Final Results

RNS Number : 6115C

Baillie Gifford Japan Trust PLC

02 October 2018

 

RNS Announcement: Preliminary Results

The Baillie Gifford Japan Trust PLC

Results for the year to 31 August 2018

Legal Entity Identifier: 54930037AGTKN765Y741

¾  The main driver of returns was stock picking.

¾  We have had a number of successes in the Internet area this year including SBI (online broker and venture capital investor), CyberAgent (internet advertising and content) and Digital Garage (internet investor).

¾  We bought eight new holdings during the year and sold eight holdings. Two of the new holdings, Katitas and Mercari, were bought in their IPO.

¾  We continue to be excited about the opportunities for growth stock-picking in Japan.

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

Source: Thomson Reuters/Baillie Gifford. See disclaimer 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 2018, the Company had total assets of £870.6m (before deduction of bank loans of £114.5m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £195bn under management and advice as at 1 October 2018.

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.

1 October 2018

 

For further information please contact:

Alex Blake - Client Liaison

The Baillie Gifford Japan Trust PLC

Tel: [phone]

Roland Cross, Director,

FourBroadgate Marketing

Tel: [phone] or 07831 401309

 

The following is the unaudited preliminary statement for the year to 31 August 2018 which was approved by the Board on 1 October 2018. Chairman's Statement

This has been another good year for the Japan Trust with net asset value (after deducting borrowings at fair value) rising 22.1%, significantly ahead of the 7.8% rise in the benchmark TOPIX index total return (in sterling terms).  The share price increased by 20.2%, breaking through 800p for the first time, while the Company's shares  traded at a premium to NAV (after deducting borrowings at fair value) of 2.7% (2.3% after deducting borrowings at par value) at 31 August 2018. The Company was promoted into the FTSE 250 in March 2018.

Our emphasis remains on the long-term strategy however and so it is particularly pleasing to note this strong performance builds on impressive five and ten year records for the Japan Trust.

The Managers' track record of successful stock selection (+10.5%) was a major contributor to the returns with additional benefit from gearing (+1.7%); further performance details are to be found in the Managers' Report.

Investment income rose by £2.38m to £10.87m for the year, due in the main to the continuing increase in dividends. Expenses rose by £1.25m, due mostly to higher management fees (up £1.17m to £4.35m), in line with the substantial increase in net asset value.

Overall revenue gain per share was 2.54p (2017 - 2.80p) while ongoing charges for the year reduced slightly to 0.73% (2017 - 0.78%).

Portfolio Management Responsibilities

As noted in our last Annual Report, Sarah Whitley was due to retire from Baillie Gifford on 30 April 2018 after managing the Company's portfolio since 1991 and has been succeeded by Matthew Brett as the Company's portfolio manager assisted by Praveen Kumar as deputy manager.

The promise of a smooth management transition was delivered and the Board has been more than satisfied with the manner in which this milestone was passed and how Matthew Brett is managing the Japan Trust.

Gearing

Gearing amounted to 13% of shareholders' funds at the start of the year and ended the year at 11%. Gross borrowings increased to Y16.5bn (2017 - Y11.7bn), while the sterling value of these loans in the balance sheet rose to £114.5m at the year end (2017 - £82.5m). 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.

Dividend

The Company's objective has always been, and will remain, to achieve long term capital growth and investors should not expect to receive any income.  This year the revenue reserve deficit has been extinguished by the net revenue return creating a revenue reserve surplus of £475,000. To ensure investment trust status is maintained, the revenue reserve surplus will be distributed in full supplemented by a small distribution from realised capital reserves, as permitted by the Company's Articles. In future, the intention is not to make distributions from capital as the Board is firmly of the view that capital growth remains the focus of the Company. A final dividend of 0.60p per share will be put to shareholders for approval at the Annual General Meeting to be held on 6 December 2018 and, if approved, will be paid on 14 December 2018 to shareholders on the register at the close of business on 30 November 2018.

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 issued/reissued only at a premium to net asset value, thereby enhancing net asset value per share for existing shareholders.

During the year to 31 August 2018, 6.6m shares were issued at a premium to net asset value raising proceeds of £53.1m, 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 2019.

Continuation Vote

Our shareholders have the right to vote annually on whether the Company should continue in business and will have the opportunity to do so again at the Annual General Meeting to be held on 6 December 2018.

Last year, the Company again received support for its continuation. Your Directors still believe there remain attractive opportunities in selected, well-run Japanese companies benefiting 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, all of which forms part of our succession planning discussions during Nomination Committee meetings. Given the above, it also believes that membership of the Board should be refreshed over time and to that end, after 12 years of excellent service, Paul Dimond CMG is standing down at the AGM.  Following a robust recruitment process earlier in the year, we were delighted to welcome Joanna Pitman to the Board. Her Japanese experience and knowledge will undoubtedly be of great benefit to the Company in the years ahead.

Outlook

As in previous years, our Managers have continued to find interesting companies operating in both domestic and export markets in which to invest. The ongoing success of their 'bottom up' approach to stock picking adds significantly to the value of the portfolio. As a Board, we believe there remain numerous opportunities for investment in Japanese companies able to capitalise on the changes within the wider economy.

Although the Trust concentrates more on micro than macro issues, it is worth reflecting on some of the latter given that Prime Minister Shinzo Abe recently won the leadership contest in the ruling Liberal Democratic Party by a wide margin. This prospectively leaves him in office until 2021 as Japan's longest serving Prime Minister. Debate about his likely legacy focuses on an expansionist economic strategy (known as Abenomics) and on constitutional reform covering the role of the Self-Defence Forces. The Prime Minister has expressed his firm intention to go ahead with the previously delayed increase in the sales tax from 8 to 10%, in October 2019. A further notable event is set for May with the Imperial succession when Crown Prince Naruhito takes over on the abdication of His Majesty Emperor Akihito.

Against the background of an ageing population and low birthrate, the labour market is extremely tight thus stimulating labour market related innovation among companies in which the Trust has invested.  

Corporate governance remains an important pillar of the Government's economic programme. Under the revised Stewardship Code, disclosure, fiduciary responsibility, increased return on equity and reform of cross-shareholding are all highlighted and we have been pleased to see something of a watershed in corporate leaders' prioritisation of shareholder interests.  Your Trust continues to examine attitudes to corporate governance in the companies considered for investment.  

The economy has grown for six successive years and, despite some distressing and damaging natural disasters this year, the signs are encouraging for 2019. There also remain some political, tensions in the region, especially over US-China trade relations., however we remain positive on the outlook for investments in the Baillie Gifford Japan Trust portfolio.

Nick AC Bannerman

Chairman

1 October 2018

For a definition of terms see Glossary of Terms, Note 11.

Past performance is not a guide to future performance.

 

Managers' Report

Philosophy

As noted by the Chairman, this year we have had a change of portfolio manager for the first time in many years.  Consequently, we thought it would be opportune briefly to restate our philosophy.

We believe in genuinely long-term growth investing.  This means maximising returns by only investing in companies in which we have real conviction rather than being distracted by an index.  It means investing where there are opportunities regardless of the size of the company; resulting in a bias towards smaller companies, which often have the best growth prospects, but being open-minded to larger ones where they meet our criteria.  It also means holding companies for long time periods so that our clients benefit from the significant increases in business value that can occur over many years in growth companies. 

Baillie Gifford is a partnership with a sole focus on asset management.  This structure means that we are resilient to external pressures and answerable only to our clients.  It provides the stability that we need to be able to invest for the long haul.  Baillie Gifford Japan Trust launched in 1981 and in all those years there have been only two previous portfolio managers. 

We believe in the investment trust structure.  The permanent capital, ability to use gearing over the long-term, investment flexibility afforded by the mandate and Board oversight combine to give an excellent vehicle for compounding wealth.  Furthermore, we remain committed to sharing the benefits of scale with shareholders over the long-term. 

Performance

Over the past year the NAV per share with borrowings deducted at fair value has increased by 22.1% to 832.9p which compares very favourably to the rise in the Company's benchmark of 7.8%.  Baillie Gifford believes that performance should be measured over longer periods and over five years the NAV has outpaced the benchmark by 8.0% p.a. and over ten years by 8.1% p.a., demonstrating the benefit to shareholders of an active, long-term, growth orientated approach.

The Company's total assets increased to just over £870m, a rise of over £200m during the year, due to a 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 due to the tiered fee structure a larger proportion of the assets are charged a lower fee.  Consequently ongoing charges fell from 0.78% last year to 0.73% this year.   

The main driver of returns was stock picking.  The Company also borrows in Yen to invest in stocks and this decision was helpful given the strong absolute performance in Yen.  Finally, the rise in the TOPIX in Yen terms contributed positively.  The Yen weakened a little (1.6%) against Sterling to Y144.1 per £1, fractionally reducing the return in Sterling. 

As in last year's report, the portfolio is grouped into four different styles of growth to reflect our 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 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 where 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 so we think it is most meaningful to list the top ten and bottom ten contributors to performance over one and five years.  Once again we can see the asymmetric nature of stock returns; which means that a good idea can do much more to help returns than a bad idea can hinder them.  Over the last year the largest contributor to performance (SBI) delivered more than double the performance that the worst (Rakuten) subtracted.  Over five years each of the top ten contributors individually delivered more performance than the worst subtracted.  Therefore we continue to believe that it is important for us to focus on the upside potential of individual stocks and stay the course when we have found a good idea. 

We have had a number of successes in the Internet area this year including SBI (online broker and venture capital investor), CyberAgent (internet advertising and content) and Digital Garage (internet investor).  However, we also had successes in diverse areas including Katitas (real-estate), Outsourcing (staffing) and Sanbio (stem-cell treatment).  None of these companies are currently well-known outside Japan, reflecting our philosophy of investing where the opportunities are. 

At all times we strive to pay attention to the long-term prospects of businesses rather than paying undue attention to share prices.  Last year both Rakuten and Suruga Bank were disappointing in share price terms.  During the year we reviewed Rakuten; noting that the opportunity available to the company is large and the probability of success significant we concluded that increasing the holding was appropriate.  In contrast, significant deficiencies in the management of Suruga Bank came to light during the year and since we no longer have conviction in the company's prospects we sold the shares.  

In total we bought eight new holdings during the year and sold eight holdings. Turnover was 15.6% during the year.  The continued issuance of shares also allowed an element of re-shaping the portfolio without needing to sell anything. 

We continue to back entrepreneurialism in Japan.  Two of the new holdings, Katitas and Mercari, were bought in their IPO (Initial Public Offering) during the year.  Meanwhile another three, Noritsu Koki, Rizap and JAFCO, are companies that have been transformed by more dynamic management.

We also continue to favour businesses with solid franchises and a long growth runway.  Zenkoku Hosho, Sato Holdings and Shimano are each leaders in their respective niches and companies where we believe that there are many years of growth to come. 

Investment Environment

The over-arching theme domestically is a normalising of the investment environment as many historic issues have been improved.    

Japanese corporate governance has continued to progress and a concrete output of this is that shareholder returns through dividends and buybacks have continued to rise.  While areas for improvement remain, especially regarding cash hoarding, we should also acknowledge that the absence of scrip dividends, very low options issuance and lack of excessive pay for managers are helpful for minority shareholders.  Meanwhile the political situation is quiet as Mr Abe continues his journey to become Japan's longest serving Prime Minister. 

We have also observed that conversations with the word "deflation" seem to have become vanishingly rare.  While there continues to be lively debate around whether the Bank of Japan will be able to achieve 2% inflation we think that the most important thing is to have moved beyond the destructive effects of deflation.  Wages are rising, unemployment is very low, land prices in the major urban areas are rising, and bank lending is growing.  Meanwhile corporate confidence is strong, evidenced by strong rises in capital expenditure. 

Where might the challenges come from?  The most obvious today are changes to established international norms.  Up to a point a rise in populism is part of normal functioning democracy; beyond that it can lead to difficulties, trade wars and worse.  Another risk is that of recession.  Since the Global Financial Crisis of a decade ago we have enjoyed a largely synchronous global economic expansion creating significant opportunities for Japanese businesses.  Cycles are difficult to predict but inevitable. 

Outlook

While volatility and set-backs from time to time will happen, the most important thing for us is to have access to quality growth companies.  Many of the companies that we own are still nearer the start than the end of their growth.  The Internet continues to allow companies to compete against incumbents with a powerful combination of a lower cost-base and better service.    Robotics and automation businesses listed in Japan have world-leading competitiveness and a very large growth opportunity as they enter new industries.  Finally, new categories of growth companies continue to appear - emerging healthcare being a recent example.  

We continue to be excited about the opportunities for growth stock-picking in Japan and believe that a well-executed strategy can deliver results.  Your Company is positioned to benefit from long-term technology changes and we will strive to build on its heritage of success. 

Baillie Gifford

October 2018

For a definition of terms see Glossary of Terms, Note 11.

Past performance is not a guide to future performance.

 

Equity Portfolio by Growth Category

As at 31 August 2018

Secular Growth*	% of total assets		Growth Stalwarts*	% of total assets		Special Situations*	% of total assets		Cyclical Growth*	% of total assets
SBI	3.6		Nitori	1.4		SoftBank	5.7		Persol Holdings	2.2
Outsourcing	3.0		Zenkoku Hosho	1.4		Sony	2.3		Itochu	1.7
CyberAgent	2.8		Park24	1.3		Tokyo Tatemono	1.3		Sumitomo Mitsui Trust	1.7
Start Today	2.7		Fukuoka Financial	0.9		Renesas Electronics	0.7		Disco	1.5
M3	2.5		Mitsubishi UFJ Lease &   Finance	0.6		JAFCO	0.5		Murata Manufacturing	1.5
Sysmex	2.5					Colopl	0.3		Nifco	1.5
Rakuten	2.5		Asics	0.6					Mitsubishi Electric	1.4
Inpex	2.3		Sawai Pharmaceutical	0.5					Toyo Tire & Rubber	1.4
Kubota	2.2		Secom	0.5					Advantest	1.1
Misumi Group	2.1								Sumitomo Metal Mining	1.1
Recruit Holdings	2.1								Iida Group	1.0
Yaskawa Electric	2.1								Isuzu Motors	0.9
GMO Internet	2.0								Invincible Investment	0.8
Nidec	2.0								Katitas	0.6
Shimadzu	1.9								Mazda Motor	0.6
Don Quijote	1.9
Fanuc	1.7
H.I.S.	1.6
SMC	1.4
Digital Garage	1.3
MonotaRO	1.3
Sato	1.3
iStyle	1.2
SanBio	1.2
Toyota Tsusho	1.1
Broadleaf	1.0
Subaru	1.0
Topcon	0.8
Infomart	0.7
Lifull	0.7
IRISO Electronics	0.6
Keyence	0.6
Noritsu Koki	0.6
Peptidream	0.6
Nippon Ceramic	0.5
Rizap	0.5
Shimano	0.5
Cyberdyne	0.4
Pigeon	0.4
Mercari	0.3
Heleos K.K.	0.2
Total	59.7		Total	7.2		Total	10.8		Total	19.0

* 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 2018

Bottom Ten Relative Stock Contributors Year to 31 August 2018

Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %
SBI	3.2	0.1	1.9		Rakuten	1.9	0.2	(0.7)
Katitas	1.1	0.0	1.4		Suruga Bank	0.7	0.1	(0.5)
CyberAgent	2.6	0.1	1.2		Cyberdyne	0.6	0.0	(0.4)
M3	2.5	0.2	1.0		Lifull	1.1	0.0	(0.4)
Digital Garage	2.0	0.0	0.9		Toyo Tire & Rubber	1.8	0.0	(0.4)
Outsourcing	3.3	0.0	0.9		Renesas Electronics	0.9	0.0	(0.4)
Shimadzu	2.0	0.1	0.7		Kubota	2.1	0.4	(0.3)
SanBio	0.8	0.0	0.7		Takara Leben	0.5	0.0	(0.2)
iStyle	1.2	0.0	0.7		Mazda Motor	0.9	0.2	(0.2)
MonotaRO	0.8	0.1	0.7		Subaru	1.4	0.4	(0.2)

Top Ten Relative Stock Contributors 5 years to 31 August 2018

Bottom Ten Relative Stock Contributors 5 years to 31 August 2018

Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %
Outsourcing	1.6	0.0	3.5		Rakuten	2.7	0.3	(1.4)
Start Today	2.2	0.1	2.8		Mazda Motor	1.8	0.3	(1.1)
CyberAgent	2.3	0.1	2.3		Tokyo Tatemono	2.0	0.1	(1.1)
IRISO Electronics	2.4	0.0	2.2		Modec	0.7	0.0	(0.9)
Yaskawa Electric	2.6	0.1	2.2		Aeon Mall	0.6	0.1	(0.8)
Misumi	2.7	0.1	2.2		Sumitomo Mitsui Trust	1.9	0.4	(0.8)
SBI	2.3	0.1	2.0		Takara Leben	0.7	0.0	(0.6)
Persol Holdings	2.7	0.1	1.9		Inpex	1.9	0.3	(0.5)
M3	2.5	0.1	1.9		Kakaku.com	0.8	0.1	(0.5)
Sysmex	2.9	0.2	1.8		Nintendo	0.0	0.7	(0.5)

Source: StatPro and relevant underlying index providers. 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 2018

>10 years	% of total assets			5-10 years	% of total assets			2-5 years	% of total assets			<2 years	% of total assets
Sysmex	2.5			SoftBank	5.7			Outsourcing	3.0			Zenkoku Hosho	1.4
Rakuten	2.5			SBI	3.6			CyberAgent	2.8			MonotaRO	1.3
Inpex	2.3			Start Today	2.7			Sony	2.3			Sato	1.3
Persol Holdings	2.2			M3	2.5			Recruit Holdings	2.1			Invincible Investment	0.8
Kubota	2.2			Yaskawa Electric	2.1			Nidec	2.0			Renesas Electronics	0.7
Misumi Group	2.1			GMO Internet	2.0			Fanuc	1.7			Peptidream	0.6
Shimadzu	1.9			Sumitomo Mitsui Trust	1.7			Murata Manufacturing	1.5			Noritsu Koki	0.6
Don Qujote	1.9			Nifco	1.5			Park24	1.3			Keyence	0.6
Itochu	1.7			Disco	1.5			SanBio	1.2			Katitas	0.6
H.I.S.	1.6			Toyo Tire & Rubber	1.4			iStyle	1.2			Secom	0.5
Mitsubishi Electric	1.4			Nitori	1.4			Broadleaf	1.0			JAFCO	0.5
SMC	1.4			Digital Garage	1.3			Iida Group	1.0			Rizap	0.5
Tokyo Tatemono	1.3			Toyota Tsusho	1.1			Topcon	0.8			Shimano	0.5
Mitsubishi UFJ Lease & Finance	0.6			Sumitomo Metal Mining	1.1			Infomart	0.7			Cyberdyne	0.4
IRISO Electronics	0.6			Advantest	1.1			Sawai Pharmaceutical	0.5			Colopl	0.3
Total	26.2			Subaru	1.0			Nippon Ceramic	0.5			Mercari	0.3
				Fukuoka Financial	0.9			Total	23.6			Healios K.K.	0.2
				Isuzu Motors	0.9							Total	11.1
				Lifull	0.7
				Asics	0.6
				Mazda Motor	0.6
				Pigeon	0.4
				Total	35.8							Stocks bought within the past year.

List of Investments as at 31 August 2018 (unaudited)

Name	Business	Value £'000	% of total assets	Absolute† Performance %	Relative† Performance %
SoftBank	Telecom operator and technology investor	49,705	5.7	14.0	5.7
SBI	Online financial services	30,953	3.6	103.2	88.4
Outsourcing	Employment placement services	26,422	3.0	43.5	33.1
CyberAgent	Japanese internet advertising and content	24,364	2.8	74.5	61.9
Start Today	Internet fashion retailer	23,689	2.7	11.2	3.2
Sysmex	Medical testing equipment	21,658	2.5	40.8	30.6
M3	Online medical database	21,567	2.5	68.9	56.7
Rakuten	Internet retail and financial services	21,524	2.5	(35.8)	(40.5)
Inpex	Oil and gas producer	20,457	2.3	15.0	6.7
Sony	Consumer electronics, films and finance	20,173	2.3	44.8	34.2
Kubota	Agricultural machinery	19,486	2.2	(8.9)	(15.5)
Persol Holdings	Employment and outsourcing services	18,797	2.2	10.2	2.2
Misumi Group	Online distributor of precision machinery parts	18,552	2.1	0.6	(6.7)
Recruit Holdings	Property, lifestyle and HR media	18,126	2.1	53.3	42.1
Yaskawa Electric	Specialist factory automation	17,827	2.1	11.9	3.8
Nidec	Specialist motors	17,723	2.0	27.8	18.5
GMO Internet	Internet conglomerate	17,688	2.0	34.3	24.6
Shimadzu	Precision tools and equipment maker	16,690	1.9	61.8	50.1
Don Quijote	Discount store chain	16,516	1.9	27.9	18.6
Itochu	General trading firm	15,171	1.7	10.0	2.0
Fanuc	Robotics manufacturer	14,822	1.7	2.4	(5.0)
Sumitomo Mitsui Trust	Japanese Trust bank and investment   manager	14,771	1.7	18.7	10.1
H.I.S.	Discount travel agency and theme parks	14,314	1.6	(1.8)	(8.9)
Disco	Specialist cutting for semiconductors	12,939	1.5	0.7	(6.6)
Nifco	Value-added plastic car parts	12,901	1.5	(3.4)	(10.4)
Murata Manufacturing	Manufactures and sells ceramic applied    electronic components	12,619	1.5	14.0	5.7
Nitori	Furniture retail chain	12,489	1.4	(1.8)	(8.9)
Toyo Tire & Rubber	Specialist tyre manufacturer	12,396	1.4	(12.9)	(19.2)
SMC	Producer of factory automation equipment	12,338	1.4	(2.7)	(9.7)
Mitsubishi Electric	Develops, manufactures and markets   electronic equipment	12,153	1.4	(7.4)	(14.1)
Zenkoku Hosho	Speciality finance	11,862	1.4	2.2*	(2.5)*
MonotaRO	Online business supplies	11,318	1.3	84.5	71.1
Digital Garage	Internet business investor	11,137	1.3	73.4	60.8
Park24	Parking, car hire and sharing	11,122	1.3	24.3	15.3
Tokyo Tatemono	Property leasing and development	11,010	1.3	0.8	(6.5)
Sato	Barcode code and RFID technology	10,905	1.3	14.6*	15.5*
SanBio	Stem cell based stroke treatment	10,774	1.2	177.7	157.6
iStyle	Beauty product review website	10,293	1.2	106.4	91.4
Sumitomo Metal Mining	Smelting and copper, nickel and gold mining	9,964	1.1	(4.8)	(11.7)
Toyota Tsusho	Markets automobiles and other products,   Africa focus	9,427	1.1	12.7	4.5
Advantest	Semiconductor testing devices	9,242	1.1	44.6	34.1
Iida Group	Japanese house builder	9,010	1.0	11.0	3.0
Subaru	Niche car brand	8,855	1.0	(12.8)	(19.1)
Broadleaf	Online platform for buying car parts	8,350	1.0	77.3	64.4
Fukuoka Financial	Regional bank	8,213	0.9	30.2	20.8
Name	Business	Value £'000	% of total assets	Absolute† Performance %	Relative† Performance %
Isuzu Motors	Lorries and SUVs	7,675	0.9	12.1	4.0
Invincible Investment	Real estate investment trust	7,149	0.8	9.9	1.9
Topcon	GPS systems	7,126	0.8	(0.7)	(7.9)
Infomart	Internet platform for restaurant supplies	6,367	0.7	61.7	50.0
Renesas Electronics	Electronic components and semiconductors	6,120	0.7	(24.8)	(30.2)
Lifull	Provides online property information	5,909	0.7	(26.0)	(31.4)
Mitsubishi UFJ Lease &   Finance	Leasing services	5,628	0.6	13.4	5.2
Mazda Motor	Car manufacturer	5,572	0.6	(20.0)	(25.8)
IRISO Electronics	Specialist auto connectors	5,403	0.6	14.8	6.4
Peptidream	Drug discovery and development platform	5,267	0.6	11.4	3.3
Noritsu Koki	Holding company with interests in biotech and   agricultural products	5,166	0.6	12.2*	11.6*
Keyence	Manufacturer of sensors	5,149	0.6	8.2	0.4
Katitas	Real estate services	4,947	0.6	141.2*	132.5*
Asics	Sports shoes and clothing	4,906	0.6	1.5	(5.8)
Rizap	Low calories food supplier and fitness gym   operator	4,476	0.5	(3.3)*	(2.2)
Sawai Pharmaceutical	Generic pharmaceuticals	4,444	0.5	(0.8)	(8.0)
Nippon Ceramic	Electronic component manufacturer	4,139	0.5	2.2	(5.2)
Secom	Security services	4,099	0.5	12.2	4.1
JAFCO	Forms venture capital groups	4,051	0.5	4.6*	4.3*
Shimano	Cycling component manufacturer	3,913	0.5	12.6*	9.3*
Pigeon	Baby care products	3,674	0.4	25.4	16.3
Cyberdyne	Medical exo-skeletons	3,289	0.4	(40.3)	(44.7)
Mercari	Software development services	2,649	0.3	24.5*	26.3*
Colopl	Smartphone gaming and virtual reality (VR)	2,506	0.3	(46.9)	(50.8)
Healios K.K.	Regenerative medicine	2,109	0.2	20.8	12.0
Total Investments		842,045	96.7
Net Liquid Assets		28,545	3.3
Total Assets		870,590	100.0
Bank Loans		(114,486)	(13.2)
Shareholders' Funds		756,104	86.8

†    Absolute and relative performance has been calculated on a total return basis over the period 1 September 2017 to 31 August 2018. 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 and relevant underlying index providers. 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 2018			For the year ended 31 August 2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	124,982	124,982	-	111,160	111,160
Currency gains	-	581	581	-	2,997	2,997
Income (note 2)	10,874	-	10,874	8,480	-	8,480
Investment management fee (note 3 )	(4,354)	-	(4,354)	(3,179)	-	(3,179)
Other administrative expenses	(678)	-	(678)	(592)	-	(592)
Net return before finance costs and taxation	5,842	125,563	131,405	4,709	114,157	118,866
Finance costs of borrowings	(2,521)	-	(2,521)	(1,626)	-	(1,626)
Net return on ordinary activities before taxation	3,321	125,563	128,884	3,083	114,157	117,240
Tax on ordinary activities	(1,087)	-	(1,087)	(848)	-	(848)
Net return on ordinary activities after taxation	2,234	125,563	127,797	2,235	114,157	116,392
Net return per ordinary share (note 4)	2.54p	142.51p	145.05p	2.80p	142.75p	145.55p
Note: Dividends payable in respect of the year (note 5)	0.60p			Nil

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return 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 2018		At 31 August 2017
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		842,045		652,597
Current assets
Debtors	4,700		788
Cash and cash equivalents	27,788		10,585
	32,488		11,373
Creditors
Amounts falling due within one year (note 6)	(3,943)		(37,980)
Net current assets/(liabilities)		28,545		(26,607)
Total assets less current liabilities		870,590		625,990
Creditors
Amounts falling due after more than one year (note 6)		(114,486)		(50,769)
Net assets		756,104		575,221
Capital and reserves
Share capital		4,523		4,194
Share premium account		175,455		122,698
Capital redemption reserve		203		203
Capital reserve		575,448		449,885
Revenue reserve		475		(1,759)
Shareholders' funds		756,104		575,221
Net asset value per ordinary share		835.8p		685.8p
Ordinary shares in issue (note 8)		90,459,925		83,879,925

 

Statement of Changes in Equity (unaudited)

For the year ended 31 August 2018

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2017	4,194	122,698	203	449,885	(1,759)	575,221
Shares issued	329	52,757	-	-	-	53,086
Net return on ordinary activities after taxation	-	-	-	125,563	2,234	127,797
Shareholders' funds at 31 August 2018	4,523	175,455	203	575,448	475	756,104

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

*      The capital reserve balance as at 31 August 2018 includes investment holding gains of £393,653,000 (2017 - £334,842,000)

 

Cash Flow Statement (unaudited)

	At 31 August 2018		At 31 August 2017
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	128,884		117,240
Net gains on investments	(124,982)		(111,160)
Currency gains	(581)		(2,997)
Finance cost of borrowings	2,521		1,626
Overseas withholding tax	(1,051)		(834)
Changes in debtors and creditors	(76)		(3)
Cash from operations		4,715		3,872
Interest paid		(2,292)		(1,611)
Net cash inflow from operating activities		2,423		2,261
Cash flows from investing activities
Acquisitions of investments	(183,574)		(73,979)
Disposals of investments	112,702		35,795
Exchange differences on settlement of investment transactions	791		(46)
Net cash outflow from investing activities		(70,081)		(38,230)
Cash flows from financing activities
Shares issued	53,086		33,832
Bank loans drawn down	62,873		10,360
Bank loans repaid	(30,402)		-
Net cash inflow from financing activities		85,557		44,192
Increase in cash and cash equivalents		17,899		8,223
Exchange movements		(696)		(111)
Cash and cash equivalents at start of period		10,585		2,473
Cash and cash equivalents at end of period*		27,788		10,585

* 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 2018 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.  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 18 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. The financial statements of the Company have been prepared on a going concern basis, on the assumption the continuation vote is passed by Shareholders at the forthcoming Annual General Meeting.
2.	Income	31 August 2018 £'000	31 August 2017 £'000
	Income from investments	10,874	8,480
3.	Investment Management Fee - all charged to revenue	2018 £'000	2017 £'000
	Investment Management Fee	4,354	3,179
	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.

 

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

4.	Net Return per Ordinary Share	2018 Revenue	2018 Capital	2018 Total	2017 Revenue	2017 Capital	2017 Total
	Net return on ordinary activities after taxation	2.54p	142.51p	145.05p	2.80p	142.75p	145.55p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £2,234,000 (2017 - £2,235,000), and on 88,108,377 (2017 - 79,968,404) 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 £125,563,000 (2017 - £114,157,000), and on 88,108,377 (2017 - 79,968,404) 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.
5.	Ordinary Dividends 2018 2017 2018 £'000 2017 £'000 Dividends Payable in respect of the year: Current year's proposed final dividend (payable 14 December 2018) 0.60p - 546 - If approved, the recommended final dividend will be paid on 14 December 2018 to shareholders on the register at close of business on 30 November 2018. The ex-dividend date is 29 November 2018. Further information can be found in the Dividend section of the Chairman's Statement.
6.	Total borrowings at 31 August 2018 were £114,486,000 (¥16.5billion), (31 August 2017 - £82,500,000 (¥11.7billion)). Under the Scotiabank Europe plc ¥3.0 billion loan facility, ¥1.5 billion was repaid on 12 December 2017 and the remaining ¥1.5 billion tranche was repaid on 31 August 2018.
7.	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 £88,000 (31 August 2017 - £34,000) and transaction costs on sales amounted to £69,000 (31 August 2017 - £21,000).
8.	At 31 August 2018 the Company had authority to buy back 12,764,723 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, 6,580,000 (2017 - 5,145,000) shares were issued at a premium to net asset value raising proceeds of £53,086,000 (2017 - £33,832,000).  Between 1 September 2018 and 1 October  2018, the Company issued a further 490,000 shares at a premium to net asset value raising proceeds of £4,115,000.
9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2017 accounts, their report was (i unqualified; (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report; and (iii) and did not contain a statement under sections 498(2) or (3) to 497 of the Companies Act 2006. The statutory accounts for 2018 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies in due course..
10.	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 6 November  2018.

 

11.

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. Par value approximates amortised cost. Net Asset Value (Reconciliation of NAV at par to NAV at Fair) 31 August 2018 £'000 31 August 2017 £'000 Shareholder's Funds (borrowings at par value) 756,104  575,221  Add: par value of borrowings 114,486  82,500  Less: fair value of borrowings (117,140) (85,352) Shareholders' funds (borrowings at fair value) 753,450 572,369 Shares in issue 90,459,925 83,879,925 Net asset value per ordinary share (borrowings at fair value) 832.9p 682.4p Net Liquid Assets Net liquid assets comprise current assets less current liabilities excluding borrowings. Premium/Discount 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.

Third Party Data Provider Disclaimer

No third party data provider ("Provider") makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data.  No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

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.

Regulated Information Classification: Additional regulated information required to be disclosed under the laws of a Member State of the European Union.

- ends -

 

END

 

 

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