TIDMBGFD
RNS Number : 4770I
Baillie Gifford Japan Trust PLC
26 March 2015
RNS Announcement
----------------
The Baillie Gifford Japan Trust PLC
===================================
Results for the six months to 28 February 2015
----------------------------------------------
In the six months to 28 February 2015, The Baillie Gifford Japan
Trust's net asset value per share (after deducting borrowings at
fair value) increased by 20.5% compared to a 12.3% increase in the
TOPIX total return (in sterling terms). The Company's share price
increased by 20.6%.
3/4 Outperformance versus the benchmark was due to strong stock
selection and the positive effect of gearing over the period.
3/4 Active Share at the period end was 87%, which shows that the
overlap with the index is very small and that an investment
approach which emphasises the individual merits of companies is
being taken.
3/4 Economic policy in Japan remains supportive of the corporate
sector with continued quantitative easing from the Bank of Japan as
it tries to reach an inflation target of 2%.
3/4 There have been further positive developments in corporate
governance in Japan. Company behaviour is clearly changing, with
more emphasis on increasing returns to shareholders.
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 28 February 2015, the Company had total
assets of GBP347.0m (before deduction of bank loans of
GBP47.1m).
The Company is managed by Baillie Gifford, an Edinburgh based
fund management group with around GBP127bn under management and
advice as at 25 March 2015.
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.
25 March 2015
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Roland Cross, Director
Broadgate Mainland
Tel: 0207 726 6111
The following is the unaudited Half-Yearly Financial Report for
the six months to 28 February 2015.
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,
their impact on the financial statements and a 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).
By order of the Board
Nick AC Bannerman
Chairman
25 March 2015
Half-yearly management report
=============================
During the six months to the end of February 2015 the net asset
value per share, with borrowings deducted at fair value, rose by
20.5% to 425.9p as the Japanese stock market reached new post-2008
Crisis highs. This compares with a 12.3% increase in the
comparative index in sterling terms after the 7% depreciation of
the yen against sterling. The significant outperformance was due to
both good stock selection and the positive impact of gearing. There
were six stocks each contributing more than 0.5% in relative gains
and only two detracting similarly.
For the first time the Half-Yearly Report includes a figure on
the Active Share of the portfolio. There has been a significant
amount of discussion recently in the financial press about the need
for true active management of portfolios rather than any mimicking
of indices. Japan Trust's figure of an 87% Active Share, which was
the same at the previous year end, shows that the overlap with the
index is very small and that an investment approach which
emphasises the individual merits of companies is being taken. This
figure will continue to be shown in future reports.
The Japanese economy is recovering gradually from the effects of
the consumption tax increase in April 2014 but the overall level of
growth in the last quarter of 2014 was disappointing with GDP only
rising 0.4%. However this figure masks other encouraging trends in
the economy with the labour market tightening further, female
participation in the workforce increasing, wage growth beginning to
accelerate, an ongoing property recovery both in city land prices
and the office market, exports growing and a surge in inbound
tourism particularly from China and other countries in East Asia.
As a result of this, profits have continued to increase and there
are good prospects for further growth in both the economy overall
and corporate profitability.
The yen, which had already weakened significantly, was again
depreciating against sterling in the first half of the period under
review. However since the end of November there has been a shift
and the yen has now risen marginally against sterling. Whilst
direct influences on currency levels are difficult to analyse there
seem to be a number of factors involved. The adoption of
quantitative easing by the ECB, the weakening of the oil price, the
resumption of export growth may all have had an influence. If Japan
does restart some nuclear power stations, as seems increasingly
likely, energy imports will fall significantly and this should also
help support the yen. At current levels Japan is a competitive
place to manufacture and there are many news stories of production
being returned to Japan and further investments being made in
upgrading production capacity.
We have commented in previous reports on the encouraging
improvements in corporate governance in Japan and there have been
further positive developments since then. A Corporate Governance
code has been announced recently in addition to last year's
Stewardship Code. Company behaviour is clearly changing, with more
emphasis on increasing returns to shareholders via higher targets
for return on equity, more share buy-backs and increased cash
dividends. Baillie Gifford welcomes the opportunity for more
constructive engagement with company managements and we feel that
our long term outlook is well aligned to the time scales that
corporate Japan considers. Recent shifts in domestic asset
allocation and the need for Japan to increase returns to support an
ageing population means that pressure for action is increasing and
the scope for improvement in balance sheet management is very large
as cash balances have built up through the years of deflation.
Economic policy in Japan remains supportive of the corporate
sector with continued quantitative easing from the Bank of Japan as
it tries to reach an inflation target of 2%. The government was
returned to power with an improved majority after a snap election
in December and is aiming to enact a significant structural reform
programme. Cuts to corporate taxes have been announced and further
reductions seem likely as the tax system is reformed. Tax revenues
overall are rising strongly as the tax base is extremely cyclical,
although there is still a budget deficit. Whilst hopes for Mr Abe's
Third Arrow have perhaps faded the positive impacts of various
policies are beginning to be felt.
Past performance is not a guide to future performance.
Income statement (unaudited)
============================
For the six months ended For the six months ended For the year ended
28 February 2015 28 February 2014 31 August 2014
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Gains on sales of
investments - 2,728 2,728 - 1,883 1,883 - 7,538 7,538
Changes in investment
holding gains - 44,826 44,826 - 2,495 2,495 - 11,263 11,263
Currency gains (note 4) - 2,633 2,633 - 3,630 3,630 - 3,927 3,927
Income from investments and
interest receivable 2,087 - 2,087 1,690 - 1,690 3,746 - 3,746
Investment management fee (993) - (993) (835) - (835) (1,693) - (1,693)
Other administrative
expenses (273) - (273) (185) - (185) (386) - (386)
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Net return before finance
costs and taxation 821 50,187 51,008 670 8,008 8,678 1,667 22,728 24,395
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Finance costs of borrowings (507) - (507) (470) - (470) (1,004) - (1,004)
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Net return on ordinary
activities before taxation 314 50,187 50,501 200 8,008 8,208 663 22,728 23,391
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Tax on ordinary activities (209) - (209) (135) - (135) (341) - (341)
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Net return on ordinary
activities after taxation 105 50,187 50,292 65 8,008 8,073 322 22,728 23,050
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
Net return per ordinary
share (note 6) 0.15p 72.23p 72.38p 0.10p 11.92p 12.02p 0.47p 33.45p 33.92p
============================ ======== ======== ======== ======== ======== ======== ======== ======== ========
All revenue and capital items in this statement derive from
continuing operations.
A Statement of Total Recognised Gains and Losses is not required
as all gains and losses of the Company have been reflected in the
above statement.
Balance sheet (unaudited)
=========================
At 28 February 2015 At 28 February 2014 At 31 August 2014
GBP'000 GBP'000 GBP'000
Fixed assets
Investments 339,797 261,228 286,275
============================================== =================== =================== =================
Current assets
Debtors 757 754 369
Cash and short term deposits 7,429 10,270 5,231
============================================== =================== =================== =================
8,186 11,024 5,600
============================================== =================== =================== =================
Creditors
Amounts falling due within one year:
Bank loans (note 7) (8,119) (16,370) -
Other creditors (956) (823) (1,428)
============================================== =================== =================== =================
(9,075) (17,193) (1,428)
============================================== =================== =================== =================
Net current liabilities (889) (6,169) 4,172
============================================== =================== =================== =================
Total assets less current liabilities 338,908 255,059 290,447
============================================== =================== =================== =================
Creditors
Amounts falling due after more than one year:
Bank loans (note 7) (38,973) (25,724) (41,733)
============================================== =================== =================== =================
Net assets 299,935 229,335 248,714
============================================== =================== =================== =================
Capital and reserves
Called up share capital 3,479 3,403 3,467
Share premium 48,009 42,754 47,092
Capital redemption reserve 203 203 203
Capital reserve 254,155 189,248 203,968
Revenue reserve (5,911) (6,273) (6,016)
============================================== =================== =================== =================
Shareholders' funds 299,935 229,335 248,714
============================================== =================== =================== =================
Net asset value per ordinary share
(after deducting borrowings at fair value) 425.9p 335.4p 353.3p
============================================== =================== =================== =================
Net asset value per ordinary share
(after deducting borrowings at par) 431.1p 337.0p 358.7p
============================================== =================== =================== =================
Ordinary shares in issue (note 8) 69,581,750 68,056,750 69,331,750
============================================== =================== =================== =================
Reconciliation of movements in shareholders' funds (unaudited)
==============================================================
For the six months ended 28 February 2015
Share Capital redemption Capital Shareholders'
capital Share premium reserve reserve* Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== ======== ============= ======================== ========= =============== =============
Shareholders' funds at 1
September 2014 3,467 47,092 203 203,968 (6,016) 248,714
Shares issued 12 917 - - - 929
Net return on ordinary
activities after
taxation - - - 50,187 105 50,292
Shareholders' funds at
28 February 2015 3,479 48,009 203 254,155 (5,911) 299,935
======================== ======== ============= ======================== ========= =============== =============
For the six months ended 28 February 2014
Share Capital redemption Capital Shareholders'
capital Share premium reserve reserve* Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== ======== ============= ======================== ========= =============== =============
Shareholders' funds at 1
September 2013 3,251 32,019 203 181,240 (6,338) 210,375
Shares issued 152 10,735 - - - 10,887
Net return on ordinary
activities after
taxation - - - 8,008 65 8,073
Shareholders' funds at
28 February 2014 3,403 42,754 203 189,248 (6,273) 229,335
======================== ======== ============= ======================== ========= =============== =============
For the year ended 31 August 2014
Share Capital redemption Capital Shareholders'
capital Share premium reserve reserve* Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== ======== ============= ======================== ========= =============== =============
Shareholders' funds at 1
September 2013 3,251 32,019 203 181,240 (6,338) 210,375
Shares issued 216 15,073 - - - 15,289
Net return on ordinary
activities after
taxation - - - 22,728 322 23,050
Shareholders' funds at
31 August 2014 3,467 47,092 203 203,968 (6,016) 248,714
======================== ======== ============= ======================== ========= =============== =============
* The Capital Reserve balance as at 28 February 2015 includes
investment holding gains on fixed asset investments of
GBP148,458,000 (28 February 2014 - gains of GBP94,864,000; 31
August 2014 - gains of GBP103,632,000).
Condensed cash flow statement (unaudited)
=========================================
Six months to Six months to Year to
28 February 2015 28 February 2014 31 August 2014
GBP'000 GBP'000 GBP'000
Net cash inflow from operating activities 653 455 1,652
Net cash outflow from servicing of finance (502) (425) (884)
Total tax paid (181) (109) (330)
Net cash outflow from financial investment (6,689) (12,659) (22,491)
=============================================================== ================= ================= ===============
Net cash outflow before financing (6,719) (12,738) (22,053)
=============================================================== ================= ================= ===============
Financing
Shares issued 929 10,887 15,289
Bank loans drawn down 8,070 11,023 27,410
Bank loans repaid - - (16,387)
--------------------------------------------------------------- ----------------- ----------------- ---------------
Net cash inflow from financing 8,999 21,910 26,312
=============================================================== ================= ================= ===============
Increase in cash 2,280 9,172 4,259
=============================================================== ================= ================= ===============
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 2,280 9,172 4,259
Net cash inflow from bank loans (8,070) (11,023) (11,023)
Exchange differences on bank loans 2,711 4,508 4,869
Exchange differences on cash (83) (762) (888)
=============================================================== ================= ================= ===============
Movement in net debt in the period (3,162) 1,895 (2,783)
Net debt at start of the period (36,502) (33,719) (33,719)
=============================================================== ================= ================= ===============
Net debt at end of the period (39,664) (31,824) (36,502)
=============================================================== ================= ================= ===============
Reconciliation of net return before finance costs and taxation
to net cash inflow from operating
activities
Net return before finance costs and taxation 51,008 8,678 24,395
Gains on investments (47,554) (4,378) (18,801)
Currency gains (2,633) (3,630) (3,927)
Changes in debtors and creditors (168) (215) (15)
=============================================================== ================= ================= ===============
Net cash inflow from operating activities 653 455 1,652
=============================================================== ================= ================= ===============
Twenty largest holdings at 28 February 2015 (unaudited)
=======================================================
Value % of total
Name Business GBP'000 assets*
====================== ======================================== ======== ==========
Toyo Tyre & Rubber Tyre manufacturer 10,873 3.1
Don Quijote Discount store operator 10,746 3.1
Fuji Heavy Industries Subaru cars 9,934 2.9
Sysmex Medical equipment 9,841 2.8
Cyberagent Internet advertising and content 9,669 2.8
Rakuten Internet retail and financial services 9,210 2.7
Misumi Group Precision machinery parts distributor 8,866 2.5
Iriso Electronics Specialist auto connectors 8,697 2.5
SoftBank Telecom operator and internet investor 8,601 2.5
Japan Exchange Group Stock Exchange operator 8,391 2.4
M3 Online medical database 8,287 2.4
Kubota Agricultural machinery 8,252 2.4
H.I.S. Travel agency and theme parks 8,060 2.3
Itochu Trading conglomerate 7,596 2.2
Temp Holdings Employment and outsourcing services 7,211 2.1
Sony Consumer electronics, films and finance 7,079 2.0
Yaskawa Electric Robots and factory automation 6,807 2.0
Isuzu Motors Trucks and pick-ups 6,659 1.9
Asics Sports shoes and clothing 6,438 1.8
Otsuka Corp IT solutions for SMEs 6,181 1.8
====================== ======================================== ======== ==========
167,398 48.2
=============================================================== ======== ==========
* Before deduction of bank loans
Notes to the condensed financial statements (unaudited)
=======================================================
1. The condensed financial statements for the six months to 28 February 2015 comprise the statements
set out on pages 6 to 10 together with the related notes on pages 11 and 12. They 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 2014 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'. 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 November 2015. The Directors have no reason to believe that the continuation
resolution will not be passed at the Annual General Meeting. Accordingly, the Half-Yearly
Financial Report has 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 sections 434 to 436 of the Companies Act 2006. The financial
information for the year ended 31 August 2014 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.
3. The management agreement with Baillie Gifford & Co Limited is terminable on not less than
6 months' notice, or on shorter notice in certain circumstances. With effect from 1 April
2013 the annual management fee was changed to 0.95% on the first GBP50 million of net assets
and 0.65% on the remaining net assets, calculated and payable quarterly. The annual fee previously
was 1.0% of net assets, calculated and payable quarterly.
==========================================================================================================
4. Currency gains/(losses) Six months to Six months to Year to
28 February 2015 28 February 2014 31 August 2014
GBP'000 GBP'000 GBP'000
============================================ ==================== =================== =================
Exchange differences on:
Cash balances (83) (762) (888)
Bank loans 2,711 4,508 4,869
Other items 5 (116) (54)
================================================ ==================== =================== =================
2,633 3,630 3,927
================================================ ==================== =================== =================
5. No interim dividend will be declared.
Notes to the condensed financial statements (unaudited) (continued)
===================================================================
6. Net return per ordinary share Six months to Six months to Year to
28 February 2015 28 February 2014 31 August 2014
GBP'000 GBP'000 GBP'000
======================================================= ================= ================= ===============
Revenue return on ordinary activities after taxation 105 65 322
Capital return on ordinary activities after taxation 50,187 8,008 22,728
============================================================ ================= ================= ===============
Net return per ordinary share is based on the above totals of revenue and capital and on 69,482,579
ordinary shares (28 February 2014 - 67,184,926; 31 August 2014 - 67,942,092), 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 GBP47.1 million (Yen8.7 billion) have been drawn down under yen loan facilities
which are repayable between November 2017 and August 2020 (28 February 2014 - GBP42.1 million
(Yen7.2 billion); 31 August 2014 - GBP41.7 million (Yen7.2 billion)). The November 2017 loan
is shown under short term creditors as this is a revolving facility which can be drawn for
1, 2, 3 or 6 months and repaid at the end of each drawdown period without incurring breakage
costs.
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. During the period, 250,000
shares (28 February 2014 - 3,025,000; 31 August 2014 - 4,300,000) were issued at a premium
to net asset value raising proceeds of GBP929,000 (28 February 2014 - GBP10,887,000; 31 August
2014 - GBP15,289,000).
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 GBP10,000 (28 February 2014 - GBP18,000; 31 August 2014 - GBP32,000)
and transaction costs on sales amounted to GBP6,000 (28 February 2014 - GBP11,000; 31 August
2014 - GBP19,000).
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 19 of the Company's Annual Report and Financial Statements for the year
to 31 August 2014. The principal risks and uncertainties have not changed since the publication
of the Annual Report and Financial Statements 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: regulatory risk (that the loss of
investment trust status or a breach of applicable legal and regulatory requirements could
have adverse financial consequences and cause reputational damage); operational/financial
risk (failure of service providers' accounting systems could lead to inaccurate reporting
or financial loss); the risk that the premium/discount at which the Company's shares trade
can change; and gearing risk (the use of borrowing can magnify the impact of falling markets).
Further information can be found on pages 6 and 7 of the Annual Report and Financial Statements.
11. The Half-Yearly Financial Report is available at www.japantrustplc.co.uk and will be posted
to shareholders on or around 16 April 2015.
None of the views expressed in this document should be construed as advice to buy or sell
a particular investment.
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.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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