Interim Results

Baillie Gifford Japan Trust PLC 23 March 2006 THE BAILLIE GIFFORD JAPAN TRUST PLC Results for the six months to 28 February 2006 Over the six months to 28 February 2006, The Baillie Gifford Japan Trust PLC outperformed its benchmark index* by 10.1 percentage points. In sterling terms, the benchmark index rose 28.7% while the Company's net asset value per share rose 38.8%. The Company's share price rose 43.1%+ and stood at a premium to net asset value at the end of the period. • Outperformance was achieved through good stock selection in the Retail and Real estate & construction sectors. The use of gearing was also a major contributor to performance. At the interim period net gearing stood at 12.1% of shareholders' funds. • Companies' profit expectations continue to rise and earnings are expected to increase over 30% for the fiscal year to March 2006. The ending of quantitative monetary easing by the Bank of Japan, signalling that deflation has ended, makes future price increases possible for a wider range of companies. • Consumption and capital spending are expected to provide the main impetus for future economic growth. • The Board and Managers believe that Japan's ongoing economic expansion, combined with an increasing focus by companies on shareholder returns, will stimulate further gains from the market over the longer term. * The Company's benchmark index is the TOPIX Index in sterling terms. + 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 £46 billion under management and advice as at 22 March 2006, is appointed as investment managers and secretaries to The Baillie Gifford Japan Trust PLC. 22 March 2006 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 The Japanese stockmarket rose strongly during the period, with TOPIX up by 28.7% in sterling terms, reaching a five year high of 1,713.47 at the beginning of February. Over the period Baillie Gifford Japan Trust's net asset value per share rose by 38.8% to 276.0p, outperforming the benchmark by roughly 10 percentage points. The yen depreciated modestly against sterling and the competitiveness of the currency was further enhanced by a broader depreciation. The stockmarket rallied strongly following the re-election of Prime Minister Koizumi in September 2005. He used the issue of Post Office privatisation, his life-long political goal, to gain a mandate for other far reaching reforms, some of which will have to happen after his retirement in September 2006. For example, the other government owned financial institutions, which make up some 25% of deposits in Japan, are likely to be rationalised or privatised, a move which will diminish the large state role in the financial system. Profit expectations have risen throughout the fiscal year, which ends in March and earnings are now expected to increase over 30%. The weakness of the yen and the rising capacity utilisation of manufacturing in Japan have both been positive factors, as well as the continued strength in capital spending. Growth is likely to be slower in the next year, as wage increases and raw material costs rise, but the ending of deflation makes price increases possible for a wider range of companies. Portfolio The main contributors to performance were stocks in the Retail sector, predominantly Yamada Denki and those in the Real estate and construction sector, notably Sumitomo Realty. We have taken some profits on Yamada Denki which has now been held for many years, but have maintained the holding in Sumitomo Realty which is now the largest holding. As might be expected with a strong upswing in the market the company's gearing was a major positive support to outperformance. We increased the borrowings in October by Y1bn (£5m) and these were immediately invested in the market. The stockmarket rose strongly from that point and we reduced the exposure to the market in January. At the end of the period gross borrowings were 17.6% and net borrowings 12.1%. Outlook The Japanese economy continued its expansion, which is now in its fifth year, with growth in the last quarter of 2005 exceptionally strong in GDP terms. The ending of deflation has been confirmed by the Bank of Japan which will end its Quantitative Monetary Easing policy and return to using interest rates as the key policy tool. Interest rates, however, are likely to remain extremely low for some time. Growth is expected to continue in 2006 at about the same pace as the previous year, i.e. roughly 2 1/2% to 3%, with domestic expansion, particularly consumption and capital spending providing the main impetus. The fundamental case for Japanese equities remains strong, as the economy is finally normalising after the difficulties of the 1990s. The ending of quantitative monetary easing is a clear signal to markets that deflation has ended and the inevitable rise in interest rates will be a further confirmation. Although long anticipated, in the short term this sea-change is creating uncertainty in bond and equity markets, although we believe this is a positive development in the longer term. The structure of Japan's interest rates is likely to further converge with other developed markets over time. Japanese companies have substantially de-leveraged over the past few years and this process may finally be coming to an end. Bank lending is rising in aggregate for the first time in nine years and capital spending by both the quoted and the unquoted sectors is rising. Base wages at major companies are also being increased, again the first rise for many years, and there are some signs of labour shortage in temporary and part-time jobs. Recent surveys suggest that consumer confidence is at a record high and retail sales are rising. Legislative change will facilitate merger and acquisition activity, although this is already more prevalent in Japan than before. However, some of these positive factors have been discounted in the rise in the stockmarket and Japanese stocks have been re-rated relative to other countries. In the short term the market seems unlikely to rise as much as it has done over the past six months, but we believe that the longer term prospects remain strong owing to a combination of a sounder based economy and a new focus on raising returns to shareholders. By order of the Board Baillie Gifford & Co 22 March 2006 The following is the interim statement for the six months ended 28 February 2006 which has been neither reviewed nor audited by the auditors. This statement is being printed and will be sent to all shareholders on 14 April 2006. 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 2006 28 February 2005 31 August 2005 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Realised gains / (losses) on investments - 9,010 9,010 - (743) (743) - 2,195 2,195 Unrealised gains on investments - 39,055 39,055 - 6,434 6,434 - 17,034 17,034 Currency gains (note 2) - 294 294 - 383 383 - 402 402 Income (note 3) 633 - 633 441 - 441 1,398 - 1,398 Investment management fee (808) - (808) (530) - (530) (1,114) - (1,114) Other administrative expenses (124) - (124) (120) - (120) (236) - (236) Net return before finance costs and taxation (299) 48,359 48,060 (209) 6,074 5,865 48 19,631 19,679 Finance costs of borrowings (207) - (207) (154) - (154) (315) - (315) Return on ordinary activities before taxation (506) 48,359 47,853 (363) 6,074 5,711 (267) 19,631 19,364 Tax on ordinary activities (36) - (36) (27) - (27) (89) - (89) Return on ordinary activities after taxation (542) 48,359 47,817 (390) 6,074 5,684 (356) 19,631 19,275 Return per ordinary share (note 5) (0.87p) 78.08p 77.21p (0.63p) 9.81p 9.18p (0.58p) 31.70p 31.12p 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 2006 (unaudited) 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 NET ASSETS Listed equities 190,481 124,121 145,442 Unlisted equities 2,729 2,084 2,339 193,210 126,205 147,781 Net liquid assets 7,778 3,718 832 Total assets (before deduction of bank loans) 200,988 129,923 148,613 Bank loans (note 6) (30,073) (20,416) (25,515) 170,915 109,507 123,098 CAPITAL AND RESERVES Called-up share capital 3,097 3,097 3,097 Capital reserves 176,160 114,244 127,801 Revenue reserve (8,342) (7,834) (7,800) EQUITY SHAREHOLDERS' FUNDS 170,915 109,507 123,098 NET ASSET VALUE PER ORDINARY SHARE 276.0p 176.8p 198.8p Ordinary shares in issue (note 7) 61,935,000 61,935,000 61,935,000 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited) Six months to Six months to Year to 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 Shareholders' funds at 1 September 123,098 103,823 103,823 Total recognised gains for the period 47,817 5,684 19,275 Shareholders' funds at 28 February/31 August 170,915 109,507 123,098 THE BAILLIE GIFFORD JAPAN TRUST PLC SUMMARISED CASH FLOW STATEMENT (unaudited) Six months to Six months to Year to 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 Net cash (outflow)/inflow from operating activities (270) (280) 76 Net cash outflow from servicing of finance (183) (158) (311) Total tax paid (32) (22) (89) Net cash inflow/(outflow) from financial investment 3,691 (7,018) (14,538) NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 3,206 (7,478) (14,862) Net cash inflow from bank loans 5,006 - 5,007 INCREASE/(DECREASE) IN CASH 8,212 (7,478) (9,855) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase/(decrease) in cash in the period 8,212 (7,478) (9,855) Net cash inflow from bank loans (5,006) - (5,007) Exchange movement on bank loans 448 351 259 MOVEMENT IN NET DEBT IN THE PERIOD 3,654 (7,127) (14,603) Net debt at start of the period (24,373) (9,770) (9,770) NET DEBT AT END OF THE PERIOD (20,719) (16,897) (24,373) RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES Net return before finance costs and taxation 48,060 5,865 19,679 Gains on investments (48,065) (5,691) (19,229) Currency gains (294) (383) (402) Changes in debtors and creditors 29 (71) 28 NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (270) (280) 76 THE BAILLIE GIFFORD JAPAN TRUST PLC TWENTY LARGEST HOLDINGS at 28 February 2006 Market value % of total Name Business £'000 assets Sumitomo Realty & Development Property development and leasing 8,075 4.0 Itochu Trading conglomerate 6,165 3.1 Sumitomo Heavy Specialist machinery 5,963 3.0 Japan Tobacco Tobacco manufacturer 5,689 2.8 Mitsubishi UFJ Financial Major bank 5,548 2.8 Yamada Denki Consumer electronics retailer 5,201 2.6 Asahi Glass Specialist glass manufacturer 5,027 2.5 AIOI Insurance General insurance 4,940 2.5 Inpex Petroleum and natural gas producer 4,633 2.3 USS Company Second-hand car auctioneer 4,613 2.3 JFE Holdings Major steel company 4,541 2.3 Tokyu Railway conglomerate 4,256 2.1 Fullcast Temporary staffing services 4,248 2.1 Toray Industries Materials company 4,189 2.1 Don Quijote Discount store operator 3,984 2.0 SMC Pneumatic control equipment 3,949 2.0 Arrk Design consulting 3,944 2.0 Canon Printers and copiers 3,890 1.9 East Japan Railway Commuter railway 3,853 1.9 Diamond Lease Leasing services 3,844 1.9 96,552 48.2 THE BAILLIE GIFFORD JAPAN TRUST PLC NOTES 1. The financial statements for the six months to 28 February 2006 have been prepared on the basis of the same accounting policies used for the year to 31 August 2005 except for the valuation of investments. In accordance with FRS 26 'Financial Instruments: Measurement', investments are now valued at fair value through profit and loss. Previously, listed investments were valued on a mid-market basis, as represented by last traded prices (official mid-market prices are not available in Japanese markets). As last traded prices are also the best measure of fair values of listed investments, there has been no impact on the valuation of the Company's listed investments. The implementation of the 2005 Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (SORP) has resulted in changes in the presentation of total returns. Previously the revenue column of the Statement of Total Return was deemed to be the profit and loss account of the Company. We now present an Income Statement which still shows information on capital and revenue returns, although it is the total return column which is regarded as the profit and loss account of the Company. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment. Six months to Six months to Year to 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000 2. Currency gains Realised exchange differences (154) 32 143 Movement in unrealised exchange differences 448 351 259 294 383 402 3. Income includes stock lending fee income of £121,000 (28 February 2005 - £70,000; 31 August 2005 - £141,000). 4. No interim dividend will be declared. 5. Return per ordinary share Revenue return (542) (390) (356) Capital return 48,359 6,074 19,631 Return per ordinary share is based on the above totals of revenue and capital and on 61,935,000 (28 February 2005 and 31 August 2005 - 61,935,000) ordinary shares, being the weighted average number of ordinary shares in issue during the period. 6. Bank loans of £30.1 million (Y6.1 billion) have been drawn down under yen loan facilities which are repayable between August 2007 and May 2011 (28 February 2005 - £20.4 million (Y4.1 billion); 31 August 2005 - £25.5 million (Y5.1 billion)). 7. At 28 February 2006 the Company had authority to buy back 9,284,056 of its own shares in accordance with the authority granted at the AGM in December 2005. No shares were bought back during the period under review. THE BAILLIE GIFFORD JAPAN TRUST PLC NOTES 8. 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 2005 has been extracted from the statutory accounts which have been filed with the Registrar of Companies and which contain an unqualified Auditors' Report and do not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 9. The Interim Report was approved by the Board on 22 March 2006. 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 QXBBBBL

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