Annual Financial Report

RNS Number : 7056T

Baillie Gifford Japan Trust PLC

08 October 2014

 



RNS Announcement: Preliminary Results

The Baillie Gifford Japan Trust PLC

Results for the year to 31 August 2014

The Baillie Gifford Japan Trust PLC outperformed its benchmark index* over the year to 31 August 2014 by 5.7 percentage points.  Net asset value per share, after deducting borrowings at fair value, rose 9.4%, while the benchmark index gained 3.7%.  In this period the Company's share price increased by 10.8%.

¾ The positive absolute and relative outperformance came from investment in a variety of sectors and stocks as a broad spectrum of stocks performed well.  There were six individual stock contributors of more than 0.5% to outperformance, with Iriso Electronics the biggest contributor.  Some of the internet related stocks were weak although no one holding detracted more than 0.4% from performance.

¾ Gearing was also beneficial to returns, with gearing standing at 15% of shareholders' funds as at year end (31 August 2013 - 16%).  Additional borrowings of ¥1.8bn were drawn during the course of the year to reflect growth in the asset base.

¾ Portfolio turnover over the period was 11% (12% for the year to 31 August 2013) reflecting conviction in the current portfolio.  Eight new holdings were purchased and twelve holdings sold in entirety.

¾ During the year the Company issued 4.3m shares, 6.6% of its pre-existing issued share capital, at a premium to net asset value, raising £15.3m.

¾ Companies are improving their returns to shareholders, profits are rising and valuations remain attractive.  The Board and Managers remain of the view that opportunities exist for well managed companies to grow and which provide the Managers with diverse investment opportunities.

¾ It is extremely difficult to predict currency movements and currencies can appear cheap or dear for long periods of time.  The Board remains of the view that it will not engage in currency hedging.

¾ As previously announced, Dick Barfield, Chairman, will be standing down from the Board at the conclusion of the Company's 2014 Annual General Meeting on 26 November, at which point Nick Bannerman will become Chairman of the Company.

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

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 2014, the Company had total assets of £290.4m (before deduction of bank loans of £41.7m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £109bn under management and advice as at 7 October 2014.

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

7 October 2014

For further information please contact:

Anzelm Cydzik - Client Liaison

The Baillie Gifford Japan Trust PLC

Tel: [phone]

Roland Cross, Director

Broadgate Mainland

Tel: [phone]

Chairman's Statement

It has been another good year for your Company. Over the year net asset value (after deducting borrowings at fair value) rose by 9.4%, compared with a gain of 3.7% in the benchmark TOPIX index (in sterling terms) total return. The share price increased by 10.8% and the discount narrowed from 1.6% to 0.3%. This builds on an excellent five and ten year record.

Stock selection and gearing contributed positively to the returns with further performance details to be found in the Managers' Report.

Investment income increased 18% over the year reflecting higher dividends and expenses increased slightly.

Overall revenue gain per share was 0.47p. No dividend will be paid as the revenue reserve remains in deficit. Ongoing charges for the year were 0.9% compared to 1.1% in 2013, reflecting a full year of the reduced management fee introduced in 2013, and as a consequence of asset growth through good performance and stock issuance.

Gearing

Gearing amounted to 16% of shareholders' funds at the start of the year and ended the year at 15%. Gross borrowings increased to 7.2bn yen, from 5.4bn yen, following the full utilisation of the ING loan negotiated in August 2013. With the low cost of yen loans we believe that borrowing to invest in Japanese equities is a sensible strategy.

Share Capital

The Company did not exercise its share buy back powers during the year; however, your Board believes that it is important that the Company retains this power and so, at the Annual General Meeting, it 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 only issued/reissued at a premium to net asset value, thereby enhancing net asset value per share for existing shareholders.

During the year to 31 August 2014, 4,300,000 shares were issued at a premium to net asset value raising proceeds of £15,289,000. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting. The Directors will continue to only issue shares at a premium to net asset value. This authority will expire at the conclusion of the Annual General Meeting in November 2015.

Contractual Arrangements

In order to comply with the requirements of the EU Alternative Investment Fund Managers Directive, the Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager ('AIFM') and Company Secretary with effect from 1 July 2014. The Company's existing investment management agreement with Baillie Gifford & Co has been terminated. The new management agreement is made on the same commercial terms as the previous agreement with Baillie Gifford & Co. Under these new arrangements, the Company's portfolio will continue to be managed by Baillie Gifford & Co by way of a delegation agreement between Baillie Gifford & Co Limited and Baillie Gifford & Co. In addition the Company has appointed BNY Mellon Trust & Depositary (UK) Limited as its Depositary. Baillie Gifford & Co are not charging a fee as the AIFM however the Depositary is doing so and, as I explained in my statement last year, although there is no obvious benefit the Company has no alternative.

Continuance Vote

Our shareholders have the right to vote annually on whether the Company should continue in business, and will again have the opportunity to do so at the Annual General Meeting to be held on 26 November 2014.

Last year the Company received support for its continuance from 99.9% of those voting. Your Directors are of the opinion that there remain attractive opportunities in selected, well-run companies.

Given the long-term favourable outlook, my fellow Directors and I intend where possible to vote our own shareholdings in favour of the resolution and hope that shareholders will feel disposed to do likewise.

Board

Your Board is committed to high standards of corporate governance. In particular it recognises the need to have a balance of skills, experience and length of service. It also believes that membership of the Board should be refreshed over time. I am pleased to report that my fellow Directors agreed to appoint Keith Falconer to the Board with effect from 8 July 2014. As required, his appointment falls to be formally ratified by shareholders at the Annual General Meeting of the Company to be held in November. Keith has considerable investment management and investment trust experience.  In addition, I will be stepping down from the Board at the conclusion of the Annual General Meeting.  The Board has agreed that I will be replaced as Chairman by Nick Bannerman who has been a Director since 2003. I am confident that the Company will benefit from his stewardship. In turn, Nick will relinquish his position as Chairman of the Company's Audit Committee to be replaced by Keith Falconer.

Outlook

After a strong performance from Japanese equities in 2012/2013 the latest year has been a more muted one. The changes being wrought in Japan should be beneficial for the corporate sector and the equity market. Our Managers are still finding interesting companies in which to invest.

Richard A Barfield

Chairman

7 October 2014

Past performance is not a guide to future performance.

Managers' Report

Performance

Over the past year the NAV per share with borrowings deducted at fair value has risen by 9.4% compared with a 3.7% increase in the benchmark for the Trust.  The stock market has been subject to significant swings during the year; rising sharply last autumn but then falling back in the spring and staging a steady if unspectacular recovery from May 2014.  The NAV therefore finished the year about 3% below the high reached in January 2014, but significantly above the levels reached at previous periods of market strength in Japan in 2000 and 2005.  The stock market overall, as shown by TOPIX total return in sterling terms, is still much lower than the level at either of these peaks; this gap is the result of the cumulative outperformance of the Trust.

The Portfolio Performance Attribution table following this report shows that outperformance came from all but three sectors as returns were strong from a broad spread of stocks.  Gearing was again helpful overall, but the outperformance came predominantly from stock selection as in previous years. There were six individual stock contributors of more than 0.5% to outperformance amongst the holdings, with Iriso Electronics the biggest gainer.  This company makes connectors for cars and is a beneficiary of the long term trend towards higher usage of electronics in all types of engine. Iriso diversified its customer base and now supplies European as well as Japanese makers.  Other strong performers included Toyo Tire, which supplies tyres for pick-up trucks in the US, Japan Exchange Group, which runs the Tokyo Stock Exchange, and Temp Holdings, a staffing agency benefiting from the increasing labour shortage in Japan and the return of women to the workforce.

On the negative side, some of the internet related stocks including GMO Internet and Digital Garage were weak in share price terms although no one holding detracted more than 0.4% from performance. 

Portfolio

Against the more stable background in the last year turnover has remained low at 11%.  This remains consistent with our long term approach.  We buy stocks with a three to five year outlook, whilst this turnover figure implies a nine year average holding period.

We purchased new holdings in eight companies and sold twelve.  The buys range from Sony, the consumer electronics giant, that we believe is finally effectively restructuring, to Broadleaf and Cookpad, two small specialist internet growth companies.  Sony will always be a contentious holding given the long history of serial disappointment but we are encouraged by the appointment of a new effective CFO, the clear success of the Playstation 4 and the cessation of dividend payments which increase the probability of domestic cost cutting.  Sony also has sizeable investments in subsidiaries M3 and Sony Financial which allow for some financial flexibility.  Cookpad, which operates the largest recipe website in the world, has already contributed to portfolio performance as the business potential for opportunities to meld recipes and food purchase burgeon.  CyberAgent is the largest internet advertising company in Japan and also operates in businesses such as gaming and blogs.  We believe the long term potential is obscured by short term losses in one of the divisions. 

This year some of the sales are potentially more interesting to comment on than the purchases as they reveal some of the challenges facing investors.  We sold several companies which had been in the portfolio for very many years.  Canon, the printer and camera company, faces clear threats to both its major products from technological change.  Smartphones are increasingly supplanting cameras for photography as their capabilities increase and the rise of tablet computers and other changes are lessening the need for printed copies.  Canon has been a great company but we struggle to see how it can adapt rapidly enough to flourish again.  Japan Tobacco, which has very successfully globalised its business, is now being threatened in the long term, by the development of e-cigarettes.  This development is not affecting sales significantly yet but as governments toughen smoking regulations and there are more alternatives, volumes are likely to fall steadily.  Another long standing holding was Yamada Denki, Japan's largest consumer electronics retailer.  Here we sold the shares as a combination of loss of market share of Japanese manufacturers and increasing competition from on line suppliers dent growth prospects.  We also sold JR East as its business was exceptionally well positioned to benefit from deflation but may suffer as costs increase but fares do not. 

Japanese Corporate Developments

Over the past year there has been a significant improvement in attitudes towards corporate governance in Japan; one of the many aspects of Mr Abe's third arrow is one where carrots and sticks are being wielded enthusiastically.  Along with longer term trends such as the detailed publication of voting at Japanese AGMs there has also been much more emphasis on the appointment of independent external directors to Boards, increasing dividends and a greater exposition by the authorities about the need for all companies to make more in profits than their capital costs.  74% of companies listed on the Tokyo market now have at least one independent director and if they don't, now need to comply or explain why not.  We believe that shortly an explanation will not be enough and it will become mandatory to have an outsider on the Board. 

Dividends are rising and companies are showing a lessening tendency to hoard cash.  For the half year to September 2014 it is likely that payouts will be at a record level in Yen terms.  There is scope for continued growth as the percentage of profits paid out is still low by international standards.  Share buy backs are also at the highest level since the Lehman's shock and show a willingness by companies to raise returns. 

The new JPX 400 index which is likely to be adopted by GPIF, the Japanese government pension fund which is the world's largest, includes qualitative criteria such as Return on Equity as part of the selection process.  Venerable but unprofitable companies which have been left off the list are now feeling excluded.  One has taken direct action to improve in order to be considered and was rewarded with a sharply rising share price.  Japan has also published a stewardship code and this has been adopted by roughly 150 institutional investors, both domestic and foreign.  This encourages investors to have substantive dialogue with companies and to exercise their voting rights, thus increasing pressure on managements to behave more in the interests of shareholders. 

These changes, taken together, are a very positive background to be investing in Japanese companies as managements focus more on shareholders.  We also don't believe that this is to the detriment of the internal stakeholders in companies, as the status quo becomes increasingly less tenable and dangerous.  Change is also driven by rising Asian competition and the labour shortage in Japan.  

Economy and Profits

The past year has seen divergence between certain parts of the economy where the recovery is clear and becoming stronger, notably the labour market and the property market and those where there has been considerable weakness since the increase in the consumption tax in April 2014, such as industrial production.  Mr Abe has passed thirty bills as part of his Third Arrow deregulation reform programme, including the formation of special economic zones where regulation will be substantially relaxed.  Mr Kuroda, at the Bank of Japan, has also continued to expand the monetary base in Japan aggressively.  However the negative effect of the tax rise seems to have had more impact in the short term.  Despite this, reported profits for the three months after the rise were still growing; partly as an increasing proportion originate from overseas whether via exports or foreign subsidiaries. 

The government still has its strong position in the Diet and Mr Abe is remarkably popular for this stage in a premiership.  Further legislation for reform is likely to be passed, whilst Mr Kuroda has pledged to 'do what it takes' to get inflation to 2%.  The government are currently debating the next consumption tax increase from 8% to 10% which is scheduled to happen in September 2015.  Further weak data will make this difficult. 

Although there remains widespread scepticism about any positive effects from Abenomics there are certain areas which have been boosted.  Unemployment is now extremely low and labour shortages are becoming more widespread, whilst visa regulations for foreign workers have been eased.  More women have returned to the workforce and there is increasing recognition of the practical measures, such as improved childcare, that are needed for employment equality.  The property market is rising and vacancy rates and rents improving.  Inbound tourism is booming and some of our retail holdings are direct beneficiaries.  Duty free shopping will be deregulated further in the autumn.  However it seems unlikely that growth in the economy overall is going to be particularly rapid but the link between GDP growth and profits is lessening as shown in the most recent quarter.

Outlook

Although Japan has been reporting inflation rather than deflation for a year, the national mindset has not yet shifted towards investment in riskier assets.  Personal financial assets, which are approximately two and a half times the value of GDP, are still being invested predominantly in cash and companies have record amounts of cash on their balance sheets.  If Abenomics achieves the sustained inflation rate that is one of the targets this is likely to change, which should benefit equities.  The government are leading the way with the reform of the GPIF which is likely to sell its bond holdings and reinvest in equities which have much higher yields. 

However, even without such a shift, profits are rising and valuations remain attractive.  Japanese companies are now more globally minded and more globally competitive in the manufacturing arena and there is increased confidence in the non-manufacturing sector.  Global trends, such as the increase in e-commerce, are reflected within Japan and provide opportunities for investment.  Companies are improving their returns to shareholders and this background encourages us to substantially invest all the gearing in the market. 

Past performance is not a guide to future performance.

Portfolio Performance Attribution for the Year to 31 August 2014* (unaudited)

Computed relative to the benchmark (TOPIX total return (in sterling terms)) with net income reinvested

Portfolio breakdown	Benchmark asset allocation		Baillie Gifford Japan asset allocation		Performance†			Contribution attributable to:
					BG Japan %	TOPIX total return %	Contribution to relative return %	Stock selection %	Asset allocation %	Gearing %
	01.09.13 %	31.08.14 %	01.09.13 %	31.08.14 %
Manufacturing and machinery	21.3	21.0	16.6	20.6	12.0	0.8	2.1	2.0	0.1	-
Financials	15.5	13.9	10.5	10.0	7.9	(4.9)	1.8	1.4	0.4	-
Commerce and services	12.0	12.5	21.9	24.9	9.7	4.2	1.4	1.4	-	-
Electricals and electronics	11.3	12.8	13.5	14.2	23.1	18.1	0.7	0.6	0.1	-
Retail	4.3	4.1	6.5	5.5	5.4	(2.2)	0.4	0.5	(0.1)	-
Chemicals and other   materials	11.4	11.6	7.9	7.3	9.8	5.8	0.2	0.3	(0.1)	-
Real estate and   construction	6.2	6.1	5.5	5.7	(8.7)	0.6	(0.5)	(0.5)	-	-
Information,   communication and   utilities	9.4	9.2	14.4	9.1	(3.0)	2.9	(0.5)	(0.5)	-	-
Pharmaceuticals and food	8.6	8.8	3.2	2.7	(11.1)	9.4	(0.7)	(0.4)	(0.3)	-
Total assets	100.0	100.0	100.0	100.0	8.8	3.7	4.9	4.9	0.0	-
Impact of gearing					2.6	-	2.6	-	-	2.6
Total (including gearing)#					11.6	3.7	7.7	4.9	0.0	2.6

Past performance is not a guide to future performance.

Source: Statpro/Baillie Gifford

Contributions cannot be added together, as they are geometric; for example, to calculate how a return of 8.8% against a benchmark return of 3.7% translates into a relative return of 4.9%, divide the portfolio return of 108.8 by the benchmark return of 103.7, subtract one and multiply by 100. In addition, the total contribution figures include a residual element that relates to changes in weightings mid-month, which cannot be attributed to individual sectors. Consequently, the contributions for the individual sectors do not sum to the total contribution figures.

*      The performance attribution table is based on total assets.

†      The returns are total returns (net income reinvested), calculated on a monthly linked method.

#      The total return performance of 11.6% excludes expenses and, therefore, differs from the NAV return (after deducting borrowings at par value) of 10.9% as a result.

Income Statement (unaudited)

The following is the unaudited preliminary statement for the year to 31 August 2014 which was approved by the Board on 7 October 2014. No dividend is payable.

	For the year ended 31 August 2014			For the year ended 31 August 2013
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	18,801	18,801	-	60,873	60,873
Currency gains (note 2)	-	3,927	3,927	-	4,711	4,711
Income (note 3)	3,746	-	3,746	3,177	-	3,177
Investment management fee (note 4)	(1,693)	-	(1,693)	(1,566)	-	(1,566)
Other administrative expenses	(386)	-	(386)	(418)	-	(418)
Net return before finance costs and taxation	1,667	22,728	24,395	1,193	65,584	66,777
Finance costs of borrowings	(1,004)	-	(1,004)	(826)	-	(826)
Net return on ordinary activities before taxation	663	22,728	23,391	367	65,584	65,951
Tax on ordinary activities	(341)	-	(341)	(226)	-	(226)
Net return on ordinary activities after taxation	322	22,728	23,050	141	65,584	65,725
Net return per ordinary share (note 6)	0.47p	33.45p	33.92p	0.22p	103.90p	104.12p

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

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

Balance Sheet (unaudited)

	At 31 August 2014		At 31 August 2013
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		286,275		244,584
Current assets
Debtors	369		1,561
Cash at bank and in hand	5,231		1,860
	5,600		3,421
Creditors
Amounts falling due within one year (note 7)	(1,428)		(20,499)
Net current assets/(liabilities)		4,172		(17,078)
Total assets less current liabilities		290,447		227,506
Creditors
Amounts falling due after more than one year (note 7)		(41,733)		(17,131)
Net assets		248,714		210,375
Capital and reserves
Called up share capital		3,467		3,251
Share premium		47,092		32,019
Capital redemption reserve		203		203
Capital reserve		203,968		181,240
Revenue reserve		(6,016)		(6,338)
Shareholders' funds		248,714		210,375
Net asset value per ordinary share (after deducting borrowings at fair value)		353.3p		323.0p
Net asset value per ordinary share (after deducting borrowings at par value)		358.7p		323.5p
Ordinary shares in issue (note 9)		69,331,750		65,031,750

Reconciliation of Movements in Shareholders' Funds (unaudited)

For the year ended 31 August 2014

	Called up Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2013	3,251	32,019	203	181,240	(6,338)	210,375
Shares issued	216	15,073	-	-	-	15,289
Net return on ordinary activities after taxation	-	-	-	22,728	322	23,050
Shareholders' funds at 31 August 2014	3,467	47,092	203	203,968	(6,016)	248,714

For the year ended 31 August 2013

	Called up Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2012	3,097	22,110	203	115,656	(6,479)	134,587
Shares issued	154	9,909	-	-	-	10,063
Net return on ordinary activities after taxation	-	-	-	65,584	141	65,725
Shareholders' funds at 31 August 2013	3,251	32,019	203	181,240	(6,338)	210,375

*      The capital reserve balance as at 31 August 2014 includes investment holding gains of £103,632,000 (2013 - £92,369,000)

Cash Flow Statement (unaudited)

	At 31 August 2014		At 31 August 2013
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities		1,322		1,119
Servicing of finance
Interest paid	(884)		(834)
Net cash outflow from servicing of finance		(884)		(834)
Financial investment
Acquisitions of investments	(52,638)		(46,783)
Disposals of investments	30,201		24,033
Exchange differences on settlement of investment transactions	(54)		(271)
Net cash outflow from financial investment		(22,491)		(23,021)
Net cash outflow before financing		(22,053)		(22,736)
Financing
Shares issued	15,289		10,063
Bank loans drawn down	27,410		17,212
Bank loans repaid	(16,387)		(4,962)
Net cash inflow from financing		26,312		22,313
Increase/(decrease) in cash		4,259		(423)
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash in the year		4,259		(423)
Net cash inflow from bank loans		(11,023)		(12,250)
Exchange differences on bank loans		4,869		5,215
Exchange differences on cash		(888)		(233)
Movement in net debt in the year		(2,783)		(7,691)
Opening net debt		(33,719)		(26,028)
Closing net debt		(36,502)		(33,719)
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
Net return before finance costs and taxation		24,395		66,777
Gains on investments		(18,801)		(60,873)
Currency gains		(3,927)		(4,711)
(Increase)/decrease in accrued income		(26)		56
Increase in other debtors		(5)		-
Increase in creditors		16		99
Overseas tax suffered		(330)		(229)
Net cash inflow from operating activities		1,322		1,119

Twenty Largest Holdings at 31 August 2014 (unaudited)

Name	Business	2014		2013
		Value £'000	% of total assets*	Value £'000
Fuji Heavy Industries	Subaru cars	8,747	3.0	9,491
Iriso Electronics	Specialist auto connectors	8,589	3.0	4,154
Itochu	Trading conglomerate	8,028	2.8	7,134
Toyo Tire & Rubber	Tyre manufacturer	7,327	2.5	5,226
SoftBank	Telecom operator and internet investor	6,966	2.4	6,530
Don Quijote	Discount store operator	6,825	2.3	7,195
Kubota	Agricultural machinery	6,753	2.3	3,433
HIS	Travel agency and theme parks	6,666	2.3	6,077
Rakuten	Internet retail and financial services	6,664	2.3	5,885
Sysmex	Medical equipment	6,607	2.3	5,327
Japan Exchange Group	Stock Exchange operator	6,580	2.3	4,710
Misumi Group	Precision machinery parts distributor	6,418	2.2	3,913
Inpex	Oil and gas producer	6,332	2.2	2,413
Temp Holdings	Employment and outsourcing services	6,236	2.1	4,222
Otsuka Corp	IT solutions for SMEs	6,158	2.1	6,269
M3	Online pharmaceutical marketing	6,073	2.1	4,879
CyberAgent	Internet advertising and content	5,974	2.1	-
Mazda Motor	Car manufacturer	5,860	2.0	4,344
Yaskawa Electric	Robots and factory automation	5,835	2.0	5,272
Mitsui & Co	Trading conglomerate	5,657	1.9	4,645
		134,295	46.2	101,119

*     Before deduction of bank loans

Notes to the Condensed Financial Statements (unaudited)

1.    

1.    

Capital return per ordinary share is based on the net capital return for the financial year of £22,728,000 (2013 - £65,584,000), and on 67,942,092 (2013 - 63,125,072) 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.

1.	The financial information within this preliminary announcement has been extracted from the unaudited financial statements for the year to 31 August 2014 and has been prepared on the basis of the accounting policies set out in the Company's Annual Report and Financial Statements at 31 August 2013. 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 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 that the Company will continue in operational existence for the foreseeable future. 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.
2.	Currency Gains/(Losses)				31 August 2014 £'000			31 August 2013 £'000
	Exchange differences on bank loans				4,869			5,215
	Other exchange differences				(942)			(504)
					3,927			4,711
3.	Income				31 August 2014 £'000			31 August 2013 £'000
	Income from investments				3,746			3,177
4.	Investment Management Fee In order to comply with the Alternative Investment Fund Managers Directive, with effect from 1 July 2014 the Company has terminated its investment management agreement with Baillie Gifford & Co and has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager ("AIFM") and Company Secretary. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. The notice periods and management fee are unchanged under these new arrangements. The Management Agreement is terminable on not less than six months' notice. With effect from 1 April 2013, the annual management fee was reduced from the flat rate of 1% of net assets to a rate of 0.95% on the first £50m of net assets and 0.65% on the balance. Management fees are calculated on a quarterly basis.
5.	No final dividend will be declared.
6.	Net Return per Ordinary Share	2014 Revenue	2014 Capital	2014 Total		2013 Revenue	2013 Capital		2013 Total
	Net return on ordinary activities after taxation	0.47p	33.45p	33.92p		0.22p	103.90p		104.12p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £322,000 (2013 - £141,000), and on 67,942,092 (2013 - 63,125,072) ordinary shares, being the weighted average number of ordinary shares in issue during each year.

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

7.	At 31 August 2014, the Company had a 7 year ¥7,200 million loan facility maturing 21 August 2020 with ING Bank N.V. During the year, the Company repaid its borrowings of ¥1,800 million with Scotiabank Europe and ¥1,000 million ING Bank N.V. which matured on 19 May 2014 and 11 August 2014 respectively. ¥4,600 million was drawn under the ¥7,200 million loan facility with ING Bank N.V.
8.	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 £32,000 (31 August 2013 - £29,000) and transaction costs on sales amounted to £19,000 (31 August 2013 - £23,000).
9.	At 31 August 2014 the Company had authority to buy back 9,928,139 shares. No shares were bought back during the year. Under the provisions of the Company's Articles share buy-backs are funded from the capital reserve. During the year, 4,300,000 (2013 - 3,096,750) shares were issued at a premium to net asset value raising proceeds of £15,289,000 (2013 - £10,063,000).
10.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 August 2014. The financial information for 2013 is derived from the statutory accounts for 2013 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2013 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 2014 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.
11.	The Report and Accounts will be available on the Company's page of the Managers' website www.japantrustplc.co.uk‡ on or around 24 October 2014.

‡      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.

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