The Baillie Gifford Japan Trust PLC Interim Report
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RNS Announcement |
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The Baillie Gifford Japan Trust PLC |
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Results for the six months to 29 February 2016 |
In the six months to 29 February 2016, The Baillie Gifford Japan Trust's net asset value per share (after deducting borrowings at fair value) increased by 0.1% compared to a 1.0% increase in the TOPIX total return (in sterling terms). The Company's share price decreased by 1.3%.
¾ Although the Company's equity holdings outperformed the index during the six months, this was more than offset by the negative impact of the gearing for the portfolio as a whole.
¾ There were strong share price performances from stocks related to the sharing economy which helped performance including Next, an online property broker, and Park 24, which operates car parking and car club services.
¾ The portfolio was also helped by the lack of holdings in the mega-banks, which have been weak since the Bank of Japan cut interest rates.
¾ The positive changes in corporate governance and large potential for improvements in balance sheet management and dividend payments continue to provide attractive stock picking opportunities for long term investment.
The Baillie Gifford Japan Trust aims to achieve long term capital growth principally through investment in medium and smaller sized Japanese companies which are believed to have above average prospects for growth, although it invests in larger companies when considered appropriate. At 29 February 2016, the Company had total assets of £400.8m (before deduction of bank loans of £64.8m).
The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £121bn under management and advice as at 21 March 2016.
Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares. You should view your investment as long term. You can find up to date performance information about The Baillie Gifford Japan Trust PLC on the Company website at www.japantrustplc.co.uk.
21 March 2016
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Roland Cross, Director
Four Broadgate
Tel: 0203 761 4440
The following is the unaudited Interim Financial Report for the six months to 29 February 2016.
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Responsibility statement |
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim 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, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
c) the Interim 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).
By order of the Board
Nick AC Bannerman
Chairman
21 March 2016
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Interim Management Report |
Over the six months to 29 February 2016 the NAV was essentially static, whilst the benchmark index appreciated by 1.0% in sterling terms. In yen terms though the TOPIX was weak, falling around 15% whilst the yen gained against sterling by roughly the same amount. Although the Company's equity holdings outperformed the index during the six months, this was more than offset by the negative impact of the gearing for the portfolio as a whole. Longer term the performance remains strong.
The Japanese stock market has been following global markets in falling as the outlook for growth has weakened. As a result of these concerns and the continuing efforts of the government to try and exit deflation, the Bank of Japan cut interest rates on excess reserves to -10bps, the first time that Japan has had negative nominal interest rates. The ramifications of this policy change are still being felt, but it is hoped that it will stimulate faster cash deployment. There are some tentative signs that share buy backs by companies are accelerating and the drive to improve corporate governance in Japan continues, with some successes.
Otherwise trends in the domestic economy continue as before with a tight labour market, growing inbound tourism and rising prices. Exports have been weak, owing to global trends, but the import bill has fallen sharply as lower oil prices feed through to energy costs and Japan has been running a trade surplus in the last few months for the first time since the devastating effects of the 2011 tsunami. Although estimates for corporate earnings have been lowered slightly, overall profits in Japan are expected to be quite resilient with most of the expected weakness coming from a higher yen. We continue to believe that corporate Japan remains in reasonable shape and that there continues to be significant scope to increase dividends and use cash balances more effectively over the next few years. The increase in the proportion of earnings coming from overseas, whether yen sensitive or not, does however mean that earnings for the market are more closely correlated with global trends than they used to be.
There were strong share price performances from stocks related to the sharing economy which helped performance. Next, an online property broker, aims to enter the market to compete with AirBnB. As hotel rooms have become scarcer and more expensive in Japan, the growing number of tourists will require more accommodation and we expect further regulatory changes to allow developments in accommodation as Tokyo looks forward to hosting world sporting events. Park 24, which operates car parking and car club services, has also been strong as their dominance in the car sharing space widens and the business becomes more profitable. The portfolio was also helped by the lack of holdings in the mega-banks, which have been weak since the Bank of Japan cut interest rates. We have sold holdings in Aeon Mall and Shin-Etsu Chemical as prospects look unenticing and bought a new holding in Takara Leben, which develops flats for first-time buyers and also invests in solar power plants, with various additions being made to some of the smaller holdings.
Overall global uncertainties will continue to affect sentiment in Japan but the unprecedented action of the Bank of Japan reflects the government's determination to boost growth. The next big policy decision will be on the implementation of the next consumption tax rise which is scheduled for April 2017. The last increase had a larger negative impact than was expected on consumption and the next rise is increasingly controversial. However despite this uncertainty we think that the positive changes in corporate governance and large potential for improvements in balance sheet management and dividend payments continue to provide attractive stock picking opportunities for long term investment.
Past performance is not a guide to future performance.
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Income statement (unaudited) |
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For the six months ended 29 February 2016 |
For the six months ended 28 February 2015 |
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Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
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Gains on sales of investments |
- |
1,272 |
1,272 |
- |
2,728 |
2,728 |
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Changes in investment holding gains |
- |
7,085 |
7,085 |
- |
44,826 |
44,826 |
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Currency (losses)/gains |
- |
(8,811) |
(8,811) |
- |
2,633 |
2,633 |
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Income from investments and interest receivable |
3,256 |
- |
3,256 |
2,087 |
- |
2,087 |
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Investment management fee |
(1,201) |
- |
(1,201) |
(993) |
- |
(993) |
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Other administrative expenses |
(297) |
- |
(297) |
(273) |
- |
(273) |
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Net return before finance costs and taxation |
1,758 |
(454) |
1,304 |
821 |
50,187 |
51,008 |
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Finance costs of borrowings |
(663) |
- |
(663) |
(507) |
- |
(507) |
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Net return on ordinary activities before taxation |
1,095 |
(454) |
641 |
314 |
50,187 |
50,501 |
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Tax on ordinary activities |
(302) |
- |
(302) |
(209) |
- |
(209) |
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Net return on ordinary activities after taxation |
793 |
(454) |
339 |
105 |
50,187 |
50,292 |
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Net return per ordinary share (note 5) |
1.04p |
(0.59p) |
0.45p |
0.15p |
72.23p |
72.38p |
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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.
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Balance sheet (unaudited) |
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At 29 February 2016 £'000 |
At 31 August 2015 £'000 |
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Fixed assets |
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Investments held at fair value through profit or loss |
391,497 |
369,568 |
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Current assets |
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Debtors |
1,039 |
345 |
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Cash and cash equivalents |
9,043 |
8,742 |
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10,082 |
9,087 |
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Creditors |
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Amounts falling due within one year: |
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Bank loans (note 6) |
(19,072) |
(16,096) |
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Other creditors |
(804) |
(776) |
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(19,876) |
(16,872) |
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Net current liabilities |
(9,794) |
(7,785) |
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Total assets less current liabilities |
381,703 |
361,783 |
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Creditors |
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Amounts falling due after more than one year: |
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Bank loans (note 6) |
(45,772) |
(38,630) |
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Net assets |
335,931 |
323,153 |
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Capital and reserves |
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Called up share capital |
3,897 |
3,756 |
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Share premium |
85,570 |
73,272 |
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Capital redemption reserve |
203 |
203 |
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Capital reserve |
251,285 |
251,739 |
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Revenue reserve |
(5,024) |
(5,817) |
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Shareholders' funds |
335,931 |
323,153 |
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Net asset value per ordinary share (after deducting borrowings at fair value) |
425.9p |
425.4p |
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Net asset value per ordinary share (after deducting borrowings at par value) |
431.0p |
430.2p |
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Ordinary shares in issue (note 7) |
77,934,925 |
75,121,750 |
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Statement of changes in equity (unaudited) |
For the six months ended 29 February 2016
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Share £'000 |
Share premium £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
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Shareholders' funds at 1 September 2015 |
3,756 |
73,272 |
203 |
251,739 |
(5,817) |
323,153 |
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Shares issued (note 7) |
141 |
12,298 |
- |
- |
- |
12,439 |
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Net return on ordinary activities after taxation |
- |
- |
- |
(454) |
793 |
339 |
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Shareholders' funds at 29 February 2016 |
3,897 |
85,570 |
203 |
251,285 |
(5,024) |
335,931 |
For the six months ended 28 February 2015
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Share £'000 |
Share premium £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
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Shareholders' funds at 1 September 2014 |
3,467 |
47,092 |
203 |
203,968 |
(6,016) |
248,714 |
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Shares issued |
12 |
917 |
- |
- |
- |
929 |
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Net return on ordinary activities after taxation |
- |
- |
- |
50,187 |
105 |
50,292 |
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Shareholders' funds at 28 February 2015 |
3,479 |
48,009 |
203 |
254,155 |
(5,911) |
299,935 |
* The Capital Reserve balance as at 29 February 2016 includes investment holding gains on investments of £147,301,000 (28 February 2015 - gains of £148,458,000).
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Condensed cash flow statement (unaudited) |
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Six months to 29 February 2016 £'000 |
Six months to 28 February 2015 £'000 |
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Cash flows from operating activities |
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Net return on ordinary activities before taxation |
641 |
50,501 |
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Net gains on investments |
(8,357) |
(47,554) |
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Currency losses/(gains) |
8,811 |
(2,633) |
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Finance costs of borrowings |
663 |
507 |
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Overseas withholding tax |
(255) |
(181) |
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Changes in debtors and creditors |
(729) |
(168) |
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Cash from operations |
774 |
472 |
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Interest paid |
(646) |
(502) |
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Net cash inflow/(outflow) from operating activities |
128 |
(30) |
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Net cash outflow from investing activities |
(13,239) |
(6,689) |
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Shares issued |
12,439 |
929 |
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Bank loans drawn down |
17,581 |
8,070 |
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Bank loans repaid |
(17,581) |
- |
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Net cash inflow from financing activities |
12,439 |
8,999 |
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(Decrease)/increase in cash and cash equivalents |
(672) |
2,280 |
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Exchange movements |
973 |
(82) |
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Cash and cash equivalents at start of period |
8,742 |
5,231 |
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Cash and cash equivalents at end of period* |
9,043 |
7,429 |
* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.
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Twenty largest holdings at 29 February 2016 (unaudited) |
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Name |
Business |
Value £'000 |
% of total |
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Sysmex |
Medical equipment |
12,602 |
3.1 |
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SoftBank |
Telecom operator and internet investor |
11,275 |
2.8 |
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Japan Exchange Group |
Stock Exchange operator |
10,241 |
2.6 |
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Misumi Group |
Precision machinery parts distributor |
10,216 |
2.5 |
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Temp Holdings |
Employment and outsourcing services |
9,973 |
2.5 |
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M3 |
Online medical database |
9,846 |
2.5 |
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Itochu |
Trading conglomerate |
9,515 |
2.4 |
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Fuji Heavy Industries |
Subaru cars |
9,084 |
2.3 |
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Cookpad |
Recipe website |
8,877 |
2.2 |
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Pigeon |
Baby care products |
8,504 |
2.1 |
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Rakuten |
Internet retail and financial services |
8,306 |
2.1 |
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Don Quijote |
Discount store operator |
8,248 |
2.1 |
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Shimadzu |
Environmental testing equipment |
8,168 |
2.0 |
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Toyo Tire & Rubber |
Tyre manufacturer |
8,102 |
2.0 |
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Tokyo Tatemono |
Property leasing and development |
8,079 |
2.0 |
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SMC |
Pneumatic control equipment |
7,990 |
2.0 |
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Next |
Real estate website |
7,934 |
2.0 |
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Yaskawa Electric |
Robots and factory automation |
7,753 |
1.9 |
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H.I.S. |
Travel agency and theme parks |
7,559 |
1.9 |
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GMO Internet |
Internet services |
7,492 |
1.9 |
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179,764 |
44.9 |
* Before deduction of bank loans.
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Notes to the condensed financial statements (unaudited) |
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1.
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The condensed Financial Statements for the six months to 29 February 2016 comprise the statements set out on the previous pages together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company has adapted FRS 102 for its financial year ending 31 August 2016. The application of the new reporting standards and the AIC's Statement of Recommended Practice has had no impact on the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for periods previously reported. The Condensed Cash Flow Statement has been restated to reflect presentational changes required and does not include any other material changes. The Financial Statements for the six months to 29 February 2016 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 August 2015. Fair Value In accordance with FRS 102 and FRS 104, fair value measurements have been classified using the following fair value hierarchy: Level 1 - reflects financial instruments quoted in an active market; Level 2 - reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets; Level 3 - reflects financial instruments whose fair value is determined in whole or part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. All of the Company's investments fall into level 1 for the periods reported. The Company has early adopted the amendments to Section 34 of FRS 102 regarding fair value hierarchy disclosures. 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 next continuation vote will be in December 2016. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Interim Financial Statements. |
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2. |
The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 August 2015 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on those accounts was not qualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006. |
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3. |
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on not less than 6 months' notice, or on shorter notice in certain circumstances. The annual management fee is 0.95% on the first £50 million of net assets and 0.65% on the remaining net assets, calculated and payable quarterly. |
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4. |
No interim dividend will be declared. |
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Notes to the condensed financial statements (unaudited) (continued) |
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5. |
Net return per ordinary share |
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Six months to 29 February 2016 £'000 |
Six months to 28 February 2015 £'000 |
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Revenue return on ordinary activities after taxation |
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793 |
105 |
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Capital return on ordinary activities after taxation |
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(454) |
50,187 |
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Net return per ordinary share is based on the above totals of revenue and capital and on 76,593,122 ordinary shares (28 February 2015 - 69,482,579), being the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue. |
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6. |
Bank loans of £64.8 million (¥10.2 billion) have been drawn down under yen loan facilities which are repayable between November 2017 and August 2020 (31 August 2015 - £54.7 million (¥10.2 billion)). The revolving loan facilities are shown under short term creditors as this can be drawn for 1, 2, 3 or 6 months and repaid at the end of each drawdown period without incurring breakage costs. |
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7. |
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. During the period, 2,813,175 shares (28 February 2015 - 250,000) were issued at a premium to net asset value raising proceeds of £12,439,000 (28 February 2015 - £929,000). |
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8. |
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 £10,000 (28 February 2015 - £10,000) and transaction costs on sales amounted to £7,000 (28 February 2015 - £6,000). |
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9. |
Principal Risks and Uncertainties The principal risks facing the Company are financial risk, regulatory risk, operational risk, premium/discount volatility and leverage risk. An explanation of these risks and how they are managed is set out on pages 6 and 7 of the Company's Annual Report and Financial Statements for the year to 31 August 2015 and is available on the Japan Trust page of the Managers' website www.japantrustplc.co.uk†. The principal risks and uncertainties have not changed since the date of that report. |
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10. |
The Interim Financial Report is available at www.japantrustplc.co.uk† and will be posted to shareholders on or around 8 April 2016. |
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None of the views expressed in this document should be construed as advice to buy or sell a particular investment. |
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† 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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