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Hello and welcome to this annual update of Shin Neon, the Specialist Japanese Small Cap Investment Trust. I'm Pravin Kumar, manager of the trust.

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In last year's update, I spoke about Japanese small gaps suffering from weak investor sentiment due to geopolitics, inflation, rising interest rates and lingering effects of the pandemic. All these issues still remain to varying degrees.

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But if you take a step back and look at the bigger picture, we see numerous positive structural trends playing out in Japan just to give you a few examples. We are seeing record levels of wage growth above core inflation amidst a worsening labour shortage situation. This should provide a structural boost to domestic consumption.

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The Japanese government has dropped all covid restrictions. Inbound tourism is recovering steadily, whereas domestic tourism has bounced back much more strongly. Sustained pressure from regulators is forcing Japanese companies to focus more on shareholder returns, so we are seeing continued high levels of share buybacks and dividend increases.

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Finally, the rise in the cost of capital due to high interest rates is forcing companies to take a more disciplined approach to growth and focus more on improving profitability.

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These trends, we believe, are likely to have a far more important bearing on the future growth prospects of Japanese small caps and should provide a very favourable backdrop in the long run.

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Since its launch in 1985 Shi Neon's philosophy of identifying and investing in young, entrepreneurial and fast growing small companies in Japan has remained consistent.

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We manage a well diversified portfolio of 78 holdings that can broadly be divided into two groups.

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The first group comprises of companies with rapid sales growth, but with low levels of profitability.

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The second group comprises of companies with steady sales growth but strong profit growth and consistent profit margin improvement. We have historically had a bias towards the first group that consists of early stage and rapid growth. Internet businesses

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continued Weak sentiment around such companies over the past year has affected portfolio performance negatively.

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However, we are encouraged to see strong operational progress at many of our Internet businesses, which is at odds with their weak share price. For example, in the most recent fiscal year, online real estate company G A Technologies grew sales at over 50% and online legal website and digital contracts provider four dot com grew sales at nearly 30% with both companies showing good improvement in profitability as well.

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Yet in both cases the share price has been quite weak.

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The second group of companies those with less rapid sales growth but significant profit growth performed relatively better in share price terms.

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Leading global badminton brand Yi is currently growing profits at a run rate of over 50% due to strong demand for its products in China and India, where badminton as a sport is gaining popularity.

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Specialist semiconductor manufacturer Toyo Tans so is benefiting from rising demand for its Silicon Carbide products that are increasingly being used in electric vehicles due to their superior performance characteristics. The company grew profits at nearly 20% in its most recent fiscal year and has been investing aggressively to expand capacity in response to strong demand.

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We are also finding lots of new ideas for the portfolio. It is quite exciting for us to be able to own high growth Japanese smaller companies at valuations that do not reflect the long term growth potential. For example, we took a new holding in I E, a cosmetics company that is using artificial intelligence to analyse consumer feedback and accelerate product development.

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The business is growing its sales at over 20% and profits at over 30%. Yet the shares trade on a very low starting multiple.

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We also took a holding in Spider Plus, a software company that is attempting to digitise and automate Japan's extremely conservative construction industry. Again, we believe that the current valuation of Spider Plus does not reflect its long term growth potential.

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We also sold a few holdings like Building Maintenance Company A on Delight and child day care services provider JP Holdings, where we lost our conviction and management's ability to grow their respective businesses.

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Despite the weak sentiment around high growth Japanese small caps, we remain confident that the long term backdrop for Shin Nippon's holdings remains unchanged. If anything, in some cases like that of Toyota, so which I mentioned earlier, the demand outlook has actually improved as such, at a fundamental level, we remain optimistic about the long term growth prospects for Shin Neon's holdings.

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Another important reason for optimism is valuation.

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It is interesting to know that five years ago the estimated price to earnings ratio for the portfolio as a whole was around 27 times. This has fallen to just over 12 times currently, and this current rating is almost in line with the benchmark.

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However, over the same period, the portfolio has delivered far superior sales and profits growth compared to the benchmark. So in effect, there has been a significant de rating of the portfolio as a whole.

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This means we now have a portfolio that looks incredibly cheap and one that we believe will continue to deliver much higher rates of growth relative to the benchmark. Over the long term,

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such an outcome should result in a highly attractive return for patient and long term shareholders. All of this gives us a lot of cause for optimism, and we think Sinan represents an extremely attractive investment proposition for patient and long term investors.

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Thanks for watching.