Annual Financial Report

RNS Number : 3148S

Baillie Gifford Japan Trust PLC

02 October 2017

 

RNS Announcement: Preliminary Results

The Baillie Gifford Japan Trust PLC

Results for the year to 31 August 2017

Legal Entity Identifier: 54930037AGTKN765Y741

The Baillie Gifford Japan Trust PLC outperformed its benchmark index* over the year to 31 August 2017 by 8.8 percentage points.  Net asset value per share, after deducting borrowings at fair value, rose 27.6%, while the benchmark index gained 18.8%.  In this period the Company's share price increased by 37.5%.

¾  Performance is primarily driven by individual company share prices. Over the year the best performing stock (Yaskawa Electric) delivered double the performance than the worst (M3) subtracted.

¾  One emerging area of opportunity is healthcare, where we took three new holdings over the year. We also continue to find opportunities in automation related businesses.

¾  Sarah Whitley will retire from Baillie Gifford, the Company's Investment Manager, on 30 April 2018.

¾  Following Sarah's retirement, Matthew Brett will take over as the portfolio manager, supported by Praveen Kumar as deputy portfolio manager.

*    The benchmark index is the TOPIX total return (in sterling terms)

Source: Thomson Reuters Datastream/Baillie Gifford. See disclosure at the end of this announcement.

The Baillie Gifford Japan Trust PLC aims to achieve long term capital growth principally through investment in medium to smaller sized Japanese companies which are believed to have above average prospects for growth. At 31 August 2017, the Company had total assets of £657.7m (before deduction of bank loans of £82.5m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £170bn under management and advice as at 29 September 2017.

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares. The Trust has borrowed money to make further investments (sometimes known as 'gearing' or 'leverage'). The risk is that when this money is repaid by the Trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the Company will make a loss. If the Trust's investments fall in value, any invested borrowings will increase the amount of this loss. You should view your investment as long term. You can find up to date performance information about The Baillie Gifford Japan Trust PLC on the Company website at www.japantrustplc.co.uk.

29 September 2017

 

For further information please contact:

Alex Blake - Client Liaison

The Baillie Gifford Japan Trust PLC

Tel: [phone]

Roland Cross, Director,

Four Broadgate

Tel: [phone]

 

The following is the unaudited preliminary statement for the year to 31 August 2017 which was approved by the Board on 29 September 2017. No dividend is payable. Chairman's Statement

I am very pleased to report on another strong year for your Company with the net asset value (after deducting borrowings at fair value) rising 27.6%, compared to a 18.8% rise in the benchmark TOPIX index total return (in sterling terms). The share price increased by 37.5%, breaking through 700p for the first time, and the Company's shares are currently trading at a premium to NAV (after deducting borrowings at fair value) of 4.3%. The majority of investment trusts in the Japanese sector have been trading at discounts for some considerable time now while Japan Trust has traded at or near a premium for most of the last two years. This overall strong performance continues to build on impressive five and ten year records for the Japan Trust.

As with most recent years, stock selection (+3.0%) and gearing (+3.5%) both contributed strongly to the returns; further performance details are to be found in the Managers' Report.

Investment income increased by 20% to £8.48m for the year, due in the main to increased dividends. Expenses increased by 22% due mainly to higher management fees (up £0.61m to £3.18m) in line with the substantial increase in net asset value. It is worth noting that the reduction in management fee secured by the Board last year (now 0.55% for net assets in excess of £250m) has served shareholders well, saving £0.25m in fees for the full year.

Overall revenue gain per share was 2.80p (2016 - 2.35p) while ongoing charges for the year dropped to 0.8% (2016 - 0.9%), though as in prior years no dividend will be paid while the revenue reserve remains in deficit.

Portfolio management responsibilities

Sarah Whitley, who has managed the Company's portfolio since 1991, will be retiring from Baillie Gifford, the Company's Investment Manager, on 30 April 2018. Baillie Gifford, with the full support of the Board and Sarah Whitley, will appoint Matthew Brett as the Company's portfolio manager and Praveen Kumar as the Company's deputy portfolio manager with effect from that date. Sarah will work closely with Matthew and Praveen to ensure a smooth transition in portfolio management responsibilities.

As background for shareholders, Matthew Brett joined Baillie Gifford in 2003 and is an Investment Manager in the Japanese Equities team. He co-manages the £1.8bn Baillie Gifford Japanese Fund with Sarah and has been attending all Japan Trust Board meetings since 2008, providing excellent insight on our investments. Praveen Kumar joined Baillie Gifford in 2008, is also an Investment Manager in the Japanese Equities team and is the portfolio manager of Baillie Gifford Shin Nippon PLC.

On behalf of the Board I would like to thank Sarah for her truly significant contribution to the Company. Her dedicated professionalism, quite exceptional knowledge of Japan and its markets and discriminating judgement have been accompanied throughout the four decades of her career by an unswerving enthusiasm for all things Japanese. That Sarah was often in the minority of investors to firmly believe in the ongoing investment opportunities in Japanese companies has brought great benefit to the Japan Trust. Sarah has managed the Company since 1991 and, in the period from 30 September 1991 to 31 August 2017, the Company's NAV increased by 545% compared to the return on the TOPIX index (in sterling terms) of 156% and she has mentored those on the Baillie Gifford Japan Desk with great success. In Matthew Brett we have a fine successor to Sarah having worked with the Board for almost ten years, and I look forward to the continued success of the Trust under his stewardship.

Gearing

Gearing amounted to 17% of shareholders' funds at the start of the year and ended the year at 13%. Gross borrowings increased to Y11.7bn (2016 - Y10.2bn) while the sterling value of these loans in the balance sheet rose to £82.5m at the year end (2016 - £75.3m). Given the very low cost of yen loans and the positive contribution of gearing to performance during the year, we continue to believe that borrowing to invest in Japanese equities is a sensible strategy.

Share Capital

The Company did not exercise its share buy back powers during the year; however, your Board believes it is important that the Company retains this power and so, at the Annual General Meeting, is seeking to renew this facility. The Company also has authority to issue new shares and to reissue any shares held in treasury for cash on a non-pre-emptive basis. Shares are only issued/reissued at a premium to net asset value, thereby enhancing net asset value per share for existing shareholders.

During the year to 31 August 2017, 5.1m shares were issued at a premium to net asset value raising proceeds of £34m, continuing the trend of recent years. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting and we will continue to issue shares only when at a premium to net asset value. This authority will expire at the conclusion of the Annual General Meeting in 2018.

Continuation Vote

Our shareholders have the right to vote annually on whether the Company should continue in business, and will again have the opportunity to do so at the Annual General Meeting to be held on 30 November 2017.

Last year the Company again received support for its continuation. Your Directors are still of the opinion that there remain attractive opportunities in selected, well-run Japanese companies and given the long-term favourable outlook for the Japan Trust. To that end my fellow Directors and I intend, where possible, to vote our own shareholdings in favour of the resolution and hope that all shareholders will feel disposed to do likewise.

Board

Your Board is committed to high standards of corporate governance. In particular it recognises the need to have a balance of skills, experience and length of service which forms part of our succession planning discussions at our Nomination Committee meetings. Given the above it also believes that membership of the Board should be refreshed over time and would like to note that Paul Dimond intends to retire from the Board at the conclusion of the Company's 2018 Annual General Meeting. The process for identifying a new board member is in hand and the Board intends that a new Director will have been identified and appointed by this time next year. The appointment would then fall to be ratified by shareholders at the Company's 2018 Annual General Meeting.

Outlook

The year to 2017 saw ongoing strength in Japanese equities. Our Managers continued to find extremely interesting companies in which to invest, with their expertly researched 'bottom up' approach to stock selection adding significant value to the portfolio.

Business sentiment in Japan has been improving in recent years, with many positive aspects to the economic and consumer confidence indices following through into company results and consumer activity. However, with political tension in the region rising following North Korea's missile testing and President Trump's written and verbal reactions adding to that tension, we remain vigilant in assessing the impact such uncertainties can bring to the stocks we invest in. There are many things to remain positive about within Japan as a whole. Corporate governance changes are continuing, for example, it is now a requirement for shareholders to disclose how they vote on resolutions, and distributions to shareholders have continued to rise. These developments are all adding to the underlying strength of the economy and confidence in the management teams running the companies we invest in.

During the year your Manager and her team have again outperformed the market through their stock selection methodology, with Baillie Gifford Japan remaining a popular choice for investors. The Board visited Japan in May with the Managers, meeting CEOs and senior management of many current and potential investments. We returned home with an even more positive outlook for your Trust given the impressive entrepreneurial spirit we found that many fail to give Japan credit for, a real commitment to the social fabric of the country through profitable progress and investment, allied to new technologies that will blossom in this evolving technological age. The Managers firmly believe this will contribute to further strong results for shareholders.

As mentioned above Sarah Whitley is retiring from Baillie Gifford next April after a remarkable career spanning four decades, proving pivotal to the successful growth of the Japan Trust while maintaining an evident passion for her work. The Trust has prospered greatly under Sarah's stewardship and we will be sorry to see her retire but in Matthew Brett we have a more than able successor. He takes over the reigns with her full confidence and blessing along with that of your Board, is well thought of within Baillie Gifford and already known to many of our major shareholders. We look forward to him continuing to build on the successful performance of Baillie Gifford Japan Trust long into the future.

In summary, we believe there continue to be significant opportunities for investment growth among the companies in our portfolio, in addition to other investments currently under consideration, and that the Managers' approach of investing for medium to long term growth will indeed capitalise on these opportunities going forward.

Nick AC Bannerman

Chairman

29 September 2017

For a definition of terms see Glossary of Terms, Note 12.

Past performance is not a guide to future performance.

 

Managers' Report

Performance

Over the past year the NAV per share with borrowings deducted at fair value has increased by 27.6% to 682.4p which compares very favourably to a rise in the Company's benchmark of 18.8%.  Baillie Gifford believes that performance should be measured over longer periods and over five years the NAV has outperformed the benchmark by 9.2% p.a. and over ten years by 5.1% p.a. demonstrating the benefit to shareholders of an active long-term growth orientated stock picking approach. 

The Company's total assets increased to just over £650m, a rise of over £150m during the year, due to the combination of outperformance, a strong TOPIX and share issuance.  A larger trust will be of benefit to shareholders as fixed costs are spread over a broader base and also helps to reduce transaction costs by helping the liquidity of the shares. 

The main driver of the strong absolute return was the increase in the value of the TOPIX which rose 24.3% in Yen on a total return basis, slightly exceeding the high of 2015 on a total return basis.  The Company also borrows in Yen to invest in stocks and this decision was helpful to performance given the strong absolute return in Yen.  The Yen weakened 4.4% against Sterling to ¥141.8 per £1, slightly reducing the return in Sterling.  Last year's concerns surrounding the potential for a significant Chinese slowdown failed to materialise, global stock markets generally progressed upwards and Japan is increasingly seen as a haven of relative stability.

As in last year's report the portfolio is grouped into four different styles of growth to reflect our decision-making process.  Each of these styles offer different risks and opportunities.  Secular growth, the largest part of the portfolio, includes companies that we feel have an opportunity to grow rapidly but where there are a number of potential outcomes.  Growth stalwarts however are companies where growth is less rapid but more predictable, whilst those categorised as special situations are companies whose recent performance has not been good but we see a reason to believe that improvements are underway.  The cyclical growth stocks are those whose earnings do not rise every year but where we expect the earnings to be higher from one cycle to the next.  The mix of the four different styles of growth will change somewhat over the years but it seems inevitable that our positive approach to investing will result in a high weighting towards secular growth. 

Performance is primarily driven by individual company share prices rather than positions taken on industrial sectors so we think it is most meaningful to list the top ten and bottom ten contributors to performance over one and five years rather than showing performance by sector.  There are several general points worth noting.  First, we pay no attention to the index when deciding which investments to hold, preferring to maximise returns by only investing in companies in which we have genuine conviction.  These are often medium or smaller-sized companies where it is easier to see rapid growth.  Second, due to the asymmetric nature of stock returns a good idea can do much more to help returns than a bad idea can hinder them.  Over one year the best performing stock (Yaskawa Electric) delivered double the performance than the worst (M3) subtracted.  Over five years the difference rises to over three times.  It is important therefore for us to focus on the upside potential of individual stocks and to stay the course when we have found a good idea.  Mistakes are inevitable but over the long-haul we believe that this approach of holding on to winning stocks is the one that will benefit shareholders the most.  Finally, the returns have come from a diverse range of companies - including manufacturers, internet businesses, financials and service companies.  This is natural because we are looking for individual growth businesses rather than investing on a sector basis and good companies can be found in many different industries.

In total we bought nine new holdings during the year and sold eight existing holdings.  Turnover was 6% in the last year, low even by our standards.  We are firm believers that if a growth business is performing well it is difficult to replace.  Furthermore, the issuance of shares allowed an element of re-shaping the portfolio without needing to sell anything. 

One emerging area of opportunity is healthcare, where we took three new holdings during the year.  The first, Cyberdyne, has commercialised an exoskeleton designed to help patients rehabilitate following brain injury such as stroke.  The second, Peptidream, has developed a library of synthetic peptides which can be used as direct therapies or to target drugs very specifically.  The third, Healios, is using stem cells to treat age-related macular degeneration which is a serious eye condition that is very difficult to treat.  In each case the company is harnessing new technologies to create innovative solutions that have very large addressable opportunities. 

We continue to find opportunities in automation related businesses taking new holdings in Keyence, a factory automation consultancy, and Monotaro, which sells a wide variety of maintenance, repair and operation products to small businesses.  These join the new purchases made last year in the same area of Nidec, the precision motor manufacturer, and Topcon, the global position system.  Again the scale of the potential opportunity for such businesses remains very large and investing in Japan we are fortunate to have many good quality businesses to choose from.  

Investment Environment

Japan has made major corporate governance improvements over the past several years, driven by the launch of the Stewardship Code in 2014 and the Corporate Governance code in 2015.  In general companies have been paying more attention to shareholder returns with dividends continuing to grow and share buybacks remaining at similar levels.  The Company has seen the benefits of this change, with investment income growing 19.6% from the previous year to reach £8.5m.  We continue to believe that many of the companies that we invest in have the ability to grow dividends faster than earnings over the long-term. 

Japan's domestic economy continues to perform well, enjoying 6 consecutive quarters of positive growth, the longest such streak in over a decade. Both domestic consumption and corporate spending on capex have been key contributors to domestic growth. The labour market remains very tight with the unemployment rate below 3% and the jobs-to-applicants ratio has now exceeded levels seen during Japan's economic bubble era. This is also beginning to put considerable upward pressure on wages which is likely to have positive implications for domestic consumption.  Recently, Mr Abe has decided to call an early election with a view to extending his mandate.  Meanwhile the strength of overseas demand has continued, being felt especially keenly in areas such as robotics which seem to be in a period of secular growth. 

Where might the challenges come from?  A global slowdown would reduce demand for Japanese exports, as would any trade dispute between the US and China that reduced total demand given that they are Japan's two most significant export markets.  There continues to be the potential for geopolitical difficulties around Japan, with North Korea of particular concern.  Moreover, it is a simple fact that the stock market has made considerable progress since the dark days around the global financial crisis. 

Outlook

We believe that there are significant opportunities available to long-term stock pickers in Japan.  In areas such as the internet, automation and healthcare, rapid development is taking place and this gives the opportunity for dynamic businesses to prosper.  We will continue to strive to identify businesses with exciting growth opportunities and to purchase shares in them for your Company. 

Baillie Gifford

September 2017

For a definition of terms see Glossary of Terms, Note 12.

Past performance is not a guide to future performance.

Equity Portfolio by Growth Category

As at 31 August 2017

Secular Growth*	% of total assets		Growth Stalwarts*	% of total assets		Special Situations*	% of total assets		Cyclical Growth*	% of total assets
SoftBank	3.6		Nitori	1.9		Sony	2.1		Persol Holdings	2.6
Yaskawa Electric	3.2		Mitsubishi UFJ Lease & Finance   Finance	1.2		Hikari Tsushin	2.0		Itochu	2.2
Start Today	3.0					Tokyo Tatemono	1.4		Toyo tire & Rubber	1.8
Misumi Group	2.8		Park24	1.0		Renesas			Nifco	1.6
IRISO Electronics	2.6		Fukuoka Financial	0.8		Electronics	0.6		Mitsubishi Electric	1.5
Outsourcing	2.6		Sawai Pharmaceutical	0.7		Colopl	0.4		Sumitomo Mitsui Trust	1.3
Rakuten	2.4		Secom	0.6					Disco	1.3
Pigeon	2.3								Iida Group	1.3
Sysmex	2.2								Sumitomo Metal Mining	1.2
CyberAgent	2.1								Murata Manufacturing	1.2
Kubota	2.0								Nippon Electric Glass	1.1
Nidec	1.9								Mazda Motor	1.1
SMC	1.9								Isuzu Motors	1.1
GMO Internet	1.9								Suruga Bank	1.0
H.I.S.	1.9								Takara Leben	1.0
Inpex	1.9								Advantest	1.0
Japan Exchange Group	1.8								Invincible Investment	0.9
Fanuc	1.8
Don Quijote	1.8
M3	1.8
SBI	1.6
Subaru	1.6
Shimadzu	1.6
Recruit Holdings	1.4
Toyota Tsusho	1.3
Lifull	1.2
Topcon	1.1
Digital Garage	0.8
Asics	0.8
Broadleaf	0.7
Keyence	0.7
Peptidream	0.7
iStyle	0.7
Infomart	0.6
Kakaku.com	0.5
Nippon Ceramic	0.4
Cyberdyne	0.4
Cookpad	0.4
SanBio	0.4
MonotaRO	0.3
Wirelessgate	0.3
Healios K.K.	0.3
Total	63.3		Total	6.2		Total	6.5		Total	23.2

* A definition of the growth categories can be found in the Managers' Report.

Stock Level Attribution

Top Ten Relative Stock Contributors Year to 31 August 2017

Bottom Ten Relative Stock Contributors Year to 31 August 2017

Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %
Yaskawa Electric	2.7	0.1	1.6		M3	2.6	0.1	(0.7)
Start Today	2.8	0.1	1.6		Takara Leben	1.6	-	(0.7)
Outsourcing	2.2	-	1.1		GMO Internet	2.4	-	(0.7)
IRISO Electronics	2.3	-	0.9		Rakuten	3.0	0.3	(0.7)
Toyota Motor	-	3.5	0.7		Sysmex	2.9	0.2	(0.5)
Misumi Group	2.9	0.1	0.7		Asics	1.2	0.1	(0.5)
Pigeon	2.5	0.1	0.6		Park24	1.5	0.1	(0.5)
Nitori	2.1	0.3	0.5		Subaru	2.4	0.6	(0.4)
Disco	1.4	0.1	0.4		Mazda Motor	1.5	0.2	(0.3)
Toyo Tire & Rubber	2.1	-	0.4		Cookpad	0.7	-	(0.3)

Top Ten Relative Stock Contributors 5 years to 31 August 2017

Bottom Ten Relative Stock Contributors 5 years to 31 August 2017

Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %
Subaru	3.2	0.6	3.8		Endo Lighting	0.3	-	(1.2)
Start Today	1.9	0.1	3.0		Sumitomo Mitsui Trust	1.7	0.5	(1.2)
IRISO Electronics	2.2	-	2.7		Gree	0.4	-	(1.1)
Yaskawa Electric	2.4	0.1	2.7		Inpex	1.8	0.4	(1.1)
Outsourcing	0.9	-	2.5		Aeon Mall	1.0	0.1	(0.8)
Japan Exhange Group	2.6	0.2	2.4		Lifenet Insurance	0.2	-	(0.8)
Persol Holdings	2.5	-	2.4		Hitachi High-Technologies	0.2	0.1	(0.7)
Pigeon	2.0	0.1	2.2		Rakuten	2.8	0.2	(0.6)
Toyo Tire & Rubber	2.5	-	2.1		Yamada Denki	0.3	0.1	(0.6)
Misumi Group	2.6	0.1	1.8		EPS	0.4	-	(0.6)

Source: StatPro. Baillie Gifford Japan Trust relative to TOPIX total return, in sterling terms. See disclaimer at the end of this announcement.

Holding Period

As at 31 August 2017

>10 years	% of total assets			5-10 years	% of total assets			2-5 years	% of total assets			<2 years	% of total assets
Misumi Group	2.8			Yaskawa Electric	3.2			SoftBank	3.6			Nidec	1.9
IRISO Electronics	2.6			Start Today	3.0			Outsourcing	2.6			Murata Manufacturing	1.2
Persol Holdings	2.6			Pigeon	2.3			CyberAgent	2.1			Topcon	1.1
Rakuten	2.4			Hikari Tsushin	2.0			Sony	2.1			Takara Leben	1.0
Itochu	2.2			Kubota	2.0			Fanuc	1.8			Invincible Investment*	0.9
Sysmex	2.2			Nitori	1.9			Recruit Holdings	1.4			Keyence*	0.7
SMC	1.9			GMO Internet	1.9			Sumitomo Mitsui Trust	1.3			Peptidream*	0.7
H.I.S.	1.9			Japan Exchange Group	1.8			Toyota Tsusho	1.3			iStyle	0.7
Inpex	1.9			Toyo Tire & Rubber	1.8			Iida Group	1.3			Infomart	0.6
Don Quijote	1.8			M3	1.8			Sumitomo Metal Mining	1.2			Renesas Electronics*	0.6
Shimadzu	1.6			SBI	1.6			Nippon Electric Glass	1.1			Secom*	0.6
Mitsubishi Electric	1.5			Nifco	1.6			Mazda Motor	1.1			Colopl*	0.4
Tokyo Tatemono	1.4			Subaru	1.6			Advantest	1.0			Nippon Ceramic	0.4
Mitsubishi UFJ Lease & Finance	1.2			Disco	1.3			Park24	1.0			Cyberdyne*	0.4
Total	28.0			Lifull	1.2			Broadleaf	0.7			MonotaRO*	0.3
				Isuzu Motors	1.1			Sawai Pharmaceutical	0.7			Wirelessgate	0.3
				Suruga Bank	1.0			Cookpad	0.4			Healios K.K.*	0.3
				Fukuoka Financial	0.8			SanBio	0.4			Total	12.1
				Digital Garage	0.8			Total	25.1
				Asics	0.8
				Kakaku.com	0.5
				Total	34.0						*	Stocks bought within the past year.

List of Investments as at 31 August 2017 (unaudited)

Name	Business	Value £'000	% of total assets	Absolute† Performance %	Relative† Performance %
SoftBank	Telecom operator and technology investor	23,586	3.6	26.8	6.8
Yaskawa Electric	Robots and factory automation	21,133	3.2	110.8	77.5
Start Today	Internet fashion retailer	20,033	3.0	105.8	73.3
Misumi Group	Precision machinery parts distributor	18,571	2.8	50.3	26.6
IRISO Electronics	Specialist auto connectors	17,334	2.6	70.9	43.9
Outsourcing	Employment placement services	17,191	2.6	80.5	52.0
Persol Holdings	Employment and outsourcing services	17,173	2.6	30.1	9.6
Rakuten	Internet retail and financial services	15,525	2.4	(4.0)	(19.2)
Pigeon	Baby care products	15,227	2.3	49.7	26.1
Itochu	Trading conglomerate	14,247	2.2	45.2	22.3
Sysmex	Medical equipment	14,194	2.2	(2.3)	(17.7)
CyberAgent	Internet advertising and content	14,084	2.1	23.3	3.8
Sony	Consumer electronics, films and finance	14,006	2.1	25.2	5.4
Hikari Tsushin	Entrepreneurial sales organisation	13,234	2.0	35.9	14.5
Kubota	Agricultural machinery	13,023	2.0	21.6	2.4
Nidec	Specialist motors	12,827	1.9	28.9	8.5
SMC	Pneumatic control equipment	12,790	1.9	24.6	5.0
Nitori	Furniture retail chain	12,775	1.9	55.5	31.0
GMO Internet	Internet conglomerate	12,468	1.9	(7.8)	(22.4)
H.I.S.	Travel agency and theme parks	12,311	1.9	42.9	20.4
Inpex	Oil and gas producer	12,269	1.9	13.3	(4.6)
Japan Exchange Group	Stock Exchange operator	12,150	1.8	13.5	(4.4)
Toyo Tire & Rubber	Tyre manufacturer	11,972	1.8	42.4	19.9
Fanuc	Robotics manufacturer	11,887	1.8	17.6	(1.0)
Don Quijote	Discount store operator	11,693	1.8	18.6	(0.1)
M3	Online medical database	11,604	1.8	(11.5)	(25.5)
SBI	Online broker and venture capital investor	10,882	1.6	22.4	3.1
Nifco	Value-added plastic car parts	10,656	1.6	18.1	(0.6)
Subaru	Car manufacturer	10,512	1.6	(7.3)	(22.0)
Shimadzu	Environmental testing equipment	10,403	1.6	20.5	1.4
Mitsubishi Electric	Industrial electronic conglomerate	9,947	1.5	17.1	(1.4)
Recruit Holdings	Property, lifestyle and jobs media	9,358	1.4	61.1	35.7
Tokyo Tatemono	Property leasing and development	9,312	1.4	8.2	(8.8)
Sumitomo Mitsui Trust	Trust bank and investment manager	8,754	1.3	1.2	(14.8)
Toyota Tsusho	Markets automobiles and other products,   Africa focus	8,557	1.3	39.7	17.6
Disco	Specialist cutting for semiconductors	8,547	1.3	64.5	38.6
Iida Group	House builder	8,340	1.3	(5.4)	(20.4)
Lifull	Real estate website	7,983	1.2	22.6	3.2
Sumitomo Metal Mining	Smelting and copper, nickel and gold mining	7,670	1.2	38.8	16.9
Murata Manufacturing	Electrical components	7,611	1.2	18.5	(0.2)
Mitsubishi UFJ Lease &  Finance	Leasing company	7,606	1.2	11.9	(5.8)
Topcon	GPS systems	7,246	1.1	38.6	16.7
Name	Business	Value £'000	% of total assets	Absolute† Performance %	Relative† Performance %
Nippon Electric Glass	Flat panel display glass manufacturer	7,204	1.1	57.1	32.3
Mazda Motor	Car manufacturer	7,116	1.1	(7.5)	(22.1)
Isuzu Motors	Lorries and pick-up trucks	6,979	1.1	17.8	(0.8)
Suruga Bank	Specialist regional bank	6,730	1.0	(8.0)	(22.5)
Takara Leben	Condominium builder & solar power operator	6,577	1.0	(22.9)	(35.0)
Advantest	Semiconductor testing devices	6,462	1.0	14.5	(3.6)
Park24	Parking, car hire and sharing	6,284	1.0	(15.2)	(28.6)
Invincible Investment	Real estate investment trust	5,664	0.9	1.2*	(1.6)*
Fukuoka Financial	Leading regional bank	5,259	0.8	7.9	(9.2)
Digital Garage	Internet business investor	5,028	0.8	21.2	2.1
Asics	Sports shoes and clothing	4,970	0.8	(23.9)	(35.9)
Broadleaf	Proprietary car repair database	4,787	0.7	51.0	27.2
Keyence	Manufacturer of sensors	4,764	0.7	69.2*	54.1*
Peptidream	Biotech company	4,730	0.7	38.0*	33.4*
Sawai Pharmaceutical	Generic pharmaceuticals	4,577	0.7	(14.2)	(27.8)
iStyle	Beauty product review website	4,337	0.7	(7.1)	(21.7)
Informart	Internet platform for restaurant supplies	3,964	0.6	58.2	33.3
Renesas Electronics	Electronic components & semiconductors	3,787	0.6	33.8*	34.0*
Secom	Security services	3,718	0.6	(6.6)*	(7.0)*
Kakaku.com	Price comparison and restaurant review   website	3,379	0.5	(23.2)	(35.3)
Colopl	Smartphone gaming and virtual reality (VR)	2,867	0.4	20.6*	16.6*
Nippon Ceramic	Semiconductor devices	2,777	0.4	46.6	23.5
Cyberdyne	Medical exo-skeletons	2,759	0.4	(8.9)*	(15.8)*
Cookpad	Recipe website	2,753	0.4	(28.1)	(39.5)
SanBio	Stem cell based stroke treatment	2,337	0.4	7.6	(9.4)
MonotaRO	Online business supplies	2,325	0.3	(8.9)*	(9.8)*
Wirelessgate	Wireless communication services	2,026	0.3	(20.0)	(32.6)
Healios K.K.	Regenerative medicine	1,746	0.3	(23.4)*	(26.3)*
Total Investments		652,597	99.2
Net Liquid Assets		5,124	0.8
Total Assets		657,721	100.0
Bank Loans		(82,500)	(12.5)
Shareholders' Funds		575,221	87.5

†    Absolute and relative performance has been calculated on a total return basis over the period 1 September 2016 to 31 August 2017. For investments held for part of the year, the return is for the period they were held. Absolute performance is in sterling terms; relative performance is against TOPIX total return (in sterling terms).

*     Figures relate to part period returns.

Source: Baillie Gifford/Statpro. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.

 

Income Statement (unaudited)

	For the year ended 31 August 2017			For the year ended 31 August 2016
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	111,160	111,160	-	102,266	102,266
Currency gains/(losses) (note 2)	-	2,997	2,997	-	(18,277)	(18,277)
Income (note 3)	8,480	-	8,480	7,090	-	7,090
Investment management fee (note 4)	(3,179)	-	(3,179)	(2,572)	-	(2,572)
Other administrative expenses	(592)	-	(592)	(523)	-	(523)
Net return before finance costs and taxation	4,709	114,157	118,866	3,995	83,989	87,984
Finance costs of borrowings	(1,626)	-	(1,626)	(1,463)	-	(1,463)
Net return on ordinary activities before taxation	3,083	114,157	117,240	2,532	83,989	86,521
Tax on ordinary activities	(848)	-	(848)	(709)	-	(709)
Net return on ordinary activities after taxation	2,235	114,157	116,392	1,823	83,989	85,812
Net return per ordinary share (note 6)	2.80p	142.75p	145.55p	2.35p	108.24p	110.59p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital returns columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

Balance Sheet (unaudited)

	At 31 August 2017		At 31 August 2016
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		652,597		498,419
Current assets
Debtors	788		1,930
Cash and cash equivalents	10,585		2,473
	11,373		4,403
Creditors
Amounts falling due within one year (note 7)	(37,980)		(24,676)
Net current liabilities		(26,607)		(20,273)
Total assets less current liabilities		625,990		478,146
Creditors
Amounts falling due after more than one year (note 7)		(50,769)		(53,149)
Net assets		575,221		424,997
Capital and reserves
Share capital		4,194		3,937
Share premium account		122,698		89,123
Capital redemption reserve		203		203
Capital reserve		449,885		335,728
Revenue reserve		(1,759)		(3,994)
Shareholders' funds		575,221		424,997
Net asset value per ordinary share (after deducting borrowings at fair value)		682.4p		534.6p
Net asset value per ordinary share (after deducting borrowings at par value)		685.8p		539.8p
Ordinary shares in issue (note 9)		83,879,925		78,734,925

 

Statement of Changes in Equity (unaudited)

For the year ended 31 August 2017

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2016	3,937	89,123	203	335,728	(3,994)	424,997
Shares issued	257	33,575	-	-	-	33,832
Net return on ordinary activities after taxation	-	-	-	114,157	2,235	116,392
Shareholders' funds at 31 August 2017	4,194	122,698	203	449,885	(1,759)	575,221

For the year ended 31 August 2016

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2015	3,756	73,272	203	251,739	(5,817)	323,153
Shares issued	181	15,851	-	-	-	16,032
Net return on ordinary activities after taxation	-	-	-	83,989	1,823	85,812
Shareholders' funds at 31 August 2016	3,937	89,123	203	335,728	(3,994)	424,997

*      The capital reserve balance as at 31 August 2017 includes investment holding gains of £334,842,000 (2016 - £235,319,000)

 

Cash Flow Statement (unaudited)

	At 31 August 2017		At 31 August 2016
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	117,240		86,521
Net gains on investments	(111,160)		(102,266)
Currency (gains)/losses	(2,997)		18,277
Finance cost of borrowings	1,626		1,463
Overseas withholding tax	(834)		(675)
Changes in debtors and creditors	(3)		(153)
Cash from operations		3,872		3,167
Interest paid		(1,611)		(1,407)
Net cash inflow from operating activities		2,261		1,760
Cash flows from investing activities
Acquisitions of investments	(73,979)		(51,366)
Disposals of investments	35,795		25,014
Exchange differences on settlement of investment transactions	(46)		615
Net cash outflow from investing activities		(38,230)		(25,737)
Cash flows from financing activities
Shares issued	33,832		16,032
Bank loans drawn down	10,360		-
Net cash inflow from financing activities		44,192		16,032
Increase/(decrease) in cash and cash equivalents		8,223		(7,945)
Exchange movements		(111)		1,676
Cash and cash equivalents at start of period		2,473		8,742
Cash and cash equivalents at end of period*		10,585		2,473

* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

 

Notes to the Condensed Financial Statements (unaudited)

1.	The Financial Statements for the year to 31 August 2017 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The accounting policies adopted are consistent with those of the previous financial year.  The Company has already adopted the amendments to Section 34 of FRS102 regarding fair value hierarchy disclosures. In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 17 to the Financial Statements. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. In accordance with the Company's Articles of Association, shareholders have the right to vote annually at the Annual General Meeting on whether to continue the Company. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future. If the continuation resolution is not passed, the Articles provide that the Directors shall convene a General Meeting within three months at which a special resolution will be proposed to wind up the Company voluntarily. If the Company is wound up, its investments may not be realised at their full market value.
2.	Currency Gains/(Losses)	31 August 2017 £'000	31 August 2016 £'000
	Exchange differences on bank loans	3,154	(20,568)
	Other exchange differences on cash	(157)	2,291
		2,997	(18,277)
3.	Income	31 August 2017 £'000	31 August 2016 £'000
	Income from investments	8,480	7,090
4.	Investment Management Fee - all charged to revenue	2017 £'000	2016 £'000
	Investment Management Fee	3,179	2,572
	With effect from 1 September 2016 Baillie Gifford & Co Limited's annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets, calculated and payable quarterly. Prior to 1 September 2016, the fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net assets.
5.	No final dividend will be declared.

 

Notes to the Condensed Financial Statements (unaudited) (ctd)

6.	Net Return per Ordinary Share	2017 Revenue	2017 Capital	2017 Total	2016 Revenue	2016 Capital	2016 Total
	Net return on ordinary activities after taxation	2.80p	142.75p	145.55p	2.35p	108.24p	110.59p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £2,235,000 (2016 - £1,823,000), and on 79,968,404 (2016 - 77,529,006) ordinary shares, being the weighted average number of ordinary shares in issue during each year. Capital return per ordinary share is based on the net capital return for the financial year of £114,157,000 (2016 - £83,989,000), and on 79,968,404 (2016 - 77,592,006) ordinary shares, being the weighted average number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.
7.	Total borrowings at 31 August 2017 were £82.5m (¥11.7billion), (31 August 2016 - £75.3m (¥10.2billion)). Borrowings of ¥1.5 billion were drawn down during the year fully utilising the five year ¥3.0 billion revolving loan facility with Scotiabank Europe maturing in August 2020.
8.	Transaction costs incurred on the purchase and sale of investments are added to the purchase costs or deducted from the sales proceeds, as appropriate. During the year, transaction costs on purchases amounted to £34,000 (31 August 2016 - £25,000) and transaction costs on sales amounted to £21,000 (31 August 2016 - £15,000).
9.	At 31 August 2017 the Company had authority to buy back 11,802,365 shares. No shares were bought back during the year. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. During the year, 5,145,000 (2016 - 3,613,175) shares were issued at a premium to net asset value raising proceeds of £33,832,000 (2016 - £16,032,000).  Between 1 September 2017 and 29 September 2017, the Company issued a further 175,000 shares at a premium to net asset value raising proceeds of £1,218,000.
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2017. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The Auditor's have reported on the 2016 accounts, their report was unqualified and did not contain a statement under sections 495 to 497 of the Companies Act 2006. The statutory accounts for 2017 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
11.	The Annual Report and Financial Statements will be available on the Company's page of the Managers' website www.japantrustplc.co.uk‡ on or around 31 October 2017.

 

12.

Glossary of Terms

Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. Net Asset Value (Borrowings at Fair Value) Borrowings are valued at an estimate of their market worth. Net Asset Value (Borrowings at Par Value) Borrowings are valued at their nominal par value Net Liquid Assets Net liquid assets comprise current assets less current liabilities excluding borrowings. Discount/Premium As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Total Return The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex dividend. Ongoing Charges The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). Gearing At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The level of gearing can be adjusted through the use of derivatives which affect the sensitivity of the value of the portfolio to changes in the level of markets. Gearing is the Company's borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Leverage For the purposes of the Alternative Investment Fund Managers(AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. Active Share Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

‡      Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

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No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

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- ends -

 

END

 

 

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