Final Results

SchroderJapan Growth Fund PLC 27 September 2006 27 September 2006 Press Release SCHRODER JAPAN GROWTH FUND PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 JULY 2006 The Directors of Schroder Japan Growth Fund plc (the 'Company') announce the Company's unaudited preliminary results for the year ended 31 July 2006. For the year ended For the year ended 31 July 2006 31 July 2005 (Restated) Revenue Capital Total Revenue Capital Total Return Return Return Return Return Return £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments held at fair value - 21,163 21,163 - 8,890 8,890 Realised exchange (losses)/gains on - (265) (265) - 41 41 currency balances Unrealised exchange gains/(losses) on - 2,118 2,118 - (553) (553) the loan facility Income 2,088 - 2,088 1,713 - 1,713 Investment management fee (1,727) - (1,727) (1,307) - (1,307) Administrative expenses (375) - (375) (348) - (348) Net (loss)/return before finance costs (14) 23,016 23,002 58 8,378 8,436 and taxation Interest payable (137) - (137) (139) - (139) Net (loss)/return on ordinary activities (151) 23,016 22,865 (81) 8,378 8,297 before taxation Taxation on ordinary activities (144) - (144) (118) - (118) Net (loss)/return on ordinary activities (295) 23,016 22,721 (199) 8,378 8,179 after taxation attributable to equity shareholders Net (loss)/return per ordinary share (0.24)p 18.41p 18.17p (0.16)p 6.70p 6.54p The total column of this statement is the profit or loss account of the Company. The revenue return and capital return columns are both provided in accordance with guidance issued by the Association of Investment Companies. The Company has no recognised gains or losses other than those disclosed in the Income Statement and Reconciliation of Movements in Shareholders' Funds. Accordingly no Statement of Total Recognised Gains or Losses is presented. All revenue and capital items in the above statement derive from continuing operations. Reconciliation of Movements in Shareholders' Funds Share Share Share Warrant Warrant Capital Revenue Total capital premium purchase exercise reserve reserve reserve account reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 July 12,500 3 97,205 1 9,639 (907) (7,182) 111,259 2004 Net profit from - - - - - 8,378 (199) (8,179) operating activities Gain on expiry of - - - - (9,637) 9,637 - - warrants Issue of shares on 1 4 - 2 (2) - - 5 exercise of warrants Balance at 31 July 12,501 7 97,205 3 - 17,108 (7,381) 119,443 2005 Share Share Share Warrant Warrant Capital Revenue Total capital premium purchase exercise Reserve reserve reserve account reserve reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 July 12,501 7 97,205 3 - 17,108 (7,381) 119,443 2005 Net profit from - - - - - 23,016 (295) 22,721 operating activities Balance at 31 July 12,501 7 97,205 3 - 40,124 (7,676) 142,164 2006 Balance Sheet 2006 2005 £'000 £'000 Fixed Assets Investments held at fair value through profit or loss 167,409 139,144 Current Assets Debtors 2,083 291 Short-term deposits 5,602 4,131 Cash at bank 94 117 7,779 4,539 Creditors: amounts falling due within one year 33,024 24,240 Net current liabilities (25,245) (19,701) Net assets attributable to shareholders 142,164 119,443 Capital and Reserves Called up share capital 12,501 12,501 Share premium account 7 7 Share purchase reserve 97,205 97,205 Warrant exercise reserve 3 3 Capital reserve 40,124 17,108 Revenue reserve (7,676) (7,381) Total equity shareholders' funds 142,164 119,443 Net asset value per ordinary share 113.72p 95.55p Abridged Cash Flow Statement For the year For the year ended ended 31 July 2006 31 July 2005 restated £'000 £'000 Net cash outflow from operating activities (231) (260) Net cash outflow from investing activities (7,794) (2,061) Net cash outflow before financing (8,025) (2,321) Net cash inflow from financing 9,738 2,519 Net cash inflow in the year 1,713 198 Reconciliation of net cash inflow to movement in net debt Increase in cash in the year 1,713 198 Movement in bank loan to finance investments (9,738) (2,514) Change in net debt arising from cash flows (8,025) (2,316) Realised exchange (losses)/gains on currency balances (265) 41 Unrealised exchange (losses)/gains on the loan facility 2,118 (553) Net debt brought forward at 1 August (18,555) (15,727) Net debt carried forward at 31 July (24,727) (18,555) Notes 1. Basis of preparation These accounts have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with the Companies Act 1985 and Generally Accepted Accounting Principles (UK GAAP) and the Statement of Recommended Practice 'Financial Statement of Investment Trust Companies ('SORP') issued in January 2003 and revised in December 2005. The Accounting Standards Board ('ASB') has implemented a convergence programme with International Financial Reporting Standards and as part of this project has introduced a number of new and revised Accounting Standards which have been adopted in these accounts and for which details are given below. Changes in presentation The Statement of Total Return is now called the Income Statement. The Reconciliation of Movements in Shareholders' Funds is now presented as a primary statement. Changes in accounting policy FRS26 (Financial Instruments: Measurement) - The Company has designated its assets and liabilities as being measured at 'fair value through profit or loss'. The fair value of listed investments is deemed to be the bid value of those investments at the close of business on the relevant date. The convention of the Tokyo Stock Exchange, upon which the investments held by the Company are listed, is to quote a single price for the security being the last traded price. No separate bid or offer prices are given. Accordingly, under FRS26, listed investments continued to be valued at the last traded price. Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as 'Gains or losses on investments held at fair value'. Transaction costs in relation to the purchase or sale of investments are taken into account in arriving at the gains and losses on investments held at fair value. FRS 25 (Financial Instruments: Disclosure and Presentation) - Warrants issued by an Investment Trust Company (ITC) should be classified as equity and the net proceeds shown as a warrant reserve and included as part of equity holders' funds. If warrants issued by an ITC lapse unexercised then the amount previously recognised in respect of the warrant should be recognised. Previously, such gains were recognized in the Income Statement whereas under FRS25, they are reported directly in shareholders' funds in the Reconciliation of Movement in Shareholders' Funds. The accounts for the year ended 31 July 2005 have been restated to reflect these changes and had the following effect: The realised gains on expiry of warrants of £9,637,000 is no longer included in the capital column within the Income Statement but is shown as a Movement in Shareholders' Funds. FRS 23 (The effects of changes in Foreign Exchange Rates) - The Company is a UK listed Company with a predominantly UK shareholder base. The results and the financial position of the Company are expressed in pounds sterling, which is the functional and presentational currency of the Company. The Directors, having regard to the currency of the Company's share capital and the predominant currency in which its shareholders operate, have determined the functional currency to be sterling. Other than the matters noted above the same accounting policies used for the year ended 31 July 2005 have been applied in preparing the accounts for the year ended 31 July 2006. 2 Deficit per ordinary share The basic revenue deficit per ordinary share is based on the net revenue deficit on ordinary activities after interest payable and taxation of £295,000 (2005: £199,000) and on 125,008,200 (2005: 125,006,449) ordinary shares, being the weighted average number of shares in issue in the year. The basic capital return per ordinary share is based on the net return on ordinary activities after interest payable and taxation of £23,016,000 (2005: £8,378,000) and on 125,008,200 (2005: 125,006,449) ordinary shares, being the weighted average number of shares in issue in the year. The basic total return per ordinary share is based on the net return on ordinary activities after interest payable and taxation of £22,721,000 (2005: £8,179,000) and on 125,008,200 (2005: 125,006,449) ordinary shares, being the weighted average number of shares in issue in the year. 3 Net asset value per ordinary share Net asset value per ordinary share is based on 125,008,200 (2005: 125,008,200) ordinary shares in issue. This announcement is prepared on the basis of the accounting policies as set out in the most recent published set of annual financial statements as amended for the adoption of new Accounting Standards. The above financial information is unaudited and does not constitute statutory accounts under Section 240 of the Companies Act 1985 (as amended). Statutory accounts for the financial year ended 31 July 2005 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 July 2006 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. This statement was approved by the Board of Directors on 26 September 2006. CHAIRMAN'S STATEMENT Performance The year to 31 July 2006, in overall terms, built on the increase in absolute returns in 2005, and the net asset value per share increased by 19.0%, (from 95.55p per share to 113.72p per share). The share price increased by 20.4% over the year as the discount narrowed slightly from 4.0% to 2.8%. Whilst performance during the year was slightly behind the benchmark, the TSE First Section Total Return Index, long-term performance of both the net asset value and share price remains significantly ahead of the Index. Performance during the year can be split into two distinct halves. The first half of the year saw an increase in net asset value of 29.6%, whilst the second half saw a decline of 6.3% following corporate scandals, macroeconomic concerns and disappointing projections for corporate earnings growth. Further comment on performance and investment policy may be found in the Manager's Review. Gearing During the year ended 31 July 2006 the Company increased total borrowings to Yen 6.5 billion (from Yen 4.5 billion). All of the borrowings were obtained via a revolving credit facility to provide the greatest flexibility. As previously stated, the Directors do not foresee gearing levels in excess of 25% of shareholders' funds. The gearing continues to be operated within the limits agreed by the Board. At the beginning of the year, the effective gearing ratio (borrowings less cash and short-term deposits as a percentage of net assets) was 15.5%, and this had increased to 17.4% at 31 July 2006. Purchase of Shares for Cancellation At the Company's last Annual General Meeting in November 2005, the Company was given the authority to purchase up to 14.99% of the Company's issued share capital for cancellation. The share buy-back facility is one of a number of tools that may be used to enhance shareholder value and to reduce the discount volatility. During the year ended 31 July 2006, the Directors did not use the authority given to them and no purchases for cancellation were undertaken. The Board continues to consider whether purchases should be made on a regular basis, and therefore proposes that the authority be renewed at the forthcoming Annual General Meeting. Annual General Meeting The Annual General Meeting will be held at 3.30 p.m. on Wednesday 8 November 2006 and shareholders are invited to attend. The meeting will follow our usual format, which includes a presentation on the prospects for the Japanese economy and investment strategy. Jonathan Taylor Chairman INVESTMENT MANAGER'S REVIEW Performance The Company's net asset value rose 19.0% during the year ended 31 July 2006. This compares to an increase of 21.8% in the Tokyo Stock Exchange 'TSE' First Section Total Return Index. Commodity related sectors, such as steel and metals, continued to perform well against a backdrop of rising prices, and financials, such as banks and insurance, also performed strongly, discounting the positive impact of rising interest rates. All the gains in the market were recorded during the latter half of 2005. Prime Minister Koizumi's decision to call a snap election, which subsequently consolidated the position of the reformist element within the ruling Liberal Democratic Party, positive economic news and steadily rising expectations for corporate earnings growth underpinned sentiment, which continued to attract strong foreign buying. With the market becoming increasingly speculative and momentum-driven toward the end of 2005, a correction at the start of 2006 appeared inevitable. An investigation into the accounting practices of Livedoor, an internet service company, which famously attempted to take over a major broadcaster the year before, acted as the initial catalyst for a market pull-back. Further corporate investigations, global macro-economic concerns and disappointing projections for corporate earnings growth for the fiscal year ahead further weighed on sentiment. Although the Company's gearing helped performance over the period, stock selection proved too defensive in many respects, and Bridgestone, a large holding in the Fund, underperformed as rubber prices rose sharply. Outlook The outlook for Japanese equities remains positive on balance, although the risk of weaker growth has increased. Concerns over earnings have been reduced after strong first quarter numbers and several upward earnings revisions. Valuations look reasonable and much of the speculative froth has been removed from the more heavily extended segments of the market. Companies, by and large, continue to disappoint in terms of improving capital efficiency and raising shareholder returns. Dividend growth again lagged post-tax profit growth in the last financial year and, whilst there are some encouraging signs in terms of greater merger and acquisition activity, there are still numerous examples of unnecessary fund raising or regressive or defensive management action. Clearly, improvements in this area will derive from individual company efforts rather than general shareholder or legislative pressure. Investment Policy We are overweight in the Transportation, Real Estate, Insurance and Pharmaceutical sectors, whilst underweight in Banks, Utilities, Consumer Staples and Steel. We have substantially reduced the underweight position in Banks, buying, in particular, regional banks where we see scope for above-average loan growth. Musashino Bank, for example, is based in a region neighbouring Tokyo enjoying good economic growth and where the bank's main competitor remains in retrenchment. We believe that a slower pace of earnings growth in the market will favour steadier growth companies with structurally higher returns on equity. Stocks like Nidec, which dominates the global market for hard disk drive motors, already achieve this, whilst others, such as Astellas Pharmaceutical, SMC and Sankyo could do so with more efficient management of their balance sheets. With smaller companies having borne the brunt of this year's market correction, we are finding more attractive opportunities in the small and mid-cap area again. Shimamura, a well-managed apparel retailer, and car parts companies, Musashi Seimitsu and Hi-Lex, are examples of smaller companies which we like. Schroder Investment Management Limited 27 September 2006 Annual Report The Annual Report and Accounts will be mailed to registered shareholders at their registered addresses. Copies of the Annual Report will be made available from the date of release at the Company's registered office, 31 Gresham Street, London, EC2V 7QA. Enquiries: Schroder Investment Management Limited John Spedding (020 7658 3206) 27 September 2006 This information is provided by RNS The company news service from the London Stock Exchange

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