Baillie GiffordJapan - Annual Financial Report
09/11/2023 13:59
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RNS Number : 9873S Baillie Gifford Japan Trust PLC 09 November 2023
The Baillie Gifford Japan Trust PLC ('BGFD')
Legal Entity Identifier: 54930037AGTKN765Y741
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the preliminary statement of audited annual results announced to
the Stock Exchange on 2 November 2023, The Baillie Gifford Japan Trust PLC
("the Company") announces that the Company's Annual Report and Financial
Statements for the year ended 31 August 2023, including the Notice of Annual
General Meeting, has been posted to shareholders and submitted electronically
to the National Storage Mechanism where it will shortly be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
It is also available on the Company page of the Baillie Gifford website at:
japantrustplc.co.uk (http://www.japantrustplc.co.uk/) (as is the preliminary
statement of audited annual results announced by the Company on 2 November
2023).
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
Each of the Directors, whose names and functions are listed within the
Directors and Managers section of the Annual Report and Financial Statements,
confirm that, to the best of their knowledge:
¾ the Financial Statements, which have been prepared in accordance with
applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) 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;
¾ 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
¾ 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 (as also
set out below).
Principal and Emerging Risks relating to the Company
As explained on pages 59 and 60 of the Annual Report and Financial Statements
there is an ongoing process for identifying, evaluating and managing the
risks, including emerging risks, faced by the Company on a regular basis. The
Directors have carried out a robust assessment of the principal and emerging
risks facing the Company including those that would threaten its business
model, future performance, solvency or liquidity. Baillie Gifford's Business
Risk Department provides regular updates covering the Company's principal and
emerging risks. A description of these risks and how they are being managed or
mitigated is set out below.
The Board considers the current economic environment to be a factor which
exacerbates existing risks, rather than new emerging risks. Their impact is
considered within the relevant risks.
Investment and strategic risks
What is the risk? How is it managed? Current assessment of risk
Financial Risk: The Company's assets consist of listed securities and its The Board has, in particular, considered the impact of heightened market This risk is seen as increasing due to increased volatility as a result of
principal financial risks are therefore market related and include market risk volatility due to macroeconomic factors such as inflation, interest rates and macroeconomic factors including increasing energy prices, interest and
(comprising currency risk, interest rate risk and other price risk), liquidity geopolitical concerns. To mitigate this risk the Board considers various inflation rates.
risk and credit risk. An explanation of those risks and how they are managed portfolio metrics including individual stock performance, the composition and
is contained in note 19 to the Financial Statements on pages 91 to 94. 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.
The value of the Company's investment portfolio would be affected by any
impact, positively or negatively, on sterling but such impact would be
partially offset by the effect of exchange movements on the Company's yen
denominated borrowings.
What is the risk? How is it managed? Current assessment of risk
Investment Strategy Risk: Pursuing an investment strategy to fulfil the To mitigate this risk, the Board regularly reviews and monitors: the Company's The risk is increasing as the markets appetite for growth stocks, typically
Company's objective which the market perceives to be unattractive or objective and investment policy and strategy; the investment portfolio and its held by the Company, has decreased during the recent period of heightened
inappropriate, or the ineffective implementation of an attractive or performance; the level of premium/discount to net asset value at which the macroeconomic and geopolitical concern.
appropriate strategy, may lead to reduced returns for shareholders and, as a shares trade; and movements in the share register.
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.
What is the risk? How is it managed? Current assessment of risk
Discount Risk: The Board monitors the level of premium/discount at which the shares trade and The Company's shares traded at an average discount of 7.2% throughout the year
the Company has authority to issue new shares or buy back its existing shares and it bought back 851,845 ordinary shares during the year.
The premium/discount at which the Company's shares trade relative to its net when deemed by the Board to be in the best interests of the Company and its
asset value can change. The risk of a widening discount is that it may shareholders.
undermine investor confidence in the Company.
What is the risk? How is it managed? Current assessment of risk
Smaller Company Risk: To mitigate this risk, the Board reviews the investment portfolio at each Due to increased market volatility resulting from macroeconomic factors, share
meeting and discusses the investment case and portfolio weightings with the prices may be subject to greater volatility.
The Company has investments in smaller companies which are generally Managers. A spread of risk is achieved by holding a minimum of 40 stocks.
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.
What is the risk? How is it managed? Current assessment of risk
Climate and Governance Risk: Perceived problems on environmental, social and This is mitigated by the Investment Manager's ESG stewardship and engagement The Investment Manager continues to employ strong ESG stewardship and
governance ('ESG') matters in an investee company could lead to that company's policies application, which is integrated into the investment process, as well engagement policies.
shares being less attractive to investors, adversely affecting its share as the extensive upfront and ongoing due diligence which the Investment
price, in addition to potential valuation issues arising from any direct Manager undertakes on each investee company. This includes the risk inherent
impact of the failure to address the ESG weakness on the operations or in climate change (see page 33 of the Annual Report and Financial Statements).
management of the investee company (for example in the event of an industrial The Directors have considered the impact of climate change on the Financial
accident of spillage). Repeated failure by the Managers to identify ESG Statements of the Company and this is included in note 1a to the Financial
weaknesses in investee companies could lead to the Company's own shares being Statements on page 84 of the Annual Report and Financial Statements.
less attractive to investors, adversely affecting its own share price. In
addition, the valuation of investments could be impacted by climate change.
What is the risk? How is it managed? Current assessment of risk
Leverage Risk: To mitigate this risk. all borrowings require the prior approval of the Board This is seen as increasing due to global falls in company valuations.
and leverage levels are discussed by the Board and Managers at every meeting.
The Company may borrow money for investment purposes (sometimes known as Covenant levels are monitored regularly. The Company has a maximum equity
'gearing' or 'leverage'). If the investments fall in value, any borrowings gearing level of 30% of shareholders' funds. The Company's investments are in
will magnify the extent of this loss. If borrowing facilities are not renewed, listed securities that are readily realisable. Further information on leverage
the Company may have to sell investments to repay borrowings. can be found on page 108 of the Annual Report and Financial Statements and in
the Glossary of Terms and Alternative Performance Measures on pages 107 and
108 in the Annual Report and Financial Statements.
External risks
What is the risk? How is it managed? Current assessment of risk
Regulatory Risk: Failure to comply with applicable legal and regulatory To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and All control procedures are working effectively. There have been no material
requirements such as the tax rules for investment companies, the FCA Listing Compliance Departments provide regular reports to the Audit Committee on regulatory changes that have impacted the Company during the year.
Rules and the Companies Act could lead to suspension of the Company's Stock Baillie Gifford's monitoring programmes. Major regulatory change could impose
Exchange listing, financial penalties, a qualified audit report or the Company disproportionate compliance burdens on the Company. In such circumstances
being subject to tax on capital gains. Changes to the regulatory environment representation is made to ensure that the special circumstances of investment
could negatively impact the Company. 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.
What is the risk? How is it managed? Current assessment of risk
Political and Associated Economic Risk: To mitigate this risk developments are closely monitored and considered by the This risk is increasing as Governments and consumers around the world continue
Board and are regularly discussed at Board meetings. to assess the impact of geopolitical tensions, increasing inflation and
Political change in areas in which the Company invests or may invest may have
interest rates.
practical consequences for the Company.
Operational risks
What is the risk? How is it managed? Current assessment of risk
Custody and Depositary Risk: Safe custody of the Company's assets may be To mitigate this risk, the Audit Committee receives six monthly reports from Control procedures working effectively with no interruption to Depositary or
compromised through control failures by the Depositary, including cyber the Depositary confirming safe custody of the Company's assets held by the Custodian services during the year.
security incidents. 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 Business Risk 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.
What is the risk? How is it managed? Current assessment of risk
Reliance on Third party Service Provider Risk: To mitigate this risk, Baillie Gifford has a comprehensive business continuity Control procedures working effectively with no interruption to Depositary,
plan which facilitates continued operation of the business in the event of a Custodian, Broker or Registrar services during the year.
Failure of Baillie Gifford's systems or those of other third party service service disruption or major disaster. The Audit Committee reviews Baillie
providers could lead to an inability to provide accurate reporting and Gifford's Report on Internal Controls and the reports by other key third party
monitoring or a misappropriation of assets. service providers are reviewed by Baillie Gifford on behalf of the Board. In
the year under review, the other key third party service providers have not
experienced significant operational difficulties affecting their respective
services to the Company.
What is the risk? How is it managed? Current assessment of risk
Cyber Security Risk: To mitigate this risk, the Audit Committee reviews reports on Internal This risk is seen as Increasing due to recent indications that the
Controls published by Baillie Gifford and other third party service providers. continuation of geopolitical tensions could lead to cyber attacks. Emerging
A cyber attack on Baillie Gifford's network or that of a third party service
technologies, including AI, could potentially increase information security
provider could impact the confidentiality, integrity or availability of data Baillie Gifford's Business Risk Department reports to the Audit Committee on risks. In addition, service providers operate a hybrid approach of remote and
and systems. the effectiveness of information security controls in place at Baillie Gifford office working, thereby increasing the potential of a cyber security threat.
and its business continuity framework. Cyber security due diligence is
performed by Baillie Gifford on third party service providers which includes a
review of crisis management and business continuity frameworks.
Emerging risks
As explained on pages 59 and 60 of the Annual Report and Financial Statements,
the Board has regular discussions on principal and emerging risks, including
any risks which are not an immediate threat but could arise in the longer
term. The Board considers emerging risks at each Board meeting and discusses
any mitigations required.
Increasing risk Decreasing risk No change
Baillie Gifford & Co Limited
Company Secretaries
9 November 2023
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