Baillie Gifford Japan Trust annual results

RNS Number : 8149L

Baillie Gifford Japan Trust PLC

06 October 2016

 

RNS Announcement: Preliminary Results

The Baillie Gifford Japan Trust PLC

Results for the year to 31 August 2016

The Baillie Gifford Japan Trust PLC outperformed its benchmark index* over the year to 31 August 2016 by 4 percentage points.  Net asset value per share, after deducting borrowings at fair value, rose 25.7%, while the benchmark index gained 21.5%.  In this period the Company's share price increased by 16.3%.

 - The main driver of the strong absolute return was the increase in the value of the Yen which was greater than the decline in the TOPIX.

 - Misumi contributed the most to performance and several internet related companies, including Start Today, CyberAgent and M3, also performed well over the period.

 - During the year five holdings with lacklustre prospects were sold and nine new holdings were bought. Several of the new holdings are in small companies with potentially exciting growth ahead.

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

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 2016, the Company had total assets of £500.3m (before deduction of bank loans of £75.3m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £150bn under management and advice as at 5 October 2016.

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.

5 October 2016

 

For further information please contact:

Alex Blake - Client Liaison

The Baillie Gifford Japan Trust PLC

Tel: [phone]

Roland Cross, Director,

Four Broadgate 

Tel: [phone] or 07831 401309

 

The following is the unaudited preliminary statement for the year to 31 August 2016 which was approved by the Board on 5 October 2016. No dividend is payable. Chairman's Statement

I am pleased to report on another good year for your Company with the net asset value (after deducting borrowings at fair value) rising 25.7%, compared to a 21.5% rise in the benchmark TOPIX index total return (in sterling terms). The share price increased by 16.3% although, having traded at a premium for most of the year, the Company's shares are currently trading at a discount to NAV (after deducting borrowings at fair value) of 3.2%. This is a much tighter level than the majority of the investment trusts in the Japanese sector and the overall performance continues to build on impressive five and ten year records for the Japan Trust.

As with recent years, stock selection contributed strongly to the returns (+5.2%) although gearing was a slight drag on performance (-1.5%); further performance details are to be found in the Managers' Report.

Investment income increased by 64% to £7.09m for the year, due in the main to increased dividends coupled with a strengthening yen over the year and sterling weakness post the Brexit vote.  Expenses increased by 17% due mainly to higher management fees (up £0.43m to £2.57m) in line with the substantial increase in net asset value.

Overall revenue gain per share was 2.35p (significantly up on the 0.28p last year) though as in prior years, no dividend will be paid while the revenue reserve remains in deficit. Ongoing charges for the year were 0.9%, the same as in 2015. In recognition of increasing value for shareholders and improving the attractiveness of our Investment Trust management fee structure, your Board is pleased to inform you that we have agreed a fee reduction with the Managers from 1 September  2016 through the  introduction of an extra tier (for net assets in excess of £250m) at a lower fee rate of 0.55% (previously 0.65%).

Gearing

Gearing amounted to 14% of shareholders' funds at the start of the year and ended the year at 18%. Gross borrowings remained at Y10.2bn though, due to the significant currency movement post the Brexit vote, the sterling value of these loans in the balance sheet rose to £75.3m at the year end (2015 - £54.7m). Given the very low cost of yen loans, 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 2016, 3.6m shares were issued at a premium to net asset value raising proceeds of £16m, 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 2017.

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 2 December 2016.

Last year the Company 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, 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. It also believes that membership of the Board should be refreshed over time and so we were delighted to welcome David Kidd on to the Board in late 2015, bringing with him a significant depth and breadth of investment experience.

Outlook

The year to 2016 saw renewed strength in Japanese equities and our Managers are continuing to find extremely interesting companies in which to invest, with their bottom up approach of stock selection adding significant value to the portfolio.

Business sentiment in Japan has improved over the last couple of years but with the slowdown in China, a stronger yen, the impending US Presidential election coupled with uncertainties in Europe post Brexit, the moderate economic growth level in Japan has to some extent been constrained by such factors.

Given these macro economic and political hurdles, your Board sees the Managers' proven ability to outperform through their stock selection methodology as even more important than before in returning strong results for shareholders. We also see ongoing evidence of significant improvements in corporate governance across Japan which the Managers continue to press for with all our holdings.

In summary we continue to believe there are significant opportunities for investment growth among the companies in our portfolio alongside other opportunities under consideration at this time and that the Managers' approach of investing for medium to long term growth can capitalise on these opportunities going forward.

Nick Bannerman

Chairman

5 October 2016

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 25.7% to 534.6p which compares to a rise in the Company's benchmark of 21.5%: another year of outperformance.  Baillie Gifford believes that performance should be measured over longer periods and over five years the NAV has outperformed the benchmark by 8% pa and over ten years by 4% pa demonstrating the benefits to shareholders of an active long term growth orientated stock picking approach.

The Company's total assets increased to just over £500m, a rise of over £100m during the year, owing to the combination of outperformance, strong yen and share issuance.  A larger trust will be of benefit to shareholders as fixed costs are spread over a broader base and it should also be easier to deal in the shares.  The growth in assets over the past year also takes the Trust into the top 100 investment companies by size for the first time. 

The main driver of the strong absolute return was the increase in the value of the yen which was greater than the decline in the TOPIX.  The yen rose 37.6% to ¥135.5 per £1, strengthening to levels against sterling last seen in 2012 before the advent of Abenomics.  The Japanese stock market fell however in yen terms by 18.9% as there were global worries, particularly about Chinese growth, and the impact of a stronger yen also affected projections for earnings.  The combination of these two offsetting moves was positive for sterling investors, the rather counter-intuitive moves in markets after the UK Referendum vote took the Japan Trust NAV and share price to an all-time high.   

Given the long term active stock picking style, performance is driven by individual company share prices rather than positions taken on industrial sectors and we have therefore changed the presentation of both performance and the portfolio in the Annual Report to reflect more closely our decision making process.  The portfolio is grouped into four different styles of growth with each, we believe, offering 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. 

Performance is shown by listing the top ten and bottom ten contributors to performance over both one and five years rather than by sector.  As in prior years the Trust's investment in secular growth companies has been helpful, with Misumi, which has been in the portfolio for over ten years, and has successfully developed its business model to be competitive overseas as well as in Japan, contributing the most to performance.  Several internet related companies such as online fashion retailer Start Today, online advertiser CyberAgent and medical portal M3 also performed well over the period.  In terms of holdings that hurt performance, Toyo Tire & Rubber was affected by a quality scandal in a minor division but, despite a poor year, is still amongst the largest contributors to performance over five years.  Other stocks out of favour were Cookpad, the recipe website which suffered management changes, and HIS, which has a theme park near the Kumamoto earthquake region.   

We have split the portfolio by length of time held, with the vast majority of stocks now owned for over five years.  During the year we sold five holdings where prospects were lacklustre and bought nine new companies.  The number of companies held is now 69, but several of the new holdings are in small companies with potentially exciting growth ahead and with this type of holding even a small position could potentially make a difference to overall returns in the long term.  The characteristics of the portfolio compared to the benchmark demonstrates that in aggregate the companies held by the Trust have faster sales growth, better profitability and balance sheets, and tend to be smaller than the average TOPIX stock but that they are valued at a small premium to the market.  We feel that the superior growth prospects of the portfolio more than compensate for the slightly higher valuation. 

 

Corporate Developments 

 

The new corporate governance code that was put in place last year has encouraged further expansion in the number of independent directors across the quoted sector in Japan.  There has even been a significant increase in the number of outside external female directors.  Whilst it is still early on in a long term change in company attitudes, increased dividend payments and share buy backs are positive indicators and we expect long term dividend growth to exceed earnings growth. Gradually boards in Japan will take on more of an oversight function and less of an executive one.

Corporate culture in Japan is probably more diverse than generally understood and the acquisition of ARM Holdings by Softbank is a clear demonstration of this.  Mr Son leads a company of which he is the major shareholder and the founder and he has a long term view of technology developments.  He bought ARM to help develop products for the Internet of Things era.  There are several other companies within the portfolio with founder presidents and we find many of the great growth companies in Japan are led by such entrepreneurs. 

Outlook

Although commentators are almost universally disappointed that Abenomics has not achieved its target of stimulating rapid growth in the Japanese economy, some policies are driving changes that provide a positive investment environment for many of the growth companies that we own. In one case, changes in regulations relating to bio technology have brought Japanese scientists back to Japan from America to list their company.  The stronger yen has had a negative impact on reported profits. However, employment has increased in Japan, wages are rising as the labour shortage deepens and Japan is beginning to re-examine many attitudes from worker immigration to the role of women in the workforce. The number of inbound tourists reached the 2020 target of 20m in 2015 and the aim is now for 40m tourists annually by the Tokyo Olympics. We continue, therefore, to find interesting opportunities for investment in companies with potentially exciting growth prospects.

Past performance is not a guide to future performance.

 

Equity Portfolio by Growth Category

As at 31 August 2016

Secular Growth	% of total assets			Growth    Stalwarts	% of total assets			Special   Solutions	% of total assets			Cyclical  Growth	% of total assets
Rakuten		3.2		Nitori Park24 Mitsubishi UFJ Lease    & Finance Sawai Pharmaceutical Fukuoka Financial Toyo Suisan Kaisha Hamakyorex		1.6 1.5 1.4 1.1 1.0 0.8 0.2		Sony		2.3		Temp Holdings Itochu Takara Leben Sumitomo Mitsui Trust Toyo Tire & Rubber Mazda Motor Nifco Iida Group Suruga Bank Mitsubishi Electric Isuzu Motors Mitsui & Co Advantest Sumitomo Metal   Mining Disco Otsuka Corp Nippon Electric Glass Modec Murata Manufacturing	2.7 2.0 1.7 1.7 1.7 1.6 1.6 1.5 1.3 1.2 1.2 1.2 1.1 1.1 1.1 1.1 0.9 0.8 0.6
SoftBank		3.2						Hikari Tsushin		1.7
Sysmex		2.8						Tokyo Tatemono		1.7
M3		2.6						Rohm		1.1
Misumi Group		2.5
GMO Internet		2.5
Fuji Heavy Industries		2.3
Japan Exchange Group		2.2
CyberAgent		2.1
SMC		2.1
Pigeon		2.1
Yaskawa Electric		2.0
Start Today		2.0
Iriso Electronics		2.0
Outsourcing		1.9
Kubota		1.7
Shimadzu		1.7
Don Quijote		1.7
SBI		1.7
Fanuc		1.7
H.I.S.		1.5
Next		1.3
Toyota Tsusho		1.3
Asics		1.2
Recruit Holdings		1.2
Topcon		1.1
Inpex		1.0
Nidec		0.9
Cookpad		0.8
Kakaku.com		0.7
Digital Garage		0.7
Broadleaf		0.6
Wirelessgate		0.5
Line		0.5
Istyle		0.4
Nippon Ceramic		0.4
Infomart Corp		0.4
F@N Communications		0.3
SanBio		0.3
Total		59.1		Total		7.6		Total		6.8		Total	26.1

Stock Level Contribution

Top Ten Relative Stock Contributors Year to 31 August 2016

Bottom Ten Relative Stock Contributors Year to 31 August 2016

	Name	Trust (average) weight) %	Index (average weight) %	Contribution %		Name	Trust (average) weight) %	Index (average weight) %	Contribution %
Misumi Group                                           2.9              0.1				1.1		Toyo Tire & Rubber                                 2.4                 -			(1.1)
Outsourcing                                             2.0                 -				0.9		Cookpad                                                  1.9                 -			(0.9)
Start Today                                              2.1              0.1				0.8		H.I.S.                                                        2.2                 -			(0.7)
Park24 Co Ltd                                           1.8              0.1				0.6		Asics                                                       1.6              0.1			(0.7)
CyberAgent                                              2.3              0.1				0.6		Don Quijote                                              2.2              0.1			(0.4)
Advantest                                                0.9                 -				0.6		Otsuka Corp                                            1.9              0.1			(0.3)
M3                                                            2.8              0.1				0.6		Sumitomo Mitsui Trust                             2.0              0.4			(0.3)
Mitsubishi UFJ Lease & Finance                  -              2.3				0.5		Keyence                                                     -              0.7			(0.3)
Yaskawa Electric                                    2.1              0.1				0.5		Daikin Industries                                         -              0.6			(0.2)
Iriso Electronics                                       2.1                 -				0.5		Fukuoka Financial                                    1.2              0.1			(0.2)

Top Ten Relative Stock Contributors 5 years to 31 August 2016

Bottom Ten Relative Stock Contributors 5 years to 31 August 2016

Name	Trust (average) weight) %	Index (average weight) %	Contribution %		Name	Trust (average) weight) %	Index (average weight) %	Contribution %
Fuji Heavy Industries	2.9	0.5	4.5		Gree	0.9	-	(2.4)
Sysmex	2.9	0.2	2.6		Yamada Denki	0.8	0.1	(1.3)
Temp Holdings	2.1	-	2.5		Inpex	1.9	0.4	(1.2)
M3	2.3	0.1	2.4		Toyota Motor	-	4.3	(1.2)
Japan Exchange Group	2.7	0.1	2.3		Sumitomo Mitsui Trust	1.4	0.5	(0.8)
Pigeon	1.7	0.1	2.0		Lifenet Insurance	0.2	-	(0.8)
Toyo Tire & Rubber	2.4	-	1.9		Asahi Glass	0.7	0.2	(0.7)
GMO Internet	2.0	-	1.8		Ushio	0.5	-	(0.7)
Tokyo Tatemono	2.3	0.1	1.8		Keihin	0.6	-	(0.6)
Iriso Electronics	2.0	-	1.8		Aeon Mall	1.4	0.1	(0.6)

Source: StatPro. Baillie Gifford Japan Trust relative to TOPIX total return, in sterling terms.

Holding Periods

As at 31 August 2016

>10 years	% of total assets				5-10 years	% of total assets				2-5 years	% of total assets				<2 years	% of total assets
Rakuten	3.2				M3	2.6				SoftBank	3.2				Outsourcing	1.9
Sysmex	2.8				GMO Internet	2.5				Fuji Heavy Industries	2.3				Takara Leben	1.7
Temp Holdings	2.7				Japan Exchange					Sony	2.3				Fanuc	1.7
Misumi Group	2.5				Group	2.2				CyberAgent	2.1				Iida Group	1.5
SMC	2.1				Pigeon	2.1				Sumitomo Mitsui Trust	1.7				Recruit Holdings	1.2
Itochu	2.0				Yaskawa Electric	2.0				Mazda Motor	1.6				Topcon	1.1
Don Quijote	1.7				Start Today	2.0				Park24	1.5				Nidec	0.9
H.I.S.	1.5				Iriso Electronics	2.0				Toyota Tsusho	1.3				Murata Manufacturing	0.6
Mitsubishi UFJ Lease & Finance	1.4				Hikari Tsushin	1.7				Advantest	1.1				Wirelessgate	0.5
Mitsubishi Electric	1.2				Kubota	1.7				Sumitomo Metal Mining	1.1				Line	0.5
Inpex	1.0				Tokyo Tatemono	1.7				Sawai Pharmaceutical	1.1				Istyle	0.4
Modec	0.8				Shimadzu	1.7				Nippon Electric Glass	0.9				Nippon Ceramic	0.4
Hamakyorex	0.2				Toyo Tire & Rubber	1.7				Toyo Suisan Kaisha	0.8				Infomart	0.4
Total	23.1				SBI	1.7				Cookpad	0.8				F@N Communications	0.3
					Nitori	1.6				Kakaku.com	0.7				SanBio	0.3
					Nifco	1.6				Broadleaf	0.6				Total	13.4
					Suruga Bank	1.3				Total	23.1
					Next	1.3
					Isuzu Motors	1.2
					Asics Corp	1.2
					Mitsui & Co	1.2
					Otsuka Corp	1.1
					Rohm	1.1
					Disco	1.1
					Fukuoka Financial	1.0									Stocks bought within
					Digital Garage	0.7									the past year.
					Total	40.0

List of Investments as at 31 August 2016 (unaudited)

Name	Business	Value £'000	% of total assets	Absolute† Performance %	Relative† Performance %
Rakuten	Internet retail and financial services	16,234	3.2	3.8	(14.6)
SoftBank	Telecom operator and technology investor	15,869	3.2	32.5	9.0
Sysmex	Medical equipment	13,944	2.8	25.5	3.3
Temp Holdings	Employment and outsourcing services	13,286	2.7	26.6	4.2
M3	Online medical database	13,160	2.6	51.9	25.0
Misumi Group	Precision machinery parts distributor	12,446	2.5	78.6	46.9
GMO Internet	Internet conglomerate	12,269	2.5	22.2	0.5
Fuji Heavy Industries	Subaru cars	11,695	2.3	35.3	11.4
Sony	Consumer electronics, films and finance	11,241	2.3	45.5	19.7
Japan Exchange Group	Stock Exchange operator	10,975	2.2	20.6	(0.7)
Cyberagent	Internet advertising and content	10,469	2.1	62.0	33.3
SMC	Pneumatic control equipment	10,347	2.1	37.1	12.8
Pigeon	Baby care products	10,313	2.1	19.7	(1.5)
Itochu	Trading conglomerate	10,140	2.0	19.5	(1.7)
Yaskawa Electric	Robots and factory automation	10,125	2.0	53.1	25.9
Start Today	Internet fashion retailer	9,821	2.0	80.5	48.5
Iriso Electronics	Specialist auto connectors	9,787	2.0	54.5	27.1
Outsourcing	Employment placement services	9,633	1.9	96.1	61.3
Hikari Tsushin	Entrepreneurial sales organisation	8,787	1.7	61.5	32.9
Kubota	Agricultural machinery	8,779	1.7	12.6	(7.4)
Tokyo Tatemono	Property leasing and development	8,747	1.7	11.8	(8.0)
Shimadzu	Environmental testing equipment	8,724	1.7	25.9	3.6
Takara Leben	Condominium builder	8,720	1.7	31.8*	11.6*
Toyo Tire & Rubber	Tyre manufacturer	8,602	1.7	(24.0)	(37.5)
Don Quijote	Discount store operator	8,576	1.7	(1.0)	(18.6)
Sumitomo Mitsui Trust	Trust bank and investment manager	8,378	1.7	5.0	(13.6)
SBI	Online broker and venture capital investor	8,360	1.7	18.5	(2.5)
Fanuc	Robotics manufacturer	8,303	1.7	25.8	3.5
Nitori	Furniture retail chain	8,262	1.6	51.1	24.3
Mazda Motor	Car manufacturer	7,847	1.6	14.0	(6.2)
Nifco	Value-added plastic car parts	7,776	1.6	54.4	27.1
H.I.S.	Travel agency and theme parks	7,593	1.5	(13.3)	(28.6)
Park24	Parking, car hire and sharing	7,530	1.5	78.5	46.9
Iida Group	House builder	7,292	1.5	26.6	4.1
Mitsubishi UFJ Lease & Finance
Finance	Leasing company	6,946	1.4	16.4	(4.3)
Suruga Bank	Specialist regional bank	6,847	1.3	46.1	20.2
Next	Real estate website	6,553	1.3	35.8	11.7
Toyota Tsusho	Markets automobiles and other products, Africa focus	6,261	1.3	19.0	(2.1)
Mitsubishi Electric	Industrial electric conglomerate	6,121	1.2	56.7	28.9
Isuzu Motors	Lorries and SUVs	6,049	1.2	21.6	-
Asics	Sports shoes and clothing	5,882	1.2	(17.9)	(32.5)
Recruit Holdings	Property, lifestyle and HR media	5,864	1.2	47.1	21.0
Mitsui & Co	Trading conglomerate	5,850	1.2	25.2	3.0
Advantest	Semiconductor testing devices	5,717	1.1	122.7	83.2

Name	Business	Value £'000	% of total assets	Absolute† Performance %	Relative† Performance %
Sumitomo Metal Mining	Smelting and copper, nickel and gold mining	5,559	1.1	19.8	1.5
Otsuka Corp	IT solutions for small businesses	5,451	1.1	(3.8)	(20.9)
Rohm	Electronic component manufacturer	5,446	1.1	10.6	(9.0)
Sawai Pharmaceutical	Generic pharmaceuticals	5,421	1.1	24.1	2.1
Disco	Specialist cutting for semiconductors	5,303	1.1	81.4	49.2
Topcon	GPS systems	5,291	1.1	17.1*	(10.0)*
Fukuoka Financial	Regional bank	4,992	1.0	2.8	(15.4)
Inpex	Oil and gas producer	4,863	1.0	3.0	(15.3)
Nippon Electric Glass	Flat panel display glass manufacturer	4,682	0.9	37.3	13.0
Nidec	Electronics and electrical equipment	4,549	0.9	37.8*	16.6*
Modec	Designs and leases offshore oil production facilities
	facilities	4,244	0.8	54.4	27.0
Toyo Suisan Kaisha	Noodle maker	3,970	0.8	29.8	6.8
Cookpad	Recipe website	3,864	0.8	(43.1)	(53.2)
Kakaku.com	Price comparison and restaurant review website	3,604	0.7	24.6	2.5
Digital Garage	Internet business investor	3,562	0.7	41.1	16.0
Broadleaf	Proprietary car repair database	3,272	0.6	25.1	2.9
Murata Manufacturing	Electrical components	3,223	0.6	9.7*	11.2*
Wirelessgate	Wireless communication services	2,569	0.5	37.0*	13.4*
Line	Messaging service	2,350	0.5	28.5*	23.3*
Istyle	Beauty product review website	2,128	0.4	(14.8)*	(16.5)*
Nippon Ceramic	Semiconductor devices	1,936	0.4	17.6*	(0.2)*
Infomart	Software and computer services	1,805	0.4	19.9*	(0.7)*
F@N Communications	Internet advertising services	1,606	0.3	12.4	(7.5)
SanBio	Stem cell based stroke treatment	1,357	0.3	65.6	36.2
Hamakyorex	Logistics	1,252	0.2	9.0	(10.3)
Total Investments		498,419	99.6
Net Liquid Assets		1,872	0.4
Total Assets		500,291	100.0
Bank Loans		(75,294)	(15.1)
Shareholders' Funds		424,997	84.9

†    Absolute and relative performance has been calculated on a total return basis over the period 1 September 2015 to 31 August 2016. 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.

Past performance is not a guide to future performance.

 

Income Statement (unaudited)

	For the year ended 31 August 2016			For the year ended 31 August 2015
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	102,266	102,266	-	45,071	45,071
Currency (losses)/gains (note 2)	-	(18,277)	(18,277)	-	2,700	2,700
Income (note 3)	7,090	-	7,090	4,316	-	4,316
Investment management fee (note 4)	(2,572)	-	(2,572)	(2,141)	-	(2,141)
Other administrative expenses	(523)	-	(523)	(502)	-	(502)
Net return before finance costs and taxation	3,995	83,989	87,984	1,673	47,771	49,444
Finance costs of borrowings	(1,463)	-	(1,463)	(1,042)	-	(1,042)
Net return on ordinary activities before taxation	2,532	83,989	86,521	631	47,771	48,402
Tax on ordinary activities	(709)	-	(709)	(432)	-	(432)
Net return on ordinary activities after taxation	1,823	83,989	85,812	199	47,771	47,970
Net return per ordinary share (note 6)	2.35p	108.24p	110.59p	0.28p	67.17p	67.45p

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 2016		At 31 August 2015
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		498,419		369,568
Current assets
Debtors	1,930		345
Cash and cash equivalents	2,473		8,742
	4,403		9,087
Creditors
Amounts falling due within one year (note 7)	(24,676)		(16,872)
Net current liabilities		(20,273)		(7,785)
Total assets less current liabilities		478,146		361,783
Creditors
Amounts falling due after more than one year (note 7)		(53,149)		(38,630)
Net assets		424,997		323,153
Capital and reserves
Called up share capital		3,937		3,756
Share premium account		89,123		73,272
Capital redemption reserve		203		203
Capital reserve		335,728		251,739
Revenue reserve		(3,994)		(5,817)
Shareholders' funds		424,997		323,153
Net asset value per ordinary share (after deducting borrowings at fair value)		534.6p		425.4p
Net asset value per ordinary share (after deducting borrowings at par value)		539.8p		430.2p
Ordinary shares in issue (note 9)		78,734,925		75,121,750

 

Statement of Changes in Equity (unaudited)

For the year ended 31 August 2016

	Called up 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

For the year ended 31 August 2015

	Called up Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2014	3,467	47,092	203	203,968	(6,016)	248,714
Shares issued	289	26,180	-	-	-	26,469
Net return on ordinary activities after taxation	-	-	-	47,771	199	47,970
Shareholders' funds at 31 August 2015	3,756	73,272	203	251,739	(5,817)	323,153

*      The capital reserve balance as at 31 August 2016 includes investment holding gains of £235,319,000 (2015 - £140,216,000)

 

Cash Flow Statement (unaudited)

	At 31 August 2016		At 31 August 2015
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	86,521		48,402
Net gains on investments	(102,266)		(45,071)
Currency losses/(gains)	18,277		(2,700)
Finance cost of borrowings	1,463		1,042
Overseas withholding tax	(675)		(429)
Changes in debtors and creditors	(153)		83
Cash from operations		3,167		1,327
Interest paid		(1,407)		(1,030)
Net cash inflow from operating activities		1,760		297
Cash flows from investing activities
Acquisitions of investments	(51,366)		(62,854)
Disposals of investments	25,014		23,906
Exchange differences on settlement of investment transactions	615		(117)
Net cash outflow from investing activities		(25,737)		(39,065)
Shares issued	16,032		26,469
Bank loans drawn down	38,016		24,075
Bank loans repaid	(38,016)		(7,921)
Net cash inflow from financing activities		16,032		42,623
(Decrease)/increase in cash and cash equivalents		(7,945)		3,855
Exchange movements		1,676		(344)
Cash and cash equivalents at start of period		8,742		5,231
Cash and cash equivalents at end of period*		2,473		8,742

* 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 2016 have been prepared in accordance with The Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') which the Company must adopt for its financial year ending 31 August 2016. Following the application of the new reporting standard and the AIC's issued Statement of Recommended Practice, there has been no impact on the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for the period previously reported. The Cash Flow Statement reflects the presentational requirements of FRS 102, which are different to FRS 1. In addition, the Cash Flow Statement reconciles to cash and cash equivalents whereas under previous UK GAAP the Cash Flow Statement reconciled to cash. 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 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 2016 £'000	31 August 2015 £'000
	Exchange differences on bank loans	(20,568)	3,161
	Other exchange differences on cash	2,291	(461)
		(18,277)	2,700
3.	Income	31 August 2016 £'000	31 August 2015 £'000
	Income from investments	7,090	4,316
4.	Investment Management Fee - all charged to revenue	2016 £'000	2015 £'000
	Investment Management Fee	2,572	2,141
	The annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated and payable quarterly. With effect from 1 September 2016, the annual management fee payable will be 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.
5.	No final dividend will be declared.

 

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

6.	Net Return per Ordinary Share	2016 Revenue	2016 Capital	2016 Total	2015 Revenue	2015 Capital	2015 Total
	Net return on ordinary activities after taxation	2.35p	108.24p	110.59p	0.28p	67.17p	67.45p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £1,823,000 (2015 - £199,000), and on 77,592,006 (2015 - 71,115,407) 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 £83,989,000 (2015 - £47,771,000), and on 77,592,006 (2015 - 71,115,407) 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 2016 were £75.3m (¥10.2billion), (31 August 2015 - £54.7m (¥10.2billion)). No loan facilities were entered into or repaid during the year other than the rollover of the Scotiabank facilities.
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 £25,000, (31 August 2015 - £30,000) and transaction costs on sales amounted to £15,000 (31 August 2015 - £12,000).
9.	At 31 August 2016 the Company had authority to buy back 11,365,680 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, 3,613,175 (2015 - 5,790,000) shares were issued at a premium to net asset value raising proceeds of £16,032,000 (2015 - £26,469,000).
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2016. The financial information for 2015 is derived from the statutory accounts for 2015 which have been delivered to the Registrar of Companies. The Auditor's have reported on the 2015 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 2016 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 Report and Accounts will be available on the Company's page of the Managers' website www.japantrustplc.co.uk‡ on or around 2 November 2016.

‡      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.

- ends -

 

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