Half Yearly Report

RNS Number : 1452J

Baillie Gifford Japan Trust PLC

25 March 2010

 



THE BAILLIE GIFFORD JAPAN TRUST PLC

Results for the six months to 28 February 2010

In the six months to 28 February 2010, The Baillie Gifford Japan Trust's net asset value per share increased by 7.6%* compared to a 4.2% increase in the TOPIX total return index in sterling terms.  The Company's share price increased by 7.6%.

·	Returns ahead of the Company's benchmark were as a result of good stock selection, particularly in the Financials and Commerce and Services sectors.  Sterling returns over the period were boosted by the strength of the yen, with the yen appreciating by 11.8%.
·	Net gearing stood at 20% at the period end (31 August 2009 - 15%).
·	Japanese companies in aggregate continue to show a recovery in profitability driven by cost cutting and supported by the recovery in the global economic climate.  Exports to the rest of Asia are now three times greater than those to the US.
·	Political developments are being monitored with interest although it is too early to ascertain the impact of DPJ policy on the domestic economy or corporate Japan.
·	Company valuations in aggregate, particularly of medium and smaller companies, remain attractive, and the Managers continue to find more companies to buy rather than sell.

*at fair and par value.

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares. You canfind up to date performance information about The Baillie Gifford Japan Trust PLC on the Company website at www.japantrustplc.co.uk.

The Baillie Gifford Japan Trust PLC (Baillie Gifford Japan) 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 28 February 2010, the Company had total assets of £150m (before deduction of bank loans of £26m). 

Baillie Gifford & Co, the Edinburgh based fund management group with around £60 billion under management and advice as at 24 March 2010, is appointed as investment managers and secretaries to The Baillie Gifford Japan Trust PLC.

24 March 2010

For further information please contact:

Sarah Whitley, Manager,

The Baillie Gifford Japan Trust PLC                                          0131 275 2000

Roland Cross, Director,

Broadgate Marketing                                                                020 7726 6111

The following is the unaudited Half-Yearly Financial Report for the six months

to 28 February 2010

THE BAILLIE GIFFORD JAPAN TRUST PLC

 

Half-Yearly Financial Report 28 February 2010

Responsibility Statement

 

We confirm that to the best of our knowledge:

a)   the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';

b)   the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and description of principal risks and uncertainties for the remaining six months of the year); and

c)   the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein - see note 3 at the end of this document).

By order of the Board

Nick A C Bannerman

Director

24 March 2010

THE BAILLIE GIFFORD JAPAN TRUST PLC

Half-Yearly Management Report

Performance

The six months to the end of February 2010 have seen global equity markets little changed, as the rebound that started from March 2009 consolidated.  Overall the net asset value per share, after deducting borrowings at fair value, rose by 7.6%, outperforming the rise of 4.2% in the TOPIX total return index in sterling terms.  During the period the yen strengthened substantially versus sterling.  In yen terms the TOPIX total return index fell by 6.7%, but this was more than offset by the strength of the currency to give the positive return in sterling. 

Overall stock selection was helpful, especially in the Financials and Commerce and Services areas of the market.  The application of gearing had little impact on the net asset value per share over the period.  During the period we took new holdings in Mitsui & Co, a trading conglomerate with strong exposure to resources, trading on a very undemanding valuation and Tokyu REIT, a property company with a high yield given the quality of its properties. 

Economic Background

Japan's corporate sector continues to show a recovery in profitability, with both half year and third quarter results showing generally encouraging trends.  It is clear that substantial efforts have been made to reduce costs which combined with an improved level of demand has resulted in a much improved level of overall profits.  In some cases, such as at Nifco the fastener company, operating margins in the third quarter managed to hit record levels.  Clearly this will not be sustainable as there will now need to be some reinvestment in higher wages, but we are confident that many of the Trust's holdings have taken the opportunity presented by the downturn to improve their global competitiveness. 

The Democratic Party of Japan (DPJ) has had a little time to settle down to the business of government.  We are encouraged by the attempts to boost the domestic economy by stimulating consumption levels, for example by improving allowances for people with children.  There are also some signs that the government is committed to fighting the embedded deflation that has marred the domestic economy's performance for so many years.  On the other hand there has been some criticism that the government has been slow to make substantial changes and its popularity has already been damaged by political scandals.  Overall, we continue to watch with interest and the success or otherwise of the DPJ's approach should become more apparent given time.  

Meanwhile Asian countries, particularly China, continue to grow in importance as Japan's trading partners, showing a stronger and faster recovery in demand for Japanese exports than from Western economies.  Exports to Asia are now three times as large as those to the US and we believe that Japan remains well placed to benefit from the development of the region.

THE BAILLIE GIFFORD JAPAN TRUST PLC

Half-Yearly Management Report (ctd)

Outlook

Japan, in common with much of the world, has experienced a very unpleasant economic shock, from which it is now recovering.  In retrospect it seems clear that large doses of monetary and fiscal stimulus were always likely to be helpful for markets, and we started from the position of having some extreme valuation anomalies.  At the current time the situation is a little more nuanced, which may be reflected in the TOPIX being little changed over the past six months.  On the positive side the evidence seems to suggest that the global economic recovery continues to progress and valuations are still not demanding.  More cautiously, it is still not clear over what time horizon overall activity can exceed the pre-crisis peak and we have yet to see the impact from the withdrawal of some of the stimulus measures put in place during the crisis.  Ultimately though, we are still finding many more companies to buy than sell.  In our view Japan's medium and smaller companies are under-researched and in many cases their strengths are under-appreciated, giving us a good opportunity to add value for longer-term shareholders in the Company through stock-picking.     

The principal risks and uncertainties facing the Company are set out in note 10.

THE BAILLIE GIFFORD JAPAN TRUST PLC

INCOME STATEMENT

(unaudited)

	For the six months ended 28 February 2010			For the six months ended 28 February 2009			For the year ended   31 August 2009
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total   £'000	Revenue £'000	Capital £'000	Total   £'000
Losses on sales of investments	-	(1,841)	(1,841)	-	(8,450)	(8,450)	-	(12,783)	(12,783)
Changes in investment holding gains/(losses)	-	12,638	12,638	-	(13,851)	(13,851)	-	20,259	20,259
Currency losses (note 4)	-	(2,236)	(2,236)	-	(4,029)	(4,029)	-	(4,110)	(4,110)
Income from investments and interest receivable	1,207	-	1,207	1,317	-	1,317	2,351	-	2,351
Stocklending fee income	-	-	-	56	-	56	71	-	71
Investment management fee	(574)	-	(574)	(451)	-	(451)	(987)	-	(987)
Other administrative expenses	(136)	-	(136)	(137)	-	(137)	(247)	-	(247)
Net return before finance costs and taxation	497	8,561	9,058	785	(26,330)	(25,545)	1,188	3,366	4,554
Finance costs of borrowings	(241)	-	(241)	(292)	-	(292)	(503)	3	(500)
Net return on ordinary activities before taxation	256	8,561	8,817	493	(26,330)	(25,837)	685	3,369	4,054
Tax on ordinary activities	(77)	-	(77)	(85)	-	(85)	(153)	-	(153)
Net return on ordinary activities after taxation	179	8,561	8,740	408	(26,330)	(25,922)	532	3,369	3,901
Net return per ordinary share (note 6)	0.29p	13.82p	14.11p	0.66p	(42.51p)	(41.85p)	0.86p	5.44p	6.30p

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

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.

THE BAILLIE GIFFORD JAPAN TRUST PLC

BALANCE SHEET

at 28 February 2010

(unaudited)

	28 February 2010		28 February 2009		31 August 2009
	£'000		£'000		£'000
FIXED ASSET
Investments	148,334		89,671		133,710
CURRENT ASSETS
Debtors	597		122		610
Cash and short term deposits	1,760		23,548		5,783
	2,357		23,670		6,393
CREDITORS
Amounts falling due within one year:
Bank loans (note 7)	(5,544)		-		(4,961)
Other creditors	(416)		(623)		(1,328)
	(5,960)		(623)		(6,289)
NET CURRENT (LIABILITIES)/ASSETS	(3,603)		23,047		104
TOTAL ASSETS LESS CURRENT LIABILITIES	144,731		112,718		133,814
CREDITORS
Amounts falling due after more than one year:
Bank loans (note 7)	(20,697)		(27,247)		(18,520)
TOTAL NET ASSETS	124,034		85,471		115,294
CAPITAL AND RESERVES
Called-up share capital	3,097		3,097		3,097
Share premium	22,110		22,110		22,110
Capital redemption reserve	203		203		203
Capital reserve	106,386		68,126		97,825
Revenue reserve	(7,762)		(8,065)		(7,941)
SHAREHOLDERS' FUNDS	124,034		85,471		115,294

NET ASSET VALUE PER ORDINARY SHARE (after deducting borrowings at fair value)	199.4p	137.3p	185.3p
NET ASSET VALUE PER ORDINARY SHARE (after deducting borrowings at par value)	200.3p	138.0p	186.2p
Ordinary shares in issue (note 8)	61,935,000	61,935,000	61,935,000

 

THE BAILLIE GIFFORD JAPAN TRUST PLC

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the six months ended 28 February 2010

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2009	3,097	22,110	203	97,825	(7,941)	115,294
Net return on ordinary activities after taxation	-	-	-	8,561	179	8,740
Shareholders' funds at 28 February 2010	3,097	22,110	203	106,386	(7,762)	124,034

For the six months ended 28 February 2009

 

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2008	3,097	22,110	203	94,456	(8,473)	111,393
Net return on ordinary activities after taxation	-	-	-	(26,330)	408	(25,922)
Shareholders' funds at 28 February 2009	3,097	22,110	203	68,126	(8,065)	85,471

For the year ended 31 August 2009

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 September 2008	3,097	22,110	203	94,456	(8,473)	111,393
Net return on ordinary activities after taxation	-	-	-	3,369	532	3,901
Shareholders' funds at 31 August 2009	3,097	22,110	203	97,825	(7,941)	115,294

*Capital reserve as at 28 February 2010 includes investment holding gains of £29,590,000 (28 February 2009 - losses of £17,158,000; 31 August 2009 - gains of £16,952,000).

THE BAILLIE GIFFORD JAPAN TRUST PLC

CONDENDSED CASH FLOW STATEMENT (unaudited)
	Six months to 28 February 2010		Six months to 28 February 2009	Year to 31 August 2009
	£'000		£'000		£'000
Net cash inflow from operating activities	104		614		1,224
Net cash outflow from servicing of finance	(234)		(310)		(522)
Total tax paid	(50)		(80)		(155)
Net cash (outflow)/inflow from financial investment	(4,118)		16,800		2,195
Net cash (outflow)/inflow before financing	(4,298)		17,024		2,742
Net cash outflow from bank loans	-		(8,614)		(10,397)
(DECREASE)/Increase in cash	(4,298)		8,410		(7,655)

Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period	(4,298)		8,410		(7,655)
Net cash outflow from bank loans	-		8,614		10,397
Exchange differences on bank loans	(2,760)		(9,086)		(7,103)
Exchange differences on cash	276		4,627		2,927
Movement in NET DEBT in the period	(6,782)		12,565		(1,434)
Net debt at start of the period	(17,698)		(16,264)		(16,264)
Net debt at end of the period	(24,480)		(3,699)		(17,698)

 

Reconciliation of net reTURN before finance costs and taxation to net cash INFLOW from operating activities
Net return before finance costs and taxation	9,058		(25,545)		4,554
(Gains)/losses on investments	(10,797)		22,301		(7,476)
Realised exchange differences	(405)		(4,345)		(1,656)
Unrealised exchange differences on bank loans	2,760		8,165		5,650
Amortisation of fixed interest book cost	(2)		(20)		8
Changes in debtors and creditors	(510)		58		144
Net cash INFLOW FROM operating activities	104		614		1,224

THE BAILLIE GIFFORD JAPAN TRUST PLC

 

TWENTY LARGEST HOLDINGS at 28 February 2010 (unaudited)
Name	Business	Value £'000	% of total assets*
Itochu	Trading conglomerate	5,144	3.4
Accordia Golf	Golf course owner and operator	4,649	3.1
Japan Tobacco	Tobacco manufacturer	4,439	3.0
Don Quijote	Discount store operator	4,086	2.7
Keihin	Auto parts company	3,669	2.4
Osaka Securities Exchange	Stock and futures exchange	3,659	2.4
Canon	Printers, copiers and cameras	3,643	2.4
Yamada Denki	Major consumer electronics retailer	3,546	2.4
KDDI	Mobile telecommunications	3,490	2.3
Asahi Glass	TV, car and construction glass	3,429	2.3
Mitsubishi Electric	Industrial conglomerate	3,309	2.2
Rakuten	Internet retailer	3,286	2.2
Hitachi High-Technologies	Semiconductor production equipment	3,256	2.2
Shimadzu	Environmental testing equipment	3,239	2.2
AIOI Insurance	Non-life insurance	3,141	2.1
East Japan Railway	Tokyo based railway	3,058	2.0
Misumi Group	Precision machinery parts distributor	3,001	2.0
Nintendo	Games consoles and software	2,859	1.9
Sysmex	Medical equipment	2,763	1.8
Shinko Plantech	Industrial plant maintenance	2,739	1.8
		70,405	46.8

*before deduction of bank loans

THE BAILLIE GIFFORD JAPAN TRUST PLC

NOTES

1.	The condensed set of financial statements have been prepared on the basis of the same accounting policies as set out in the Company's Annual Financial Statements at 31 August 2009 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. They 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.
2.	The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 August 2009 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on those accounts was not qualified and did not contain statements under sections 498 (2) or (3) of the Companies Act 2006.
3.	The management agreement with Baillie Gifford & Co is terminable on not less than 12 months' notice, or on shorter notice in certain circumstances. The annual fee is 1.0% of the net assets of the Company, calculated on a quarterly basis.
		Six months to 28 February 2010 £'000	Six months to 28 February 2009 £'000	Year to 31 August 2009 £'000
4.	Currency losses
	Exchange differences on:
	Cash balances	276	4,627	2,927
	Bank loans	(2,760)	(9,086)	(7,103)
	Other items	248	430	66
		(2,236)	(4,029)	(4,110)
5.	No interim dividend will be declared.
		Six months to 28 February 2010 £'000	Six months to 28 February 2009 £'000	Year to 31 August 2009 £'000
6.	Net return per ordinary share
	Revenue return on ordinary activities after taxation	179	408	532
	Capital return on ordinary activities after taxation	8,561	(26,330)	3,369
	Net return per ordinary share is based on the above totals of revenue and capital and on 61,935,000 (28 February 2009 and 31 August 2009 - 61,935,000) ordinary shares, being the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.
7.	Bank loans of £26.2 million (¥3.6 billion) have been drawn down under yen loan facilities which are repayable between August 2010 and August 2014 (28 February 2009 - £27.2 million (¥3.8 billion); 31 August 2009 - £23.5 million (¥3.6 billion)).
8.	The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as well as to buy back shares at a discount to net asset value. No shares were issued or bought back during the period under review.
9.	Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sales proceeds, as appropriate. During the period, transaction costs on purchases amounted to £9,000 (28 February 2009 - £9,000; 31 August 2009 - £27,000) and transaction costs on sales amounted to £6,000 (28 February 2009 - £20,000; 31 August 2009 - £27,000).
10.	Principal Risks and Uncertainties The principal risks facing the Company relate to the Company's investment activities.  These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk.  An explanation of these risks and how they are managed is contained in note 20 of the Company's Annual Report and Financial Statements for the year to 31 August 2009.  The principal risks and uncertainties have not changed since the publication of the Annual Report which can be obtained free of charge from Baillie Gifford & Co  and is available on the Japan Trust page of the Managers' website www.japantrustplc.co.uk. Other risks facing the Company include the following: gearing risk (the use of borrowing can magnify the impact of falling markets), the risk that the discount can widen and regulatory risk (that the loss of investment trust status or a breach of the UKLA Listing Rules could have adverse financial consequences and cause reputational damage).
11.	The Half-Yearly Financial Report is available at www.japantrustplc.co.uk and will be posted to shareholders on or around 16 April 2010.
	None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 

 

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