 1.23p). 

(iii) Discount/premium to NAV

The discount/premium relative to the NAV per Share represented by the share price is closely monitored by the Board. The Share price closed at a 2.83% discount to the NAV as at 31 December 2021 (31 December 2020: discount of 6.23%).

(iv) Control of the level of ongoing charges

The Board monitors the Company's operating costs carefully.  Based on the Company's average net assets for the year ended 31 December 2021, the Company's ongoing charges figure calculated in accordance with the AIC methodology was 1.37% (31 December 2020: 1.60%).

Risks and Risk Management

Principal and emerging risks and uncertainties

The Company has carried out a robust assessment of its principal and emerging risks and the procedures in place to identify any emerging risks are described below.

Procedures to identify principal or emerging risks

The Board regularly reviews the Company's risk matrix and focuses on ensuring that the appropriate controls are in place to mitigate each risk. The experience and knowledge of the Board is important, as is advice received from the Board's service providers, specifically the Alternative Investment Fund Manager ("AIFM"), who is responsible for the risk and portfolio management services and outsources the portfolio management to the Investment Adviser. The following is a description of the work that each service provider highlights to the Board on a regular basis.

1.    Investment Adviser: the Investment Adviser provides a report to the Board at least quarterly or periodically as required on industry trends, insight to future challenges in the Japanese equity sector including the regulatory, political and economic changes likely to impact the sector;

2.    AIFM: following advice from the Investment Adviser and other service providers, the AIFM maintains a register of identified risks including emerging risks likely to impact the Company;

3.    Broker: provides advice periodically specific to the Company on the Company's sector, competitors and the investment company market whilst working with the Board and Investment Adviser to communicate with shareholders;

4.    Company secretary and auditor: briefs the Board on forthcoming legislation/regulatory change that might impact on the Company.  The auditor provides has relevant briefings at least annually; and

5.    Association of Investment Companies ("AIC"): The Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.

Procedure for oversight

The Board is responsible for the management of risks faced by the Company. The principal and emerging risks, together with a summary of the processes and internal controls used to manage and mitigate risks where possible are outlined below.

Emerging Risks

The Board has identified the following emerging risks:

·    The war in Ukraine is protracted and/or intensifies

·    Heightened geopolitical concerns in other regions

·    Sustained rises in energy costs, food prices and other material costs results in sharp, sustained increases in inflation

Viability Statement

The continuation of the Company is subject to the approval of shareholders in 2025 and every second AGM thereafter. The Directors have assessed the viability of the Company for the period to 31 December 2024 (the "Period"). The Board believes that the Period, being approximately three years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the nature of the Company's investment strategy and the principal risks outlined above. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the Period.

In their assessment of the prospects of the Company, the Board considered each of the principal and emerging risks and uncertainties set out above and the liquidity and solvency of the Company. The Board also considered the Company's income and expenditure projections and the fact that the majority of the Company's investments comprise reasonably realisable securities, which could, if necessary, be sold to meet the Company's funding requirements including buying back shares in order for the Company's discount control policy to be achieved. Portfolio changes, market developments, level of premium/discount to NAV and share buybacks/share issues are discussed at quarterly Board meetings. The internal control framework of the Company is subject to a formal review on at least an annual basis.

The level of the ongoing charges is dependent to a large extent on the level of net assets. The Company's income from investments and cash realisable from the sale of its investments provide substantial cover to the Company's operating expenses, and any other costs likely to be faced by the Company over the Period of their assessment.

This assessment has included a detailed review of the market and operational risks associated with the COVID-19 pandemic, and the ongoing economic impact of measures introduced to combat its spread, which were also discussed in depth with the Investment Adviser and continually monitored by the Board throughout the year. The Investment Adviser and other key service providers have provided regular updates on operational resilience in light of the pandemic. The Board is satisfied that the key service providers have the ability to continue their operations efficiently in a remote or virtual working environment.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with UK adopted international accounting standards and applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year.  Under that law the Directors are required to prepare the Company's financial statements in accordance with UK adopted international accounting standards.  Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss for company for that period.

In preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether they have been prepared in accordance with UK adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business;

·     prepare a Directors' report, a Strategic report and Directors' remuneration report which comply with the requirements of the Companies Act 2006.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. 

They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website.  Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions.  The maintenance and integrity of the company's website is the responsibility of the directors.  The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Directors' responsibilities pursuant to DTR4

The Directors confirm to the best of their knowledge:

·     The financial statements have been prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the company.

·     The Annual Report includes a fair review of the development and performance of the business and the financial position of the company, together with a description of the principal risks and uncertainties that they face.

Directors Statement as to the Disclosure of Information to Auditors.

All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

For and on behalf of the Board

Rosemary Morgan

Chair of the Board of Directors

30 March 2022

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASH FLOWS

The notes form part of these interim financial statements.

NOTES TO THE FINANCIAL STATEMENTS

The Company's distributable reserve consists of the capital reserve attributable to realised profit and the revenue reserve.

These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Transaction costs on investment purchases for the year ended 31 December 2021 amounted to £39,000 (2020: 89,000) and on investment sales for the period amounted to £21,000 (2020: 2,000). These transaction costs are calculated in line with the AIC SORP.

Rights attaching to the Ordinary Shares

Dividend rights: All Ordinary Shares are entitled to participate in dividends which the Company declares from time to time in respect of the Ordinary Shares, proportionate to the amounts paid or credited as paid on such Ordinary Shares.

Rights as respect to capital: On a winding-up or a return of capital, in the event that the Directors resolve to make a distribution to Shareholders, all Ordinary Shares are entitled to a distribution of capital in the same proportions as capital is attributable to them.

Voting rights: Every Shareholder shall have one vote for each Ordinary Share held.

ALTERNATIVE PERFORMANCE MEASURES ("APM")

Discount

Total return