Baillie GiffordJapan - Baillie Gifford Japan Trust PLC Final Results
02/11/2023 07:00
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RNS Number : 1166S Baillie Gifford Japan Trust PLC 02 November 2023
RNS Announcement
The Baillie Gifford Japan Trust PLC
Legal Entity Identifier: 54930037AGTKN765Y741
Results for the year to 31 August 2023
Regulated Information Classification: Additional regulated information
required to be disclosed under the applicable laws and regulations.
Over the year to 31 August 2023, The Baillie Gifford Japan Trust PLC's net
asset value total return per share was (5.4%) compared to the 6.7% total
return in the TOPIX index (in sterling terms). In this period the Company's
share price total return was (4.0%).
Over the five years to the end of August 2023, the compound NAV total return
was (1.2%) and over ten years 9.3% compared to the TOPIX return of 3.5% and
8.1% respectively.
¾ A final dividend of 10.0p per ordinary share will be put to
shareholders for approval at the Annual General Meeting. This represents an
11% increase on the 9.0p paid in relation to the prior year.
¾ As was the case last year, the Managers' biases towards higher growth
and smaller companies have both been unhelpful as the place to be has been in
more cyclical areas and this is not a natural hunting ground for growth
investors.
¾ During the period nine new investments were made. In a number of
these cases, the Manager took advantage of the derating of share prices in
smaller growth companies. These included Vector (public relations company),
SWCC Showa (high voltage cables), Nihon M&A (mergers and acquisitions in
Japan) and Lifenet Insurance (online life insurance). Seven positions were
sold during the period while gearing remained at approximately 17%.
¾ The most significant development of the year from an investment
perspective has been the leap forward in artificial intelligence large
language models which the Manager expects to provide opportunities for many of
the companies within the portfolio including, but not limited to, Softbank,
Rakuten, CyberAgent and GMO Internet.
¾ The Managers believe that the opportunities for growth investing in
Japan are the greatest since the Global Financial Crisis.
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Source: Refinitiv/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
2023, the Company had total assets of £864.7m (before deduction of bank loans
of £131.7m).
The Company is managed by Baillie Gifford, an Edinburgh based fund management
group with around £202.3bn under management and advice as at 30 October 2023.
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.
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 japantrustplc.co.uk (http://www.japantrustplc.co.uk/) .
See disclaimer at the end of this announcement.
Approved by the Board on 1 November 2023
For further information please contact:
Naomi Cherry - Client Director
Baillie Gifford & Co
Tel: 0131 474 5548
Jonathon Atkins, Four Communications
Tel: 020 3103 9553 or 07872495396
Chairman's Statement
Introduction
Last year, I reported that there was a great deal of uncertainty facing
investors including the global prospects for inflation, interest rates and
bond yields but also the impact of other factors such as Covid-19
restrictions. These restrictions were lifted in Japan in the Autumn of 2022
and the Board visited Japan with the Managers in May 2023 - the first Board
visit since 2019. I am pleased to report a most insightful trip where the
Board had the opportunity to observe the Managers and their process in action
and to meet with some of the most exciting companies held within the portfolio
as well as several potential future investments.
Performance
In the year to 31 August 2023, the net asset value ('NAV') total return was
(5.4%). As market sentiment remained poor, the Company's shares continued to
trade at a discount to NAV, leading to a share price total return of (4.0%).
The benchmark total return was 6.7% over the same period.
The Company's objective is to achieve long-term capital growth, and the NAV
returns remain ahead of the benchmark on a 10 year time horizon.
Compound annual returns to end August 5 years 10 years
(%)
(%)
Net asset value total return* (1.2) 9.3
Share price total return* (3.0) 8.7
TOPIX total return* (in sterling terms) † 3.5 8.1
In June 2023, the Board conducted a thorough analysis with the Managers of the
Company's performance over the previous five years, looking at both process
and outcomes. The Company has an explicit growth-focused investment strategy.
The vast majority of the Company's assets are invested in companies with
higher than average growth prospects. The Board is strongly supportive of this
investment strategy; the Japanese equity market is large and rich in
opportunity but the Japanese economy itself grows slowly due to structural
factors. As such, the Board believes companies able to demonstrate
idiosyncratic growth should command a premium valuation and outperform over
time. The Manager invests on a bottom-up basis, focusing on identifying the
most attractive growth companies and largely ignoring macro factors. However,
investors should note that there are certain market environments which do not
favour growth investing and in which the Company may be more likely to
underperform both its benchmark and more value-focused peers. While it is not
possible to be prescriptive on this issue, an environment of rising inflation
and interest rates, such as we have seen over the past two years, tends to be
unfavourable for growth stocks' relative performance.
Gearing and Borrowing
The Board believes that borrowing will enhance returns to investors over the
long-term. Net gearing fell very slightly from 17.5% to 17.0% over the year to
31 August 2023. The Board is pleased to announce that in August 2023 the
Company entered into a new two year floating rate loan facility with The Bank
of New York Mellon for ¥15 billion, being an increase of ¥2.8 billion on the
SMBC loan that was repaid in August 2023. The new facility was used to repay
the SMBC facility and Mizuho Bank revolving credit facility with the balance
being available to the Managers to deploy.
Dividend
The Board is recommending a dividend of 10p per share, an increase of 11.1% on
last year's 9p. This will be put to shareholders for approval at the Annual
General Meeting to be held on 12 December 2023 and, if approved, will be paid
on 20 December to shareholders on the register at close of business on 17
November 2023. A dividend reinvestment plan ('DRIP') is available to
shareholders who would prefer to invest their dividends in the shares of the
Company. For those shareholders electing to receive the DRIP, the last date
for receipt of election is 29 November 2023.
Share Capital and Discount Management
Over the course of the year, the share price moved from a 8.1% discount to NAV
to a 6.7% discount to NAV. During this period, the Company bought back 851,845
shares at a cost of approximately £6.4 million. These shares are held in
Treasury and are available to be reissued, at a premium, when market
conditions allow.
Your Board believes it is important that the Company retains the power to buy
back equity during the year and so, at the Annual General Meeting, is seeking
to renew this facility. Further details of the buy-back facility can be found
on page 53 of the Annual Report and Financial Statements.
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. The Directors are, once
again, seeking 10% share issuance authority at the Annual General Meeting.
This authority would expire at the conclusion of the Annual General Meeting in
2024.
Regulatory Update
The FCA also introduced a new set of rules labelled as 'Consumer Duty'.
Investment Trusts, like the Company, are not directly impacted by this but
Baillie Gifford, as the Company's Manager is. The Duty raises the standard of
care that FCA regulated firms, like Baillie Gifford, are expected to provide
to retail consumers and includes a number of obligations that need to be met.
One of these obligations is to undertake an Assessment of Value on the
'products' managed. The relevant report on the Company has concluded that it
does provide value, meaning that distributors will be able to undertake their
assessments and continue to make shares in the Company available to current
and potential shareholders.
Annual General Meeting
The Company's Annual General Meeting has been scheduled to take place on 12
December 2023 at Baillie Gifford's offices in Edinburgh. The Board encourages
all shareholders to attend in person but also to exercise their votes by
completing and submitting a form of proxy. We encourage shareholders to
monitor the Company's website at japantrustplc.co.uk
(http://www.japantrustplc.co.uk/) where any updates will be posted and market
announcements will be made, as appropriate. Should shareholders have questions
for the Board or the Managers or any queries as to how to vote, they are
welcome to submit these by email to trustenquiries@bailliegifford.com
(mailto:trustenquiries@bailliegifford.com) or call 0800 917 2112.
Information on the resolutions can be found on pages 97 and 98 of the Annual
Report and Financial Statements. The Directors consider that all resolutions
to be put to shareholders are in their and the Company's best interests as a
whole and recommend that shareholders vote in their favour.
In particular, shareholders have the right to vote annually on whether the
Company should continue in business and will have the opportunity to do so
again this year. Last year, the Company again received support for its
continuation with 99.99% of votes cast in favour. Your Directors believe there
are 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
During the year the Board undertook a recruitment process seeking to appoint
an additional independent non-executive director. The Board was pleased to
announce the appointment of Patricia Lewis with effect from 1 August 2023.
Patricia will stand for election at the upcoming Annual General Meeting.
The Board is cognisant of good corporate governance practice and as such I
should also like to mention my intention to step down from the Board at the
Annual General Meeting to be held in 2025. This would mean that I serve 10
years in total on the Board with just over three of those years as Chairman, a
role to which I was appointed following the untimely death of Keith Falconer.
Outlook
The portfolio contains many attractive growth companies. Your Board is
confident in the long-term, and hopeful in the shorter-term, regarding the
prospects for the Company.
David Kidd
Chairman
1 November 2023
* Alternative Performance Measure - see Glossary of Terms and Alternative
Performance Measures on at the end of this announcement.
† The benchmark is the TOPIX total return (in sterling terms).
Source: Refinitiv/Baillie Gifford and relevant underlying index providers. See
disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Managers' Review
Whilst there remain various global challenges, including war and other
geopolitical tensions, high inflation levels and climate challenges the most
significant development of the year from an investment perspective has been
the leap forward in artificial intelligence ('AI') large language models, as
typified by ChatGPT. The investment landscape remains complex and at times
contradictory but technological progress and the investment opportunities that
flow from it remain a constant.
The last 12 months have certainly not been a vintage year for the Company with
a NAV total return of (5.4%) compared with 6.7% for the TOPIX index, in
sterling terms. Over 5 years the cumulative NAV total return was (5.8%) and
over 10 years 143.5%. This compares to increases in the TOPIX index of 18.5%
over 5 years and 116.9% over 10 years. To be behind the index to a material
extent over a 5 year horizon is disappointing to us, and doubtless to
shareholders.
As was the case last year, our biases towards higher growth and smaller
companies have both been unhelpful to us. While not our natural hunting ground
as growth investors the place to be has been in more cyclical areas. Since
there was a positive return in Yen, being geared made a small positive
contribution to performance (+0.9ppt). Despite the unsatisfactory overall
result there is little to say at the stock level. Two companies subtracted
more than 1.0ppt from performance, CyberAgent and Misumi, but the issue was
more that we missed out on many of the successful names.
The low returns over the past 5 years merit discussion. Has something gone
wrong with our process? Where do we get conviction on a forward-looking basis?
When will these businesses become better appreciated?
The first point to make is that this 5 year period can be split into two
halves. In the period from August 2018 to August 2021 the performance was
positive in both absolute and relative terms. However, this good 3 year period
has been followed by 2 challenging years. As a reminder, your Company's
portfolio is very different to the underlying market. The Trust holds no
investments in around half of the 33 industries included in the Company's
benchmark index, TOPIX. Some of the top performing sectors over the past
twelve months include iron and steel, banks, marine transportation and
construction - areas where we have little exposure. If these stocks go up we
will underperform. But our view remains that these areas offer little
fundamental opportunity for growth investors. Another measure of how different
your Company's portfolio is to the TOPIX is the percentage of the portfolio
with founder shareholders. For The Baillie Gifford Japan Trust, 29% of the
portfolio has a founder-owner in charge compared with 8% for the TOPIX as a
whole (source: MSCI). In the long run we believe that having a founder at the
helm better aligns the interests of management and shareholders.
Tentatively, it may be that the investment environment created by the pandemic
suited the types of businesses that we favour while the
investment environment created by the exit from that environment suited more
cyclical businesses. The net result of this is that performance over the 5
years is behind. However, inevitably, we are trying to analyse a story
containing large swings in opposing directions that has not yet completed. The
conclusions that we can draw from this period will only be secure when more
time has passed, and we know what the ultimate results are.
The fundamentals of our process remain the same. Our team remains intact with
no changes to the senior investors over the past 5 years and our approach to
selecting stocks is substantially unchanged. We continue our steady
fundamental research-based approach of trying to identify
companies with good growth prospects at a similar tempo to the past.
We can look at the stocks in the portfolio with the worst contributions to
performance over the past 5 years. These are CyberAgent, Rakuten, Outsourcing,
Sato Holdings, and GA Technologies. They had a negative attribution ranging
from (2.1%) to (1.1%) respectively. The first obvious question is, has
something gone wrong with these businesses? For the most recent 5 full years
available these companies grew their sales by 14% p.a., 15% p.a., 25% p.a., 5%
p.a., and 64% p.a. respectively. If we didn't know the share price return, I
would certainly be more than happy with the average underlying growth. And as
a reminder, these are the worst contributors to performance. A lot of the
challenge has come from profit growth not keeping up with sales. For example,
CyberAgent had a very successful hit in its gaming business that it has yet to
be able to better. Meanwhile, Rakuten has been rolling out a new mobile
network in Japan that has proven more costly than we expected and has yet to
reach profitability. Looking forwards we expect CyberAgent to be able to
achieve new peak profits and think that Rakuten is past the worst of its
investment phase and that ultimately its mobile business will be successful.
Looking forward we expect continuing developments in AI to provide
opportunities for many of the companies in the portfolio. AI can be thought of
as comprising multiple layers - chips, datacentres, models, and applications
for example. Currently much excitement has been about the opportunity in the
first layer, chips, but as time progresses we expect a broader view to be
taken about where the opportunities are.
Starting with the major portfolio holdings, SoftBank owns nearly 90% of
recently re-listed ARM, which has a near-monopoly in mobile phone chip design,
as well as many early-stage AI companies listed in the Vision Fund. Mr Son is
looking towards a future not just of artificial general intelligence (where AI
roughly operates at a human level across a wide variety of domains) but to a
future of artificial super-intelligence (where AI is multiples more capable
than humans). GMO Internet has a large exposure to internet infrastructure and
datacentres in Japan. Rakuten has proprietary data across its ecosystem which
provides the foundation for creating successful applications for AI.
CyberAgent has developed the world's first large language model built with the
Japanese language as the base. Each of these are top 10 holdings in the
Company. Additionally, we expect opportunities in many of the smaller
holdings. For example, Z Holdings expect to be able to achieve huge
improvements in software engineer productivity as humans work alongside AI as
well as to be able to achieve big cost reductions in dealing with customer
queries. Bengo4.com has already developed a prototype 'AI lawyer'.
It is always difficult for us to assess when businesses will become better
appreciated which is why we try to focus more on the underlying progress of
sales and profits in the expectation that, over the long term, these will be
reflected in share prices. Like you, we would like to have seen significantly
better share price results over the past couple of years but, in general, we
see solid ongoing progress at individual businesses and take significant
comfort from that.
Meanwhile, we have continued to try to improve the portfolio. During the
period we bought 9 new holdings and sold 7 holdings. Recently we have been
taking advantage of the high level of pain being felt in smaller growth
companies share prices to initiate new holdings in Vector (public relations
agency), SWCC Showa (high voltage cables), Nihon M&A (mergers and
acquisitions in Japan) and Lifenet Insurance (online life insurance). We also
took a new holding in M3 (medical website) after the shares fell by more than
60% from the price that we previously sold the shares at in late 2020 due to
valuation concerns. Similar to the case of Pigeon last year, the very large
share price moves have exceeded the changes in the fundamentals, which we
believe has created opportunity for long-term investors. The sales spanned a
variety of reasons, from considering the shares to be fully valued due to
cyclical increase in resource prices (Inpex, Toyota Tsusho), or becoming
doubtful on the long-term prospects being realised (Shimano, Makita, Tsubaki
Nakashima, Lifull). As is typical, turnover remained low at 8.8% meaning that
91.2% of the portfolio was unchanged year-on-year. Net gearing ended the year
at 17%, reflecting our belief in the significant opportunities available.
As Sir John Templeton put it many years ago "outperforming the majority of
investors requires doing what they are not doing". We are sticking to an
approach that has been effective over the decades of trying to buy businesses
with attractive long-term growth prospects, not fiddling with the portfolio,
and letting those businesses generate the returns over time. This process has
never worked every year and the past 2 years have been a particularly
challenging time. However, we believe that the opportunities for growth
investing in Japan are the greatest since the Global Financial Crisis and ask
for shareholders continued support.
Baillie Gifford
1 November 2023
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Past performance is not a guide to future performance.
Relative Contribution
Top Ten Relative Stock Contributors Bottom Ten Relative Stock Contributors
Year to 31 August 2023 Year to 31 August 2023
Name Portfolio (average weight) Index (average weight) Name Portfolio (average weight) Index (average weight)
% % Relative Contribution % % Relative Contribution
% %
DMG Mori 1.8 0.0 0.4 CyberAgent 2.4 0.1 (1.3)
Itochu 2.8 1.0 0.4 Misumi 2.5 0.2 (1.1)
Olympus 0.0 0.5 0.3 GMO Internet 3.1 0.0 (0.9)
Chugoku Marine Paints 0.8 0.0 0.2 Rakuten 2.4 0.1 (0.8)
Mercari 1.1 0.0 0.2 MonotaRO 1.4 0.1 (0.7)
Sumitomo Mitsui Trust Bank 3.4 0.3 0.2 FANUC 3.3 0.7 (0.7)
MS&AD Insurance 2.8 0.3 0.2 Oisix 1.4 0.0 (0.5)
Nifco 1.4 0.0 0.2 Sysmex 2.1 0.3 (0.5)
M3 0.1 0.2 0.1 GA Technologies 1.2 0.0 (0.5)
DENSO 2.1 0.6 0.1 mixi 2.7 0.0 (0.4)
Top Ten Relative Stock Contributors Bottom Ten Relative Stock Contributors
5 years to 31 August 2023 5 years to 31 August 2023
Name Portfolio (average weight) Index (average weight) Name Portfolio (average weight) Index (average weight)
% % Relative Contribution % % Relative Contribution
% %
M3 0.8 0.3 1.4 CyberAgent 2.5 0.1 (2.1)
Itochu 2.4 0.8 1.3 Rakuten 3.3 0.2 (1.8)
SoftBank Group 5.7 1.7 1.2 Outsourcing 1.6 0.0 (1.4)
Pan Pacific International 0.6 0.2 1.0 Sato Holdings 1.7 0.0 (1.3)
DENSO 1.8 0.5 0.7 GA Technologies 0.6 0.0 (1.1)
MS&AD Insurance 1.4 0.3 0.7 Toyota Motor 0.0 3.6 (1.1)
SMC 1.3 0.7 0.7 Sysmex 2.5 0.3 (1.0)
Inpex 1.7 0.2 0.6 Misumi 2.5 0.2 (1.0)
Advantest 0.2 0.2 0.6 Calbee 1.6 0.1 (0.9)
JAFCO 0.5 0.0 0.5 Healios K.K. 0.2 0.0 (0.8)
Source: Revolution 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.
Investment Portfolio by Growth Category
As at 31 August 2023
% of % of % of % of
Secular total investments Growth total investments Special total investments Cyclical total investments
Growth(1) Stalwarts(2) Situations(3) Growth(4)
SBI Holdings 3.5 Calbee 2.9 SoftBank Group 5.3 Sumitomo Mitsui Trust Bank 3.7
Rakuten 3.2 Shiseido 2.4 Sony 2.9 Bridgestone 2.2
FANUC 3.0 Unicharm 2.2 mixi 2.5 DMG Mori 2.2
GMO Internet 2.7 Nintendo 2.1 MS&AD Insurance 2.2 Itochu 2.2
Kubota 2.7 Pola Orbis 1.8 Tokyo Tatemono 1.3 Sumitomo Metal Mining 2.0
CyberAgent 2.1 Sugi 0.8 Colopl 1.3 Rohm 1.8
Recruit Holdings 2.0 Kao 0.8 Olympus 0.7 Nifco 1.6
Misumi 2.0 Park24 0.6 DENSO 1.6
Sato 1.9 Sawai Pharmaceutical 0.3 Murata Manufacturing 1.5
Sysmex 1.8 Chugoku Marine Paints 1.0
Oisix 1.6 Outsourcing 0.9
GA Technologies 1.3 Iida Group Holdings 0.7
Nidec 1.3 SWCC Showa 0.5
TKP 1.2 Shima Seiki 0.5
Topcon 1.2
MonotaRO 1.1
Mercari 1.1
Keyence 1.1
Raksul 1.1
SMC 0.9
Seria 0.9
Z Holdings 0.8
Broadleaf 0.7
Demae-can 0.7
M3 0.7
Pigeon 0.7
freee K.K. 0.6
Vector 0.6
Infomart 0.6
Digital Garage 0.5
Nihon M&A Center 0.5
Noritsu Koki 0.5
PeptiDream 0.5
Bengo4.com 0.5
Lifenet Insurance 0.4
BASE 0.4
Istyle 0.4
Rizap 0.4
Nippon Ceramic 0.3
47.5 13.9 16.2 22.4
( )
(1)Secular Growth: Opportunity to grow rapidly but where there are a number of
potential outcomes.
(2)Growth Stalwarts: Growth is less rapid but more predictable.
(3)Special Situations: Performance has not been good but there is a reason to
believe improvements are underway.
(4)Cyclical Growth: Earnings do not rise every year but are expected to be
higher from one cycle to the next
List of Investments at 31 August 2023
Name Business 2023 2023 Absolute* Relative*
Value
% of total performance performance
£'000
investments
% %
SoftBank Group Information, communication and utilities 45,420 5.3 3.7 (2.9)
Sumitomo Mitsui Trust Bank Financials 31,818 3.7 14.4 7.2
SBI Holdings Financials 29,900 3.5 (0.6) (6.9)
Rakuten Commerce and services 27,787 3.2 (24.6) (29.4)
FANUC Electricals and electronics 25,540 3.0 (17.8) (23.0)
Calbee Pharmaceuticals and food 25,206 2.9 (6.6) (12.5)
Sony Electricals and electronics 24,747 2.9 (4.1) (10.1)
GMO Internet Information, communication and utilities 23,367 2.7 (20.1) (25.1)
Kubota Manufacturing and machinery 22,831 2.7 (4.1) (10.2)
mixi Commerce and services 21,141 2.5 (7.9) (13.7)
Shiseido Manufacturing and machinery 20,502 2.4 (1.2) (7.4)
MS&AD Insurance Financials 19,159 2.2 14.9 7.7
Bridgestone Manufacturing and machinery 19,096 2.2 (4.4) (10.4)
DMG Mori Manufacturing and machinery 18,802 2.2 32.0 23.7
Itochu Commerce and services 18,735 2.2 28.3 20.3
Unicharm Chemicals and other materials 18,711 2.2 5.5 (1.2)
Nintendo Manufacturing and machinery 18,216 2.1 (1.1) (7.3)
CyberAgent Commerce and services 17,967 2.1 (40.2) (44.0)
Recruit Holdings Commerce and services 17,467 2.0 2.3 (4.1)
Sumitomo Metal Mining Chemicals and other materials 17,416 2.0 (6.9) (12.8)
Misumi Commerce and services 16,789 2.0 (7.9) (13.7)
Sato Manufacturing and machinery 16,497 1.9 (1.1) (7.3)
Pola Orbis Chemicals and other materials 15,795 1.8 8.8 2.0
Rohm Electricals and electronics 15,575 1.8 2.7 (3.7)
Sysmex Electricals and electronics 15,231 1.8 (20.6) (25.6)
Nifco Chemicals and other materials 13,839 1.6 20.9 13.3
DENSO Manufacturing and machinery 13,631 1.6 16.4 9.1
Oisix Retail 13,497 1.6 (24.0) (28.8)
Murata Manufacturing Electricals and electronics 12,898 1.5 (3.6) (9.7)
Tokyo Tatemono Real estate and construction 11,466 1.3 (17.0) (22.2)
GA Technologies Information, communication and utilities 11,348 1.3 (29.9) (34.3)
Nidec Electricals and electronics 11,261 1.3 (27.9) (32.4)
Colopl Information, communication and utilities 10,694 1.3 (18.8) (23.9)
TKP Real estate and construction 10,200 1.2 (3.0) (9.1)
Topcon Manufacturing and machinery 9,878 1.2 (17.4) (22.6)
MonotaRO Retail 9,652 1.1 (39.9) (43.7)
Mercari Information, communication and utilities 9,525 1.1 27.6 19.6
Keyence Electricals and electronics 9,481 1.1 0.6 (5.7)
Raksul Information, communication and utilities 9,150 1.1 14.0 6.9
Chugoku Marine Paints Chemicals and other materials 8,510 1.0 45.3 36.2
SMC Manufacturing and machinery 7,884 0.9 (6.2) (12.1)
Seria Retail 7,726 0.9 (24.6) (29.4)
Outsourcing Commerce and services 7,613 0.9 (16.3) (21.5)
Sugi Retail 7,174 0.8 (2.4) (8.5)
Z Holdings# Communication services 7,146 0.8 11.1† 2.4†
Kao# Chemicals and other materials 6,752 0.8 1.1† (9.3)†
Broadleaf Information, communication and utilities 6,278 0.7 (8.8) (14.6)
Demae-can# Information, communication and utilities 6,215 0.7 (20.2)† (31.1)†
Olympus# Pharmaceuticals and food 6,206 0.7 7.9† 2.7†
M3# Commerce and services 6,124 0.7 (4.0)† (5.7)†
Iida Group Holdings Real estate and construction 6,123 0.7 2.0 (4.4)
Pigeon Manufacturing and machinery 5,901 0.7 (27.0) (31.6)
Park24 Real estate and construction 5,420 0.6 (9.9) (15.6)
freee K.K. Information, communication and utilities 5,113 0.6 (11.1) (16.6)
Vector# Information, communication and utilities 4,787 0.6 (3.2)† (4.7)†
Infomart Commerce and services 4,763 0.6 (3.4) (9.5)
SWCC Showa# Electricals and electronics 4,637 0.5 (2.4)† (4.0)†
Digital Garage Information, communication and utilities 4,228 0.5 (15.6) (20.9)
Nihon M&A Center# Commerce and services 4,128 0.5 (9.9)† (15.6)†
Noritsu Koki Manufacturing and machinery 4,111 0.5 5.2 (1.4)
PeptiDream Pharmaceuticals and food 4,072 0.5 (2.8) (8.9)
Shima Seiki Manufacturing and machinery 4,017 0.5 (21.4) (26.4)
Bengo4.com Commerce and services 3,884 0.5 14.5 7.3
Lifenet Insurance# Financials 3,728 0.4 (3.2)† (1.4)†
BASE Information, communication and utilities 3,686 0.4 0.7 (5.7)
Istyle Information, communication and utilities 3,359 0.4 (15.1) (20.5)
Rizap Commerce and services 3,124 0.4 10.1 3.1
Nippon Ceramic Electricals and electronics 2,805 0.3 (10.5) (16.1)
Sawai Pharmaceutical Pharmaceuticals and food 2,737 0.3 2.2 (4.2)
Total investments 858,486 100.0
Net liquid assets 6,200
Total assets 864,686
Bank loans (131,723)
Equity shareholders' funds 732,963
* Absolute and relative performance have been calculated on a total return
basis over the period 1 September 2022 to 31 August 2023. 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.
# New purchase during the year. Complete sales in the year were Inpex, Lifull,
Makita, Secom, Shimano, Toyota Tsusho and Tsubaki Nakashima.
Source: Revolution/Baillie Gifford and relevant underlying index providers.
See disclaimer at the end of this announcement.
Past performance is not a guide to future performance.
Income Statement
For the year ended 31 August
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Losses on investments - (70,082) (70,082) - (174,357) (174,357)
Currency gains - 17,005 17,005 - 8,222 8,222
Income (note 2) 18,707 - 18,707 20,075 - 20,075
Investment management fee (note 3) (4,448) - (4,448) (4,802) - (4,802)
Other administrative expenses (688) - (688) (742) - (742)
Net return before finance costs 13,571 (53,077) (39,506) 14,531 (166,135) (151,604)
and taxation
Finance costs of borrowings (1,869) - (1,869) (1,866) - (1,866)
Net return before taxation 11,702 (53,077) (41,375) 12,665 (166,135) (153,470)
Tax (1,870) - (1,870) (2,004) - (2,004)
Net return after taxation 9,832 (53,077) (43,245) 10,661 (166,135) (155,474)
Net return per ordinary share (note 4) 10.52p (56.79p) (46.27p) 11.31p (176.19p) (164.88p)
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 the Company does not
have any other comprehensive income and the net return after taxation is both
the profit and total comprehensive income for the year.
The accompanying notes below are an integral part of the Financial Statements.
Balance Sheet
As at 31 August
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Fixed assets
Investments 858,486 930,354
Current assets
Debtors 1,811 2,185
Cash and cash equivalents 6,030 11,017
7,841 13,202
Creditors
Amounts falling due within one year (1,641) (94,895)
Net current assets/(liabilities) 6,200 (81,693)
Total assets less current liabilities 864,686 848,661
Creditors
Amounts falling due after more than one year (note 6) (131,723) (57,655)
Net assets 732,963 791,006
Capital and reserves
Share capital 4,717 4,717
Share premium account 213,902 213,902
Capital redemption reserve 203 203
Capital reserve 496,965 556,414
Revenue reserve 17,176 15,770
Shareholders' funds 732,963 791,006
Net asset value per ordinary share 787.7p 842.4p
Statement of Changes in Equity
For the year ended 31 August 2023
Share capital £'000 Share premium account £'000 Capital redemption reserve £'000 Capital reserve* Revenue reserve £'000 Shareholders' funds
£'000 £'000
Shareholders' funds at 1 September 2022 4,717 213,902 203 556,414 15,770 791,006
Shares bought back - - - (6,372) - (6,372)
Net return on ordinary activities after taxation - - - (53,077) 9,832 (43,245)
Dividends paid in the year - - - - (8,426) (8,426)
Shareholders' funds at 31 August 2023 4,717 213,902 203 496,965 17,176 732,963
For the year ended 31 August 2022
Share capital £'000 Share premium account £'000 Capital redemption reserve £'000 Capital reserve* Revenue reserve £'000 Shareholders' funds
£'000 £'000
Shareholders' funds at 1 September 2021 4,717 213,902 203 725,811 10,769 955,402
Shares bought back - - - (3,262) - (3,262)
Net return on ordinary activities after taxation - - - (166,135) 10,661 (155,474)
Dividends paid in the year - - - - (5,660) (5,660)
Shareholders' funds at 31 August 2022 4,717 213,902 203 556,414 15,770 791,006
* The capital reserve includes investment holding gains of £44,038,000 (2022
- £137,669,000). The revenue reserve of £17,176,000 and the capital reserve
(to the extent it constitutes realised profits) of £440,448,000 are
distributable.
Cash Flow Statement
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation (41,375) (153,470)
Net losses on investments 70,082 174,357
Currency gains (17,005) (8,222)
Finance costs of borrowings 1,869 1,866
Overseas withholding tax (1,912) (1,996)
Changes in debtors and creditors 373 (284)
Cash from operations 12,032 12,251
Interest paid (1,961) (1,827)
Net cash inflow from operating activities 10,071 10,424
Cash flows from investing activities
Acquisitions of investments (99,512) (197,244)
Disposals of investments 101,483 145,489
Net cash inflow/(outflow) from investing activities 1,971 (51,755)
Cash flows from financing activities
Shares bought back (7,926) (1,709)
Equity dividends paid (8,426) (5,660)
Bank loans drawn down 107,124 16,189
Bank loans repaid (106,131) -
Net cash (outflow)/inflow from financing activities (15,359) 8,820
Decrease in cash and cash equivalents (3,317) (32,511)
Exchange movements (1,670) (761)
Cash and cash equivalents at start of period 11,017 44,289
Cash and cash equivalents at end of period* 6,030 11,017
* Cash and cash equivalents represent cash at bank and short term money market
deposits repayable on demand.
Cash from operations includes dividends received of £19,122,000 (2022 -
£19,993,000) and interest received of £3,000 (2022 - nil).
Notes to the Financial Statements
1. The Financial Statements for the year to 31 August 2023 have been
prepared in accordance with FRS 102 'The Financial Reporting Standard
applicable in the UK and Republic of Ireland' on the basis of the accounting
policies set out below which are unchanged from the prior year and have been
applied consistently.
The Financial Statements have also been prepared in accordance with the
Companies Act 2006, and with the AIC's Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture Capital
Trusts' issued in November 2014 and updated in July 2022 with consequential
amendments.
All of the Company's operations are of a continuing nature and the Financial
Statements are prepared on a going concern basis under the historical cost
convention, modified to include the revaluation of fixed asset investments and
derivative financial instruments at fair value through profit or loss, and on
the assumption that approval as an investment trust under section 1158 of the
Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax)
Regulations 2011 will be retained. The Board has, in particular, considered
the impact of heightened market volatility and macroeconomic and geopolitical
concerns, including rising inflation and interest rates. It has reviewed the
results of specific leverage and liquidity stress testing and does not believe
the Company's going concern status is affected. In addition, the Company is
subject to an annual continuation vote which in previous years has been passed
with a significant majority. The Directors have
no reason to believe that the vote will not continue to be in favour based on
their assessment of the Company's performance and the views collated from
shareholders. 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.
The Company has continued to comply with the investment trust status
requirements of section 1158 of the Corporation Tax Act 2010 and the
Investment Trust (Approved Company) (Tax) Regulations 2011. The Company's
primary third party suppliers, including its Managers and Secretaries,
Depositary and Custodian, Registrar, Auditor and Broker, are not experiencing
significant operational difficulties affecting their respective services to
the Company.
In preparing these Financial Statements, the Directors have considered the
impact of climate change risk as a principal risk set out on page 39 of the
Annual Report and Financial Statements, and have concluded that it does not
have a material impact on the Company's investments. The Directors consider
the impact of climate change on the value of the investments included in the
Financial Statements to already include the impact in their prices as the
investments are quoted on a stock exchange.
Accordingly, the Financial Statements have been prepared on a going concern
basis as it is the Directors' opinion, having assessed the principal and
emerging risks and other matters set out in the Viability Statement on page 37
of the Annual Report and Financial Statements which assesses the prospects of
the Company over a period of five years, that the Company will continue in
operational existence until 30 November 2024, which is for a period of at
least twelve months from the date of approval of these Financial Statements.
In order to better reflect the activities of the Company and in accordance
with guidance issued by the AIC, supplementary information which analyses the
Income Statement between items of a revenue and capital nature has been
presented.
Financial assets and financial liabilities are recognised in the Company's
Balance Sheet when it becomes a party to the contractual provisions of the
instrument.
The Directors consider the Company's functional and presentation currency to
be sterling, (see consideration in accounting policy (j)) on page 85 of the
Annual Report and Financial Statements, as the Company's shareholders are
predominantly based in the UK, the Company pays its dividends and expenses in
sterling and the Company and its Investment Manager, who are subject to the
UK's regulatory environment, are also UK based.
2. Income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 18,704 20,073
Other income
Deposit interest 3 2
Total income 18,707 20,075
Special dividends received during the year amounted to £471,000 (2022 -
£66,000) with £471,000 (2022 - £66,000) classed as revenue and nil (2022 -
nil) classed as capital.
3. Investment Management Fee - All Charged to Revenue
2023 2022
£'000 £'000
Investment management fee 4,448 4,802
Details of the Investment Management Agreement are disclosed on page 50 of the
Annual Report and Financial Statements.
4. Net Return per Ordinary Share
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return per ordinary share on ordinary activities after taxation 10.52p (56.79p) (46.27p) 11.31p (176.19p) (164.88p)
Revenue return per ordinary share is based on the net revenue profit after
taxation of £9,832,000 (2022 - net revenue profit of
£10,661,000) and on 93,451,827 (2022 - 94,292,038) ordinary shares, being the
weighted average number of ordinary shares in issue (excluding treasury
shares) during the year.
Capital return per ordinary share is based on the net capital loss for the
financial year of £53,077,000 (2022 - net capital loss of
£166,135,000) and on 93,451,827 (2022 - 94,292,038) ordinary shares, being
the weighted average number of ordinary shares in issue (excluding treasury
shares) during the year.
Total return per ordinary share is based on the total loss for the financial
year of £43,245,000 (2022 - total loss of £155,474,000) and on 93,451,827
(2022 - 94,292,038) ordinary shares, being the weighted average number of
ordinary shares in issue (excluding treasury shares) during the year.
There are no dilutive or potentially dilutive shares in issue.
5. Ordinary Dividends
2023 2022 2023 2022
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final dividend (paid 21 December 2022) 9.00p 6.00p 8,426 5,660
2023 2022 2023 2022
£'000 £'000
Dividends paid and payable in respect of the year:
Current year's proposed final dividend (payable 20 December 2023) 10.00p 9.00p 9,305 * 8,426
* Based on ordinary shares in issue at 31 August 2023.
If approved, the recommended final dividend will be paid on 20 December 2023
to shareholders on the register at close of business on 17 November 2023. The
ex-dividend date is 16 November 2023. Further information can be found in the
Dividend section of the Chairman's Statement.
6. Total borrowings at 31 August 2023 were ¥24.3 billion (2022 - ¥24.1
billion) and a detailed in note 12 on page 89 of the Annual Report and
Financial Statements.
7. The transaction costs of purchases and sales were £34,000 (2022 -
£70,000) and £29,000 (2022 - £66,000) respectively.
8. In the year to 31 August 2023, 851,845 shares with a nominal value of
£42,600, representing 0.9% of the issued share capital at 31 August 2022,
were bought back at a cost of £6,372,000 and held in treasury (31 August 2022
- 428,750 shares with a nominal value of £22,000 representing 0.5% of the
issued share capital at 31 August 2021, were bought back at a cost of
£3,262,000 and held in treasury). At 31 August 2023, the Company had
authority to buy back 13,187,431 ordinary shares. Over the period from 1
September to 30 October a further 1,205,000 shares have been bought back and
held in treasury at a cost of £8,209,000.
In the year to 31 August 2023, the Company sold no ordinary shares from
treasury (2022 - no ordinary shares). The Company issued no further ordinary
shares (2022 - no ordinary shares). As at 31 August 2023 the Company had the
authority to issue 9,365,761 ordinary shares. Over the period from 1 September
2034 to 30 October 2023 no further shares were issued by the Company.
9. The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 August 2023 or 2022 but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the registrar of companies, and those for 2023 will be delivered in due
course. The Auditor has reported on those accounts; their reports were (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) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
10. The Annual Report and Financial Statements will be available on the
Company's page on the Managers' website japantrustplc.co.uk
(http://www.japantrustplc.co.uk/) ‡ on or around 9 November 2023.
‡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.
Glossary of Terms and Alternative Performance Measures ('APM')
Total Assets
The total value of all assets held less all liabilities (other than
liabilities in the form of borrowings).
Net Asset Value
Also described as shareholders' funds, 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
(excluding treasury shares). Borrowings are valued at their nominal par value.
Par value approximates to amortised cost. The Company's yen denominated loans
are valued at their sterling equivalent.
(Discount)/Premium (APM)
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.
31 August 31 August
2023
2022
Net asset value per share (a) 787.7p 842.4p
Share price (b) 735.0p 774.0p
Discount ((b) - (a)) ÷ (a) (6.7%) (8.1%)
Total Return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend.
2023 2023 2022 2022
NAV Share NAV Share
price price
Closing NAV per share/share price (a) 787.7p 735.0p 842.4p 774.0p
Dividend adjustment factor* (b) 1.0113 1.0113 1.0058 1.0059
Adjusted closing NAV per share/share price (c) = (a) x (b) 796.6p 743.3p 847.3p 778.6p
Opening NAV per share/share price (d) 842.4p 774.0p 1,012.8p 1,022.0p
Total return ((c) ÷ (d)) -1 (5.4%) (4.0%) (16.3%) (23.8%)
* The dividend adjustment factor is calculated on the assumption that the
dividend of 9.00p (2022 - 6.00p) paid by the Company during the year was
invested into shares of the Company at the cum income NAV per share/share
price, as appropriate, at the ex-dividend date.
Turnover
Annual turnover is calculated on a rolling 12 month basis. The lower of
purchases and sales for the 12 months is divided by the average assets, with
average assets being calculated on assets as at each month's end.
Ongoing Charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value.
2023 2022
£'000 £'000
Investment management fee 4,448 4,802
Other administrative expenses 688 742
Total expenses (a) 5,136 5,544
Average net asset value* (b) £764,686 £843,789
Ongoing charges (a) ÷ (b) expressed as a percentage 0.67% 0.66%
* Average of daily net asset values calculated during the year.
Gearing (APM)
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 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.
2023 2022
Gearing * Potential Gearing * Potential
£'000
gearing †
£'000
gearing †
£'000
£'000
Borrowings (a) 131,723 131,723 149,407 149,407
Cash and cash equivalents (b) 6,030 - 11,017 -
Shareholders' funds (c) 732,963 732,963 791,006 791,006
Gearing 17.1% 18.0% 17.5% 18.9%
* Gearing: ((a) - (b)) divided by (c), expressed as a percentage.
† Potential gearing: (a) divided by (c), expressed as a percentage.
Leverage (APM)
For the purposes of the UK Alternative Investment Fund Managers ('AIFM')
Regulations, 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 (APM)
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.
Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products marketed in the EU. As Baillie Gifford Japan is marketed in the EU by
the AIFM, Baillie Gifford & Co Limited, via the National Private Placement
Regime ('NPPR') the following disclosures have been provided to comply with
the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines
as its policy on integration of sustainability risks in investment decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing societal expectations. It defines 'sustainability' as a
deliberately broad concept which encapsulates a company's purpose, values,
business model, culture, and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build up an in-depth
knowledge of an individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors (environmental, social
and/or governance matters) which it believes will positively or negatively
influence the financial returns of an investment. The likely impact on the
return of the portfolio from a potential or actual material decline in the
value of investment due to the occurrence of an environmental, social or
governance event or condition will vary and will depend on several factors
including but not limited to the type, extent, complexity and duration of an
event or condition, prevailing market conditions and existence of any
mitigating factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its Investment Objective & Policy. Baillie Gifford &
Co can invest in any companies it believes could create beneficial long-term
returns for investors. However, this might result in investments being made in
companies that ultimately cause a negative outcome for the environment or
society.
More detail on the Investment Manager's approach to sustainability can be
found in the ESG Principles and Guidelines document, available publicly on the
Baillie Gifford website: bailliegifford.com. (http://www.bailliegifford.com)
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
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