Source - RNS
RNS Number : 1995P
Baillie Gifford Japan Trust PLC
09 October 2019
 

RNS Announcement: Preliminary Results

 

The Baillie Gifford Japan Trust PLC

 

Results for the year to 31 August 2019

 

Legal Entity Identifier: 54930037AGTKN765Y741

 

 

Over the year to 31 August 2019, The Baillie Gifford Japan Trust PLC's net asset value total return (after deducting borrowings at fair value) fell by 5.3% and the net asset value total return (after deducting borrowings at par value) fell by 5.2% compared to the 0.5% fall in the benchmark* TOPIX index total return (in sterling terms). In this period the Company's share price total return fell by 7.4%.

¾  A final dividend of 3.50p per ordinary share will be put to shareholders for approval at the AGM

¾  The largest contributor to performance this year was Rakuten, mainly an online retail and finance company.

¾  The two largest negative contributors to performance this year were Outsourcing and ZOZO (formerly named Start Today).

¾  Turnover was 11.5% during the year.

¾  Smartphone orientated computer games companies were a fertile area of opportunity during the year. We bought two new holdings in this area, Mixi and Gree.

 

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

Source: Refinitiv/Baillie Gifford. See disclaimer at the end of this announcement.

 

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 2019, the Company had total assets of £859.7m (before deduction of bank loans of £127.6m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £202bn under management and advice as at 7 October 2019.

www.japantrustplc.co.uk

8 October 2019

 

 

For further information please contact:

 

Alex Blake - Client Liaison

The Baillie Gifford Japan Trust PLC

Tel: 0131 275 2859

 

Roland Cross, Director,

FourBroadgate Marketing

Tel: 0207 776 0512 or 07831 401309

 

 

 

The following is the unaudited preliminary statement for the year to 31 August 2019 which was approved by the Board on 3 October 2019.

 

Chairman's Statement

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

Short term reverses are part and parcel of investing and our emphasis remains on the long-term investment strategy of the Japan Trust as seen in our strong five and ten year records. The Company's NAV has risen 123% over five years and 326% over ten years compared to the index total return of 76% over five years and 126% over ten years. The share price has risen 125% over five years and 416% over ten years. In recent years the Managers have enjoyed an extremely successful stock selection track record, bolstered by additional benefits from gearing. During the year to 31 August 2019 this has not been the case, despite little change in stock selection, and the Manager still believes there remains significant potential for gains across our portfolio. As stock markets have been uneasy, gearing has also acted as a drag on performance rather than as a positive contributor. Further performance details are to be found in the Managers' Report.

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

 

Gearing

 

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

 

Dividend

 

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

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

 

 

 

 

Share Capital

 

The Company did not exercise its share buy-back powers during the year; however, your Board believes it is important that the Company retains this power and so, at the Annual General Meeting, is seeking to renew this facility. The Company also has authority to issue new shares and to reissue any shares held in treasury for cash on a non-pre-emptive basis. Shares are issued/reissued only at a premium to net asset value, thereby enhancing net asset value per share for existing shareholders. During the year to 31 August 2019, 1.965m shares were issued at a premium to net asset value raising proceeds of £15.6m, continuing the trend of recent years. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting and we would continue to issue shares only when at a premium to net asset value. This authority would expire at the conclusion of the Annual General Meeting in 2020.

 

Continuation Vote

 

Our shareholders have the right to vote annually on whether the Company should continue in business and will have the opportunity to do so again at the Annual General Meeting to be held on 5 December 2019. Last year, the Company again received support for its continuation. Your Directors still believe there are still attractive opportunities in selected, well-run Japanese companies benefiting the long-term favourable outlook for the Japan Trust. To that end, my fellow Directors and I intend, where possible, to vote our own shareholdings in favour of the resolution and hope that all shareholders will feel disposed to do likewise.

 

Board

 

Your Board is committed to high standards of corporate governance. In particular, it recognises the need for a balance of skills, experience, diversity and length of service amongst its Non-Executive Directors, all of which forms part of our succession planning discussions during Nomination Committee meetings. Given the above, and having overseen the changing of the guard from Sarah Whitley to Matthew Brett as Portfolio Manager, closely followed by appointments of two outstanding female Non Executive Directors, I am standing down as your Chairman at the AGM.

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

 

Outlook

 

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

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

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

 

 

 

 

Nick AC Bannerman

Chairman

8 October 2019

 

 

For a definition of terms see Glossary of Terms and Alternative Performance Measures (APM), Note 11.

 

Past performance is not a guide to future performance.

 

 

Managers' Report

 

Philosophy

 

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

 

Performance

 

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

 

The Company's total assets reduced slightly from £870.6m to £859.7m.  The reduction was a combination of a negative return from the portfolio in Yen terms, exacerbated by gearing, which was partly offset by weakness in Sterling.  As was the case last year, over five years each of the top ten contributors individually delivered more performance than the worst subtracted.  Therefore, we continue to believe that it is important for us to focus on the upside potential of individual stocks and stay the course when we have found an idea where we have strong conviction.

 

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

 

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

 

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

 

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

 

 

 

Portfolio positioning

 

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

 

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

 

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

 

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

 

Outlook

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

 

Baillie Gifford

October 2019

 

For a definition of terms see Glossary of Terms and Alternative Performance Measures (APM), Note 11.

 

Past performance is not a guide to future performance.

 

Equity Portfolio by Growth Category

As at 31 August 2019

 

Secular

Growth*

% of

total    assets

 

 

Growth

Stalwarts*

% of

total assets

 

 

Special

Situations*

% of

total

assets

 

 

Cyclical

Growth*

% of

total assets

Rakuten

3.7

Nitori

1.5

SoftBank

6.0

Itochu

2.1

SBI

2.8

Zenkoku Hosho

1.4

Sony

2.4

Disco

1.7

M3

2.6

Park24

1.0

Colopl

1.7

Sumitomo Metal Mining

1.6

Kubota

2.5

Makita

0.7

Tokyo Tatemono

1.5

Sumitomo Mitsui Trust

1.6

GMO Internet

2.4

Mitsubishi UFJ Lease & 

  Finance

 

0.7

Mixi

1.5

Mitsubishi Electric

1.5

CyberAgent

2.4

Gree

0.8

Nifco

1.3

Fanuc

2.3

Fukuoka Financial

0.6

Rohm

0.8

Murata Manufacturing

1.2

Yaskawa Electric

2.2

Asics

0.6

JAFCO

0.8

DMG Mori

1.2

Sysmex

2.2

Sawai Pharmaceutical

0.5

 

 

Invincible Investment

1.2

Misumi

2.2

Secom

0.5

 

 

Advantest

1.0

Inpex

2.1

 

 

 

 

Iida

0.9

Nidec

2.0

 

 

 

 

Mazda Motor

0.9

SMC

1.9

 

 

 

 

Katitas

0.6

Shimadzu

1.7

 

 

 

 

 

 

ZOZO

1.7

 

 

 

 

 

 

Sato

1.7

 

 

 

 

 

 

Recruit Holdings

1.5

 

 

 

 

 

 

Outsourcing

1.5

 

 

 

 

 

 

H.I.S.

1.3

 

 

 

 

 

 

MonotaRO

1.2

 

 

 

 

 

 

Infomart

1.2

 

 

 

 

 

 

Topcon

1.1

 

 

 

 

 

 

Pan Pacific

  International

 

1.1

 

 

 

 

 

 

Toyota Tsusho

1.1

 

 

 

 

 

 

Subaru

1.0

 

 

 

 

 

 

Digital Garage

1.0

 

 

 

 

 

 

Peptidream

0.9

 

 

 

 

 

 

iStyle

0.9

 

 

 

 

 

 

Broadleaf

0.8

 

 

 

 

 

 

Lifull

0.8

 

 

 

 

 

 

Keyence

0.7

 

 

 

 

 

 

Mercari

0.5

 

 

 

 

 

 

Nippon Ceramic

0.5

 

 

 

 

 

 

Yume No Machi

0.5

 

 

 

 

 

 

Shimano

0.4

 

 

 

 

 

 

Noritsu Koki       

0.4

 

 

 

 

 

 

Cyberdyne

0.3

 

 

 

 

 

 

Rizap

0.2

 

 

 

 

 

 

Healios K.K.

0.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

55.5

Total

7.5

Total

15.5

Total

16.8


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

 

 

Stock Level Attribution

 

Top Ten Relative Stock Contributors

Year to 31 August 2019

 

 

Bottom Ten Relative Stock Contributors

Year to 31 August 2019

 

 

 

 

 

Name

Portfolio (average) weight)

%

Index (average weight)

%

 

 

Contribution

%

 

 

 

 

Name

 

Portfolio (average) weight)

%

Index (average weight)

%

 

 

Contribution

%

Rakuten

4.0

0.2

1.1

 

Outsourcing

2.2

0.0

(1.5)

Advantest

1.2

0.1

0.8

 

ZOZO

2.1

0.1

(1.2)

Pan Pacific International

2.1

0.2

0.8

 

SBI

3.8

0.1

(0.8)

Invincible Investment

1.2

0.0

0.5

 

iStyle

1.2

0.0

(0.7)

Itochu

2.3

0.6

0.4

 

Toyota Motor

0.0

3.3

(0.5)

SoftBank

7.0

1.8

0.4

 

Sysmex

2.5

0.2

(0.5)

Infomart

1.2

0.0

0.4

 

CyberAgent

2.6

0.1

(0.5)

SMC

2.0

0.5

0.3

 

Daiichi Sankyo

0.0

0.6

(0.4)

GMO Internet

2.4

0.0

0.3

 

Inpex

2.8

0.3

(0.4)

Peptidream

0.9

0.1

0.3

 

Topcon

1.4

0.0

(0.4)

 

 

 

Top Ten Relative Stock Contributors

5 years to 31 August 2019

 

 

Bottom Ten Relative Stock Contributors

5 years to 31 August 2019

 

 

 

 

 

Name

Portfolio (average) weight)

%

Index (average weight)

%

 

 

Contribution

%

 

 

 

 

Name

 

Portfolio (average) weight)

%

Index (average weight)

%

 

Contribution

%

Yaskawa Electric

2.6

0.1

2.5

 

Mazda Motor

1.5

0.2

(1.3)

CyberAgent

2.5

0.1

2.0

 

Inpex

2.1

0.3

(1.2)

Outsourcing

2.0

0.0

1.9

 

Modec

0.5

0.0

(0.8)

Pan Pacific International

2.3

0.1

1.8

 

H.I.S.

2.1

0.0

(0.8)

Misumi

2.8

0.1

1.8

 

Nintendo

0.0

0.8

(0.7)

Katitas

0.4

0.0

1.6

 

Tokyo Tatemono

1.8

0.1

(0.7)

ZOZO

2.3

0.1

1.6

 

Daiichi Sankyo

0.0

0.4

(0.7)

M3

2.6

0.1

1.6

 

Sumitomo Mitsui Trust

2.0

0.4

(0.6)

Pigeon

1.8

0.1

1.5

 

Takara Leben

0.7

0.0

(0.6)

Shimadzu

2.0

0.1

1.5

 

Asics

1.3

0.1

(0.6)

Source: StatPro and relevant underlying index providers. Baillie Gifford Japan Trust relative to TOPIX total return, in sterling terms. See disclaimer at the end of this announcement.

 

Holding Period

As at 31 August 2019

 

 

 

 

 

>10 years

%

of total

assets

 

 

 

 

5-10 years

%

of total

assets

 

 

 

 

2-5 years

%

of total

assets

 

 

 

 

<2 years

%

of total

assets

Rakuten

3.7

 

 

SoftBank

6.0

 

 

Fanuc

2.3

 

 

Sato

1.7

SBI

2.8

 

 

M3

2.6

 

 

Nidec

2.0

 

 

Mixi

1.5

Kubota

2.5

 

 

Sony

2.4

 

 

Colopl

1.7

 

 

Zenkoku Hosho

1.4

Sysmex

2.2

 

 

GMO Internet

2.4

 

 

Recruit Holdings

1.5

 

 

DMG Mori

1.2

Misumi

2.2

 

 

CyberAgent

2.4

 

 

Outsourcing

1.5

 

 

Gree

0.8

Inpex

2.1

 

 

Yaskawa Electric

2.2

 

 

MonotaRO

1.2

 

 

Rohm

0.8

Itochu

2.1

 

 

ZOZO

1.7

 

 

Murata

1.2

 

 

JAFCO

0.8

SMC

1.9

 

 

Disco

1.7

 

 

Infomart

1.2

 

 

Makita

0.7

Shimadzu

1.7

 

 

Sumitomo Metal Mining

1.6

 

 

Invincible Investment

1.2

 

 

Katitas

0.6

Mitsubishi Electric

1.5

 

 

Sumitomo Mitsui Trust

1.6

 

 

Topcon

1.1

 

 

Mercari

0.5

Tokyo Tatemono

1.5

 

 

Toyota Tsusho

1.1

 

 

Iida

0.9

 

 

Yume No Machi

0.5

Nitori

1.5

 

 

Subaru

1.0

 

 

Peptidream

0.9

 

 

Shimano

0.4

Nifco

1.3

 

 

Digital Garage

1.0

 

 

iStyle

0.9

 

 

Noritsu Koki

0.4

H.I.S.

1.3

 

 

Park24

1.0

 

 

Keyence

0.7

 

 

Rizap

0.2

Pan Pacific International

1.1

 

 

Advantest

1.0

 

 

Secom

0.5

 

 

Total

11.5

Mitsubishi UFJ Lease & Finance

0.7

 

 

Mazda Motor

0.9

 

 

Nippon Ceramic

0.5

 

 

 

 

Fukuoka Financial

0.6

 

 

Broadleaf

0.8

 

 

Cyberdyne

0.3

 

 

 

 

Asics

0.6

 

 

Lifull

0.8

 

 

Healios K.K.

0.2

 

 

 

 

Total

31.3

 

 

Sawai Pharmaceutical

0.5

 

 

Total

19.8

 

 

 

 

 

 

 

 

Total

32.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stocks bought within the past year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

List of Investments as at 31 August 2019

 

 

 

Name

 

 

Business

 

Value

£'000

 

% of

total assets

Absolute†

Performance

%

Relative†

Performance

%

SoftBank

Telecom operator and technology investor

51,909

6.0

4.8 

5.4 

Rakuten

Internet retail and financial services

31,432

3.7

31.9 

32.7 

SBI

Online financial services

23,926

2.8

(19.9)

(19.5)

M3

Online medical services

22,154

2.6

3.1

3.6 

Kubota

Agricultural machinery

21,215

2.5

(0.2)

0.3 

Sony

Consumer electronics, films and finance

20,659

2.4

6.8 

7.4 

GMO Internet

Internet conglomerate

20,614

2.4

9.5 

10.1 

CyberAgent

Japanese internet advertising and content

20,587

2.4

(15.1)

(14.7)

Fanuc

Robotics manufacturer

19,616

2.3

(1.2)

(0.6)

Yaskawa Electric

Specialist factory automation

19,230

2.2

8.2 

8.8 

Sysmex

Medical testing equipment

19,191

2.2

(20.9)

(20.5)

Misumi

Online distributor of precision machinery parts

18,849

2.2

(5.5)

(5.0)

Inpex

Oil and gas producer

18,463

2.1

(14.0)

(13.5)

Itochu

General trading firm

18,437

2.1

26.2 

26.9 

Nidec

Specialist motors

17,170

2.0

(3.5)

(2.9)

SMC

Producer of factory automation equipment

16,085

1.9

22.2

22.9 

Shimadzu

Precision tools and equipment maker

14,920

1.7

(9.9)

(9.4)

ZOZO

Internet fashion retailer

14,889

1.7

(37.7)

(37.4)

Sato

Barcode and RFID technology

14,728

1.7

(16.2)

(15.7)

Colopl

Smartphone gaming and virtual reality (VR)

14,455

1.7

7.6 

8.2 

Disco

Specialist cutting for semiconductors

14,318

1.7

10.1 

10.7 

Sumitomo Metal Mining

Smelting and copper, nickel and gold mining

14,045

1.6

(5.5)

(5.0)

Sumitomo Mitsui Trust

Japanese trust bank and investment manager

13,827

1.6

(10.5)

(10.0)

Mitsubishi Electric

Develops, manufactures and markets

  electronic equipment

 

13,315

 

1.5

 

(2.1)

 

(1.6)

Recruit Holdings

Property, lifestyle and HR media

13,228

1.5

6.8 

7.4 

Outsourcing

Employment placement services

12,954

1.5

(47.3)

(47.0)

Tokyo Tatemono

Property leasing & development

12,695

1.5

16.7 

17.4 

Nitori

Furniture retail chain

12,649

1.5

1.9 

2.5 

Mixi

Mobile gaming

12,507

1.5

15.9*

3.1*

Zenkoku Hosho

Speciality finance

11,888

1.4

2.3 

2.9 

Nifco

Value-added plastic car parts

11,516

1.3

(9.0)

(8.5)

H.I.S.

Discount travel agency and theme parks

11,350

1.3

(20.1)

(19.7)

MonotaRO

Online business supplies

10,442

1.2

(7.3)

(6.8)

Murata Manufacturing

Manufactures and sells ceramic applied

  electronic components

 

10,027

 

1.2

 

(21.1)

 

 (20.7)

DMG Mori

Machine tool manufacturer

9,956

1.2

11.1*

5.5*

Infomart

Internet platform for restaurant supplies

9,935

1.2

33.4 

34.2 

Invincible Investment

Real estate investment trust

9,910

1.2

55.4 

56.2 

 Topcon

GPS systems

9,442

1.1

(28.0)

(27.6)

Pan Pacific International

Discount store chain

9,298

1.1

38.0 

38.7 

Toyota Tsusho

Markets automobiles and other products,

  Africa focus

 

9,138

 

1.1

 

(0.7)

 

(0.2)

Subaru

Niche car brand

8,961

1.0

0.6 

1.2 

Digital Garage

Internet business investor

8,604

1.0

2.6 

3.2 

Park24

Parking, car hire and sharing

8,288

1.0

(23.8)

(23.4)

Advantest

Semiconductor testing services

8,209

1.0

87.3 

88.3 

Iida

Japanese house builder

8,097

0.9

(7.5)

(7.0)

 

 

Name

 

 

Business

 

Value

£'000

 

% of

total assets

Absolute†

Performance

%

Relative†

Performance

%

Mazda Motor

Car manufacturer

7,997 

0.9

(21.0)

(20.6)

 

Peptidream

Drug discovery and development platform

7,786 

0.9

43.1 

43.8 

 

iStyle

Beauty product review website

7,729 

0.9

(46.0)

(45.7)

 

Gree

Mobile gaming

7,179 

0.8

15.1*

7.5*

 

Broadleaf

Online platform for buying car parts

7,140 

0.8

(12.6)

(12.1)

 

Lifull

Provides online property information

6,878 

0.8

7.8 

8.4 

 

Rohm

Electronic component manufacturer

     6,767

0.8

16.0*

11.5*

 

JAFCO

Forms venture capital groups

6,668 

0.8 

3.0 

3.6  

 

Makita

Manufactures power tools

6,102 

0.7 

(4.1)*

(7.2)*

 

Mitsubishi UFJ Lease &

  Finance

Leasing services

 

5,762 

 

0.7 

 

6.2 

 

6.8 

 

Keyence

Manufacturer of sensors

5,742 

0.7 

11.8 

12.4 

 

Fukuoka Financial

Regional bank

5,374 

0.6 

(32.6)

(32.3)

 

Katitas

Real estate services

5,248 

0.6 

28.6 

29.3 

 

Asics

Sports shoes and clothing

5,087 

0.6 

(6.3)

(5.8)

 

Sawai Pharmaceutical

Generic pharmaceuticals

4,712 

0.5 

8.2 

8.8 

 

Secom

Security services

4,530 

0.5 

12.3 

12.9 

 

Mercari

Software development services

4,181 

0.5 

(21.0)

(20.6)

 

Nippon Ceramic

Electronic component manufacturer

4,094 

0.5 

1.6 

2.1 

 

Yume No Machi

Online meal delivery service

3,946 

0.5 

16.0*

9.6*

 

Shimano

Cycling component manufacturer

3,886 

0.4 

0.2 

0.8 

 

Noritsu Koki

Holding company with interests in biotech

  and agricultural products

 

3,551 

 

0.4 

 

(30.9)

 

(30.5)

 

Cyberdyne

Medical exo-skeletons

2,690 

0.3 

(18.2)

(17.8)

 

Rizap

Low calories food supplier and fitness gym

  operator

 

1,802 

 

0.2 

 

(61.4)

 

(61.2)

 

Healios K.K.

Regenerative medicine

1,667 

0.2 

(20.9)

(20.5)

 

Total Investments

 

819,646 

95.3 

 

 

 

Net Current Assets        (excluding bank loans)

 

40,100 

4.7 

 

 

 

Total Assets

 

859,746 

100.0

 

 

 

Bank Loans

 

(127,641)

(14.8)

 

 

 

Shareholders' Funds

 

732,105 

85.2

 

 

 

 

 

 

 

 

 

 

 

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

*     Figures relate to part period returns.

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

Past performance is not a guide to future performance.

 

 

Income Statement

 

 

 

For the year ended 31 August 2019

For the year ended 31 August 2018

 

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

(Losses)/gains on investments

(34,974)

124,982 

Currency (losses)/gains

(8,815)

(8,815)

581 

581 

Income (note 2)

13,498 

10,874 

Investment management fee (note 3)

(4,149)

(4,354)

Other administrative expenses

(654)

(654)

(678)

(678)

Net return before finance costs and taxation

8,695 

(43,789)

(35,094)

5,842 

125,563 

131,405 

Finance costs of borrowings

(2,589)

(2,589)

(2,521)

(2,521)

Net return on ordinary activities before taxation

6,106 

(43,789)

(37,683)

3,321 

125,563 

128,884 

Tax on ordinary activities

(1,351)

(1,351)

(1,087)

(1,087)

Net return on ordinary activities after taxation

4,755 

(43,789)

(39,034)

2,234 

125,563 

127,797 

Net return per ordinary share (note 4)

5.18p

(47.70p)

(42.52p)

2.54p

142.51p

145.05p

Note:

Dividends payable in respect of the year (note 5)

 

3.50p 

 

 

 

0.60p

 

 

 

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

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

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

 

 

Balance Sheet

 

 

                   At 31 August 2019

                   At 31 August 2018

 

£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

Investments held at fair value through profit or loss

 

819,646 

 

842,045 

Current assets

 

 

 

 

Debtors

1,508 

 

4,700 

 

Cash and cash equivalents

40,303 

 

27,788 

 

 

41,811 

 

32,488 

 

Creditors

 

 

 

 

Amounts falling due within one year

(1,711)

 

(3,943)

 

Bank loans falling due within one year (note 6)

(55,698)

 

 

 

(57,409)

 

(3,943)

 

Net current (liabilities)/assets

 

(15,598)

 

28,545 

Total assets less current liabilities

 

804,048 

 

870,590 

Creditors

 

 

 

 

Amounts falling due after more than one year (note 6)

 

(71,943)

 

(114,486)

Net assets

 

732,105 

 

756,104 

Capital and reserves

 

 

 

 

Share capital

 

4,621 

 

4,523 

Share premium account

 

190,939 

 

175,455 

Capital redemption reserve

 

203 

 

203 

Capital reserve

 

531,587 

 

575,448 

Revenue reserve

 

4,755 

 

475 

Shareholders' funds

 

732,105 

 

756,104 

Net asset value per ordinary share*

 

792.1p

 

835.8p

Ordinary shares in issue (note 8)

 

92,424,925

 

90,459,925

 

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

 

 

Statement of Changes in Equity

 

For the year ended 31 August 2019

 

Share
capital

£'000

Share
premium account

£'000

Capital redemption reserve

£'000

Capital* reserve

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 September 2018

4,523 

175,455 

203 

575,448 

475 

756,104 

Shares issued

98 

15,484 

15,582 

Net return on ordinary activities after taxation

(43,789)

4,755 

(39,034)

Dividends paid in the year

(72) 

(475)

(547)

Shareholders' funds at 31 August 2019

4,621  

190,939 

203 

531,587 

4,755 

732,105

 

 

For the year ended 31 August 2018

 

Share
capital

£'000

Share
premium account

£'000

Capital redemption reserve

£'000

Capital* reserve

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 September 2017

4,194 

122,698

203 

449,885 

(1,759)

575,221 

Shares issued

329 

52,757

53,086 

Net return on ordinary activities after taxation

125,563 

2,234 

127,797 

Shareholders' funds at 31 August 2018

4,523 

175,455 

203 

575,448 

475 

756,104 

 

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

 

 

 

 

Cash Flow Statement

 

 

At 31 August 2019

At 31 August 2018

 

£'000

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Net return on ordinary activities before taxation

(37,683)

 

128,884 

 

Net losses/(gains) on investments

34,974 

 

(124,982)

 

Currency losses/(gains)

8,815 

 

(581)

 

Finance cost of borrowings

2,589 

 

2,521 

 

Overseas withholding tax

(1,311)

 

(1,051)

 

Changes in debtors and creditors

(480)

 

(76)

 

Cash from operations

 

6,904 

 

4,715 

Interest paid

 

(2,527)

 

(2,292)

Net cash inflow from operating activities

 

4,377 

 

2,423 

Cash flows from investing activities

 

 

 

 

Acquisitions of investments

(110,202)

 

(183,574)

 

Disposals of investments

98,965 

 

112,702 

 

Exchange differences on settlement of investment transactions

506 

 

791 

 

Net cash outflow from investing activities

 

(10,731)

 

(70,081)

Cash flows from financing activities

 

 

 

 

Shares issued

15,582 

 

53,086 

 

Equity dividends paid

(547)

 

 

Bank loans drawn down

 

62,873 

 

Bank loans repaid

 

(30,402)

 

Net cash inflow from financing activities

 

15,035 

 

85,557 

Increase in cash and cash equivalents

 

8,681 

 

17,899 

Exchange movements

 

3,834 

 

(696)

Cash and cash equivalents at start of period

 

27,788 

 

10,585 

Cash and cash equivalents at end of period*

 

40,303 

 

27,788 

 

 

 

 

 

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

 

 

 

Notes to the Condensed Financial Statements

 

1.    

The Financial Statements for the year to 31 August 2019 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The accounting policies adopted are consistent with those of the previous financial year. 

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 18 to the Financial Statements.

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. The Financial Statements of the Company have been prepared on a going concern basis, on the assumption the continuation vote is passed by shareholders at the forthcoming Annual General Meeting.

 

 

 

 

 

2.    

Income from investments

31 August 2019

£'000

31 August 2018

£'000

 

Overseas dividends

13,498 

10,874 

 

Total Income

13,498 

10,874 

 

Total Income Comprises

 

 

 

Dividends from financial assets designated at fair value through profit or loss

13,498 

10,874 

 

Total Income

13,498 

10,874 

 

 

 

 

3.    

Investment Management Fee - all charged to revenue

 

2019

£'000

2018

£'000

 

Investment Management Fee

4,149

4,354

 

With effect from 1 January 2019, the annual management fee is 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets, calculated and payable quarterly. Prior to 1 January 2019, the annual management fee was 0.95% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets.

 

 

 

 

 

Notes to the Condensed Financial Statements (ctd)

 

 

4.    

Net Return per Ordinary Share

2019 Revenue

2019

Capital

2019

Total

2018 Revenue

2018

Capital

2018

Total

Net return on ordinary activities after taxation

 

5.18p

(47.70p)

(42.52p)

 

2.54p

142.51p

145.05p

 

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £4,755,000 (2018 - £2,234,000), and on 91,802,048 (2018 - 88,108,377) ordinary shares, being the weighted average number of ordinary shares in issue during each year.

Capital return per ordinary share is based on the net capital return for the financial year of (£43,789,000) (2018 - £125,563,000), and on 91,802,048 (2018 - 88,108,377) ordinary shares, being the weighted average number of ordinary shares in issue during each year.

There are no dilutive or potentially dilutive shares in issue.

5.    

Ordinary Dividends

 

2019

2018

2019

£'000

2018

£'000

Amounts Recognised as distributions in the year:

Previous year's final (paid 14 December 2018)

 

 0.60p

 

 -

 

 547

 

 -

 

 

2019

2018

2019

£'000

2018

£'000

Dividends paid and payable in respect of the year:

Current year's proposed final dividend

(payable 13 December 2019)

 

 

 

3.50p

 

 

 

0.60p

 

 

 

3,235

 

 

 

547

If approved, the recommended final dividend will be paid on 13 December 2019 to shareholders on the register at close of business on 15 November 2019. The ex-dividend date is 14 November 2019. Further information can be found in the Dividend section of the Chairman's Statement.

6.    

Total borrowings at 31 August 2019 were £127,641,000 (¥16.5 billion), (31 August 2018 - £114,486 (¥16.5 billion)).

7.    

Transaction costs incurred on the purchase and sale of investments are added to the purchase costs or deducted from the sales proceeds, as appropriate. During the year, transaction costs on purchases amounted to £56,000 (31 August 2018 - £88,000) and transaction costs on sales amounted to £55,000 (31 August 2018 - £69,000).

8.    

At 31 August 2019 the Company had authority to buy back 13,663,373 shares. No shares were bought back during the year. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. During the year 1,965,000 (2018 - 6,580,000) shares were issued at a premium to net asset value raising proceeds of £15,582,000 (2018 - £53,086,000).  There were no shares issued between 1 September 2019 and 7 October 2019.

9.    

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 August 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

10. 

The Annual Report and Financial Statements will be available on the Company's page of the Managers' website www.japantrustplc.co.uk on or around 5 November  2019

11. 

Glossary of Terms and Alternative Performance Measures (APM)

 

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

 

Net Asset Value

Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

 

Net Asset Value (Borrowings at Fair Value) # (APM)

Borrowings are valued at an estimate of their market worth.

 

Net Asset Value (Borrowings at Par Value) # (APM)

Borrowings are valued at their nominal par value. Par value approximates amortised cost.

 

Net Asset Value (Reconciliation of NAV at par to NAV at Fair)

 

31 August 2019

£'000

31 August 2018

£'000

Shareholders' Funds (borrowings at par value)

732,105

 

756,104 

Add: par value of borrowings

127,641

114,486 

Less: fair value of borrowings

(130,192)

(116,111)

Shareholders' funds (borrowings at fair value)

729,554

754,479

Shares in issue

92,424,925

90,459,925

Net asset value per ordinary share (borrowings at fair value)

789.3p

834.0p

 

Net Current Assets

Net liquid assets comprise current assets less current liabilities excluding borrowings.

 

Premium/Discount # (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is

lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

 

Total Return# (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

 

 

 

August 2019

NAV (fair)

August 2019

NAV (par)

August 2019

Share Price

Closing NAV per share/share price

(a)

789.3p

792.1p

791.0p

Dividend adjustment factor*

(b)

1.0008

1.0008

1.0008

Adjusted closing NAV per share/share price

(c = a x b)

789.9p

792.7p

791.6p

Opening NAV per share/share price

(d)

834.0p

835.8p

855.0p

Total Return

(c÷d)-1

(5.3%)

(5.2%)

(7.4%)

 

* The dividend adjustment factor is calculated on the assumption that the dividend of 0.60p paid by the Company during the     year was invested into shares of the Company at the cum income NAV per share/share price, as appropriate, at the ex-dividend date.

 

Ongoing Charges # (APM)

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with

debt at fair value).

 

 

 

August 2019

£'000

August 2018

£'000

Investment management fee

 

4,149

4,354

Other administrative expenses

 

654

678

Total expenses

(a)

4,803

5,032

Average net asset value (borrowings at fair value)

(b)

686,294

685,716

Ongoing charges (a)÷(b) (expressed as a percentage)

 

0.70%

0.73%

 

 

 

11.

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

 

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in

additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. The level of gearing can be adjusted through the use of derivatives which

affect the sensitivity of the value of the portfolio to changes in the level of markets.

Gearing is the Company's borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds.

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the

Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

 

Active Share # (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

 

# Alternative performance measure which is considered to be a known industry metric

 

‡      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.

 

Third Party Data Provider Disclaimer

 

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data.

No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

 

Regulated Information Classification: Additional regulated information required to be disclosed under the laws of a Member State of the European Union.

 

- ends -


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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