Baillie GiffordJapan - Annual Financial Report
07/11/2024 09:45
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RNS Number : 3633L Baillie Gifford Japan Trust PLC 07 November 2024
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 29 October 2024, The Baillie Gifford Japan Trust PLC
("the Company") announces that the Company's Annual Report and Financial
Statements for the year ended 31 August 2024, 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 29 October
2024).
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, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the
Company;
¾ the Strategic Report and Directors' 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; and
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.
Principal and Emerging Risks relating to the Company
As explained on pages 49 and 50 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. There have been no material
changes to the principal risks during the year. 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 it being a new emerging risk. 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 The prospect of market volatility remains, given continuing geopolitical
principal financial risks are therefore market related and include market risk volatility due to macroeconomic factors such as inflation, interest rates and instability.
(comprising currency risk, interest rate risk and other price risk), liquidity geopolitical concerns. To mitigate this risk the Board considers various
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 and on pages 80 to 83 of diversification of the portfolio by growth category, purchases and sales of
the Annual Report and Financial Statements. investments, the holding period of each investment, liquidity characteristics
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
Discount Risk: The premium/discount at which the Company's shares trade The Board monitors the level of premium/discount at which the shares trade and The Company's shares traded at an average discount of 10.9% throughout the
relative to its net asset value can change. The risk of a widening discount is the Company has authority to issue new shares or buy back its existing shares year and it bought back 5,515,000 ordinary shares during the year.
that it may undermine investor confidence in the Company. when deemed by the Board to be in the best interests of the Company and its
shareholders.
What is the risk? How is it managed? Current assessment of risk
Investment Strategy and Smaller Company Risk: Pursuing an investment strategy To mitigate these risks, the Board regularly reviews and monitors: the During the year, the Company's NAV total return was behind the benchmark.
to fulfil the Company's objective which the market perceives to be Company's objective and investment policy and strategy; the investment However, there are signs that the market's appetite for growth stocks,
unattractive or inappropriate, or the ineffective implementation of an portfolio, discussing the investment case and portfolio weightings with the typically held by the Company, is recovering.
attractive or appropriate strategy, may lead to reduced returns for Managers, and its performance; the level of premium/discount to net asset
shareholders and, as a result, a decreased demand for the Company's shares. value at which the shares trade; and movements in the share register and
This may lead to the Company's shares trading at a widening discount to their raises any matters of concern with the Managers. A spread of risk is achieved
net asset value. by holding a minimum of 40 stocks.
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.
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 application of the Manager's ESG stewardship and The Manager continues to employ strong ESG stewardship and engagement
governance ('ESG') matters in an investee company could lead to that company's engagement policies, which are integrated into the investment process, as well policies.
shares being less attractive to investors, adversely affecting its share as the extensive upfront and ongoing due diligence which the Manager
price, in addition to potential valuation issues arising from any direct undertakes on each investee company. This includes the risk inherent in
impact of the failure to address the ESG weakness on the operations or climate change (see page 36 and 37 of the Annual Report and Financial
management of the investee company (for example in the event of an industrial Statements). The Directors have considered the impact of climate change on the
accident or spillage). Repeated failure by the Managers to identify ESG Financial Statements of the Company and this is included in note 1a to the
weaknesses in investee companies could lead to the Company's own shares being Financial Statements on page 72 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: The Company may borrow money for investment purposes (sometimes To mitigate this risk. all borrowings require the prior approval of the Board No significant change in risk level. During the year the Company secured new
known as 'gearing' or 'leverage'). If the investments fall in value, any and leverage levels are discussed by the Board and Managers at every meeting. private placement loan notes which will be used to repay the ING and Mizuho
borrowings will magnify the extent of this loss. If borrowing facilities are Covenant levels are monitored regularly. The Company has a maximum equity loans maturing late 2024/early 2025.
not renewed, the Company may have to sell investments to repay borrowings. gearing level of 30% of shareholders' funds. The Company's investments are in
listed securities that are readily realisable. Further information on leverage
can be found on page 85 of the Annual Report and Financial Statements and in
the Glossary of Terms and Alternative Performance Measures on pages 84 and 85
in the Annual Report and Financial Statements.
Operational risks
What is the risk? How is it managed? Current assessment of risk
Custody, Depositary and Reliance on Third Party Service Provider Risk: Safe To mitigate this risk, the Audit Committee receives six monthly reports from Control procedures are working effectively with no interruption to Depositary,
custody of the Company's assets may be compromised through control failures by the Depositary confirming safe custody of the Company's assets held by the Custodian, Broker or Registrar services during the year.
the Depositary, including cyber security incidents. Custodian. Cash and portfolio holdings are independently reconciled to the
Custodian's records by the Managers and the existence of assets by the
Failure of Baillie Gifford's systems or those of other third party service Managers is subject to annual external audit. Baillie Gifford has a
providers could lead to an inability to provide accurate reporting and comprehensive business continuity plan which facilitates continued operation
monitoring or a misappropriation of assets. 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 of the Depositary, Custodian and other key third party service
providers are reviewed by Baillie Gifford on behalf of the Board and any
concerns investigated. The Depositary, Custodian and 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: A cyber attack on Baillie Gifford's network or that of a To mitigate this risk, the Audit Committee reviews reports on Internal This risk is seen as Increasing due to recent indications that geopolitical
third party service provider could impact the confidentiality, integrity or Controls published by Baillie Gifford and other third party service providers. tensions are continuing and could lead to more cyber attacks. Emerging
availability of data and systems. Emerging technologies, including AI and Baillie Gifford's Business Risk Department reports to the Audit Committee on technologies, including AI, could potentially increase information security
quantum computing capabilities, may introduce new, and increase existing the effectiveness of information security controls in place at Baillie Gifford risks. In addition, service providers operate a hybrid approach of remote and
information security risks that impact operations. and its business continuity framework. Cyber security due diligence is office working, thereby increasing the potential of a cyber security threat.
performed by Baillie Gifford on third party service providers which includes a
review of crisis management and business continuity frameworks.
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. Should major regulatory change seem
Exchange listing, financial penalties, a qualified Audit Report and the likely to impose disproportionate compliance burdens on the Company,
Company being subject to tax on capital gains. Changes to the regulatory representations are made to the relevant authorities to ensure that the
environment could negatively impact the Company. 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.
What is the risk? How is it managed? Current assessment of risk
Political and Associated Economic Risk: Political change in areas in which the To mitigate this risk developments are closely monitored and considered by the The prospect of market volatility remains, given continuing geopolitical
Company invests or may invest may have practical consequences for the Company. Board and are regularly discussed at Board meetings. instability.
Emerging risks
As explained on pages 49 and 50 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
7 November 2024
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