Annual Financial Report

RNS Number : 0963V

Baillie Gifford Japan Trust PLC

31 October 2017

 

The Baillie Gifford Japan Trust PLC

Legal Entity Identifier: 54930037AGTKN765Y741

Regulated Information Classification: Annual Financial and Audit Reports

Annual Financial Report

This is the Annual Financial Report of The Baillie Gifford Japan Trust PLC as required to be published under DTR 4 of the UKLA Listing Rules.

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 August 2016 or 31 August 2017 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2016 and 2017; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 August 2016 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 August 2017 will be delivered to the Registrar in due course.

The Annual Report and Financial Statements for the year ended 31 August 2017, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on Baillie Gifford Japan's page of the Baillie Gifford website at www.japantrustplc.co.uk 

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.

Baillie Gifford & Co Limited

Company Secretaries

31 October 2017

Chairman's Statement

I am very pleased to report on another strong year for your Company with the net asset value (after deducting borrowings at fair value) rising 27.6%, compared to a 18.8% rise in the benchmark TOPIX index total return (in sterling terms). The share price increased by 37.5%, breaking through 700p for the first time, and the Company's shares are currently trading at a premium to NAV (after deducting borrowings at fair value) of 4.3%. The majority of investment trusts in the Japanese sector have been trading at discounts for some considerable time now while Japan Trust has traded at or near a premium for most of the last two years. This overall strong performance continues to build on impressive five and ten year records for the Japan Trust.

As with most recent years, stock selection (+3.0%) and gearing (+3.5%) both contributed strongly to the returns; further performance details are to be found in the Managers' Report below.

Investment income increased by 20% to £8.48m for the year, due in the main to increased dividends. Expenses increased by 22% due mainly to higher management fees (up £0.61m to £3.18m) in line with the substantial increase in net asset value. It is worth noting that the reduction in management fee secured by the Board last year (now 0.55% for net assets in excess of £250m) has served shareholders well, saving £0.25m in fees for the full year.

Overall revenue gain per share was 2.80p (2016 - 2.35p) while ongoing charges for the year dropped to 0.8% (2016 - 0.9%), though as in prior years no dividend will be paid while the revenue reserve remains in deficit.

Portfolio management responsibilities

Sarah Whitley, who has managed the Company's portfolio since 1991, will be retiring from Baillie Gifford, the Company's Investment Manager, on 30 April 2018. Baillie Gifford, with the full support of the Board and Sarah Whitley, will appoint Matthew Brett as the Company's portfolio manager and Praveen Kumar as the Company's deputy portfolio manager with effect from that date. Sarah will work closely with Matthew and Praveen to ensure a smooth transition in portfolio management responsibilities.

As background for shareholders, Matthew Brett joined Baillie Gifford in 2003 and is an Investment Manager in the Japanese Equities team. He co-manages the £1.8bn Baillie Gifford Japanese Fund with Sarah and has been attending all Japan Trust Board meetings since 2008, providing excellent insight on our investments. Praveen Kumar joined Baillie Gifford in 2008, is also an Investment Manager in the Japanese Equities team and is the portfolio manager of Baillie Gifford Shin Nippon PLC.

On behalf of the Board I would like to thank Sarah for her truly significant contribution to the Company. Her dedicated professionalism, quite exceptional knowledge of Japan and its markets and discriminating judgement have been accompanied throughout the four decades of her career by an unswerving enthusiasm for all things Japanese. That Sarah was often in the minority of investors to firmly believe in the ongoing investment opportunities in Japanese companies has brought great benefit to the Japan Trust. Sarah has managed the Company since 1991 and, in the period from 30 September 1991 to 31 August 2017, the Company's NAV increased by 545% compared to the return on the TOPIX index (in sterling terms) of 156% and she has mentored those on the Baillie Gifford Japan Desk with great success. In Matthew Brett we have a fine successor to Sarah having worked with the Board for almost ten years, and I look forward to the continued success of the Trust under his stewardship.

Gearing

Gearing amounted to 17% of shareholders' funds at the start of the year and ended the year at 13%. Gross borrowings increased to ¥11.7bn (2016 - ¥10.2bn) while the sterling value of these loans in the balance sheet rose to £82.5m at the year end (2016 - £75.3m). 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.

Share Capital

The Company did not exercise its share buy back powers during the year; however, your Board believes it is important that the Company retains this power and so, at the Annual General Meeting, is seeking to renew this facility. The Company also has authority to issue new shares and to reissue any shares held in treasury for cash on a non-pre-emptive basis. Shares are only issued/re-issued at a premium to net asset value, thereby enhancing net asset value per share for existing shareholders.

During the year to 31 August 2017, 5.1m shares were issued at a premium to net asset value raising proceeds of £34m, 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 2018.

Continuation Vote

Our shareholders have the right to vote annually on whether the Company should continue in business, and will again have the opportunity to do so at the Annual General Meeting to be held on 30 November 2017.

Last year the Company again received support for its continuation. Your Directors are still of the opinion that there remain attractive opportunities in selected, well-run Japanese companies and given the long-term favourable outlook for the Japan Trust. 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 which forms part of our succession planning discussions at our Nomination Committee meetings. Given the above it also believes that membership of the Board should be refreshed over time and would like to note that Paul Dimond intends to retire from the Board at the conclusion of the Company's 2018 Annual General Meeting. The process for identifying a new board member is in hand and the Board intends that a new Director will have been identified and appointed by this time next year. The appointment would then fall to be ratified by shareholders at the Company's 2018 Annual General Meeting.

Outlook

The year to 2017 saw ongoing strength in Japanese equities. Our Managers continued to find extremely interesting companies in which to invest, with their expertly researched 'bottom up' approach to stock selection adding significant value to the portfolio.

Business sentiment in Japan has been improving in recent years, with many positive aspects to the economic and consumer confidence indices following through into company results and consumer activity. However, with political tension in the region rising following North Korea's missile testing and President Trump's written and verbal reactions adding to that tension, we remain vigilant in assessing the impact such uncertainties can bring to the stocks we invest in. There are many things to remain positive about within Japan as a whole. Corporate governance changes are continuing, for example, it is now a requirement for shareholders to disclose how they vote on resolutions, and distributions to shareholders have continued to rise. These developments are all adding to the underlying strength of the economy and confidence in the management teams running the companies we invest in.

During the year your Manager and her team have again outperformed the market through their stock selection methodology, with Baillie Gifford Japan remaining a popular choice for investors. The Board visited Japan in May with the Managers, meeting CEOs and senior management of many current and potential investments. We returned home with an even more positive outlook for your Trust given the impressive entrepreneurial spirit we found that many fail to give Japan credit for, a real commitment to the social fabric of the country through profitable progress and investment, allied to new technologies that will blossom in this evolving technological age. The Managers firmly believe this will contribute to further strong results for shareholders.

As mentioned above Sarah Whitley is retiring from Baillie Gifford next April after a remarkable career spanning four decades, proving pivotal to the successful growth of the Japan Trust while maintaining an evident passion for her work. The Trust has prospered greatly under Sarah's stewardship and we will be sorry to see her retire but in Matthew Brett we have a more than able successor. He takes over the reigns with her full confidence and blessing along with that of your Board, is well thought of within Baillie Gifford and already known to many of our major shareholders. We look forward to him continuing to build on the successful performance of Baillie Gifford Japan Trust long into the future.

In summary, we believe there continue to be significant opportunities for investment growth among the companies in our portfolio, in addition to other investments currently under consideration, and that the Managers' approach of investing for medium to long-term growth will indeed capitalise on these opportunities going forward.

Nick AC Bannerman

Chairman

23 October 2017

For a definition of terms see Glossary of Terms, note 12.

Past performance is not a guide to future performance.

 

Managers' Report

Performance

 

Over the past year the NAV per share with borrowings deducted at fair value has increased by 27.6% to 682.4p which compares very favourably to a rise in the Company's benchmark of 18.8%.  Baillie Gifford believes that performance should be measured over longer periods and over five years the NAV has outperformed the benchmark by 9.2% p.a. and over ten years by 5.1% p.a. demonstrating the benefit to shareholders of an active long-term growth orientated stock picking approach. 

The Company's total assets increased to just over £650m, a rise of over £150m during the year, due to the 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 also helps to reduce transaction costs by helping the liquidity of the shares. 

The main driver of the strong absolute return was the increase in the value of the TOPIX which rose 24.3% in Yen on a total return basis, slightly exceeding the high of 2015 on a total return basis.  The Company also borrows in Yen to invest in stocks and this decision was helpful to performance given the strong absolute return in Yen.  The Yen weakened 4.4% against Sterling to ¥141.8 per £1, slightly reducing the return in Sterling.  Last year's concerns surrounding the potential for a significant Chinese slowdown failed to materialise, global stock markets generally progressed upwards and Japan is increasingly seen as a haven of relative stability.

As in last year's report the portfolio is grouped into four different styles of growth to reflect our decision-making 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 however are companies where growth is less rapid but more predictable, whilst those categorised as special situations are companies whose recent performance has not been good but we see a reason to believe that improvements are underway.  The cyclical growth stocks are those whose earnings do not rise every year but where we expect the earnings to be higher from one cycle to the next.  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 rather than positions taken on industrial sectors so we think it is most meaningful to list the top ten and bottom ten contributors to performance over one and five years rather than showing performance by sector.  There are several general points worth noting.  First, we pay no attention to the index when deciding which investments to hold, preferring to maximise returns by only investing in companies in which we have genuine conviction.  These are often medium or smaller-sized companies where it is easier to see rapid growth.  Second, due to the asymmetric nature of stock returns a good idea can do much more to help returns than a bad idea can hinder them.  Over one year the best performing stock (Yaskawa Electric) delivered double the performance than the worst (M3) subtracted.  Over five years the difference rises to over three times.  It is important therefore for us to focus on the upside potential of individual stocks and to stay the course when we have found a good idea.  Mistakes are inevitable but over the long-haul we believe that this approach of holding on to winning stocks is the one that will benefit shareholders the most.  Finally, the returns have come from a diverse range of companies - including manufacturers, internet businesses, financials and service companies.  This is natural because we are looking for individual growth businesses rather than investing on a sector basis and good companies can be found in many different industries.

In total we bought nine new holdings during the year and sold eight existing holdings.  Turnover was 6% in the last year, low even by our standards.  We are firm believers that if a growth business is performing well it is difficult to replace.  Furthermore, the issuance of shares allowed an element of re-shaping the portfolio without needing to sell anything. 

One emerging area of opportunity is healthcare, where we took three new holdings during the year.  The first, Cyberdyne, has commercialised an exoskeleton designed to help patients rehabilitate following brain injury such as stroke.  The second, Peptidream, has developed a library of synthetic peptides which can be used as direct therapies or to target drugs very specifically.  The third, Healios, is using stem cells to treat age-related macular degeneration which is a serious eye condition that is very difficult to treat.  In each case the company is harnessing new technologies to create innovative solutions that have very large addressable opportunities. 

We continue to find opportunities in automation related businesses taking new holdings in Keyence, a factory automation consultancy, and Monotaro, which sells a wide variety of maintenance, repair and operation products to small businesses.  These join the new purchases made last year in the same area of Nidec, the precision motor manufacturer, and Topcon, the global position system.  Again the scale of the potential opportunity for such businesses remains very large and investing in Japan we are fortunate to have many good quality businesses to choose from.  

Investment Environment

Japan has made major corporate governance improvements over the past several years, driven by the launch of the Stewardship Code in 2014 and the Corporate Governance code in 2015.  In general companies have been paying more attention to shareholder returns with dividends continuing to grow and share buybacks remaining at similar levels.  The Company has seen the benefits of this change, with investment income growing 19.6% from the previous year to reach £8.5m.  We continue to believe that many of the companies that we invest in have the ability to grow dividends faster than earnings over the long-term. 

Japan's domestic economy continues to perform well, enjoying 6 consecutive quarters of positive growth, the longest such streak in over a decade. Both domestic consumption and corporate spending on capex have been key contributors to domestic growth. The labour market remains very tight with the unemployment rate below 3% and the jobs-to-applicants ratio has now exceeded levels seen during Japan's economic bubble era. This is also beginning to put considerable upward pressure on wages which is likely to have positive implications for domestic consumption.  Recently, Mr Abe has decided to call an early election with a view to extending his mandate.  Meanwhile the strength of overseas demand has continued, being felt especially keenly in areas such as robotics which seem to be in a period of secular growth. 

Where might the challenges come from?  A global slowdown would reduce demand for Japanese exports, as would any trade dispute between the US and China that reduced total demand given that they are Japan's two most significant export markets.  There continues to be the potential for geopolitical difficulties around Japan, with North Korea of particular concern.  Moreover, it is a simple fact that the stock market has made considerable progress since the dark days around the global financial crisis. 

Outlook

We believe that there are significant opportunities available to long-term stock pickers in Japan.  In areas such as the internet, automation and healthcare, rapid development is taking place and this gives the opportunity for dynamic businesses to prosper.  We will continue to strive to identify businesses with exciting growth opportunities and to purchase shares in them for your Company. 

Baillie Gifford

September 2017

For a definition of terms see Glossary of Terms, note 12.

Past performance is not a guide to future performance.

Equity Portfolio by Growth Category

As at 31 August 2017

Secular Growth*	% of total assets			Growth   Stalwarts*	% of total assets			Special  Situations*	% of total assets			Cyclical Growth*	% of total assets
SoftBank		3.6		Nitori Mitsubishi UFJ Lease   & Finance Park24 Fukuoka Financial Sawai Pharmaceutical    Secom		1.9 1.2 1.0 0.8 0.7 0.6		Sony		2.1		Persol Holdings Itochu Toyo Tire & Rubber Nifco Mitsubishi Electric Sumitomo Mitsui Trust Disco Iida Group Sumitomo Metal Mining Murata Manufacturing Nippon Electric Glass Mazda Motor Isuzu Motors Suruga Bank Takara Leben Advantest Invincible Investment	2.6 2.2 1.8 1.6 1.5 1.3 1.3 1.3 1.2 1.2 1.1 1.1 1.1 1.0 1.0 1.0 0.9
Yaskawa Electric		3.2						Hikari Tsushin		2.0
Start Today		3.0						Tokyo Tatemono		1.4
Misumi Group		2.8						Renesas Electronics		0.6
IRISO Electronics		2.6						Colopl		0.4
Outsourcing		2.6
Rakuten		2.4
Pigeon		2.3
Sysmex		2.2
CyberAgent		2.1
Kubota		2.0
Nidec		1.9
SMC		1.9
GMO Internet		1.9
H.I.S.		1.9
Inpex		1.9
Japan Exchange Group		1.8
Fanuc		1.8
Don Quijote		1.8
M3		1.8
SBI		1.6
Subaru		1.6
Shimadzu		1.6
Recruit Holdings		1.4
Toyota Tsusho		1.3
Lifull		1.2
Topcon		1.1
Digital Garage		0.8
Asics		0.8
Broadleaf		0.7
Keyence		0.7
Peptidream		0.7
iStyle		0.7
Infomart		0.6
Kakaku.com		0.5
Nippon Ceramic		0.4
Cyberdyne		0.4
Cookpad		0.4
SanBio		0.4
MonotaRO		0.3
Wirelessgate		0.3
Healios K.K.		0.3
Total		63.3		Total		6.2		Total		6.5		Total	23.2

*A definition of growth categories can be found in the Managers' Report.

Stock Level Attribution

Top Ten Relative Stock Attribution Year to 31 August 2017

Bottom Ten Relative Stock Contributors Year to 31 August 2017

Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %
Yaskawa Electric	2.7	0.1	1.6		M3	2.6	0.1	(0.7)
Start Today	2.8	0.1	1.6		Takara Leben	1.6	-	(0.7)
Outsourcing	2.2	-	1.1		GMO Internet	2.4	-	(0.7)
IRISO Electronics	2.3	-	0.9		Rakuten	3.0	0.3	(0.7)
Toyota Motor	-	3.5	0.7		Sysmex	2.9	0.2	(0.5)
Misumi Group	2.9	0.1	0.7		Asics	1.2	0.1	(0.5)
Pigeon	2.5	0.1	0.6		Park24	1.5	0.1	(0.5)
Nitori	2.1	0.3	0.5		Subaru	2.4	0.6	(0.4)
Disco	1.4	0.1	0.4		Mazda Motor	1.5	0.2	(0.3)
Toyo Tire & Rubber	2.1	-	0.4		Cookpad	0.7	-	(0.3)

Top Ten Relative Stock Contributors 5 years to 31 August 2017

Bottom Ten Relative Stock Contributors 5 years to 31 August 2017

Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average) weight) %	Index (average weight) %	Contribution %
Subaru	3.2	0.6	3.8		Endo Lighting	0.3	-	(1.2)
Start Today	1.9	0.1	3.0		Sumitomo Mitsui Trust	1.7	0.5	(1.2)
IRISO Electronics	2.2	-	2.7		Gree	0.4	-	(1.1)
Yaskawa Electric	2.4	0.1	2.7		Inpex	1.8	0.4	(1.1)
Outsourcing	0.9	-	2.5		Aeon Mall	1.0	0.1	(0.8)
Japan Exhange Group	2.6	0.2	2.4		Lifenet Insurance	0.2	-	(0.8)
Persol Holdings	2.5	-	2.4		Hitachi High-Technologies	0.2	0.1	(0.7)
Pigeon	2.0	0.1	2.2		Rakuten	2.8	0.2	(0.6)
Toyo Tire & Rubber	2.5	-	2.1		Yamada Denki	0.3	0.1	(0.6)
Misumi Group	2.6	0.1	1.8		EPS	0.4	-	(0.6)

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 2017

>10 years	% of total assets			5-10 years	% of total assets			2-5 years	% of total assets			<2 years	% of total assets
Misumi Group	2.8			Yaskawa Electric	3.2			SoftBank	3.6			Nidec	1.9
IRISO Electronics	2.6			Start Today	3.0			Outsourcing	2.6			Murata Manufacturing	1.2
Persol Holdings	2.6			Pigeon	2.3			CyberAgent	2.1			Topcon	1.1
Rakuten	2.4			Hikari Tsushin	2.0			Sony	2.1			Takara Leben	1.0
Itochu	2.2			Kubota	2.0			Fanuc	1.8			Invincible Investment	0.9
Sysmex	2.2			Nitori	1.9			Recruit Holdings	1.4			Keyence	0.7
SMC	1.9			GMO Internet	1.9			Sumitomo Mitsui Trust	1.3			Peptidream	0.7
H.I.S.	1.9			Japan Exchange Group	1.8			Toyota Tsusho	1.3			iStyle	0.7
Inpex	1.9			Toyo Tire & Rubber	1.8			Iida Group	1.3			Infomart	0.6
Don Quijote	1.8			M3	1.8			Sumitomo Metal Mining	1.2			Renesas Electronics	0.6
Shimadzu	1.6			SBI	1.6			Nippon Electric Glass	1.1			Secom	0.6
Mitsubishi Electric	1.5			Nifco	1.6			Mazda Motor	1.1			Colopl	0.4
Tokyo Tatemono	1.4			Subaru	1.6			Advantest	1.0			Nippon Ceramic	0.4
Mitsubishi UFJ Lease & Finance	1.2			Disco	1.3			Park24	1.0			Cyberdyne	0.4
Total	28.0			Lifull	1.2			Broadleaf	0.7			MonotaRO	0.3
				Isuzu Motors	1.1			Sawai Pharmaceutical	0.7			Wirelessgate	0.3
				Suruga Bank	1.0			Cookpad	0.4			Healios K.K.	0.3
				Fukuoka Financial	0.8			SanBio	0.4			Total	12.1
				Digital Garage	0.8			Total	25.1
				Asics	0.8
				Kakaku.com	0.5
				Total	34.0							Stocks bought within the past year.

List of Investments as at 31 August 2017

Name

Business

Value £'000

% of  total assets

Absolute† Performance %

Relative† Performance %

SoftBank	Telecom operator and technology investor	23,586	3.6	26.8	6.8
Yaskawa Electric	Robots and factory automation	21,133	3.2	110.8	77.5
Start Today	Internet fashion retailer	20,033	3.0	105.8	73.3
Misumi Group	Precision machinery parts distributor	18,571	2.8	50.3	26.6
IRISO Electronics	Specialist auto connectors	17,334	2.6	70.9	43.9
Outsourcing	Employment placement services	17,191	2.6	80.5	52.0
Persol Holdings	Employment and outsourcing services	17,173	2.6	30.1	9.6
Rakuten	Internet retail and financial services	15,525	2.4	(4.0)	(19.2)
Pigeon	Baby care products	15,227	2.3	49.7	26.1
Itochu	Trading conglomerate	14,247	2.2	45.2	22.3
Sysmex	Medical equipment	14,194	2.2	(2.3)	(17.7)
CyberAgent	Internet advertising and content	14,084	2.1	23.3	3.8
Sony	Consumer electronics, films and finance	14,006	2.1	25.2	5.4
Hikari Tsushin	Entrepreneurial sales organisation	13,234	2.0	35.9	14.5
Kubota	Agricultural machinery	13,023	2.0	21.6	2.4
Nidec	Specialist motors	12,827	1.9	28.9	8.5
SMC	Pneumatic control equipment	12,790	1.9	24.6	5.0
Nitori	Furniture retail chain	12,775	1.9	55.5	31.0
GMO Internet	Internet conglomerate	12,468	1.9	(7.8)	(22.4)
H.I.S.	Travel agency and theme parks	12,311	1.9	42.9	20.4
Inpex	Oil and gas producer	12,269	1.9	13.3	(4.6)
Japan Exchange Group	Stock Exchange operator	12,150	1.8	13.5	(4.4)
Toyo Tire & Rubber	Tyre manufacturer	11,972	1.8	42.4	19.9
Fanuc	Robotics manufacturer	11,887	1.8	17.6	(1.0)
Don Quijote	Discount store operator	11,693	1.8	18.6	(0.1)
M3	Online medical database	11,604	1.8	(11.5)	(25.5)
SBI	Online broker and venture capital investor	10,882	1.6	22.4	3.1
Nifco	Value-added plastic car parts	10,656	1.6	18.1	(0.6)
Subaru	Car manufacturer	10,512	1.6	(7.3)	(22.0)
Shimadzu	Environmental testing equipment	10,403	1.6	20.5	1.4
Mitsubishi Electric	Industrial electronic conglomerate	9,947	1.5	17.1	(1.4)
Recruit Holdings	Property, lifestyle and jobs media	9,358	1.4	61.1	35.7
Tokyo Tatemono	Property leasing and development	9,312	1.4	8.2	(8.8)
Sumitomo Mitsui Trust	Trust bank and investment manager	8,754	1.3	1.2	(14.8)
Toyota Tsusho	Markets automobiles and other products,   Africa focus	8,557	1.3	39.7	17.6
Disco	Specialist cutting for semiconductors	8,547	1.3	64.5	38.6
Iida Group	House builder	8,340	1.3	(5.4)	(20.4)
Lifull	Real estate website	7,983	1.2	22.6	3.2
Sumitomo Metal Mining	Smelting and copper, nickel and gold mining	7,670	1.2	38.8	16.9
Murata Manufacturing	Electrical components	7,611	1.2	18.5	(0.2)
Mitsubishi UFJ Lease &   Finance	Leasing company	7,606	1.2	11.9	(5.8)
Topcon	GPS systems	7,246	1.1	38.6	16.7
Nippon Electric Glass	Flat panel display glass manufacturer	7,204	1.1	57.1	32.3
Mazda Motor	Car manufacturer	7,116	1.1	(7.5)	(22.1)
Isuzu Motors	Lorries and pick-up trucks	6,979	1.1	17.8	(0.8)
Suruga Bank	Specialist regional bank	6,730	1.0	(8.0)	(22.5)

Takara Leben	Condominium builder and solar power                      operator	6,577	1.0	(22.9)	(35.0)
Advantest	Semiconductor testing devices	6,462	1.0	14.5	(3.6)
Park24	Parking, car hire and sharing	6,284	1.0	(15.2)	(28.6)
Invincible Investment	Real estate investment trust	5,664	0.9	1.2*	(1.6)*
Fukuoka Financial	Leading regional bank	5,259	0.8	7.9	(9.2)
Digital Garage	Internet business investor	5,028	0.8	21.2	2.1
Asics	Sports shoes and clothing	4,970	0.8	(23.9)	(35.9)
Broadleaf	Proprietary car repair database	4,787	0.7	51.0	27.2
Keyence	Manufacturer of sensors	4,764	0.7	69.2*	54.1*
Peptidream	Biotech company	4,730	0.7	38.0*	33.4*
Sawai Pharmaceutical	Generic pharmaceuticals	4,577	0.7	(14.2)	(27.8)
iStyle	Beauty product review website	4,337	0.7	(7.1)	(21.7)
Informart	Internet platform for restaurant supplies	3,964	0.6	58.2	33.3
Renesas Electronics	Electronic components & semiconductors	3,787	0.6	33.8*	34.0*
Secom	Security services	3,718	0.6	(6.6)*	(7.0)*
Kakaku.com	Price comparison and restaurant review   website	3,379	0.5	(23.2)	(35.3)
Colopl	Smartphone gaming and virtual reality (VR)	2,867	0.4	20.6*	16.6*
Nippon Ceramic	Semiconductor devices	2,777	0.4	46.6	23.5
Cyberdyne	Medical exoskeletons	2,759	0.4	(8.9)*	(15.8)*
Cookpad	Recipe website	2,753	0.4	(28.1)	(39.5)
SanBio	Stem cell based stroke treatment	2,337	0.4	7.6	(9.4)
MonotaRO	Online business supplies	2,325	0.3	(8.9)*	(9.8)*
Wirelessgate	Wireless communication services	2,026	0.3	(20.0)	(32.6)
Healios K.K.	Regenerative medicine	1,746	0.3	(23.4)*	(26.3)*
Total Investments		652,597	99.2
Net Liquid Assets		5,124	0.8
Total Assets		657,721	100.0
Bank Loans		(82,500)	(12.5)
Shareholders' Funds		575,221	87.5

†    Absolute and relative performance has been calculated on a total return basis over the period 1 September 2016 to 31 August 2017. 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.

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

- the movement in net asset value per ordinary share compared to the benchmark;

- the movement in the share price;

- the premium/discount of the share price to the net asset value per share; and

- the ongoing charges.

An explanation of these measures can be found in the Glossary of Terms, note 12.

The one, five and ten year records for the KPIs can be found on pages 4 to 6 of the Annual Report and Financial Statements.

In addition to the above, the Board considers peer group comparative performance.

Future Developments of the Company

The outlook for the Company for the next 12 months is set out in the Chairman's Statement and the Managers' Report above.

Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 29 of the Annual Report and Financial Statements. No Director has a contract of service with the Company.

Investment Management Fee

An Investment Management Agreement between the Company and Baillie Gifford & Co Limited sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Management Agreement is terminable on not less than 6 months' notice or on shorter notice in certain circumstances. Compensation would only be payable if termination occurred prior to the expiry of the notice period. Careful consideration has been given by the Board as to the basis on which the management fee is charged. The Board considers that maintaining a relatively low ongoing charges ratio is in the best interests of the shareholders. The Board is also of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence over the long term performance. The 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.The details of the management fee are as follows:

	2017 £'000		2016 £'000
Investment management fee	3,179		2,572

Principal Risks

As explained on page 25 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Directors have carried out a robust assessment of the principal risk facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk - The Company's assets consist of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 17 to the Financial Statements on pages 46 to 49 of the Annual Report and Financial Statements. To mitigate this risk the Board considers at each meeting various portfolio metrics including individual stock performance, the composition and diversification of the portfolio by growth category, purchases and sales of investments, the holding period of each investment and the top and bottom contributors to performance. The Manager provides rationale for stock selection decisions. A strategy meeting is held annually.

Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their Net Asset Value. To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to Net Asset Value at which the shares trade; and movements in the share register.

Discount Risk - the discount/premium at which the Company's shares trade relative to its Net Asset Value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. The Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed to be in the best interests of the Company and its shareholders.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber hacking. To mitigate this risk, the Audit Committee receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Smaller Company Risk - the Company has investments in smaller companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller companies may do less well in periods of unfavourable economic conditions. To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the investment case and portfolio weightings with the Managers. A spread of risk is achieved by holding a minimum of 40 stocks.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.

Leverage Risk - the Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The Company's investments are in listed securities that are readily realisable. Further information on leverage can be found below and in the Glossary of Terms, note 12.

The Company's maximum and actual leverage levels, in accordance with the Alternative Investment Fund Managers Directive, at 31 August 2017 are shown below:

			Gross method	Commitment method
Maximum limit			2.50:1	2.00:1
Actual			1.14:1	1.14:1

Political Risk - political developments are closely monitored and considered by the Board. The Board has noted the results of the UK Referendum on continuing membership of the European Union. Whilst there is considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.

Viability Statement

Notwithstanding that the continuation vote of the Company is subject to the approval of shareholders annually, the Directors have, in accordance with provision C2.2 of the UK Corporate Governance Code, assessed the prospects of the Company over a period of five years. The Directors continue to believe this period to be appropriate as it reflects the Company's longer term investment strategy and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the effectiveness of the controls employed to mitigate those risks. Furthermore, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a period of five years.

In considering the viability of the Company, the Directors have conducted a robust assessment of each of the principal risks and uncertainties detailed above and in particular the impact of market risk where a significant fall in Japanese equity markets would adversely impact the value of the investment portfolio. The Company's investments are listed and readily realisable and can be sold to meet its liabilities as they fall due, the main liability currently being the bank borrowings. The Directors have also considered the Company's leverage and liquidity in the context of the unsecured fixed term ¥7.2bn loan facility expiring in 2020 and the unsecured revolving ¥4.5bn loan facilities expiring in 2017 and 2020. In addition, all of the key operations required by the Company are outsourced to third party service providers and it is reasonably considered that alternative providers could be engaged at relatively short notice.

Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Going Concern

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 17 of the Annual Report and  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. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. If the continuation resolution is not passed, the Articles provide that the Directors shall convene a General Meeting within three months at which a special resolution will be proposed to wind up the Company voluntarily. If the Company is wound up, its investments may not be realised at their full market value.

Financial Instruments

The Company invests in medium to smaller sized Japanese companies and makes other investments so as to achieve its investment objective of long term capital growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests and could result in a reduction in the Company's net assets.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Manager assesses the exposure to market risk when making individual investment decisions as well as monitoring the overall level of market risk across the investment portfolio on an ongoing basis. Details of the Company's investment portfolio are shown above.

(i) Currency Risk

The Company's assets, liabilities and income are principally denominated in yen. The Company's functional currency and that in which it reports its results is sterling. Consequently, movements in the yen/sterling exchange rate will affect the sterling value of those items.

The Investment Manager monitors the Company's yen exposure (and any other overseas currency exposure) and reports to the Board on a regular basis. The Investment Manager assesses the risk to the Company of the overseas currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the currency in which a company's share price is quoted is not necessarily the one in which it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the share price of the company is quoted.

Yen borrowings are used periodically to limit the Company's exposure to anticipated future changes in the yen/sterling exchange rate which might otherwise adversely affect the value of the portfolio of investments. The Company has the authority to use forward currency contracts to limit the Company's exposure if it so chooses to anticipated future changes in exchange rates so that the currency risks entailed in holding the assets are mainly eliminated. No forward currency contracts have been used in the current or prior year.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 31 August 2017	Investments £'000		Cash and cash equivalents £'000		Bank loans £'000		Other debtors and creditors* £'000		Net exposure £'000
Yen	652,597		9,789		(82,500)		(4,556)		575,330
Total exposure to   currency risk	652,597		9,789		(82,500)		(4,556)		575,330
Sterling	-		796		-		(905)		(109)
	652,597		10,585		(82,500)		(5,461)		575,221

*    Includes net non-monetary assets of £29,000.

At 31 August 2016	Investments £'000		Cash and cash equivalents £'000		Bank loans £'000		Other debtors and creditors* £'000		Net exposure £'000
Yen	498,419		2,414		(75,294)		163		425,702
Total exposure to      currency risk	498,419		2,414		(75,294)		163		425,702
Sterling	-		59		-		(764)		(705)
	498,419		2,473		(75,294)		(601)		424,997

* Includes net non-monetary assets of £21,000.

Currency Risk Sensitivity

At 31 August 2017, if sterling had strengthened by 10% against the yen, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have decreased by £63,926,000 (2016 - £47,222,000). If there had been a 10% weakening of sterling against the yen, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have increased by £52,303,000 (2016 - £38,636,000).

(ii) Interest Rate Risk

Interest rate movements may affect the level of income receivable on cash deposits. They may also impact upon the market value of the Company's investments as the effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and the income receivable on cash deposits.

The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

The interest rate risk profile of the Company's interest bearing financial assets and liabilities at 31 August 2017 is shown below.

Financial Assets

Cash deposits generally comprise overnight call or short term money market deposits and earn interest at floating rates based on prevailing bank base rates.

Financial Liabilities

The interest rate risk profile of the Company's loans at 31 August was:

	2017			2016
	Book value £'000	Weighted average interest rate	Weighted average period until maturity	Book value £'000	Weighted average interest rate	Weighted average period until maturity
Bank Loans:
Yen denominated	82,500	1.9%	24 months	75,294	2.0%	36 months

Interest Rate Risk Sensitivity

An increase of 100 basis points in interest rates, with all other variables held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 August 2017 by £293,000 (2016 - £246,000). This is mainly due to the Company's exposure to interest rates on its revolving bank loans. A decrease of 100 basis points would have had an equal but opposite effect. The Company does not hold bonds.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 8 of the Annual Report and Financial Statements.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index, investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.

Other Price Risk Sensitivity

A full list of the Company's investments and various analyses of the portfolio by growth category, length of time held, industrial sector and exchange listing are shown above. 113.5% (2016 - 117.3%) of the Company's net assets are invested in Japanese quoted equities. A 10% increase in quoted equity valuations at 31 August 2017 would have increased total net assets and net return on ordinary activities after taxation by £65,260,000 (2016 - £49,842,000). A decrease of 10% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are in investments that are readily realisable.

The Board provides guidance to the Investment Managers as to the maximum exposure to any one holding (see Investment Policy on page 7 of the Annual Report and Financial Statements).

The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's borrowing facilities are detailed in note 11 of the Annual Report and Financial Statements.

The maturity profile of the Company's financial liabilities at 31 August was:

	2017 £'000	2016 £'000
In less than one year In more than two years, but not more than five years	31,731 50,769	22,145 53,149
	82,500	75,294

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

- where the Investment Manager makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

- the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to Bank of New York Mellon SA/NV London Branch. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

- investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

- the creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Manager; and

- cash is only held at banks that are regularly reviewed by the Investment Manager.

Credit Risk Exposure

The exposure to credit risk at 31 August was:

	2017 £'000	2016 £'000
Cash and cash equivalents	10,585	2,473
Debtors	759	1,909
	11,344	4,382

None of the Company's financial assets are past due or impaired.

Fair Value of Financial Assets and Financial Liabilities

The Company's investments are stated at fair value and the Directors are of the opinion that the reported values of the Company's other financial assets and liabilities approximate to fair value with the exception of the long term borrowings which are stated at amortised cost. The fair value of borrowings is shown below.

	2017		2016
	Book Value £'000	Fair* Value £'000	Book Value £'000	Fair* Value £'000
Yen bank loans	76,051	82,500	75,294	79,338

* The fair value of each bank loan is calculated with reference to a Japanese government bond of comparable yield and maturity.

Capital Management

The Company does not have any externally imposed capital requirements other than the loan covenants detailed in note 11 on page 44 of the Annual Report and Financial Statements. The capital of the Company is the ordinary share capital as detailed in note 12 of the Annual Report and Financial Statements. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 7 of the Annual Report and Financial Statements, and shares may be repurchased or issued as explained on page 22 of the Annual Report and Financial Statements.

Fair Value of Financial Instruments

The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit or loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly  

observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The valuation techniques used by the Company are explained in the accounting policies on page 40 of the Annual Report and Financial Statements.

The financial assets designated as valued at fair value through profit or loss are all categorised as Level 1 in the above hierarchy. None of the financial liabilities are designated at fair value through profit or loss in the Financial Statements.

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards, comprising Financial Reporting Standard 102 the Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing these Financial Statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and accounting estimates that are reasonable and prudent;

- state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements;

- prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Management section confirm that, to the best of their knowledge:

- the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;

- the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Nick AC Bannerman

23 October 2017

 

Income Statement

	For the year ended 31 August 2017			For the year ended 31 August 2016
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	111,160	111,160	-	102,266	102,266
Currency gains/(losses) (note 2)	-	2,997	2,997	-	(18,277)	(18,277)
Income (note 3)	8,480	-	8,480	7,090	-	7,090
Investment management fee (note 4)	(3,179)	-	(3,179)	(2,572)	-	(2,572)
Other administrative expenses	(592)	-	(592)	(523)	-	(523)
Net return before finance costs and taxation	4,709	114,157	118,866	3,995	83,989	87,984
Finance costs of borrowings	(1,626)	-	(1,626)	(1,463)	-	(1,463)
Net return on ordinary activities before taxation	3,083	114,157	117,240	2,532	83,989	86,521
Tax on ordinary activities	(848)	-	(848)	(709)	-	(709)
Net return on ordinary activities after taxation	2,235	114,157	116,392	1,823	83,989	85,812
Net return per ordinary share (note 6)	2.80p	142.75p	145.55p	2.35p	108.24p	110.59p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital returns 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 as at 31 August

	2017		2016
	£'000	£'000	£'000	£'000
Fixed assets Investments held at fair value through profit or loss		652,597		498,419
Current assets
Debtors	788		1,930
Cash and cash equivalents	10,585		2,473
	11,373		4,403
Creditors Amounts falling due within one year (note 7)	(37,980)		(24,676)
Net current liabilities		(26,607)		(20,273)
Total assets less current liabilities		625,990		478,146
Creditors: Amounts falling due after more than one year (note 7)		(50,769)		(53,149)
Net assets		575,221		424,997
Capital and reserves
Share capital		4,194		3,937
Share premium account		122,698		89,123
Capital redemption reserve		203		203
Capital reserve		449,885		335,728
Revenue reserve		(1,759)		(3,994)
Shareholders' funds		575,221		424,997
Net asset value per ordinary share (after deducting borrowings at fair value)		682.4p	534.6p
Net asset value per ordinary share (after deducting borrowings at par value)		685.8p	539.8p
Ordinary shares in issue (note 9)		83,879,925	78,734,925

 

Statement of Changes in Equity

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

For the year ended 31 August 2016

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2015	3,756	73,272	203	251,739	(5,817)	323,153
Shares issued	181	15,851	-	-	-	16,032
Net return on ordinary activities after taxation	-	-	-	83,989	1,823	85,812
Shareholders' funds at 31 August 2016	3,937	89,123	203	335,728	(3,994)	424,997

* The capital reserve balance as at 31 August 2017 includes investment holding gains of £334,842,000 (2016 - £235,319,000).

 

Cash Flow Statement

	For the year ended 31 August 2017			For the year ended 31 August 2016
	£'000	£'000		£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	117,240			86,521
Net gains on investments	(111,160)			(102,266)
Currency (gains)/losses	(2,997)			18,277
Finance cost of borrowings	1,626			1,463
Overseas withholding tax	(834)			(675)
Changes in debtors and creditors	(3)			(153)
Cash from operations		3,872			3,167
Interest paid		(1,611)			(1,407)
Net cash inflow from operating activities		2,261			1,760
Cash flows from investing activities
Acquisitions of investments	(73,979)			(51,366)
Disposals of investments	35,795			25,014
Exchange differences on settlement of investment transactions	(46)			615
Net cash outflow from investing activities		(38,230)			(25,737)
Cash flows from financing activities
Shares issued	33,832			16,032
Bank loans drawn down	10,360			-
Net cash inflow from financing activities		44,192			16,032
Increase/(decrease) in cash and cash equivalents		8,223			(7,945)
Exchange movements		(111)			1,676
Cash and cash equivalents at start of period		2,473			8,742
Cash and cash equivalents at end of period*		10,585			2,473

* 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 2017 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.  The Company has already adopted the amendments to Section 34 of FRS102 regarding fair value hierarchy disclosures. In accordance with the Company's Articles of Association, shareholders have the right to vote annually at the Annual General Meeting on whether to continue the Company. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these financial statements. If the continuation resolution is not passed, the Articles provide that the Directors shall convene a General Meeting within three months at which a special resolution will be proposed to wind up the Company voluntarily. If the Company is wound up, its investments may not be realised at their full market value.
						31 August 2017 £'000			31 August 2016 £'000
2.	Currency Gains/(Losses)
	Exchange differences on bank loans					3,154			(20,568)
	Other exchange differences on cash					(157)			2,291
						2,997			(18,277)
3.	Income					31 August 2017 £'000			31 August 2016 £'000
	Income from investments					8,480			7,090
4.	Investment Management Fee - all charged to revenue					31 August 2016 £'000			31 August 2015 £'000
	Investment Management Fee					3,179			2,572
	With effect from 1 September 2016 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. Prior to 1 September 2016, the fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net assets.
5.	No final dividend will be declared.
6.	Net Return per Ordinary Share
		2017					2016
		Revenue	Capital	Total			Revenue	Capital		Total
	Net return on ordinary activities    after taxation	2.80p	142.75p	145.55p			2.35p	108.24p		110.59p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £2,235,000 (2016 - £1,823,000), and on 79,968,404 (2016 - 77,592,006) 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 £114,157,000 (2016 - £83,989,000), and on 79,968,404 (2016 - 77,592,006) ordinary shares, being the weighted average number of ordinary shares in issue during each year There are no dilutive or potentially dilutive shares in issue.

7.	Total borrowings at 31 August 2017 were £82.5m (¥11.7billion), (31 August 2016 - £75.3m (¥10.2billion)). Borrowings of ¥1.5 billion were drawn down during the year fully utilising the five year ¥3.0 billion revolving loan facility with Scotiabank Europe maturing in August 2020.
8.	Transaction costs incurred on the purchase and sale of investments are added to the purchase costs or deducted from the sales proceeds, as appropriate. During the year, transaction costs on purchases amounted to £34,000 (31 August 2016 - £25,000) and transaction costs on sales amounted to £21,000 (31 August 2016 - £15,000).
9.	At 31 August 2017 the Company had authority to buy back 11,802,365 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, 5,145,000 (2016 - 3,613,175) shares were issued at a premium to net asset value raising proceeds of £33,832,000 (2016 - £16,032,000).  Between 1 September 2017 and 20 October 2017, the Company issued a further 1,275,000 shares at a premium to net asset value raising proceeds of £9,214,000.
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2017. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2016 accounts, their report was unqualified and did not contain a statement under sections 495 to 497 of the Companies Act 2006. The statutory accounts for 2017 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
11.	The Annual Report and Financial Statements will be available on the Company's page of the Managers' website www.japantrustplc.co.uk‡ on or around 31 October 2017.
12.	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. Net Liquid Assets Net liquid assets comprise current assets less current liabilities excluding borrowings. Discount/Premium 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.

-ends-

 

END

 

 

FR FDDFSFFWSEES