Interim Results
Baillie Gifford Japan Trust PLC
31 March 2005
THE BAILLIE GIFFORD JAPAN TRUST PLC
Results for the six months to 28 February 2005
In the six months to 28 February 2005, The Baillie Gifford Japan Trust PLC
outperformed its benchmark index* by 3 percentage points. Net asset value per
share rose by 5.5%, while the benchmark index gained 2.5%. Over this period,
the Company's share price rose by 5.4%+.
• The use of gearing and good stock selection aided the outperformance,
particularly within the Electricals and electronics, Retail and Financial
sectors. Net gearing at the interim period stood at 15.4% of shareholders'
funds.
• The Japanese economy showed some slowdown towards the end of 2004.
However, recent economic releases have been stronger with both confidence
and real economy indicators improving. Current GDP estimates for the year
to March 2006 are around 1.5%.
• Profits for Japanese companies will have risen strongly in the year to
March 2005. So far this year, over one third of companies in the main
TOPIX index have reinstated or increased dividend payments. The Managers
expect this trend to continue over the next few years.
• Valuations on the Japanese market remain in line with other major markets
and the outlook is viewed positively by the Board and Managers. The
portfolio continues to be invested in domestic companies, particularly
those that will benefit from a resumption of inflation in Japan.
* The Company's benchmark index is the TOPIX Index in sterling terms.
+ Past performance is no guarantee of future performance.
The Baillie Gifford Japan Trust PLC aims to pursue long-term capital growth
principally through investment in medium to smaller sized Japanese companies.
The Company is managed by Baillie Gifford & Co., the Edinburgh based fund
management group with around £33 billion under management and advice.
30 March 2005
For further information please contact:
Sarah Whitley, Manager,
The Baillie Gifford Japan Trust PLC 0131 275 2000
Mike Lord, Director,
Broadgate Marketing 020 7726 6111
THE BAILLIE GIFFORD JAPAN TRUST PLC
Interim Report
The Japanese stockmarket rose modestly during the six months with TOPIX up 2.5%
in sterling terms whilst Baillie Gifford Japan Trust's net asset value per share
gained 5.5% to 176.8p, outperforming the benchmark index. The yen depreciated
marginally against sterling to Y200.8 to the pound, but generally has been
remarkably stable on a trade weighted basis.
The Japanese economy showed some slowdown towards the end of 2004, raising
concerns that the recovery that began two years ago was over. However, recent
releases have been stronger with both confidence and real economy indicators
improving. The pause in recovery now seems to be over and current estimates are
for around 1.5% growth in the year to March 2006. Revisions to the methodology
for calculating GDP made in December 2004 have reduced the reported growth
rates, but also improved the picture on deflation, which is close to ending as
an economy wide phenomenon. Prices are rising for some goods and the most
recent land price survey confirms the view that property prices in Central Tokyo
and other major cities have bottomed, with some particular areas seeing
significant rises.
Unemployment has continued to fall and there has recently been a rise in the
number of full time workers employed, indicating that overall supply and demand
is tightening in the labour market. Winter bonuses rose, reflecting strong
profits growth by manufacturing companies and the number of graduate recruits
that major companies are planning to take on in April is significantly higher
than in previous years, another sign of returning confidence.
Portfolio
The outperformance during the six months was helped by the gearing, which was
15.4% on a net basis at the end of the interim period, and also by good stock
selection in the majority of sectors, particularly Electricals and electronics,
Retail and Financials. Turnover within the portfolio remained low, with seven
companies bought and two sold, but the major holdings remained much the same as
at the end of August. The portfolio continues to be invested in domestic
companies and particularly those that will benefit from a resumption of
inflation in Japan.
Outlook
Profits for Japanese companies will have risen strongly in the year to March
2005 and we expect that there will be further modest growth in the following
year. Over the past five years Japanese companies have generated significant
amounts of free cash, after investments, and this has principally been used to
pay down debt. Recently companies have been increasing their dividends and so
far this year over one third of the companies in the main TOPIX index have
reinstated or increased payments. The historic policy of paying a stable and
usually low dividend is being replaced with one that adjusts payments to reflect
a certain percentage of the companies' earnings. The scope for significant
increases in payments is therefore large over the next few years as the ratio of
dividends to earnings has actually fallen as profits have recovered and
dividends have increased more slowly in the past.
Merger and acquisition activity, which has not been a significant feature of the
Japanese market, is now picking up with some high profile hostile takeovers
underway at the moment. A more fluid market for control of Japanese companies
also has the potential to increase rewards for shareholders as balance sheets
will become more actively managed.
The threats to the stable economic outlook remain potential slowdowns in growth
in China or the United States, as well as the risk of domestic policy error.
Taxes are being increased in Japan next fiscal year, but the amounts are small
compared to the rise that stopped growth in 1997. The Bank of Japan currently
has a policy that interest rates will not be raised from the current zero rate
policy until there are clear signs there is inflation rather than deflation in
Japan.
Valuations on the market remain in line with other major markets and with the
increasing focus on returns to shareholders we feel it is appropriate to
continue to have borrowings invested in the market, which net of cash balances
currently amount to 13.0% of shareholders' funds.
By order of the Board
Baillie Gifford & Co
30 March 2005
The following is the interim statement for the six months ended 28 February 2005
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 15 April 2005. Copies
will be available for inspection at the Registered Office of the Company or may
be obtained on request from the Managers and Secretaries after that date.
THE BAILLIE GIFFORD JAPAN TRUST PLC
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
for the six months ended for the six months ended for the year ended
28 February 2005 29 February 2004 31 August 2004
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised (losses)/
gains on investments - (743) (743) - 348 348 - 2,648 2,648
Unrealised gains on - 6,434 6,434 - 3,880 3,880 - 13,537 13,537
investments
Currency gains (note 2) - 383 383 - 1,786 1,786 - 1,635 1,635
Income (note 3) 441 - 441 282 - 282 945 - 945
Investment management fee (530) - (530) (454) - (454) (975) - (975)
Other administrative (120) - (120) (102) - (102) (221) - (221)
expenses
Net return before finance
costs and taxation (209) 6,074 5,865 (274) 6,014 5,740 (251) 17,820 17,569
Finance costs of borrowings (154) - (154) (120) - (120) (255) - (255)
Return on ordinary
activities before taxation (363) 6,074 5,711 (394) 6,014 5,620 (506) 17,820 17,314
Tax on ordinary activities (27) - (27) (26) - (26) (73) - (73)
Return on ordinary
activities after taxation (390) 6,074 5,684 (420) 6,014 5,594 (579) 17,820 17,241
Transfer (from)/to reserves (390) 6,074 5,684 (420) 6,014 5,594 (579) 17,820 17,241
Return per ordinary share
(note 5) (0.63p) 9.81p 9.18p (0.68p) 9.71p 9.03p (0.93p) 28.77p 27.84p
* The revenue 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.
THE BAILLIE GIFFORD JAPAN TRUST PLC
SUMMARISED BALANCE SHEET
at 28 February 2005
(unaudited)
28 February 29 February 31 August
2005 2004 2004
£'000 £'000 £'000
NET ASSETS
Listed overseas equities 124,121 99,880 108,849
Unlisted equities - traded on the OTC market (note 6) - 9,467 3,263
- other unlisted 2,084 1,507 1,759
Total fixed asset investments 126,205 110,854 113,871
Net liquid assets 3,718 1,542 10,719
Total assets (before deduction of bank loans) 129,923 112,396 124,590
Bank loans (note 7) (20,416) (20,220) (20,767)
109,507 92,176 103,823
CAPITAL AND RESERVES
Called-up share capital 3,097 3,097 3,097
Capital reserves 114,244 96,364 108,170
Revenue reserve (7,834) (7,285) (7,444)
EQUITY SHAREHOLDERS' FUNDS 109,507 92,176 103,823
NET ASSET VALUE PER ORDINARY SHARE 176.8p 148.8p 167.6p
Ordinary shares in issue (note 8) 61,935,000 61,935,000 61,935,000
THE BAILLIE GIFFORD JAPAN TRUST PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months to Six months to Year to
28 February 29 February 2004 31 August
2005 2004
£'000 £'000 £'000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (note 9) (280) (335) (245)
NET CASH OUTFLOW FROM SERVICING OF FINANCE (158) (80) (203)
TOTAL TAX PAID (22) (26) (76)
FINANCIAL INVESTMENT
Acquisitions of investments (12,218) (10,528) (31,553)
Disposals of investments 5,168 9,699 39,685
Realised currency profit /(loss) 32 (186) 288
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT (7,018) (1,015) 8,420
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (7,478) (1,456) 7,896
FINANCING
Net inflow from bank loans - 2,686 2,608
NET CASH INFLOW FROM FINANCING - 2,686 2,608
(DECREASE)/INCREASE IN CASH (7,478) 1,230 10,504
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease)/increase in cash in the period (7,478) 1,230 10,504
Net inflow from bank loans - (2,686) (2,608)
Exchange movement on bank loans 351 1,972 1,347
MOVEMENT IN NET DEBT IN THE PERIOD (7,127) 516 9,243
NET DEBT AT START OF THE PERIOD (9,770) (19,013) (19,013)
NET DEBT AT END OF THE PERIOD (16,897) (18,497) (9,770)
THE BAILLIE GIFFORD JAPAN TRUST PLC
TWENTY LARGEST EQUITY HOLDINGS
at 28 February 2005
Market
value % of total
Name Business £'000 assets
Yamada Denki Consumer electronics retailer 4,203 3.2
Sumitomo Heavy Machinery and medical equipment 4,036 3.1
Sumitomo Realty & Development Property development and leasing 3,995 3.1
Aiful Consumer finance 3,937 3.0
Asahi Glass Specialist glass manufacturer 3,545 2.7
Japan Tobacco Tobacco manufacturer 3,542 2.7
Itochu Trading conglomerate 3,518 2.7
JFE Holdings Major steel company 3,418 2.6
Diamond Lease Leasing services 3,127 2.4
Tokyo Railway based conglomerate 2,847 2.2
OMC Card Credit card company 2,822 2.2
Alps Electric Electronic components 2,721 2.1
UFJ Holdings Major bank 2,720 2.1
SMC Pneumatic control equipment 2,662 2.0
Sumitomo Warehouse Property leasing 2,610 2.0
Canon Printers and copiers 2,584 2.0
Mitsui OSK Lines Shipping 2,560 2.0
Yaskawa Electric Specialist factory automation 2,422 1.9
KDDI Mobile telecommunications 2,407 1.9
Nippon Yakin Kogyo Stainless steel producer 2,407 1.9
=SUM =SUM
(ABOVE) (ABOVE)
62,083 47.8
THE BAILLIE GIFFORD JAPAN TRUST PLC
NOTES
Six months to Six months to Year to
28 February 2005 29 February 31 August
£'000 2004 2004
£'000 £'000
1. The financial statements for the six months to 28 February 2005 have been
prepared on the basis of the accounting policies set out on the Company's
Annual Financial Statements at 31 August 2004.
The Interim Report was approved by the Board on 30 March 2005.
None of the views expressed in this document should be construed as advice
to buy or sell a particular investment.
2. Currency gains
Realised exchange differences 32 (186) 1,569
Movement in unrealised exchange differences 351 1,972 66
383 1,786 1,635
3. Income includes stock lending fee income of £70,000 (29 February 2004 -
£nil; 31 August 2004 - £12,000).
4. No interim dividend will be declared.
5. Return per ordinary share
Revenue return (390) (420) (579)
Capital return 6,074 6,014 17,820
Return per ordinary share is based on the above totals of revenue and
capital and on 61,935,000 (29 February 2004 and 31 August 2004 -
61,935,000) ordinary shares, being the weighted average number of ordinary
shares in issue during the period.
6. The JASDAQ market, which was previously an Over-The-Counter market, became
a recognised stock exchange on 13 December 2004, at which point its stocks
were no longer treated as unlisted.
7. Bank loans of £20.4 million (Y4.1 billion) have been drawn down under yen
loan facilities which are repayable between August 2007 and May 2011 (29
February 2004 - £20.2 million (Y4.1 billion); 31 August 2004 - £20.8
million (Y4.1 billion)).
8. At 28 February 2005 the Company had authority to buy back 9,284,056 of its
own shares in accordance with the authority granted at the AGM in November
2004. No shares were bought back during the period under review.
THE BAILLIE GIFFORD JAPAN TRUST PLC
NOTES
Six months to Six months to Year to
28 February 2005 29 February 2004 31 August
£'000 £'000 2004
£'000
9. Reconciliation of operating revenue to net
cash outflow from operating activities.
Net return before finance costs and taxation (209) (274) (251)
(Increase)/decrease in accrued income (61) (18) 3
Increase in other debtors (2) (12) (19)
(Decrease)/increase in creditors (8) (31) 22
Net cash outflow from operating activities (280) (335) (245)
10. The financial information contained within this interim report does not
constitute statutory accounts as defined in section 240 of the Companies
Act 1985. The financial information for the year ended 31 August 2004 has
been extracted from the statutory accounts which have been filed with the
Registrar of Companies and which contain an unqualified Auditors' Report
and do not contain a statement under section 237 (2) or (3) of the
Companies Act 1985.
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