Interim Results
Baillie Gifford Japan Trust PLC
05 April 2007
THE BAILLIE GIFFORD JAPAN TRUST PLC
Results for the six months to 28 February 2007
In the six months to 28 February 2007, The Baillie Gifford Japan Trust's net
asset value per share rose by 0.3%. The TOPIX rose by 3.0% in sterling terms
over the same period. The Company's share price rose 2.4%+ and stood at a
premium to net asset value at the end of the period.
• The Company predominantly holds medium and smaller sized companies.
These in general have underperformed the index which has risen
principally on the back of strong gains by very large companies.
• The Japanese economy has continued to expand, although the pace of
growth has slowed. Although the main area of weakness is consumption
with minimal overall wage growth, property and labour market indicators
remain encouraging and capital expenditure remains robust.
• Merger and acquisition activity has picked up, spurring reorganisation
and improved productivity in the sectors affected.
• Growth companies no longer trade at a valuation premium to the
market and the Managers have added to a variety of long term
growth stocks on modest valuations.
+ Past performance is no guarantee of 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. The Company has borrowed
money to make further investments. This is commonly referred to as gearing. The
risk is that, when this money is repaid by the Company, the value of these
investments may not be enough to cover the borrowing and interest costs, and the
Company makes a loss. You can find up to date performance information about The
Baillie Gifford Japan Trust PLC on the Baillie Gifford website at
www.bailliegifford.com.
The Baillie Gifford Japan Trust PLC aims to pursue long-term capital growth
principally through investment in medium to smaller sized Japanese companies.
Baillie Gifford & Co, the Edinburgh based fund management group with around £50
billion under management and advice as at 4 April 2007, is appointed as
investment managers and secretaries to The Baillie Gifford Japan Trust PLC.
4 April 2007
For further information please contact:
Sarah Whitley, Manager,
The Baillie Gifford Japan Trust PLC 0131 275 2000
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
THE BAILLIE GIFFORD JAPAN TRUST PLC
Interim Report
During the six months to 28 February 2007 the net asset value per share rose by
0.3% to 239.0p, underperforming the 3% rise in the TOPIX in sterling terms
during the period. The stock market was quite strong during these months,
rising 7.2% in yen terms, but the continuing weakness of the yen muted the rise
when adjusted into sterling. The main contributors to the index gain were very
large companies whilst smaller and medium sized companies generally did less
well.
The Japanese economy has continued to expand, although the pace of growth has
slowed. Indicators for the property and labour markets remain encouraging and
exports have continued to grow. Capital expenditure by companies is also robust
and we expect this strength to continue as the capital stock of Japan ages and
companies have the funds to invest to renew equipment as well as to make
facilities more labour efficient. The Bank of Japan raised interest rates again
in February, furthering the move to normalisation. The main area of weakness
is consumption where, despite tight labour markets and some wage rises for
temporary workers, overall wage growth has been minimal. This may be a side
effect of many older workers reaching 60 and moving from highly paid full time
work to part time lower paid employment or may signal difficulty for the
unquoted sector. Developments in this area will be monitored closely over the
next few months.
Profits for the first three quarters of the fiscal year were strong, rising
13.5% but profit forecasts remain cautious. There are moves to tighten audit
standards and internal controls at many companies, partly as a result of
legislation, which is similar to that in the US, and partly owing to various
accounting scandals where auditors have been found not to be sufficiently
independent. These developments should promote sensible change in the longer
term as corporate governance, in the broadest sense, improves.
Merger and acquisition activity has also picked up significantly and we should
see further developments. The competition authorities will now pay more
attention to global market shares, and we believe that many industries will see
significant reordering in the next couple of years. The pattern so far, as
shown by the noodle and fishing industries, is that one announcement in a
mature domestic sector has led to a flurry of activity and a significant
reorganisation. Overall these changes should help improve productivity in Japan
and help boost growth.
Portfolio
During the period we sold most of the holding in Sumitomo Realty and the
weighting in the Real Estate and construction sector fell from 9.1% to 5.0%.
This has been a very successful investment since it was purchased in 2003 and
whilst the fundamentals for the property sector remain strong, we felt that this
was fully reflected in the share price. We bought holdings in Accordia Golf, a
company which buys and improves the operating performance of golf courses that
have gone bankrupt, Shimadzu a world leader in scientific instruments and Privee
investments, which is a company taking an activist approach to investing in
Japan's private railways. We sold holdings in Panahome, a house builder with
disappointing operational performance as well as Promise and OMC Card, both
consumer lenders where regulatory change has been extremely adverse and we see
no immediate prospect of improvement.
Outlook
Whilst the economic expansion in Japan is now fairly mature, the changes in the
corporate landscape are only just beginning. Along with the increase in merger
activity there is also an increased emphasis on shareholder activism. Japanese
companies will in aggregate use 52% of net earnings for the year ending March
2007 for dividends and share buy-backs, signalling that more profits will go to
shareholders. A leading domestic investor has also emphasised that they may
vote against the management of companies not meeting certain levels of return on
equity. There have also been a number of explicit requests by foreign investors
for further improvements in dividend payments and whilst these have not been
particularly successful so far, the pressure is clearly building.
Another feature of the current market is that valuation differences have been
compressed so that growth companies no longer trade at a premium to the market.
This has resulted in the share price underperformance of some of our holdings,
where operational performance has been as expected and this we believe brings
opportunities. As a result we have been adding to a variety of long term growth
stocks on modest valuations.
By order of the Board
Baillie Gifford & Co
4 April 2007
The following is the interim statement for the six months ended 28 February 2007
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 20 April 2007. Copies
will be available for inspection at the Registered Office of the Company or may
be obtained on request from the Managers and Secretaries after that date.
THE BAILLIE GIFFORD JAPAN TRUST PLC
INCOME STATEMENT
(unaudited)
For the six months ended For the six months ended For the year ended
28 February 2007 28 February 2006 31 August 2006
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised gains
on investments - 6,939 6,939 - 9,010 9,010 - 19,822 19,822
Unrealised
(losses)/gains
on investments - (7,376) (7,376) - 39,055 39,055 - 2,741 2,741
Currency gains
(note 2) - 1,028 1,028 - 294 294 - 2,611 2,611
Income (note 3) 817 - 817 633 - 633 1,728 - 1,728
Investment
management fee (722) - (722) (808) - (808) (1,573) - (1,573)
Other
administrative
expenses (121) - (121) (124) - (124) (232) - (232)
Net return
before finance
costs and
taxation (26) 591 565 (299) 48,359 48,060 (77) 25,174 25,097
Finance costs
of borrowings (192) - (192) (207) - (207) (412) - (412)
Return on
ordinary
activities
before
taxation (218) 591 373 (506) 48,359 47,853 (489) 25,174 24,685
Tax on
ordinary
activities (49) - (49) (36) - (36) (104) - (104)
Return on
ordinary
activities
after taxation (267) 591 324 (542) 48,359 47,817 (593) 25,174 24,581
Return per
ordinary
share (note 5) (0.43p) 0.95p 0.52p (0.87p) 78.08p 77.21p (0.96p) 40.65p 39.69p
The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in this statement derive from continuing
operations.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
THE BAILLIE GIFFORD JAPAN TRUST PLC
SUMMARISED BALANCE SHEET
at 28 February 2007
(unaudited)
28 February 28 February 31 August
2007 2006 2006
£'000 £'000 £'000
NET ASSETS
Listed equities 166,330 190,481 169,160
Unlisted equities 437 2,729 1,491
166,767 193,210 170,651
Net liquid assets 7,506 7,778 4,371
Total assets (before deduction of bank loans) 174,273 200,988 175,022
Bank loans (note 6) (26,270) (30,073) (27,343)
148,003 170,915 147,679
CAPITAL AND RESERVES
Called-up share capital 3,097 3,097 3,097
Capital reserves 153,566 176,160 152,975
Revenue reserve (8,660) (8,342) (8,393)
SHAREHOLDERS' FUNDS 148,003 170,915 147,679
NET ASSET VALUE PER ORDINARY SHARE 239.0p 276.0p 238.4p
Ordinary shares in issue (note 7) 61,935,000 61,935,000 61,935,000
THE BAILLIE GIFFORD JAPAN TRUST PLC
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the six months ended 28 February 2007
Share Share Capital Capital Capital Revenue Total
capital premium redemption reserve - reserve - reserve shareholders'
reserve realised unrealised funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 September 2006 3,097 22,110 203 87,572 43,090 (8,393) 147,679
Return on ordinary
activities after
taxation - - - 6,895 (6,304) (267) 324
Shareholders' funds
at 28 February 2007 3,097 22,110 203 94,467 36,786 (8,660) 148,003
For the six months ended 28 February 2006
Share Share Capital Capital Capital Revenue Total
capital premium redemption reserve - reserve - reserve shareholders'
reserve realised unrealised funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 September 2005 3,097 22,110 203 68,317 37,171 (7,800) 123,098
Return on ordinary
activities after
taxation - - - 8,856 39,503 (542) 47,817
Shareholders' funds
at 28 February 2006 3,097 22,110 203 77,173 76,674 (8,342) 170,915
For the year ended 31 August 2006
Share Share Capital Capital Capital Revenue Total
capital premium redemption reserve - reserve - reserve shareholders'
reserve realised unrealised funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 September 2005 3,097 22,110 203 68,317 37,171 (7,800) 123,098
Return on ordinary
activities after
taxation - - - 19,255 5,919 (593) 24,581
Shareholders' funds
at 31 August 2006 3,097 22,110 203 87,572 43,090 (8,393) 147,679
THE BAILLIE GIFFORD JAPAN TRUST PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Six months to Year to
28 February 2007 28 February 2006 31 August 2006
£'000 £'000 £'000
Net cash outflow from operating activities (93) (270) (65)
Net cash outflow from servicing of finance (200) (183) (392)
Total tax paid (47) (32) (101)
Net cash inflow/(outflow) from financial investment 4,304 (874)
3,691
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 3,964 3,206 (1,432)
Net cash inflow from bank loans - 5,006 5,006
INCREASE IN CASH 3,964 8,212 3,574
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase in cash in the period 3,964 8,212 3,574
Net cash inflow from bank loans - (5,006) (5,006)
Exchange movement on bank loans 1,072 448 3,178
MOVEMENT IN NET DEBT IN THE PERIOD 5,036 3,654 1,746
Net debt at start of the period (22,627) (24,373) (24,373)
NET DEBT AT END OF THE PERIOD (17,591) (20,719) (22,627)
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND
TAXATION TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Net return on ordinary activities before finance costs
and taxation 513 48,060 25,097
Gains on investments 489 (48,065) (22,563)
Currency gains (1,028) (294) (2,611)
Changes in debtors and creditors (67) 29 12
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (93) (270) (65)
THE BAILLIE GIFFORD JAPAN TRUST PLC
TWENTY LARGEST HOLDINGS
at 28 February 2007
Market
value
% of total
£'000
Name Business assets
Canon Printers and copiers 4,506 2.6
Japan Tobacco Tobacco manufacturer 4,306 2.5
Asahi Glass Specialist glass manufacturer 4,210 2.4
Sumitomo Heavy Heavy electric machinery 4,193 2.4
Mitsui OSK Lines Shipping company 4,126 2.4
Itochu Trading conglomerate 4,078 2.3
Diamond Lease Leasing services 4,047 2.3
Mitsubishi UFJ Financial Major bank 4,043 2.3
KDDI Mobile telecommunications 3,976 2.3
USS Company Second-hand car auctioneer 3,914 2.2
Misumi Group Precision machinery parts distributor 3,828 2.2
Yamada Denki Consumer electronics retailer 3,824 2.2
SMC Pneumatic control equipment 3,736 2.1
AIOI Insurance General insurance 3,618 2.1
Inpex Petroleum and natural gas producer 3,584 2.1
East Japan Railway Rail transportation service 3,488 2.0
Modec Offshore oil platform production 3,485 2.0
Toray Industries Materials company 3,472 2.0
Kamigumi Port operator 3,365 1.9
H.I.S. Discount travel agency 3,312 1.9
77,111 44.2
THE BAILLIE GIFFORD JAPAN TRUST PLC
NOTES
1. The financial statements for the six months to 28 February 2007 have been prepared on the basis of the
accounting policies set out in the Company's Annual Financial Statements at 31 August 2006.
Six months to Six months to Year to
28 February 2007 28 February 2006 31 August 2006
£'000 £'000 £'000
2. Currency gains
Realised exchange differences (44) (154) (567)
Movement in unrealised exchange differences 1,072 448 3,178
1,028 294 2,611
3. Income includes stock lending fee income of £109,000 (28 February 2006 - £121,000; 31 August 2006 -
£243,000).
4. No interim dividend will be declared.
5. Return per ordinary share
Revenue return (267) (542) (593)
Capital return 591 48,359 25,174
Return per ordinary share is based on the above totals of revenue and capital and on 61,935,000 (28
February 2006 and 31 August 2006 - 61,935,000) ordinary shares, being the weighted average number of
ordinary shares in issue during the period.
6. Bank loans of £26.3 million (Y6.1 billion) have been drawn down under yen loan facilities which are
repayable between August 2007 and May 2011 (28 February 2006 - £30.1 million (Y6.1 billion); 31 August
2006 - £27.3 million (Y6.1 billion)).
7. The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as
well as to buy back shares at a discount to net asset value. No shares were issued or bought back
during the period under review.
8. Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost
or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases
amounted to £27,000 (28 February 2006 - £32,000; 31 August 2006 - £78,000) and transaction costs on
sales amounted to £21,000 (28 February 2006 - £37,000; 31 August 2006 - £64,000).
9. The financial information contained within this interim report does not constitute statutory accounts
as defined in section 240 of the Companies Act 1985. The financial information for the year ended 31
August 2006 has been extracted from the statutory accounts which have been filed with the Registrar of
Companies and which contain an unqualified Auditor's Report and do not contain a statement under
section 237 (2) or (3) of the Companies Act 1985.
10. The Interim Report was approved by the Board on 4 April 2007 and will be available on the Managers'
website www.bailliegifford.com on or around 20 April 2007.
None of the views expressed in this document should be construed as advice to buy or sell a particular
investment.
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 8 hours ago Banco Santander S.A.
- 8 hours ago Renew Holdings
- 9 hours ago Rotork
- 9 hours ago Zegona Communications
- 9 hours ago Unilever