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RNS

Final Results

Released 07:00 02-Oct-2018

RNS Number : 6115C
Baillie Gifford Japan Trust PLC
02 October 2018
 

RNS Announcement: Preliminary Results

 

The Baillie Gifford Japan Trust PLC

 

Results for the year to 31 August 2018  

 

Legal Entity Identifier: 54930037AGTKN765Y741

 

¾  The main driver of returns was stock picking.

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

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

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

 

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

Source: Thomson Reuters/Baillie Gifford. See disclaimer at the end of this announcement.

 

The Baillie Gifford Japan Trust PLC aims to achieve long term capital growth principally through investment in medium to smaller sized Japanese companies which are believed to have above average prospects for growth. At 31 August 2018, the Company had total assets of £870.6m (before deduction of bank loans of £114.5m).

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

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares. The Trust has borrowed money to make further investments (sometimes known as 'gearing' or 'leverage'). The risk is that when this money is repaid by the Trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the Company will make a loss. If the Trust's investments fall in value, any invested borrowings will increase the amount of this loss. You should view your investment as long term. You can find up to date performance information about The Baillie Gifford Japan Trust PLC on the Company website at www.japantrustplc.co.uk.

1 October 2018

 

 

For further information please contact:

 

Alex Blake - Client Liaison

The Baillie Gifford Japan Trust PLC

Tel: 0131 275 2859

 

Roland Cross, Director,

FourBroadgate Marketing

Tel: 0207 776 0512 or 07831 401309

 

 

 

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

 

Chairman's Statement

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

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

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

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

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

 

Portfolio Management Responsibilities

 

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

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

 

Gearing

 

Gearing amounted to 13% of shareholders' funds at the start of the year and ended the year at 11%. Gross borrowings increased to Y16.5bn (2017 - Y11.7bn), while the sterling value of these loans in the balance sheet rose to £114.5m at the year end (2017 - £82.5m). Given the very low cost of yen loans and the positive contribution of gearing to performance during the year, we continue to believe that borrowing to invest in Japanese equities is a sensible strategy.

 

Dividend

 

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

 

Share Capital

 

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

During the year to 31 August 2018, 6.6m shares were issued at a premium to net asset value raising proceeds of £53.1m, continuing the trend of recent years. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting and we will continue to issue shares only when at a premium to net asset value. This authority will expire at the conclusion of the Annual General Meeting in 2019.

 

Continuation Vote

 

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

Last year, the Company again received support for its continuation. Your Directors still believe there remain attractive opportunities in selected, well-run Japanese companies benefiting the long-term favourable outlook for the Japan Trust. To that end, my fellow Directors and I intend, where possible, to vote our own shareholdings in favour of the resolution and hope that all shareholders will feel disposed to do likewise.

 

Board

 

Your Board is committed to high standards of corporate governance. In particular, it recognises the need to have a balance of skills, experience and length of service, all of which forms part of our succession planning discussions during Nomination Committee meetings. Given the above, it also believes that membership of the Board should be refreshed over time and to that end, after 12 years of excellent service, Paul Dimond CMG is standing down at the AGM.  Following a robust recruitment process earlier in the year, we were delighted to welcome Joanna Pitman to the Board. Her Japanese experience and knowledge will undoubtedly be of great benefit to the Company in the years ahead.

 

Outlook

 

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

 

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

 

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

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

 

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

 

 

 

 

 

Nick AC Bannerman

Chairman

1 October 2018

 

 

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

 

Past performance is not a guide to future performance.

 

 

Managers' Report

 

Philosophy

 

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

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

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

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

 

Performance

 

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

The Company's total assets increased to just over £870m, a rise of over £200m during the year, due to a combination of outperformance, a strong TOPIX and share issuance.  A larger trust will be of benefit to shareholders as fixed costs are spread over a broader base and due to the tiered fee structure a larger proportion of the assets are charged a lower fee.  Consequently ongoing charges fell from 0.78% last year to 0.73% this year.   

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

As in last year's report, the portfolio is grouped into four different styles of growth to reflect our process.  Each of these styles offer different risks and opportunities.  Secular growth, the largest part of the portfolio, includes companies that we feel have an opportunity to grow rapidly but where there are a number of potential outcomes.  Growth stalwarts are companies where growth is less rapid but more predictable, whilst those categorised as special situations are companies whose recent performance has not been good but where we see a reason to believe that improvements are underway.  The cyclical growth stocks are those whose earnings do not rise every year but where we expect the earnings to be higher from one cycle to the next.  The mix of the four different styles of growth will change somewhat over the years but it seems inevitable that our positive approach to investing will result in a high weighting towards secular growth. 

Performance is primarily driven by individual company share prices so we think it is most meaningful to list the top ten and bottom ten contributors to performance over one and five years.  Once again we can see the asymmetric nature of stock returns; which means that a good idea can do much more to help returns than a bad idea can hinder them.  Over the last year the largest contributor to performance (SBI) delivered more than double the performance that the worst (Rakuten) subtracted.  Over five years each of the top ten contributors individually delivered more performance than the worst subtracted.  Therefore we continue to believe that it is important for us to focus on the upside potential of individual stocks and stay the course when we have found a good idea. 

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

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

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

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

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

 

Investment Environment

 

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

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

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

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

 

Outlook

 

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

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

 

Baillie Gifford

October 2018

 

 

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

 

Past performance is not a guide to future performance.

 

 

Equity Portfolio by Growth Category

As at 31 August 2018

 

Secular

Growth*

% of

total assets

 

 

Growth

Stalwarts*

% of

total assets

 

 

Special

Situations*

% of

total

assets

 

 

Cyclical

Growth*

% of

total assets

SBI

3.6

Nitori

1.4

SoftBank

5.7

Persol Holdings

2.2

Outsourcing

3.0

Zenkoku Hosho

1.4

Sony

2.3

Itochu

1.7

CyberAgent

2.8

Park24

1.3

Tokyo Tatemono

1.3

Sumitomo Mitsui Trust

1.7

Start Today

2.7

Fukuoka Financial

0.9

Renesas Electronics

0.7

Disco

1.5

M3

2.5

Mitsubishi UFJ Lease &

  Finance

 

0.6

JAFCO

0.5

Murata Manufacturing

1.5

Sysmex

2.5

Colopl

0.3

Nifco

1.5

Rakuten

2.5

Asics

0.6

 

 

Mitsubishi Electric

1.4

Inpex

2.3

Sawai Pharmaceutical

0.5

 

 

Toyo Tire & Rubber

1.4

Kubota

2.2

Secom

0.5

 

 

Advantest

1.1

Misumi Group

2.1

 

 

 

 

Sumitomo Metal Mining

1.1

Recruit Holdings

2.1

 

 

 

 

Iida Group

1.0

Yaskawa Electric

2.1

 

 

 

 

Isuzu Motors

0.9

GMO Internet

2.0

 

 

 

 

Invincible Investment

0.8

Nidec

2.0

 

 

 

 

Katitas

0.6

Shimadzu

1.9

 

 

 

 

Mazda Motor

0.6

Don Quijote

1.9

 

 

 

 

 

 

Fanuc

1.7

 

 

 

 

 

 

H.I.S.

1.6

 

 

 

 

 

 

SMC

1.4

 

 

 

 

 

 

Digital Garage

1.3

 

 

 

 

 

 

MonotaRO

1.3

 

 

 

 

 

 

Sato

1.3

 

 

 

 

 

 

iStyle

1.2

 

 

 

 

 

 

SanBio

1.2

 

 

 

 

 

 

Toyota Tsusho

1.1

 

 

 

 

 

 

Broadleaf

1.0

 

 

 

 

 

 

Subaru

1.0

 

 

 

 

 

 

Topcon

0.8

 

 

 

 

 

 

Infomart

0.7

 

 

 

 

 

 

Lifull

0.7

 

 

 

 

 

 

IRISO Electronics

0.6

 

 

 

 

 

 

Keyence

0.6

 

 

 

 

 

 

Noritsu Koki

0.6

 

 

 

 

 

 

Peptidream

0.6

 

 

 

 

 

 

Nippon Ceramic

0.5

 

 

 

 

 

 

Rizap

0.5

 

 

 

 

 

 

Shimano

0.5

 

 

 

 

 

 

Cyberdyne

0.4

 

 

 

 

 

 

Pigeon

0.4

 

 

 

 

 

 

Mercari

0.3

 

 

 

 

 

 

Heleos K.K.

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

59.7

Total

7.2

Total

10.8

Total

19.0


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

 

 

Stock Level Attribution

 

Top Ten Relative Stock Contributors

Year to 31 August 2018

 

 

Bottom Ten Relative Stock Contributors

Year to 31 August 2018

 

 

 

 

 

Name

 

 

 

 

Name

 

SBI

3.2

0.1

1.9

 

Rakuten

1.9

0.2

(0.7)

Katitas

1.1

0.0

1.4

 

Suruga Bank

0.7

0.1

(0.5)

CyberAgent

2.6

0.1

1.2

 

Cyberdyne

0.6

0.0

(0.4)

M3

2.5

0.2

1.0

 

Lifull

1.1

0.0

(0.4)

Digital Garage

2.0

0.0

0.9

 

Toyo Tire & Rubber

1.8

0.0

(0.4)

Outsourcing

3.3

0.0

0.9

 

Renesas Electronics

0.9

0.0

(0.4)

Shimadzu

2.0

0.1

0.7

 

Kubota

2.1

0.4

(0.3)

SanBio

0.8

0.0

0.7

 

Takara Leben

0.5

0.0

(0.2)

iStyle

1.2

0.0

0.7

 

Mazda Motor

0.9

0.2

(0.2)

MonotaRO

0.8

0.1

0.7

 

Subaru

1.4

0.4

(0.2)

 

 

 

Top Ten Relative Stock Contributors

5 years to 31 August 2018

 

 

Bottom Ten Relative Stock Contributors

5 years to 31 August 2018

 

 

 

 

 

Name

 

 

 

 

Name

 

 

Contribution

%

Outsourcing

1.6

0.0

3.5

 

Rakuten

2.7

0.3

(1.4)

Start Today

2.2

0.1

2.8

 

Mazda Motor

1.8

0.3

(1.1)

CyberAgent

2.3

0.1

2.3

 

Tokyo Tatemono

2.0

0.1

(1.1)

IRISO Electronics

2.4

0.0

2.2

 

Modec

0.7

0.0

(0.9)

Yaskawa Electric

2.6

0.1

2.2

 

Aeon Mall

0.6

0.1

(0.8)

Misumi

2.7

0.1

2.2

 

Sumitomo Mitsui Trust

1.9

0.4

(0.8)

SBI

2.3

0.1

2.0

 

Takara Leben

0.7

0.0

(0.6)

Persol Holdings

2.7

0.1

1.9

 

Inpex

1.9

0.3

(0.5)

M3

2.5

0.1

1.9

 

Kakaku.com

0.8

0.1

(0.5)

Sysmex

2.9

0.2

1.8

 

Nintendo

0.0

0.7

(0.5)

Source: StatPro and relevant underlying index providers. Baillie Gifford Japan Trust relative to TOPIX total return, in sterling terms. See disclaimer at the end of this announcement.

 

Holding Period

As at 31 August 2018

 

 

 

 

 

>10 years

 

 

 

 

5-10 years

 

 

 

 

2-5 years

 

 

 

 

<2 years

Sysmex

2.5

 

 

SoftBank

5.7

 

 

Outsourcing

3.0

 

 

Zenkoku Hosho

1.4

Rakuten

2.5

 

 

SBI

3.6

 

 

CyberAgent

2.8

 

 

MonotaRO

1.3

Inpex

2.3

 

 

Start Today

2.7

 

 

Sony

2.3

 

 

Sato

1.3

Persol Holdings

2.2

 

 

M3

2.5

 

 

Recruit Holdings

2.1

 

 

Invincible Investment

0.8

Kubota

2.2

 

 

Yaskawa Electric

2.1

 

 

Nidec

2.0

 

 

Renesas Electronics

0.7

Misumi Group

2.1

 

 

GMO Internet

2.0

 

 

Fanuc

1.7

 

 

Peptidream

0.6

Shimadzu

1.9

 

 

Sumitomo Mitsui Trust

1.7

 

 

Murata Manufacturing

1.5

 

 

Noritsu Koki

0.6

Don Qujote

1.9

 

 

Nifco

1.5

 

 

Park24

1.3

 

 

Keyence

0.6

Itochu

1.7

 

 

Disco

1.5

 

 

SanBio

1.2

 

 

Katitas

0.6

H.I.S.

1.6

 

 

Toyo Tire & Rubber

1.4

 

 

iStyle

1.2

 

 

Secom

0.5

Mitsubishi Electric

1.4

 

 

Nitori

1.4

 

 

Broadleaf

1.0

 

 

JAFCO

0.5

SMC

1.4

 

 

Digital Garage

1.3

 

 

Iida Group

1.0

 

 

Rizap

0.5

Tokyo Tatemono

1.3

 

 

Toyota Tsusho

1.1

 

 

Topcon

0.8

 

 

Shimano

0.5

Mitsubishi UFJ Lease & Finance

0.6

 

 

Sumitomo Metal Mining

1.1

 

 

Infomart

0.7

 

 

Cyberdyne

0.4

IRISO Electronics

0.6

 

 

Advantest

1.1

 

 

Sawai Pharmaceutical

0.5

 

 

Colopl

0.3

Total

26.2

 

 

Subaru

1.0

 

 

Nippon Ceramic

0.5

 

 

Mercari

0.3

 

 

 

 

Fukuoka Financial

0.9

 

 

Total

23.6

 

 

Healios K.K.

0.2

 

 

 

 

Isuzu Motors

0.9

 

 

 

 

 

 

Total

11.1

 

 

 

 

Lifull

0.7

 

 

 

 

 

 

 

 

 

 

 

 

Asics

0.6

 

 

 

 

 

 

 

 

 

 

 

 

Mazda Motor

0.6

 

 

 

 

 

 

 

 

 

 

 

 

Pigeon

0.4

 

 

 

 

 

 

 

 

 

 

 

 

Total

35.8

 

 

 

 

 

 

Stocks bought within the past year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

List of Investments as at 31 August 2018 (unaudited)

 

 

 

Name

 

 

Business

 

Value

£'000

 

% of

total assets

Absolute†

Performance

%

Relative†

Performance

%

SoftBank

Telecom operator and technology investor

49,705

5.7

14.0  

5.7  

SBI

Online financial services

30,953

3.6

103.2  

88.4  

Outsourcing

Employment placement services

26,422

3.0

43.5  

33.1  

CyberAgent

Japanese internet advertising and content

24,364

2.8

74.5 

61.9  

Start Today

Internet fashion retailer

23,689

2.7

11.2  

3.2  

Sysmex

Medical testing equipment

21,658

2.5

40.8  

30.6  

M3

Online medical database

21,567

2.5

68.9  

56.7  

Rakuten

Internet retail and financial services

21,524

2.5

(35.8) 

(40.5) 

Inpex

Oil and gas producer

20,457

2.3

15.0  

6.7  

Sony

Consumer electronics, films and finance

20,173

2.3

44.8  

34.2  

Kubota

Agricultural machinery

19,486

2.2

(8.9) 

(15.5) 

Persol Holdings

Employment and outsourcing services

18,797

2.2

10.2  

2.2  

Misumi Group

Online distributor of precision machinery parts

18,552

2.1

0.6  

(6.7) 

Recruit Holdings

Property, lifestyle and HR media

18,126

2.1

53.3  

42.1  

Yaskawa Electric

Specialist factory automation

17,827

2.1

11.9  

3.8  

Nidec

Specialist motors

17,723

2.0

27.8  

18.5  

GMO Internet

Internet conglomerate

17,688

2.0

34.3  

24.6  

Shimadzu

Precision tools and equipment maker

16,690

1.9

61.8  

50.1  

Don Quijote

Discount store chain

16,516

1.9

27.9  

18.6  

Itochu

General trading firm

15,171

1.7

10.0  

2.0  

Fanuc

Robotics manufacturer

14,822

1.7

2.4  

(5.0) 

Sumitomo Mitsui Trust

Japanese Trust bank and investment

  manager

14,771

1.7

18.7  

10.1  

H.I.S.

Discount travel agency and theme parks

14,314

1.6

(1.8) 

(8.9) 

Disco

Specialist cutting for semiconductors

12,939

1.5

0.7  

(6.6) 

Nifco

Value-added plastic car parts

12,901

1.5

(3.4) 

(10.4) 

Murata Manufacturing

Manufactures and sells ceramic applied 

  electronic components

12,619

1.5

14.0  

5.7  

Nitori

Furniture retail chain

12,489

1.4

(1.8) 

(8.9) 

Toyo Tire & Rubber

Specialist tyre manufacturer

12,396

1.4

(12.9) 

(19.2) 

SMC

Producer of factory automation equipment

12,338

1.4

(2.7) 

(9.7) 

Mitsubishi Electric

Develops, manufactures and markets

  electronic equipment

12,153

1.4

(7.4) 

(14.1) 

Zenkoku Hosho

Speciality finance

11,862

1.4

2.2* 

(2.5)*

MonotaRO

Online business supplies

11,318

1.3

84.5  

71.1  

Digital Garage

Internet business investor

11,137

1.3

73.4  

60.8  

Park24

Parking, car hire and sharing

11,122

1.3

24.3  

15.3  

Tokyo Tatemono

Property leasing and development

11,010

1.3

0.8  

(6.5) 

Sato

Barcode code and RFID technology

10,905

1.3

14.6* 

15.5

SanBio

Stem cell based stroke treatment

10,774

1.2

177.7  

157.6  

iStyle

Beauty product review website

10,293

1.2

106.4  

91.4  

Sumitomo Metal Mining

Smelting and copper, nickel and gold mining

9,964

1.1

(4.8) 

(11.7) 

Toyota Tsusho

Markets automobiles and other products,

  Africa focus

9,427

1.1

12.7  

4.5  

Advantest

Semiconductor testing devices

9,242

1.1

44.6  

34.1  

Iida Group

Japanese house builder

9,010

1.0

11.0  

3.0  

Subaru

Niche car brand

8,855

1.0

(12.8) 

(19.1) 

Broadleaf

Online platform for buying car parts

8,350

1.0

77.3  

64.4  

Fukuoka Financial

Regional bank

8,213

0.9

30.2  

20.8  

 

 

Name

 

 

Business

 

Value

£'000

 

% of

total assets

Absolute†

Performance

%

Relative†

Performance

%

Isuzu Motors

Lorries and SUVs

7,675

0.9

12.1  

4.0  

Invincible Investment

Real estate investment trust

7,149

0.8

9.9  

1.9  

Topcon

GPS systems

7,126

0.8

(0.7) 

(7.9) 

Infomart

Internet platform for restaurant supplies

6,367

0.7

61.7  

50.0  

Renesas Electronics

Electronic components and semiconductors

6,120

0.7

(24.8) 

(30.2) 

Lifull

Provides online property information

5,909

0.7

(26.0) 

(31.4) 

Mitsubishi UFJ Lease &

  Finance

Leasing services

5,628 

0.6

13.4  

5.2  

Mazda Motor

Car manufacturer

5,572 

0.6 

(20.0) 

(25.8) 

IRISO Electronics

Specialist auto connectors

5,403 

0.6 

14.8  

6.4  

Peptidream

Drug discovery and development platform

5,267 

0.6 

11.4  

3.3  

Noritsu Koki

Holding company with interests in biotech and

  agricultural products

5,166 

0.6 

12.2* 

11.6* 

Keyence

Manufacturer of sensors

5,149 

0.6 

8.2  

0.4  

Katitas

Real estate services

4,947 

0.6 

141.2* 

132.5* 

Asics

Sports shoes and clothing

4,906 

0.6 

1.5  

(5.8) 

Rizap

Low calories food supplier and fitness gym

  operator

4,476 

0.5 

(3.3)*

(2.2) 

Sawai Pharmaceutical

Generic pharmaceuticals

4,444 

0.5 

(0.8) 

(8.0) 

Nippon Ceramic

Electronic component manufacturer

4,139 

0.5 

2.2  

(5.2) 

Secom

Security services

4,099 

0.5 

12.2  

4.1  

JAFCO

Forms venture capital groups

4,051 

0.5 

4.6* 

4.3* 

Shimano

Cycling component manufacturer

3,913 

0.5 

12.6* 

9.3* 

Pigeon

Baby care products

3,674 

0.4 

25.4  

16.3  

Cyberdyne

Medical exo-skeletons

3,289 

0.4 

(40.3) 

(44.7) 

Mercari

Software development services

2,649 

0.3 

24.5* 

26.3* 

Colopl

Smartphone gaming and virtual reality (VR)

2,506 

0.3 

(46.9) 

(50.8) 

Healios K.K.

Regenerative medicine

2,109 

0.2 

20.8  

12.0  

Total Investments

 

842,045 

96.7 

 

 

Net Liquid Assets

 

28,545 

3.3 

 

 

Total Assets

 

870,590 

100.0 

 

 

Bank Loans

 

(114,486)

(13.2)

 

 

Shareholders' Funds

 

756,104 

86.8 

 

 

 

 

 

 

 

 

 

†    Absolute and relative performance has been calculated on a total return basis over the period 1 September 2017 to 31 August 2018. For investments held for part of the year, the return is for the period they were held. Absolute performance is in sterling terms; relative performance is against TOPIX total return (in sterling terms).

*     Figures relate to part period returns.

Source: Baillie Gifford/Statpro and relevant underlying index providers. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.

 

 

Income Statement (unaudited)

 

 

 

For the year ended 31 August 2018

For the year ended 31 August 2017

 

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Gains on investments

124,982 

124,982 

111,160 

111,160 

Currency gains

581 

581 

2,997 

2,997 

Income (note 2)

10,874 

10,874 

8,480 

8,480 

Investment management fee (note 3 )

(4,354)

(4,354)

(3,179)

 (3,179)

Other administrative expenses

(678)

(678)

(592)

(592)

Net return before finance costs and taxation

5,842 

125,563 

131,405 

4,709 

114,157 

118,866 

Finance costs of borrowings

(2,521)

(2,521)

(1,626)

(1,626)

Net return on ordinary activities before taxation

3,321 

125,563 

128,884 

3,083 

114,157 

117,240 

Tax on ordinary activities

(1,087)

(1,087)

(848)

(848)

Net return on ordinary activities after taxation

2,234 

125,563 

127,797 

2,235 

114,157 

116,392 

Net return per ordinary share (note 4)

2.54p

142.51p

145.05p

2.80p

142.75p

145.55p

Note:

Dividends payable in respect of the year (note 5)

 

0.60p

 

 

 

Nil

 

 

 

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

 

Balance Sheet (unaudited)

 

 

                   At 31 August 2018

                   At 31 August 2017

 

£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

Investments held at fair value through profit or loss

 

842,045 

 

652,597  

Current assets

 

 

 

 

Debtors

4,700 

 

788  

 

Cash and cash equivalents

27,788 

 

10,585 

 

 

32,488 

 

11,373 

 

Creditors

 

 

 

 

Amounts falling due within one year (note 6)

(3,943)

 

(37,980)

 

 

 

 

 

 

Net current assets/(liabilities)

 

28,545 

 

(26,607)

Total assets less current liabilities

 

870,590 

 

625,990 

Creditors

 

 

 

 

Amounts falling due after more than one year (note 6)

 

(114,486)

 

(50,769)

Net assets

 

756,104 

 

575,221 

Capital and reserves

 

 

 

 

Share capital

 

4,523 

 

4,194 

Share premium account

 

175,455 

 

122,698 

Capital redemption reserve

 

203 

 

203 

Capital reserve

 

575,448 

 

449,885 

Revenue reserve

 

475 

 

(1,759)

Shareholders' funds

 

756,104 

 

575,221 

Net asset value per ordinary share

 

 

835.8p

 

685.8p

Ordinary shares in issue (note 8)

 

90,459,925

 

83,879,925 

 

 

 

Statement of Changes in Equity (unaudited)

 

For the year ended 31 August 2018

Share
capital

£'000

Share
premium

£'000

Capital redemption reserve

£'000

Capital* reserve

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 September 2017

4,194

122,698

203

449,885

(1,759)

575,221

Shares issued

329

52,757

-

-

53,086

Net return on ordinary activities after taxation

-

-

-

125,563

2,234 

127,797

Shareholders' funds at 31 August 2018

4,523

175,455

203

575,448

475 

756,104

 

 

For the year ended 31 August 2017

Share
capital

£'000

Share
premium

£'000

Capital redemption reserve

£'000

Capital* reserve

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 September 2016

3,937

89,123

203

335,728

(3,994)

424,997

Shares issued

257

33,575

-

-

33,832

Net return on ordinary activities after taxation

-

-

-

114,157

2,235 

116,392

Shareholders' funds at 31 August 2017

4,194

122,698

203

449,885

(1,759)

575,221

 

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

 

 

 

 

Cash Flow Statement (unaudited)

 

 

At 31 August 2018

At 31 August 2017

 

£'000

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Net return on ordinary activities before taxation

128,884 

 

117,240 

 

Net gains on investments

(124,982)

 

(111,160)

 

Currency gains

(581)

 

(2,997)

 

Finance cost of borrowings

2,521 

 

1,626 

 

Overseas withholding tax

(1,051)

 

(834)

 

Changes in debtors and creditors

(76)

 

(3)

 

Cash from operations

 

4,715 

 

3,872 

Interest paid

 

(2,292)

 

(1,611)

Net cash inflow from operating activities

 

2,423 

 

2,261 

Cash flows from investing activities

 

 

 

 

Acquisitions of investments

(183,574)

 

(73,979)

 

Disposals of investments

112,702 

 

35,795 

 

Exchange differences on settlement of investment transactions

791 

 

(46)

 

Net cash outflow from investing activities

 

(70,081)

 

(38,230)

Cash flows from financing activities

 

 

 

 

Shares issued

53,086 

 

33,832 

 

Bank loans drawn down

62,873 

 

10,360 

 

Bank loans repaid

(30,402)

 

 

Net cash inflow from financing activities

 

85,557 

 

44,192 

Increase in cash and cash equivalents

 

17,899 

 

8,223 

Exchange movements

 

(696)

 

(111)

Cash and cash equivalents at start of period

 

10,585 

 

2,473 

Cash and cash equivalents at end of period*

 

27,788 

 

10,585 

 

 

 

 

 

* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

 

 

 

Notes to the Condensed Financial Statements (unaudited)

 

1.    

The Financial Statements for the year to 31 August 2018 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The accounting policies adopted are consistent with those of the previous financial year. 

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 18 to the Financial Statements.

The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis.

In accordance with the Company's Articles of Association, shareholders have the right to vote annually at the Annual General Meeting on whether to continue the Company. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. The financial statements of the Company have been prepared on a going concern basis, on the assumption the continuation vote is passed by Shareholders at the forthcoming Annual General Meeting.

 

 

 

 

 

2.    

Income

31 August 2018

£'000

31 August 2017

£'000

 

Income from investments

10,874

8,480

 

 

 

 

3.    

Investment Management Fee - all charged to revenue

 

2018

£'000

2017

£'000

 

Investment Management Fee

4,354

3,179

 

Baillie Gifford & Co Limited's annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets, calculated and payable quarterly.

 

 

 

 

 

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

 

4.    

Net Return per Ordinary Share

2018 Revenue

2018

Capital

2018

Total

2017

Revenue

2017

Capital

2017

Total

Net return on ordinary activities after taxation

2.54p

142.51p

145.05p

2.80p

142.75p

145.55p

 

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £2,234,000 (2017 - £2,235,000), and on 88,108,377 (2017 - 79,968,404) ordinary shares, being the weighted average number of ordinary shares in issue during each year.

Capital return per ordinary share is based on the net capital return for the financial year of £125,563,000 (2017 - £114,157,000), and on 88,108,377 (2017 - 79,968,404) ordinary shares, being the weighted average number of ordinary shares in issue during each year.

There are no dilutive or potentially dilutive shares in issue.

5.    

Ordinary Dividends

 

2018

2017

2018

£'000

2017

£'000

Dividends Payable in respect of the year:

Current year's proposed final dividend

(payable 14 December 2018)

 

 

0.60p

 

 

-

 

 

546

 

 

-

If approved, the recommended final dividend will be paid on 14 December 2018 to shareholders on the register at close of business on 30 November 2018. The ex-dividend date is 29 November 2018. Further information can be found in the Dividend section of the Chairman's Statement.

6.    

Total borrowings at 31 August 2018 were £114,486,000 (¥16.5billion), (31 August 2017 - £82,500,000 (¥11.7billion)). Under the Scotiabank Europe plc ¥3.0 billion loan facility, ¥1.5 billion was repaid on 12 December 2017 and the remaining ¥1.5 billion tranche was repaid on 31 August 2018.

7.    

Transaction costs incurred on the purchase and sale of investments are added to the purchase costs or deducted from the sales proceeds, as appropriate. During the year, transaction costs on purchases amounted to £88,000 (31 August 2017 - £34,000) and transaction costs on sales amounted to £69,000 (31 August 2017 - £21,000).

8.    

At 31 August 2018 the Company had authority to buy back 12,764,723 shares. No shares were bought back during the year. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. During the year, 6,580,000 (2017 - 5,145,000) shares were issued at a premium to net asset value raising proceeds of £53,086,000 (2017 - £33,832,000).  Between 1 September 2018 and 1 October  2018, the Company issued a further 490,000 shares at a premium to net asset value raising proceeds of £4,115,000.

9.    

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2017 accounts, their report was (i unqualified; (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report; and (iii) and did not contain a statement under sections 498(2) or (3) to 497 of the Companies Act 2006. The statutory accounts for 2018 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies in due course..

10. 

The Annual Report and Financial Statements will be available on the Company's page of the Managers' website www.japantrustplc.co.uk on or around 6 November  2018.

 

 

11.

Glossary of Terms

 

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

 

Net Asset Value

Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

 

Net Asset Value (Borrowings at Fair Value)

Borrowings are valued at an estimate of their market worth.

 

Net Asset Value (Borrowings at Par Value)

Borrowings are valued at their nominal par value. Par value approximates amortised cost.

 

Net Asset Value (Reconciliation of NAV at par to NAV at Fair)

 

31 August 2018

£'000

31 August 2017

£'000

Shareholder's Funds (borrowings at par value)

756,104 

575,221 

Add: par value of borrowings

114,486 

82,500 

Less: fair value of borrowings

(117,140)

(85,352)

Shareholders' funds (borrowings at fair value)

753,450

572,369

Shares in issue

90,459,925

83,879,925

Net asset value per ordinary share (borrowings at fair value)

832.9p

682.4p

 

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities excluding borrowings.

 

Premium/Discount

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is

lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

 

Total Return

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

 

Ongoing Charges

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with

debt at fair value).

 

Gearing

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in

additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The level of gearing can be adjusted through the use of derivatives which

affect the sensitivity of the value of the portfolio to changes in the level of markets.

Gearing is the Company's borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds.

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage

For the purposes of the Alternative Investment Fund Managers(AIFM) Directive, leverage is any method which increases the

Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

 

 

Active Share

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

 

 

‡      Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

 

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

Third Party Data Provider Disclaimer

 

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

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

 

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

 

 

- ends -

 


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