Annual Financial Report

RNS Number : 3704S

Baillie Gifford Japan Trust PLC

05 November 2019

 

The Baillie Gifford Japan Trust PLC

Legal Entity Identifier: 54930037AGTKN765Y741

Regulated Information Classification: Annual Financial and Audit Reports

Annual Financial Report

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

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 August 2018 or 31 August 2019 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2018 and 2019; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 August 2018 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 August 2019 will be delivered to the Registrar in due course.

The Annual Report and Financial Statements for the year ended 31 August 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on Baillie Gifford Japan's page of the Baillie Gifford website at www.japantrustplc.co.uk 

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

Baillie Gifford & Co Limited

Company Secretaries

5 November 2019

Chairman's Statement

This has been a more downbeat year than we have been used to for the Japan Trust with net asset value total return (after deducting borrowings at fair value) falling 5.3% compared to the 0.5% fall in the benchmark TOPIX index total return (in sterling terms). After exceptional strength in 2018 the share price total return fell back by 7.4% to 791.0p, while the Company's shares continued to trade at a premium to NAV during most of the year (after deducting borrowings at fair value) registering a 0.2% premium at 31 August 2019.

Short term reverses are part and parcel of investing and our emphasis remains on the long-term investment strategy of the Japan Trust as seen in our strong five and ten year records. The Company's NAV has risen 123% over five years and 326% over ten years compared to the index total return of 76% over five years and 126% over ten years. The share price has risen 125% over five years and 416% over ten years. In recent years the Managers have enjoyed an extremely successful stock selection track record, bolstered by additional benefits from gearing. During the year to August 2019 this has not been the case, despite little change in stock selection, and the Manager still believes there remains significant potential for gains across our portfolio. As stock markets have been uneasy, gearing has also acted as a drag on performance rather than as a positive contributor. Further performance details are to be found in the Managers' Report below.

Investment income continued to rise, this time by £2.6 million to £13.5m for the year, due in the main to the continuing increase in dividends from our Japanese investments. Expenses fell by £0.23 million in the period, due mostly to lower management fees (down £0.2 million) as the reduced fee level on the first £50 million of assets came into play on 1 January 2019 (down to 0.75% from 0.95%). Overall revenue return per share was 5.18p (2018 - 2.54p) while ongoing charges for the year reduced slightly to 0.70% (2018 - 0.73%).

Gearing

Gearing amounted to 11% of shareholders' funds at the start of the year and ended the year at 12%. Gross borrowings in Yen remained stable at ¥16.5 billion (2018 - ¥16.5 billion), while the sterling value of these loans in the balance sheet rose to £127.6 million by the year-end (2018 - £114.5 million). Given the ongoing low cost of yen loans, we continue to believe that borrowing to invest in Japanese equities is a sensible strategy.

Dividend

The Company's objective is, and has always been, to achieve long term capital growth and investors should not expect to receive consistent income. Last year our longstanding revenue reserve deficit was extinguished and, with revenue income currently outweighing expenditure, we will distribute revenue reserves in line with the requirements of the Companies Act.

On that basis, a final dividend of 3.50p per ordinary share will be put to shareholders for approval at the Annual General Meeting to be held on 5 December 2019 and, if approved, will be paid on 13 December 2019 to shareholders on the register at the close of business on 15 November 2019. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. The shares will go ex-dividend on 14 November 2019. For those shareholders electing to receive the DRIP the last date for receipt of election is 22 November 2019.

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 2019, 1.965m shares were issued at a premium to net asset value raising proceeds of £15.6m, continuing the trend of recent years. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting and we would continue to issue shares only when at a premium to net asset value. This authority would expire at the conclusion of the Annual General Meeting in 2020.

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 5 December 2019. Last year, the Company again received support for its continuation. Your Directors still believe there are still 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 for a balance of skills, experience, diversity and length of service amongst its Non-Executive Directors, all of which forms part of our succession planning discussions during Nomination Committee meetings. Given the above, and having overseen the changing of the guard from Sarah Whitley to Matthew Brett as Portfolio Manager, closely followed by appointments of two outstanding female Non-Executive Directors, I am standing down as your Chairman at the AGM.

I have served on the Board since 2003, and been your Chairman for 5 years witnessing significant growth of the fund in that period and leave the Company in the excellent hands of both Matthew Brett as Manager and Keith Falconer as Chairman. Keith steps up from chairing the Audit Committee to be succeeded by Sharon Brown who, following a robust recruitment process earlier in the year, joined our Board on 3 October and will become Audit Chair after the AGM. We are delighted to welcome Sharon to the Board and I look forward to observing as a shareholder in the years ahead as she, Keith and the rest of your Board continue to provide excellent stewardship for Baillie Gifford Japan Trust.

Outlook

The Trust invests for the medium to longer term and on this basis our Managers have continued to find interesting companies operating in both domestic and export markets in which to invest. The Trust has enjoyed success with their 'bottom-up' approach to stock picking which has added significantly to the value of the portfolio and we, as a Board, believe there remain numerous opportunities for investment in Japanese companies able to capitalise on the changes within the wider economy. Although the Trust concentrates much more closely on micro than macro issues, it is worth reflecting on some of the latter given that Prime Minister Shinzo Abe has two years left in power as leader of the ruling Liberal Democratic Party making him Japan's longest serving Prime Minister. He remains pro-growth and pro-business, and is expected to bring a renewed focus on structural reform, entrepreneurship and industrial reorganisation while maintaining a high level of economic policy coordination. In October, the Government raised the sales tax from 8% to 10% which may impact consumer spending in the short term. However, the labour market continues to tighten 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 and we see ongoing progress in this area. Your Trust continues to examine attitudes to corporate governance in the companies considered for investment.

A significant boost to the country's morale was felt in May when Crown Prince Naruhito acceded to the throne on the abdication of His Majesty Emperor Akihito, ushering in the new Reiwa era, meaning beauty and harmony. The onset of the new era is expected to encourage a fresh focus on innovation and revitalisation of the economy.

As was the case in my last report, there remain some political tensions in the region. The deterioration in US-China trade relations has increased US pressure on its trade relations with Japan, and a downturn in Japan-South Korea relations is straining US-Japan-South Korea cooperation over East Asian security issues. Ongoing missile testing by North Korea is adding to tensions. Despite these macro issues, we remain positive on the outlook for investments in the Baillie Gifford Japan Trust portfolio over the medium to longer term.

Nick AC Bannerman

Chairman

8 October 2019

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.

 

Managers' Report

Philosophy

We manage the Trust with three central philosophies. First, we believe in actual long-term growth investing. Second, Baillie Gifford is a partnership with a sole focus on asset management. Finally, we believe that the investment trust structure is an excellent vehicle for compounding wealth. Each of these points was discussed in more detail in the 2018 annual report.

Performance

Over the past year the NAV per share with borrowings deducted at fair value has decreased by 5.3% to 789.3p lagging the fall in the Company's benchmark of 0.5%. The journey was volatile with the NAV falling by 16.0% to 700.2p during the first half of the company's year, before rising 12.7% during the second half to 789.3p at the year-end. As we noted last year, following a year when performance was significantly ahead of the benchmark, Baillie Gifford believes that performance should be measured over longer periods. Over five years the NAV has outpaced the benchmark by 7.8% p.a. and over ten years by 9.4% p.a., demonstrating the benefit to shareholders of an active, long-term, growth-orientated approach to investing. Volatility and short-term setbacks are inevitable when pursuing this approach but this, in our view, should not distract from the significant value that can be created over the long-term.

The Company's total assets reduced slightly from £870.6 million to £859.7 million. The reduction was a combination of a negative return from the portfolio in Yen terms, exacerbated by gearing, which was partly offset by weakness in Sterling. As was the case last year, 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 an idea where we have strong conviction.

The largest contributor to performance this year was Rakuten, mainly an online retail and finance company. It has made significant progress in its plans to launch a mobile phone network in Japan while other parts of the business continue to perform. Aside from this we had helpful contributions from Advantest, the chip-testing company, where demand and profits surged during the year; and Pan Pacific Holdings, the retailer formerly named Don Quijote, who made a significant acquisition to grow the size of the business.

On the other hand, the two largest negative contributors to performance this year were Outsourcing and ZOZO (formerly named Start Today). Both remain in the top ten positive contributors to performance over the past five years, so this year appears to be a reversal of the previous positive trend.

Outsourcing is a staffing business run by the entrepreneur Mr Doi, who owns a little over 12% of the company. It has grown its sales 7-fold and operating profits 13-fold over the past 5 years. Despite continuing to grow, the shares were weak due to the perception that tougher macro conditions might impact the business. We remain very happy to continue to back the founder and increased the company's shareholding this year.

ZOZO is an online fashion retailer run by the entrepreneur Mr Maezawa, who owns 36% of the company. It has experienced significant success over the past several years but recent attempts to innovate have been less successful. It also gave us cause for concern when the Board decided to approve an options package to Mr Maezawa that seemed excessive relative to the performance hurdles needed to achieve it. We reduced the holding during the year. Subsequently there has been a bid for majority control of the company by the SoftBank controlled Yahoo Japan so we may end up continuing to own the business indirectly.

Portfolio Positioning

As in last year's report, the portfolio is grouped into Secular Growth, Growth Stalwarts, Special Situations and Cyclical Growth reflecting our process. Secular Growth stocks remain the core of the portfolio, comprising a little over 55% at the year end. These businesses are those that we believe have the highest potential growth but where there is also the greatest uncertainty as they are often operating in rapidly evolving markets. Most of the internet businesses, factory automation businesses and emerging healthcare stocks sit within this grouping. Around 29% of the portfolio is in internet related businesses and a further 16% in automation related businesses. Both are areas that we believe will show significant growth for a long period of time and where we can find exceptional quality businesses.

SoftBank, the strategic holding company, remains the single largest stock position. There are three parts to the investment case that mutually strengthen each other. First, excellent underlying assets. These include a large stake in Alibaba (China's largest e-commerce company) and many exciting investments in the Vision Fund including ARM (which designs chips for mobile phones) and significant stakes in ride-sharing businesses. Given the scale of the company's investments there will always be headlines about some individual holding having a problem but taken in the round we are in no doubt that SoftBank has a high-quality portfolio. Second, if we compare the total value of the assets held by SoftBank with the market capitalisation of the company a large discount exists, in our opinion more than 40%. Indeed, the stake in Alibaba alone is roughly equivalent to the market capitalisation of SoftBank. Third, we think founder entrepreneur Mr Son is a an extremely value-added manager and will continue to be so. Over a nearly forty-year period he has achieved a hugely successful investment record with the result that his holding in the company is worth $19 billion alone.

Smartphone orientated computer games companies were a fertile area of opportunity during the year. We bought two new holdings, Mixi and Gree, and made significant additions to existing holding Colopl. Each of these businesses benefits from having the founder as a major shareholder and a good record of innovation in the past. Yet each has found the last few years challenging as they have not managed to generate hit games or new businesses to rival past successes. This has resulted in the shares seemingly taking little account of the future growth prospects for the businesses. Over the last year we have been regularly able to buy shares at such anomalous prices that fully two-thirds of the market capitalisation of the business has been covered by net cash on the balance sheet. Successful innovation and profit growth at any of these companies has the potential to drive a much more positive and appropriate perception in our view.

In total we bought 6 new holdings and sold 7. Turnover was 11.5% during the year. Given that we started the year with 70 holdings, by name we have retained 90% of last years' portfolio. This is entirely deliberate. As actual investors our starting point is that most of the portfolio value-added will come from the long-term holding of exceptional businesses. Charlie Munger, vice chairman of the well-known Berkshire Hathaway, noted in a lecture 'when you analyse what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high quality businesses.' It also means that you as an investor in the shares of the Japan Trust can have a degree of conviction in the type of portfolio that you are buying into. It is highly unlikely that next year's portfolio is going to be radically different to this one.

Outlook

The outlook for the global and Japanese economies remains, as ever, uncertain. However, we believe that a selected portfolio of growing businesses retains the capability of growing shareholders wealth over time. When we consider the quality of the companies in your portfolio we look to the future with optimism and

confidence.

Baillie Gifford

8 October 2019

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.

 

Equity Portfolio by Growth Category

As at 31 August 2019

Secular Growth*	% of total    assets		Growth Stalwarts*	% of total assets		Special Situations*	% of total assets		Cyclical Growth*	% of total assets
Rakuten	3.7		Nitori	1.5		SoftBank	6.0		Itochu	2.1
SBI	2.8		Zenkoku Hosho	1.4		Sony	2.4		Disco	1.7
M3	2.6		Park24	1.0		Colopl	1.7		Sumitomo Metal Mining	1.6
Kubota	2.5		Makita	0.7		Tokyo Tatemono	1.5		Sumitomo Mitsui Trust	1.6
GMO Internet	2.4		Mitsubishi UFJ Lease &    Finance	0.7		Mixi	1.5		Mitsubishi Electric	1.5
CyberAgent	2.4					Gree	0.8		Nifco	1.3
FANUC	2.3		Fukuoka Financial	0.6		Rohm	0.8		Murata Manufacturing	1.2
Yaskawa Electric	2.2		Asics	0.6		JAFCO	0.8		DMG Mori	1.2
Sysmex	2.2		Sawai Pharmaceutical	0.5					Invincible Investment	1.2
Misumi	2.2		Secom	0.5					Advantest	1.0
Inpex	2.1								Iida	0.9
Nidec	2.0								Mazda Motor	0.9
SMC	1.9								Katitas	0.6
Shimadzu	1.7
ZOZO	1.7
Sato	1.7
Recruit Holdings	1.5
Outsourcing	1.5
H.I.S.	1.3
MonotaRO	1.2
Infomart	1.2
Topcon	1.1
Pan Pacific   International	1.1
Toyota Tsusho	1.1
Subaru	1.0
Digital Garage	1.0
Peptidream	0.9
iStyle	0.9
Broadleaf	0.8
Lifull	0.8
Keyence	0.7
Mercari	0.5
Nippon Ceramic	0.5
Yume No Machi	0.5
Shimano	0.4
Noritsu Koki	0.4
Cyberdyne	0.3
Rizap	0.2
Healios K.K.	0.2
Total	55.5		Total	7.5		Total	15.5		Total	16.8

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

Stock Level Attribution

Top Ten Relative Stock Contributors Year to 31 August 2019

Bottom Ten Relative Stock Contributors Year to 31 August 2019

Name	Portfolio (average weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average weight) %	Index (average weight) %	Contribution %
Rakuten	4.0	0.2	1.1		Outsourcing	2.2	0.0	(1.5)
Advantest	1.2	0.1	0.8		ZOZO	2.1	0.1	(1.2)
Pan Pacific International	2.1	0.2	0.8		SBI	3.8	0.1	(0.8)
Invincible Investment	1.2	0.0	0.5		iStyle	1.2	0.0	(0.7)
Itochu	2.3	0.6	0.4		Toyota Motor	0.0	3.3	(0.5)
SoftBank	7.0	1.8	0.4		Sysmex	2.5	0.2	(0.5)
Infomart	1.2	0.0	0.4		CyberAgent	2.6	0.1	(0.5)
SMC	2.0	0.5	0.3		Daiichi Sankyo	0.0	0.6	(0.4)
GMO Internet	2.4	0.0	0.3		Inpex	2.8	0.3	(0.4)
Peptidream	0.9	0.1	0.3		Topcon	1.4	0.0	(0.4)

Top Ten Relative Stock Contributors 5 years to 31 August 2019

Bottom Ten Relative Stock Contributors 5 years to 31 August 2019

Name	Portfolio (average weight) %	Index (average weight) %	Contribution %		Name	Portfolio (average weight) %	Index (average weight) %	Contribution %
Yaskawa Electric	2.6	0.1	2.5		Mazda Motor	1.5	0.2	(1.3)
CyberAgent	2.5	0.1	2.0		Inpex	2.1	0.3	(1.2)
Outsourcing	2.0	0.0	1.9		Modec	0.5	0.0	(0.8)
Pan Pacific International	2.3	0.1	1.8		H.I.S.	2.1	0.0	(0.8)
Misumi	2.8	0.1	1.8		Nintendo	0.0	0.8	(0.7)
Katitas	0.4	0.0	1.6		Tokyo Tatemono	1.8	0.1	(0.7)
ZOZO	2.3	0.1	1.6		Daiichi Sankyo	0.0	0.4	(0.7)
M3	2.6	0.1	1.6		Sumitomo Mitsui Trust	2.0	0.4	(0.6)
Pigeon	1.8	0.1	1.5		Takara Leben	0.7	0.0	(0.6)
Shimadzu	2.0	0.1	1.5		Asics	1.3	0.1	(0.6)

Source: StatPro and relevant underlying index providers. The 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 2019

>10 years	% of total assets			5-10 years	% of total assets			2-5 years	% of total assets			<2 years	% of total assets
Rakuten	3.7			SoftBank	6.0			FANUC	2.3			Sato	1.7
SBI	2.8			M3	2.6			Nidec	2.0			Mixi	1.5
Kubota	2.5			Sony	2.4			Colopl	1.7			Zenkoku Hosho	1.4
Sysmex	2.2			GMO Internet	2.4			Recruit Holdings	1.5			DMG Mori	1.2
Misumi	2.2			CyberAgent	2.4			Outsourcing	1.5			Gree	0.8
Inpex	2.1			Yaskawa Electric	2.2			MonotaRO	1.2			Rohm	0.8
Itochu	2.1			ZOZO	1.7			Murata	1.2			JAFCO	0.8
SMC	1.9			Disco	1.7			Infomart	1.2			Makita	0.7
Shimadzu	1.7			Sumitomo Metal Mining	1.6			Invincible Investment	1.2			Katitas	0.6
Mitsubishi Electric	1.5			Sumitomo Mitsui Trust	1.6			Topcon	1.1			Mercari	0.5
Tokyo Tatemono	1.5			Toyota Tsusho	1.1			Iida	0.9			Yume No Machi	0.5
Nitori	1.5			Subaru	1.0			Peptidream	0.9			Shimano	0.4
Nifco	1.3			Digital Garage	1.0			iStyle	0.9			Noritsu Koki	0.4
H.I.S.	1.3			Park24	1.0			Keyence	0.7			Rizap	0.2
Pan Pacific International	1.1			Advantest	1.0			Secom	0.5			Total	11.5
Mitsubishi UFJ Lease & Finance	0.7			Mazda Motor	0.9			Nippon Ceramic	0.5
Fukuoka Financial	0.6			Broadleaf	0.8			Cyberdyne	0.3
Asics	0.6			Lifull	0.8			Healios K.K.	0.2
Total	31.3			Sawai Pharmaceutical	0.5			Total	19.8
				Total	32.7
												Stocks bought within the past year.

List of Investments as at 31 August 2019

Name	Business	Value £'000	% of  total assets	Absolute Performance† %	Relative Performance† %
SoftBank	Telecom operator and technology investor	51,909	6.0	4.8	5.4
Rakuten	Internet retail and financial services	31,432	3.7	31.9	32.7
SBI	Online financial services	23,926	2.8	(19.9)	(19.5)
M3	Online medical services	22,154	2.6	3.1	3.6
Kubota	Agricultural machinery	21,215	2.5	(0.2)	0.3
Sony	Consumer electronics, films and finance	20,659	2.4	6.8	7.4
GMO Internet	Internet conglomerate	20,614	2.4	9.5	10.1
CyberAgent	Japanese internet advertising and content	20,587	2.4	(15.1)	(14.7)
FANUC	Robotics manufacturer	19,616	2.3	(1.2)	(0.6)
Yaskawa Electric	Specialist factory automation	19,230	2.2	8.2	8.8
Sysmex	Medical testing equipment	19,191	2.2	(20.9)	(20.5)
Misumi	Online distributor of precision machinery parts	18,849	2.2	(5.5)	(5.0)
Inpex	Oil and gas producer	18,463	2.1	(14.0)	(13.5)
Itochu	General trading firm	18,437	2.1	26.2	26.9
Nidec	Specialist motors	17,170	2.0	(3.5)	(2.9)
SMC	Producer of factory automation equipment	16,085	1.9	22.2	22.9
Shimadzu	Precision tools and equipment maker	14,920	1.7	(9.9)	(9.4)
ZOZO	Internet fashion retailer	14,889	1.7	(37.7)	(37.4)
Sato	Barcode and RFID technology	14,728	1.7	(16.2)	(15.7)
Colopl	Smartphone gaming and virtual reality (VR)	14,455	1.7	7.6	8.2
Disco	Specialist cutting for semiconductors	14,318	1.7	10.1	10.7
Sumitomo Metal Mining	Smelting and copper, nickel and gold mining	14,045	1.6	(5.5)	(5.0)
Sumitomo Mitsui Trust	Japanese trust bank and investment manager	13,827	1.6	(10.5)	(10.0)
Mitsubishi Electric	Develops, manufactures and markets   electronic equipment	13,315	1.5	(2.1)	(1.6)
Recruit Holdings	Property, lifestyle and HR media	13,228	1.5	6.8	7.4
Outsourcing	Employment placement services	12,954	1.5	(47.3)	(47.0)
Tokyo Tatemono	Property leasing & development	12,695	1.5	16.7	17.4
Nitori	Furniture retail chain	12,649	1.5	1.9	2.5
Mixi	Mobile gaming	12,507	1.5	15.9*	3.1*
Zenkoku Hosho	Speciality finance	11,888	1.4	2.3	2.9
Nifco	Value-added plastic car parts	11,516	1.3	(9.0)	(8.5)
H.I.S.	Discount travel agency and theme parks	11,350	1.3	(20.1)	(19.7)
MonotaRO	Online business supplies	10,442	1.2	(7.3)	(6.8)
Murata Manufacturing	Manufactures and sells ceramic applied   electronic components	10,027	1.2	(21.1)	(20.7)
DMG Mori	Machine tool manufacturer	9,956	1.2	11.1*	5.5*
Infomart	Internet platform for restaurant supplies	9,935	1.2	33.4	34.2
Invincible Investment	Real estate investment trust	9,910	1.2	55.4	56.2
Topcon	GPS systems	9,442	1.1	(28.0)	(27.6)
Pan Pacific International	Discount store chain	9,298	1.1	38.0	38.7
Toyota Tsusho	Markets automobiles and other products,   Africa focus	9,138	1.1	(0.7)	(0.2)
Subaru	Niche car brand	8,961	1.0	0.6	1.2
Digital Garage	Internet business investor	8,604	1.0	2.6	3.2
Park24	Parking, car hire and sharing	8,288	1.0	(23.8)	(23.4)
Advantest	Semiconductor testing services	8,209	1.0	87.3	88.3
Iida	Japanese house builder	8,097	0.9	(7.5)	(7.0)
Mazda Motor	Car manufacturer	7,997	0.9	(21.0)	(20.6)
Peptidream	Drug discovery and development platform	7,786	0.9	43.1	43.8
iStyle	Beauty product review website	7,729	0.9	(46.0)	(45.7)
Gree	Mobile gaming	7,179	0.8	15.1*	7.5*
Broadleaf	Online platform for buying car parts	7,140	0.8	(12.6)	(12.1)

List of Investments as at 31 August 2019 (Ctd)

Name	Business	Value    £'000	% of total assets	Absolute† Performance %		Relative† Performance %
Lifull	Provides online property information	6,878	0.8	7.8		8.4
Rohm	Electronic component manufacturer	6,767	0.8	16.0*		11.5*
JAFCO	Forms venture capital groups	6,668	0.8	3.0		3.6
Makita	Manufactures power tools	6,102	0.7	(4.1)*		(7.2)*
Mitsubishi UFJ Lease &   Finance	Leasing services	5,762	0.7	6.2		6.8
Keyence	Manufacturer of sensors	5,742	0.7	11.8		12.4
Fukuoka Financial	Regional bank	5,374	0.6	(32.6)		(32.3)
Katitas	Real estate services	5,248	0.6	28.6		29.3
Asics	Sports shoes and clothing	5,087	0.6	(6.3)		(5.8)
Sawai Pharmaceutical	Generic pharmaceuticals	4,712	0.5	8.2		8.8
Secom	Security services	4,530	0.5	12.3		12.9
Mercari	Software development services	4,181	0.5	(21.0)		(20.6)
Nippon Ceramic	Electronic component manufacturer	4,094	0.5	1.6		2.1
Yume No Machi	Online meal delivery service	3,946	0.5	16.0*		9.6*
Shimano	Cycling component manufacturer	3,886	0.4	0.2		0.8
Noritsu Koki	Holding company with interests in biotech   and agricultural products	3,551	0.4	(30.9)		(30.5)
Cyberdyne	Medical exo-skeletons	2,690	0.3	(18.2)		(17.8)
Rizap	Low calories food supplier and fitness gym   operator	1,802	0.2	(61.4)		(61.2)
Healios K.K.	Regenerative medicine	1,667	0.2	(20.9)		(20.5)
Total Investments		819,646	95.3
Net Current Assets (excluding bank loans)		40,100	4.7
Total Assets		859,746	100.0
Bank Loans		(127,641)	(14.8)
Shareholders' Funds		732,105	85.2

†    Absolute and relative performance has been calculated on a total return basis over the period 1 September 2018 to 31 August 2019. For investments held for part of the year, the return is for the period they were held. Absolute performance is in sterling terms; relative performance is against TOPIX total return (in sterling terms).

*     Figures relate to part period returns.

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

Past performance is not a guide to future performance.

Key Performance Indicators

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

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

- the movement in the share price;

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

- the ongoing charges.

An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

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

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

Future Developments of the Company

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

Related Party Transactions

The Directors' fees for the year and Directors' shareholdings at 31 August 2019 are detailed in the Directors' Remuneration Report on pages 28 and 29 of the Annual Report and Financial Statements respectively. No Director has a contract of service with the Company.

The management fee due to Baillie Gifford and Co Limited is set out in note 3 below and the amount accrued at 31 August 2019 is set out in note 11 on page 44 of the Annual Report and Financial Statements. Details of the Investment Management Agreement are set out below.

Investment Management Fee

The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Management Agreement is terminable on not less than 6 months' notice or on shorter notice in certain circumstances. Compensation would only be payable if termination occurred prior to the expiry of the notice period. Careful consideration has been given by the Board as to the basis on which the management fee is charged. The Board considers that maintaining a relatively low ongoing charges ratio is in the best interests of the shareholders. The Board is also of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence over the long term performance. With effect from 1 January 2019, the annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets, calculated and payable quarterly. Prior to 1 January 2019, the annual management fee was 0.95% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets.

The details of the management fee are as follows:

	2019 £'000		2018 £'000
Investment management fee	4,149		4,354

Principal Risks

As explained on pages 24 and 25 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. There have been no significant changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below:

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

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

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

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

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber security incidents. To mitigate this risk, the Audit Committee receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's 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.

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

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

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

Political Risk - political change in areas in which the Company invests or may invest may have practical consequences for the Company. To mitigate this risk developments are closely monitored and considered by the Board. The Board continues to monitor developments as they occur regarding the UK Government's intention that the UK should leave the European Union and to assess the potential consequences for the Company's future activities. Whilst there remains considerable uncertainty at present, the Board believes that the Company's portfolio, which comprises companies which are incorporated or domiciled in Japan, positions the Company to be suitably insulated from Brexit-related risk.

The Company's maximum and actual leverage levels, (see Glossary of Terms and Alternative Performance Measures at the end of this announcement) at 31 August 2019 are shown below:

			Gross method	Commitment method
Maximum limit			2.50:1	2.00:1
Actual			1.17:1	1.17:1

Viability Statement

Notwithstanding that the continuation vote of the Company is subject to the approval of shareholders annually, the Directors have, in accordance with provision C2.2 of the 2016 UK Corporate Governance Code, assessed the prospects of the Company over a period of five years from the Balance Sheet date. The Directors continue to believe this period to be appropriate as it reflects the Company's longer term investment strategy and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the effectiveness of the controls employed to mitigate those risks. Furthermore, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a period of five years.

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

The Board has considered the Company's leverage and liquidity in the context of its borrowings. Specific leverage and liquidity stress testing was conducted during the year. The leverage stress testing identified the impact of leverage in scenarios where gross assets fall by 25% and 50%, reflecting a range of market conditions that may adversely impact the portfolio. The liquidity stress testing identified the reduction in value of assets that can be liquidated within one month that would result in the value of those assets falling below the value of the borrowings. The stress testing did not indicate any matters of concern.

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

Brexit - as a UK listed company, the Board and Managers have considered the implications of Brexit. Around half the Company's investments are domestically focused within Japan and the remaining holdings have minimal exposure to the UK. As the Company is priced in sterling, large movements in the yen/sterling exchange rate, which may arise as a result from Brexit, could affect the Company's NAV. The Board is therefore not concerned about the impact of Brexit on the portfolio.

Going Concern

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained below. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis.

In accordance with the Company's Articles of Association, shareholders have the right to vote annually at the Annual General Meeting on whether to continue the Company. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of the Financial Statements. If the continuation resolution is not passed, the Articles provide that the Directors shall convene a General Meeting within three months at which a special resolution will be proposed to wind up the Company voluntarily. If the Company is wound up, its investments may not be realised at their full market value.

Financial Instruments

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

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

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

Market Risk

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

(i) Currency Risk

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

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

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

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

At 31 August 2019	Investments £'000		Cash and cash equivalents £'000		Bank loans £'000		Other debtors and creditors* £'000		Net exposure £'000
Yen	819,646		40,316		(71,943)		(54,816)		733,203
Total exposure to   currency risk	819,646		40,316		(71,943)		(54,816)		733,203
Sterling	-		(13)		-		(1,085)		(1,098)
	819,646		40,303		(71,943)		(55,901)		732,105

* Includes net non-monetary assets of £96,000.

At 31 August 2018	Investments £'000		Cash and cash equivalents £'000		Bank loans £'000		Other debtors and creditors* £'000		Net exposure £'000
Yen	842,045		27,728		(114,486)		1,933		757,220
Total exposure to      currency risk	842,045		27,728		(114,486)		1,933		757,220
Sterling	-		60		-		(1,176)		(1,116)
	842,045		27,788		(114,486)		757		756,104

* Includes net non-monetary assets of £37,000.

Currency Risk Sensitivity

At 31 August 2019, if sterling had strengthened by 10% against the yen, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have decreased by £73,320,000 (2018 - £75,722,000). A 10% weakening of sterling against the yen, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have had a similar but opposite effect on the Financial Statement amounts.

(ii) Interest Rate Risk

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

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

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

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

The interest rate risk profile of the Company's interest bearing financial assets and liabilities at 31 August 2019 is shown below.

Financial Assets

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

Financial Liabilities

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

	2019			2018
	Book value £'000	Weighted average interest rate	Weighted average period until maturity	Book value £'000	Weighted average interest rate	Weighted average period until maturity
Bank Loans:
Yen denominated	127,641	2.0%	41 months	114,486	2.0%	53 months

Interest Rate Risk Sensitivity

An increase of 100 basis points in interest rates, with all other variables held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 August 2019 by £460,000 (2018 - £156,000). This is mainly due to the Company's exposure to interest rates on its revolving bank loans and cash balances. A decrease of 100 basis points would have had an equal but opposite effect. The Company does not hold bonds.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 9 of the Annual Report and Financial Statements.

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

Other Price Risk Sensitivity

A full list of the Company's investments is shown above. In addition, various analyses of the portfolio by growth category, length of time held, industrial sector and exchange listing are shown above.

112.0% (2018 - 111.4%) of the Company's net assets are invested in Japanese quoted equities. A 10% increase in quoted equity valuations at 31 August 2018 would have increased total net assets and net return on ordinary activities after taxation by £81,965,000 (2018 - £84,205,000). A decrease of 10% would have had an equal but opposite effect.

Liquidity Risk

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

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

The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's borrowing facilities are detailed in note 12 of the Annual Report and Financial Statements.

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

	2019 £'000	2018 £'000
In less than one year	55,698	-
In more than one year, but not more than five years	-	49,958
In more than five years	71,943	64,528
	127,641	114,486

Credit Risk

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

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

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

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

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

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

Credit Risk Exposure

The exposure to credit risk at 31 August was:

	2019 £'000	2018 £'000
Cash and cash equivalents	40,303	27,788
Debtors	1,403	4,647
	41,706	32,435

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

Fair Value of Financial Assets and Financial Liabilities

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

	2019		2018
	Book Value £'000	Fair* Value £'000	Book Value £'000	Fair* Value £'000
Yen bank loans	127,641	130,192	114,486	116,111

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

Capital Management

The Company does not have any externally imposed capital requirements other than the loan covenants detailed in note 12 on page 44 of the Annual Report and Financial Statements. The capital of the Company is the ordinary share capital as detailed in note 13 of the Annual Report and Financial Statements. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 7 of the Annual Report and Financial Statements, and shares may be repurchased or issued as explained on page pages 21 and 22 of the Annual Report and Financial Statements.

Fair Value of Financial Instruments

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

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

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

observable (based on market data); and

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

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

The financial assets designated as valued at fair value through profit or loss are all categorised as Level 1 in the above hierarchy (2018 - same). None of the financial liabilities are designated at fair value through profit or loss in the Financial Statements.

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

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

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they are required to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards, including FRS 102, the Financial Reporting Standard Applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

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

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

¾ assess the Company's ability to continue as a going concern, disclosing as applicable, matters related to going concern; and

¾ use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

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

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

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm to the best of our knowledge:

- 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;

- 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 the Company faces; and

¾ we consider 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.

On behalf of the Board

Nick AC Bannerman

8 October 2019

 

Income Statement

	For the year ended 31 August 2019			For the year ended 31 August 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(34,974)	(34,974)	-	124,982	124,982
Currency (losses)/gains	-	(8,815)	(8,815)	-	581	581
Income (note 2)	13,498	-	13,498	10,874	-	10,874
Investment management fee (note 3)	(4,149)	-	(4,149)	(4,354)	-	(4,354)
Other administrative expenses	(654)	-	(654)	(678)	-	(678)
Net return before finance costs and taxation	8,695	(43,789)	(35,094)	5,842	125,563	131,405
Finance costs of borrowings	(2,589)	-	(2,589)	(2,521)	-	(2,521)
Net return on ordinary activities before taxation	6,106	(43,789)	(37,683)	3,321	125,563	128,884
Tax on ordinary activities	(1,351)	-	(1,351)	(1,087)	-	(1,087)
Net return on ordinary activities after taxation	4,755	(43,789)	(39,034)	2,234	125,563	127,797
Net return per ordinary share (note 4)	5.18p	(47.70p)	(42.52p)	2.54p	142.51p	145.05p
Note: Dividends payable in respect of the year (note 5)	3.50p			0.60p

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 as at 31 August

	At 31 August 2019		At 31 August 2018
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		819,646		842,045
Current assets
Debtors	1,508		4,700
Cash and cash equivalents	40,303		27,788
	41,811		32,488
Creditors
Amounts falling due within one year	(1,711)		(3,943)
Bank loans falling due within one year (note 6)	(55,698)		-
	(57,409)		(3,943)
Net current (liabilities)/assets		(15,598)		28,545
Total assets less current liabilities		804,048		870,590
Creditors
Amounts falling due after more than one year (note 6)		(71,943)		(114,486)
Net assets		732,105		756,104
Capital and reserves
Share capital		4,621		4,523
Share premium account		190,939		175,455
Capital redemption reserve		203		203
Capital reserve		531,587		575,448
Revenue reserve		4,755		475
Shareholders' funds		732,105		756,104
Net asset value per ordinary share*		792.1p		835.8p
Ordinary shares in issue (note 8)		92,424,925		90,459,925

*          See Glossary of Terms and Alternative Performance Measures (APM) at the end of this announcement.

 

Statement of Changes in Equity

For the year ended 31 August 2019

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2018	4,523	175,455	203	575,448	475	756,104
Shares issued	98	15,484	-	-	-	15,582
Net return on ordinary activities after taxation	-	-	-	(43,789)	4,755	(39,034)
Dividends paid in the year	-	-	-	(72)	(475)	(547)
Shareholders' funds at 31 August 2019	4,621	190,939	203	531,587	4,755	732,105

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

^* The capital reserve balance as at 31 August 2019 includes investment holding gains of £304,236,000 (2018 - £393,653,000).

 

Cash Flow Statement

	At 31 August 2019		At 31 August 2018
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	(37,683)		128,884
Net losses/(gains) on investments	34,974		(124,982)
Currency losses/(gains)	8,815		(581)
Finance cost of borrowings	2,589		2,521
Overseas withholding tax	(1,311)		(1,051)
Changes in debtors and creditors	(480)		(76)
Cash from operations		6,904		4,715
Interest paid		(2,527)		(2,292)
Net cash inflow from operating activities		4,377		2,423
Cash flows from investing activities
Acquisitions of investments	(110,202)		(183,574)
Disposals of investments	98,965		112,702
Exchange differences on settlement of investment transactions	506		791
Net cash outflow from investing activities		(10,731)		(70,081)
Cash flows from financing activities
Shares issued	15,582		53,086
Equity dividends paid	(547)		-
Bank loans drawn down	-		62,873
Bank loans repaid	-		(30,402)
Net cash inflow from financing activities		15,035		85,557
Increase in cash and cash equivalents		8,681		17,899
Exchange movements		3,834		(696)
Cash and cash equivalents at start of period		27,788		10,585
Cash and cash equivalents at end of period*		40,303		27,788

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

Notes to the Condensed Financial Statements (audited)

1.	The Financial Statements for the year to 31 August 2019 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.
2.	Income from investments						31 August 2019 £'000			31 August 2018 £'000
	Overseas dividends						13,498			10,874
	Total Income						13,498			10,874
	Total Income Comprises
	Dividends from financial assets designated at fair value through     profit or loss						13,498			10,874
	Total Income						13,498			10,874
3.	Investment Management Fee - all charged to revenue						31 August 2019 £'000			31 August 2018 £'000
	Investment management fee						4,149			4,354
	Details of the Investment Management Agreement are disclosed on page 20 of the Annual Report and Financial Statements. With effect from 1 January 2019, the annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets, calculated and payable quarterly. Prior to 1 January 2019, the annual management fee was 0.95% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets.
4.	Net Return per Ordinary Share
		2019						2018
		Revenue	Capital	Total				Revenue	Capital		Total
	Net return on ordinary activities    after taxation	5.18p	(47.70p)	(42.52p)				2.54p	142.51p		145.05p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £4,755,000 (2018 - £2,234,000), and on 91,802,048 (2018 - 88,108,377) 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 (£43,789,000) (2018 - £125,563,000), and on 91,802,048 (2018 - 88,108,377) 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 2019 2018 2019 £'000 2018 £'000 Dividends Payable in respect of the year: Current year's proposed final dividend (payable 14 December 2018) 0.60p - 547 - 2019 2018 2019 £'000 2018 £'000 Dividends Payable in respect of the year: Current year's proposed final dividend (payable 13 December 2019) 3.50p 0.60p 3,235 547 If approved, the recommended final dividend will be paid on 13 December 2019 to shareholders on the register at close of business on 15 November 2019. The ex-dividend date is 14 November 2019. Further information can be found in the Dividend section of the Chairman's Statement.
6.	Total borrowings at 31 August 2019 were £127,641,000 (¥16.5 billion), (31 August 2018 - £114,486 (¥16.5 billion)).

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

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 £56,000 (31 August 2018 - £88,000) and transaction costs on sales amounted to £55,000 (31 August 2018 - £69,000).
8.	At 31 August 2019 the Company had authority to buy back 13,663,373 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 1,965,000 (2018 - 6,580,000) shares were issued at a premium to net asset value raising proceeds of £15,582,000 (2018 - £53,086,000).  There were no shares issued between 1 September 2019 and 7 October 2019.
9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2019. The financial information for 2018 is derived from the statutory accounts for 2018 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2017 accounts, their report was unqualified and did not contain a statement under sections 495 to 497 of the Companies Act 2006. The statutory accounts for 2019 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
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 5 November 2019.
11.	Glossary of Terms and Alternative Performance Measures (APM)
	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)# (APM) Borrowings are valued at an estimate of their market worth. Net Asset Value (Borrowings at Par Value)# (APM) 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 2019 £'000 31 August 2018 £'000 Shareholders' Funds (borrowings at par value) 732,105 756,104  Add: par value of borrowings 127,641 114,486  Less: fair value of borrowings (130,192) (116,111) Shareholders' funds (borrowings at fair value) 729,554 754,479 Shares in issue 92,424,925 90,459,925 Net asset value per ordinary share (borrowings at fair value) 789.3p 834.0p Net Current Assets Net current assets comprise current assets less current liabilities excluding borrowings. Premium/(Discount)# (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. 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.

 

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

Glossary of Terms and Alternative Performance Measures (APM) (Ctd)

August 2019 NAV (fair) August 2019 NAV (par) August 2019 Share Price Closing NAV per share/share price (a) 789.3p 792.1p 791.0p Dividend adjustment factor* (b) 1.0008 1.0008 1.0008 Adjusted closing NAV per share/share price (c = a x b) 789.9p 792.7p 791.6p Opening NAV per share/share price (d) 834.0p 835.8p 855.0p Total Return (c÷d)-1 (5.3%) (5.2%) (7.4%) * The dividend adjustment factor is calculated on the assumption that the dividend of 0.60p 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 Ongoing Charges# (APM) The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). August 2019 £'000 August 2018 £'000 Investment management fee 4,149 4,354 Other administrative expenses 654 678 Total expenses (a) 4,803 5,032 Average net asset value (borrowings at fair value) (b) 686,294 685,716 Ongoing charges (a)÷(b) (expressed as a percentage) 0.70% 0.73% 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 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 (APM) 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# (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.

^# Alternative performance measure which is considered to be a known industry standard.

^‡ 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.

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