RNS Announcement
The Baillie Gifford Japan Trust PLC
Legal Entity Identifier: 54930037AGTKN765Y741
Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws and regulations.
Results for the year to 31 August 2024
Over the year to 31 August 2024, The Baillie Gifford Japan Trust PLC's net asset value total return per share was 10.0% compared to the 14.7% total return in the TOPIX index (in sterling terms). In this period the Company's share price total return was 4.4%.
Over the five years to the end of August 2024, the NAV total return was 12.6% and over ten years 151.8% compared to the TOPIX total return of 36.7% and 140.0% respectively.
· A final dividend of 10p per ordinary share (2023: 10p per ordinary share) will be put to shareholders for approval at the Annual General Meeting.
· The Board is pleased to announce a change to the Investment Management fee structure, by way of the removal of the 0.75% fee rate on the first £50 million of net assets. This results in an annual saving of approximately £50,000 for the Company.
· There was modest outperformance of the benchmark in the second half of the year but this was not sufficient to offset the effects of the first half of the year.
· The most significant positive contributors to performance were Rakuten (+1.9ppt), where the company's mobile telecoms network, following heavy investment, is now close to breakeven, as continued acquisition of new customers has encouraged the market to recognise the potential; and SWCC Showa (+0.8ppt), where the shares went up 2.7x as its high voltage cable business has prospered.
· During the period six new investments were made. These were Nippon Paint, Kansai Paint, Eisai (drug developer), Nakanishi (dental drill handsets), Kose (skincare) and Daikin (air conditioning and heat pumps). Five positions were sold during the period while gearing rose slightly to 18%. In addition, the Company undertook a successful private placement debt raise.
· The Managers increasingly feel that the new normal post-Covid is similar to the old normal pre-Covid - limited global economic expansion, controlled inflation, with opportunities and risks being presented by technology changes. This makes growth a scarce and valuable feature of a business and presents conditions which are more favourable to their investment style than the recent rapid economic expansion.
For a definition of terms see Glossary of Terms and Alternative Performance Measures. 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 2024, the Company had total assets of £889.0m (before deduction of bank loans of £140.6m).
The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £220.0bn under management and advice as at 28 October 2024.
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 japantrustplc.co.uk.
See disclaimer at the end of this announcement.
Approved by the Board on 28 October 2024
For further information please contact:
Naomi Cherry - Client Director
Baillie Gifford & Co
Tel: 0131 474 5548
Jonathon Atkins, Four Communications
Tel: 020 3920 0555 or 07872 495396
Chairman's Statement
Introduction
This year has marked several significant milestones for Japan: its market has smashed through the previous peak achieved all the way back in 1989 to reach new highs, and its central bank has claimed victory over the country's multi-decade battle with deflation, as Japan became the world's last country to end its negative interest rate policy. While the Company has continued to face challenges as growth investing remained out of favour, these factors strengthen the Board's support for the Managers and conviction that the portfolio is well positioned to generate attractive long-term returns for investors.
Performance
In the year to 31 August 2024, the net asset value ("NAV") total return was 10.0% and, as market sentiment continued to be poor, the share price total return was a modest 4.4%. The comparative index (TOPIX, total return sterling terms) appreciated by 14.7% over the same period.
The Company's objective is to achieve long-term capital growth, and the NAV returns remain ahead of the benchmark on a 10-year time horizon.
While performance is carefully examined at every Board meeting, in June 2023, the Board, in collaboration with the Managers, conducted a more thorough analysis of the Company's performance over the previous five years, looking at both process and outcomes. The Company's investment strategy is explicitly growth-orientated. The vast majority of the Company's assets are invested in companies with higher than average growth prospects. The Board remains highly supportive of this investment strategy; the Japanese equity market is vast and rich in opportunity but the broader Japanese economy itself grows slowly due to structural factors. Therefore, the Board believes companies demonstrating idiosyncratic growth should command premium valuations and outperform over time. The Manager invests on a bottom-up basis, focusing on identifying the most attractive growth companies and largely ignoring macro factors.
However, investors should note that there are certain market environments which do not favour growth investing and in which the Company may be more likely to underperform both its benchmark and more value-focused peers. While it is not possible to be prescriptive on this issue, an environment of rising inflation and interest rates, such as that which we have seen since 2022, tends to be unfavourable for growth stocks' relative performance. That said, it is interesting to note that the Company's share price outperformed its benchmark in the second half of the year as the market began to focus on the earnings growth of its portfolio holdings.
Gearing and Borrowing
The Board believes borrowing will enhance long-term returns to investors. Net gearing increased from 17.0% to 18.1% for the year ending 31 August 2024. The Board is pleased to announce that in July 2024, the Company secured JPY12 billion of fixed rate, senior, unsecured private notes split across three tranches of JPY4 billion, maturing in 5, 10 and 14 years from the funding date of 20 November 2024. The new funding has a competitive average interest rate of 2.05%, with proceeds of this funding to be used to repay the existing JPY9.3 billion ING bank debt maturing in November 2024 and the JPY2.6 billion Mizuho revolving credit facility maturing in March 2025.
Dividend
The Board is recommending a dividend of 10p per ordinary share (2023: 10p per ordinary share). This will be put to shareholders for approval at the Annual General Meeting ("AGM") to be held on 11 December 2024. If approved, the dividend will be paid on 18 December to shareholders on the register at close of business on 14 November 2024. A dividend reinvestment plan (DRIP) is available to shareholders who would prefer to invest their dividends in the shares of the Company. For those shareholders electing to receive the DRIP, the last date for receipt of DRIP elections is 27 November 2024.
Share Capital and Discount Management
Over the course of the year, the share price discount to NAV widened from 6.7% to 11.6%. During this period, the Company bought back 5,515,000 shares at a cost of approximately £39.2 million, representing approximately 6% of the Company's opening issued share capital. Share buybacks serve to improve market liquidity and enhance NAV per share for existing shareholders. These shares are held in treasury and are available to be reissued, at a premium, when market conditions allow.
Your Board believes it is important that the Company retains the power to buy back equity during the year and is therefore seeking to renew this facility at the AGM. Further details of the buy back facility can be found on page 45 of the Annual Report and Financial Statements.
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 only issued or reissued at a premium to net asset value, thereby enhancing net asset value per ordinary share for existing shareholders. The Directors are, once again, seeking 10% share issuance authority at the AGM. This authority would expire at the conclusion of the AGM in 2025.
Fees
The Board is pleased to announce a change to the Investment Management fee structure, by way of the removal of the 0.75% fee rate on the first £50 million of net assets. This results in an annual saving of £50,000 for the Company. As a result of this fee amendment, the fee payable to the Managers, with effect from 1 September 2024, is 0.65% on the first £250 million of net assets and 0.55% on the remaining net assets.
Annual General Meeting (AGM)
The Company's AGM is scheduled for 11 December 2024 at Baillie Gifford's offices in Edinburgh. The Board encourages all shareholders to attend in person but also to exercise their votes by completing and submitting a form of proxy. Shareholders who hold their shares via a platform, can find further details on page 96 of the Annual Report and Financial Statements as to how to vote their shares via their platform.
We also encourage shareholders to monitor the Company's website at japantrustplc.co.uk where any updates will be posted and market announcements will be made, as appropriate. Should shareholders have questions for the Board or the Managers or any queries as to how to vote, they are welcome to submit these by email to trustenquiries@bailliegifford.com or call 0800 917 2112.
Information on the resolutions can be found on pages 88 and 89 of the Annual Report and Financial Statements. The Directors consider that all resolutions to be put to shareholders are in their and the Company's best interests as a whole and recommend that shareholders vote in their favour.
In particular, shareholders have the right to vote annually on whether the Company should continue in business and will have the opportunity to do so again this year. Last year, the Company again received support for its continuation with 91% of votes cast in favour. Your Directors believe there are 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
The Board is cognisant of good corporate governance practice and as such I should also like to remind shareholders of my intention to step down from the Board at the AGM to be held in 2025. This would mean that I serve 10 years in total on the Board with just over three of those years as Chairman, a role to which I was appointed following the untimely death of Keith Falconer. The Board is pleased to announce that Sam Davis will be my successor. Sam joined the Board in 2021 and is currently Chair of the Management Engagement Committee. I am confident that he will be an effective leader of your Company following my retirement towards the end of next year.
Outlook
The Board is encouraged by the recent improvement in absolute and relative performance, albeit that the Company lagged its benchmark over the year as a whole. We are hopeful that this welcome pickup will continue in the months and years ahead. The portfolio's significant exposure to founder-owner businesses and its holdings in the areas of digitalisation and the internet, automation, robotics and healthcare are especially encouraging.
David Kidd
Chairman
28 October 2024
Managers' Review
Introduction
During the past year we have had a period of economic normalisation despite various serious geopolitical events. Inflation seems to be coming under control in many Western economies with consequent interest rate reductions. Meanwhile with inflation becoming better established in Japan we have seen the very early steps in interest rate normalisation. AI has continued to develop, although the process of embedding it in everyday life is still at a relatively early stage. The Yen has been volatile through the year but more recently has strengthened relative to the dollar, although to nowhere near a level where we would consider it to be excessively strong.
Performance Review
During the year the Company's NAV total return of +10.0% compared with +14.7% for the TOPIX index in sterling terms ('TOPIX'). In the second half of the year the NAV total return was +2.0% compared with +1.5% for the TOPIX but this very modest outperformance was not sufficient to offset the weak performance in the first half of the year. Over 5 years the cumulative NAV total return was +12.6% and over 10 years +151.8%. This compares to increases in the TOPIX of +36.7% over 5 years and +140.0% over 10 years.
The most significant positive contributors to performance were Rakuten (+1.9ppt), where the company's mobile telecoms network, following heavy investment, is now close to breakeven, as continued acquisition of new customers has encouraged the market to recognise the potential; and SWCC Showa (+0.8ppt), where the shares went up 2.7x as its high voltage cable business has prospered. On the other hand, Shiseido (-1.2ppt) has continued to struggle against a background of weak Chinese demand for cosmetics and Rohm (-0.8ppt) has suffered from increased competition in the Silicon Carbide market. Because the Company delivered a positive return in Yen over the year, gearing made a positive contribution to performance (+1.7ppt).
Portfolio
During the period we bought 6 new holdings and sold 5. We found more opportunities in the paint sector with new holdings in Nippon Paint and Kansai Paint, which join existing holding Chugoku Marine Paint. Our research has led us to conclude that paint is an excellent product with significant pricing power, as the overall cost of completing the job is largely driven by labour costs. As a result, the price paid for the paint is less important, making availability and quality the key factors that influence purchasing decisions. Nippon Paint has developed a strong position in Chinese decorative paint through its longstanding Nipsea business, while Kansai Paint has a strong position in Indian automotive paint. We expect good volume growth from both areas over time which, combined with favourable pricing dynamics, should result in good long-term profit growth.
We also found opportunities in healthcare which remains an area of interest to growth investors as the combination of scientific advances and aging global populations creates a favourable environment. We bought a holding in Eisai, the first company to bring to market an approved drug for treating the underlying cause of Alzheimer's disease. The disease represents a huge unmet medical need and estimates suggest that it is responsible for 1 in 10 deaths in the UK. The drug, Leqembi, works by reducing the level of damaging amyloid protein in the brain and has been shown in large clinical trials to reduce significantly the rate of cognitive decline. It has been approved in Japan, the US, China and the UK (although is not available on the NHS currently). We also bought a holding in Nakanishi, which makes dental drill handsets, and has been steadily taking share in the valuable US market due to the very high quality of its products.
We took a holding in Kose, a family run skincare company with leading brands including Decorté and Jill Stuart, where we expect a long growth runway as a result of rising Asian wealth. Just prior to the year end and following share price weakness, we took a holding in Daikin, a leader in air conditioning and heat pumps. Daikin's products are likely to play an increasingly important role in cooling and heating buildings due to the challenges posed by heatwaves, while also being capable of operating without emitting carbon if a renewable electricity source is used.
Of the 5 holdings sold, Outsourcing was subject to a management buyout at an attractive price, MS&AD Insurance shares performed very strongly following a management commitment to reduce cross-holdings significantly, and Denso, Iida Group, and Itochu are all businesses where the forward looking growth prospects seem increasingly difficult.
Given our focus on the prospects for individual businesses, it is unsurprising that we have built a portfolio that is quite different to a Japanese market dominated by large, traditional, and highly cyclical businesses. The major portfolio exposures remain internet and digitalisation, automation and robotics with additional areas of focus in Asian consumer stocks and healthcare. We actively avoid areas where we think long-term prospects are poor, which currently includes car manufacturers, steel companies, and old-fashioned industrial conglomerates. We also continue to believe that having a founder in charge of a business is effective in aligning the interests of management and shareholders. For your Company, 32% of the portfolio has a founder-owner in charge, compared with 7% of the TOPIX as a whole (source: MSCI).
Key internet and digitalisation stocks include Softbank, Rakuten, SBI, GMO Internet, Recruit and CyberAgent. As well as its holding in ARM, which has a near-monopoly in mobile phone chip design, SoftBank has broad exposure to leading early-stage AI and digitisation companies through its Vision Funds. Rakuten and CyberAgent have both invested heavily in developing new businesses in recent years and both are close to the point where those investments begin to make a positive contribution to profits. SBI continues to gain market share within the financial industry in Japan, while GMO Internet provides exposure to datacentres. Finally, Recruit is working on simplifying labour-intensive hiring processes. Although it is not a new concept, the ability of internet-based businesses to offer a compelling triad of cheaper, better, and quicker services continues to enable them to take market share from more traditional operators.
Major automation and robotics positions include Fanuc, Kubota, Keyence and Misumi. Each of these businesses allows their customers to improve efficiency, quality and consistency of their production and we continue to believe developments in machine vision will expand the opportunities available in this area.
Asian consumer stocks include those in skincare such as Shiseido, Pola Orbis and Kose, and those in paint as already noted which are very durable and high returning businesses. Meanwhile in healthcare we have exposure to several companies including Olympus, which makes endoscopes, and Sysmex, which produces blood analysers as well as the recently bought Eisai.
Outlook
The obvious question on shareholders' minds following a 5-year period with a disappointing relative outcome will be whether they should remain confident in the prospects for their Company's portfolio. Nothing in life is guaranteed but we believe there are both philosophical and practical reasons for optimism.
Philosophically we think that shareholders should draw comfort from the consistent approach being applied, which has been successful for long periods in the past, the low turnover of the portfolio, which means that future returns are dominated by business performance rather than trading activities, and the lack of recent interest in what the Company is offering, which means that it is unlikely that we are at a peak of optimism where everything is already in the price. Furthermore, Japan remains a useful diversifier for a UK based investor that benefits from an established and stable political system, the rule of law, and an increasing focus on shareholders.
Practically, it feels increasingly that the new normal post-Covid is similar to the old normal pre-Covid - limited global economic expansion, controlled inflation, with opportunities and risks being presented by technology changes. This makes growth a scarce and valuable feature of a business and presents conditions that we believe are more favourable to our style than the recent rapid economic expansion coupled with high inflation which has enabled even weak businesses to show profit growth. Finally, although the portfolio that the Company holds has demonstrated more sales growth than the market over the past 5 years the gap between the portfolio and the market is forecast to widen with the Company's portfolio forecast to grow by 9.2% p.a. over the next 3 years versus 3.1% p.a. for the market; and earnings growth of the portfolio is also forecast to be more rapid (source: Factset). If this superior business growth materialises as anticipated, we are confident we will be able to report on more share price success over the coming years and build on the very modest outperformance over the last half year.
Baillie Gifford
28 October 2024
For a definition of terms, see Glossary of Terms and Alternative Performance Measures.
Past performance is not a guide to future performance.
Relative Contribution
Top Ten Relative Stock Contributors
Year to 31 August 2024
| Name | Portfolio (average weight) % | Index (average weight) % | Relative contribution % |
| Rakuten | 4.0 | 0.2 | 1.9 |
| SWCC Showa | 0.9 | 0.0 | 0.8 |
| DMG Mori | 2.3 | 0.1 | 0.5 |
| MS&AD Insurance | 1.4 | 0.4 | 0.5 |
| Sumitomo Mitsui Trust Bank | 4.1 | 0.3 | 0.5 |
| Recruit | 2.4 | 1.3 | 0.5 |
| SoftBank Group | 6.0 | 1.0 | 0.5 |
| Outsourcing | 0.4 | 0.0 | 0.4 |
| Daikin Industries | 0.0 | 0.7 | 0.4 |
| Seria | 1.2 | 0.0 | 0.3 |
Bottom Ten Relative Stock Contributors
Year to 31 August 2024
| Name | Portfolio (average weight) % | Index (average weight) % | Relative contribution % |
| Shiseido | 1.9 | 0.3 | (1.2) |
| Rohm | 1.6 | 0.1 | (1.0) |
| Hitachi | 0.0 | 1.7 | (0.8) |
| Oisix | 1.8 | 0.0 | (0.7) |
| M3 | 0.9 | 0.1 | (0.7) |
| TKP | 1.0 | 0.0 | (0.6) |
| Pola Orbis | 1.6 | 0.0 | (0.6) |
| Kubota | 2.4 | 0.3 | (0.6) |
| Unicharm | 1.9 | 0.3 | (0.5) |
| Tokio Marine | 0.0 | 1.2 | (0.4) |
Top Ten Relative Stock Contributors
5 years to 31 August 2024
| Name | Portfolio (average weight) % | Index (average weight) % | Relative contribution % |
| SoftBank Group | 5.7 | 1.5 | 1.3 |
| MS&AD Insurance | 1.7 | 0.4 | 1.3 |
| Inpex | 1.2 | 0.2 | 1.0 |
| DMG Mori | 1.7 | 0.0 | 0.9 |
| DENSO | 1.9 | 0.6 | 0.8 |
| Sumitomo Mitsui Trust Bank | 3.0 | 0.3 | 0.8 |
| SWCC Showa | 0.2 | 0.0 | 0.8 |
| Itochu | 2.1 | 1.0 | 0.7 |
| M3 | 0.5 | 0.3 | 0.7 |
| Recruit | 1.6 | 1.3 | 0.6 |
Bottom Ten Relative Stock Contributors
5 years to 31 August 2024
| Name | Portfolio (average weight) % | Index (average weight) % | Relative contribution % |
| CyberAgent | 2.6 | 0.1 | (1.8) |
| Shiseido | 1.2 | 0.5 | (1.6) |
| GA Technologies | 0.9 | 0.0 | (1.5) |
| Oisix | 0.7 | 0.0 | (1.5) |
| Hitachi | 0.0 | 1.2 | (1.4) |
| Sato | 1.7 | 0.0 | (1.4) |
| Pola Orbis | 1.3 | 0.0 | (1.3) |
| Mitsubishi | 0.0 | 1.8 | (1.1) |
| FANUC | 2.8 | 0.8 | (1.1) |
| Misumi | 2.4 | 0.2 | (1.1) |
Source: Revolution and relevant underlying index providers. Baillie Gifford Japan Trust relative to TOPIX total return (in sterling terms).
See disclaimer at end of this announcement.
Portfolio Positioning
As at 31 August 2024
| Holding period | Secular Growth1 | 53.1%* | Growth Stalwarts2 | 16.9%* | Special Situations3 | 13.9%* | Cyclical Growth4 | 16.1%* |
| >10 Years | Rakuten | 5.6 | Park24 | 0.9 | SoftBank Group | 6.3 | Sumitomo Mitsui Trust Bank | 4.4 |
| SBI Holdings | 3.9 | Sawai Pharmaceutical | 0.3 | Sony | 3.0 | Sumitomo Metal Mining | 1.6 | |
| GMO Internet | 2.8 | | | Tokyo Tatemono | 1.0 | Nifco | 1.3 | |
| CyberAgent | 2.6 | | | | | | | |
| Kubota | 2.1 | | | | | | | |
| Misumi | 2.0 | | | | | | | |
| Sysmex | 1.6 | | | | | | | |
| Broadleaf | 0.9 | | | | | | | |
| SMC | 0.8 | | | | | | | |
| Digital Garage | 0.4 | | | | | | | |
| 5-10 years | FANUC | 2.7 | | | mixi | 2.5 | Murata Manufacturing | 1.5 |
| Recruit | 2.6 | | | Colopl | 1.1 | DMG Mori | 1.5 | |
| Keyence | 1.9 | | | | | | | |
| Sato | 1.8 | | | | | | | |
| MonotaRO | 1.6 | | | | | | | |
| Raksul | 1.0 | | | | | | | |
| Topcon | 0.9 | | | | | | | |
| Nidec | 0.9 | | | | | | | |
| Mercari | 0.7 | | | | | | | |
| PeptiDream | 0.6 | | | | | | | |
| Noritsu Koki | 0.6 | | | | | | | |
| Rizap | 0.5 | | | | | | | |
| Istyle | 0.4 | | | | | | | |
| Infomart | 0.3 | | | | | | | |
| Nippon Ceramic | 0.3 | | | | | | | |
| <5 years | Oisix | 1.9 | Calbee | 3.0 | | | Bridgestone | 1.5 |
| Eisai | 1.6 | Nintendo | 1.9 | | | SWCC Showa | 1.3 | |
| GA Technologies | 1.4 | Unicharm | 1.8 | | | Rohm | 1.3 | |
| Seria | 1.3 | Pola Orbis | 1.7 | | | Chugoku Marine Paints | 1.3 | |
| TKP | 1.0 | Shiseido | 1.4 | | | Shima Seiki | 0.4 | |
| M3 | 0.9 | Olympus | 1.2 | | | | | |
| Lifenet Insurance | 0.9 | Sugi | 0.9 | | | | | |
| LY Corp | 0.7 | Kose | 0.9 | | | | | |
| Daikin Industries | 0.6 | Nippon Paint | 0.9 | | | | | |
| freee K.K. | 0.5 | Kao | 0.8 | | | | | |
| Vector | 0.5 | Kansai Paint | 0.7 | | | | | |
| Nakanishi | 0.5 | Pigeon | 0.5 | | | | | |
| Demae-can | 0.5 | | | | | | | |
| Bengo4.com | 0.5 | | | | | | | |
| Nihon M&A Center | 0.5 | | | | | | | |
| BASE | 0.3 | | | | | | |
* % of total investments.
1 Secular Growth: Opportunity to grow rapidly but where there are a number of potential outcomes.
2 Growth Stalwarts: Growth is less rapid but more predictable.
3 Special Situations: Performance has not been good but there is a reason to believe improvements are underway.
4 Cyclical Growth: Earnings do not rise every year but are expected to be higher from one cycle to the next.
List of Investments
As at 31 August 2024
| Name | Business | 2024 Value £'000 | 2024 % of total investments | Absolute* performance % | Relative* performance % |
| SoftBank Group | Information, communication and utilities | 55,926 | 6.3 | 24.5 | 8.5 |
| Rakuten | Commerce and services | 49,690 | 5.6 | 76.5 | 53.9 |
| Sumitomo Mitsui Trust Bank | Financials | 38,903 | 4.4 | 31.4 | 14.6 |
| SBI Holdings | Financials | 34,395 | 3.9 | 19.9 | 4.5 |
| Calbee | Pharmaceuticals and food | 26,617 | 3.0 | 8.9 | (5.1) |
| Sony | Electricals and electronics | 26,447 | 3.0 | 13.4 | (1.2) |
| GMO Internet | Information, communication and utilities | 24,468 | 2.8 | 4.6 | (8.8) |
| FANUC | Electricals and electronics | 23,915 | 2.7 | 1.3 | (11.7) |
| Recruit | Commerce and services | 23,071 | 2.6 | 67.8 | 46.2 |
| CyberAgent | Commerce and services | 22,648 | 2.6 | 6.7 | (7.0) |
| mixi | Commerce and services | 21,731 | 2.5 | 13.7 | (0.9) |
| Kubota | Manufacturing and machinery | 18,803 | 2.1 | (13.5) | (24.6) |
| Misumi | Commerce and services | 17,403 | 2.0 | 5.3 | (8.2) |
| Keyence | Electricals and electronics | 17,279 | 1.9 | 11.1 | (3.1) |
| Oisix | Retail | 17,268 | 1.9 | (25.3) | (34.9) |
| Nintendo | Manufacturing and machinery | 16,778 | 1.9 | 24.6 | 8.6 |
| Sato | Manufacturing and machinery | 16,019 | 1.8 | (3.7) | (16.0) |
| Unicharm | Chemicals and other materials | 15,582 | 1.8 | (15.2) | (26.0) |
| Pola Orbis | Chemicals and other materials | 14,643 | 1.7 | (22.2) | (32.2) |
| Eisai# | Pharmaceuticals and food | 14,220 | 1.6 | 1.7† | (2.2)† |
| MonotaRO | Retail | 14,040 | 1.6 | 29.9 | 13.2 |
| Sumitomo Metal Mining | Chemicals and other materials | 14,039 | 1.6 | (11.2) | (22.6) |
| Sysmex | Electricals and electronics | 13,771 | 1.6 | 6.1 | (7.5) |
| Murata Manufacturing | Electricals and electronics | 13,651 | 1.5 | 9.2 | (4.8) |
| DMG Mori | Manufacturing and machinery | 13,357 | 1.5 | 29.0 | 12.4 |
| Bridgestone | Manufacturing and machinery | 13,329 | 1.5 | (0.3) | (13.1) |
| GA Technologies | Information, communication and utilities | 12,614 | 1.4 | (15.5) | (26.4) |
| Shiseido | Manufacturing and machinery | 12,043 | 1.4 | (46.3) | (53.2) |
| SWCC Showa | Electricals and electronics | 11,926 | 1.3 | 170.5 | 135.8 |
| Seria | Retail | 11,866 | 1.3 | 47.1 | 28.3 |
| Nifco | Chemicals and other materials | 11,551 | 1.3 | (15.3) | (26.2) |
| Rohm | Electricals and electronics | 11,547 | 1.3 | (41.3) | (48.8) |
| Chugoku Marine Paints | Chemicals and other materials | 11,090 | 1.3 | 41.2 | 23.1 |
| Olympus | Pharmaceuticals and food | 10,843 | 1.2 | 30.9 | 14.1 |
| Colopl | Information, communication and utilities | 9,817 | 1.1 | (9.3) | (20.9) |
| TKP | Real estate and construction | 9,302 | 1.0 | (38.3) | (46.2) |
| Raksul | Information, communication and utilities | 9,063 | 1.0 | (16.2) | (27.0) |
| Tokyo Tatemono | Real estate and construction | 8,831 | 1.0 | 25.6 | 9.5 |
| Park24 | Real estate and construction | 8,391 | 0.9 | (18.5) | (29.0) |
| Broadleaf | Information, communication and utilities | 8,281 | 0.9 | 32.9 | 15.8 |
| Topcon | Manufacturing and machinery | 8,248 | 0.9 | (13.9) | (25.0) |
| Nidec | Electricals and electronics | 8,237 | 0.9 | (24.1) | (33.9) |
| M3 | Commerce and services | 7,712 | 0.9 | (53.0) | (59.0) |
| Sugi | Retail | 7,664 | 0.9 | 12.9 | (1.6) |
| Kose# | Consumer staples | 7,662 | 0.9 | 15.9† | 17.2† |
| Lifenet Insurance | Financials | 7,594 | 0.9 | 68.9 | 47.2 |
| Nippon Paint# | Chemicals and other materials | 7,541 | 0.9 | (9.6)† | (11.8)† |
| Kao | Chemicals and other materials | 7,473 | 0.8 | 14.3 | (0.4) |
| SMC | Manufacturing and machinery | 7,212 | 0.8 | (7.5) | (19.4) |
| Mercari | Information, communication and utilities | 6,569 | 0.7 | (31.0) | (39.9) |
| LY Corp | Communication services | 6,474 | 0.7 | (10.9) | (22.3) |
| Kansai Paint# | Chemicals and other materials | 6,007 | 0.7 | 5.7† | 3.0† |
| Daikin Industries# | Manufacturing and machinery | 5,746 | 0.6 | 3.2† | 2.1† |
| PeptiDream | Pharmaceuticals and food | 5,377 | 0.6 | 32.0 | 15.1 |
| Noritsu Koki | Manufacturing and machinery | 5,197 | 0.6 | 45.2 | 26.5 |
| Rizap | Commerce and services | 4,718 | 0.5 | 51.0 | 31.7 |
| Pigeon | Manufacturing and machinery | 4,592 | 0.5 | (6.1) | (18.2) |
| freee K.K. | Information, communication and utilities | 4,506 | 0.5 | (11.9) | (23.2) |
| Vector | Information, communication and utilities | 4,469 | 0.5 | (30.7) | (39.6) |
| Nakanishi# | Manufacturing and machinery | 4,425 | 0.5 | 11.8† | 13.1† |
| Demae-can | Information, communication and utilities | 4,423 | 0.5 | (36.6) | (44.7) |
| Bengo4.com | Commerce and services | 4,140 | 0.5 | (36.9) | (45.0) |
| Nihon M&A Center | Commerce and services | 3,930 | 0.5 | (17.5) | (28.0) |
| Shima Seiki | Manufacturing and machinery | 3,498 | 0.4 | (31.5) | (40.3) |
| Istyle | Information, communication and utilities | 3,420 | 0.4 | 1.8 | (11.2) |
| Digital Garage | Information, communication and utilities | 3,063 | 0.4 | (24.0) | (33.7) |
| Infomart | Commerce and services | 3,012 | 0.3 | (36.6) | (44.7) |
| Sawai Pharmaceutical | Pharmaceuticals and food | 3,006 | 0.3 | 30.6 | 13.9 |
| Nippon Ceramic | Electricals and electronics | 2,632 | 0.3 | (3.3) | (15.7) |
| BASE | Information, communication and utilities | 2,630 | 0.3 | (28.6) | (37.8) |
| Total investments |
| 886,335 | 100.0 |
|
|
| Net liquid assets |
| 2,616 |
|
|
|
| Total assets |
| 888,951 |
|
|
|
| Bank loans |
| (140,572) |
|
|
|
| Equity shareholders' funds |
| 748,379 |
|
|
|
* Absolute and relative performance have been calculated on a total return basis over the period 1 September 2023 to 31 August 2024. 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.
# New purchase during the year. Complete sales in the year were DENSO, lida Group Holdings, Itochu, MS&AD Insurance and Outsourcing.
Source: LSEG/Baillie Gifford and relevant underlying index providers. See disclaimer at end of this announcement.
Past performance is not a guide to future performance.
Income Statement
For the year ended 31 August
| | Notes | 2024 Revenue £'000 | 2024 Capital £'000 | 2024 Total £'000 | 2023 Revenue £'000 | 2023 Capital £'000 | 2023 Total £'000 |
| Gains/(losses) on investments | | - | 51,567 | 51,567 | - | (70,082) | (70,082) |
| Currency gains | | - | 4,776 | 4,776 | - | 17,005 | 17,005 |
| Income | 2 | 15,803 | - | 15,803 | 18,707 | - | 18,707 |
| Investment management fee | 3 | (4,297) | - | (4,297) | (4,448) | - | (4,448) |
| Other administrative expenses | | (715) | - | (715) | (688) | - | (688) |
| Net return before finance costs and taxation | | 10,791 | 56,343 | 67,134 | 13,571 | (53,077) | (39,506) |
| Finance costs of borrowings | | (1,795) | - | (1,795) | (1,869) | - | (1,869) |
| Net return on ordinary activities before taxation | | 8,996 | 56,343 | 65,339 | 11,702 | (53,077) | (41,375) |
| Tax on ordinary activities | | (1,580) | - | (1,580) | (1,870) | - | (1,870) |
| Net return on ordinary activities after taxation | | 7,416 | 56,343 | 63,759 | 9,832 | (53,077) | (43,245) |
| Net return per ordinary share | 4 | 8.23p | 62.55p | 70.78p | 10.52p | (56.79p) | (46.27p) |
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 the Company does not have any other comprehensive income and the net return after taxation is both the profit and total comprehensive income for the year.
Balance Sheet
As at 31 August
| | Notes | 2024 £'000 | 2024 £'000 | 2023 £'000 | 2023 £'000 |
| Fixed assets | | | | | |
| Investments | | | 886,335 | | 858,486 |
| Current assets | | | | | |
| Debtors | | 2,871 | | 1,811 | |
| Cash and cash equivalents | | 5,305 | | 6,030 | |
| | | 8,176 | | 7,841 | |
| Creditors | | | | | |
| Amounts falling due within one year | 6 | (146,132) | | (1,641) | |
| Net current (liabilities)/assets | | | (137,956) |
| 6,200 |
| Total assets less current liabilities | | | 748,379 |
| 864,686 |
| Creditors | | | | | |
| Amounts falling due after more than one year | 6 | | - | | (131,723) |
| Net assets | | | 748,379 |
| 732,963 |
| Capital and reserves | | | | | |
| Share capital | | | 4,717 | | 4,717 |
| Share premium | | | 213,902 | | 213,902 |
| Capital redemption reserve | | | 203 | | 203 |
| Capital reserve | | | 514,122 | | 496,965 |
| Revenue reserve | | | 15,435 | | 17,176 |
| Equity shareholders' funds | | | 748,379 |
| 732,963 |
| Net asset value per ordinary share | | | 855.0p |
| 787.7p |
Statement of Changes in Equity
For the year ended 31 August 2024
| | | 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 2023 | | 4,717 | 213,902 | 203 | 496,965 | 17,176 | 732,963 |
| Ordinary shares bought back | | - | - | - | (39,186) | - | (39,186) |
| Return on ordinary activities after taxation | | - | - | - | 56,343 | 7,416 | 63,759 |
| Dividends paid during the year | | - | - | - | - | (9,157) | (9,157) |
| Shareholders' funds at 31 August 2024 |
| 4,717 | 213,902 | 203 | 514,122 | 15,435 | 748,379 |
For the year ended 31 August 2023
| | | 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 2022 | | 4,717 | 213,902 | 203 | 556,414 | 15,770 | 791,006 |
| Ordinary shares bought back | | - | - | - | (6,372) | - | (6,372) |
| Net return on ordinary activities after taxation | | - | - | - | (53,077) | 9,832 | (43,245) |
| Dividends paid in the year | | - | - | - | - | (8,426) | (8,426) |
| Shareholders' funds at 31 August 2023 |
| 4,717 | 213,902 | 203 | 496,965 | 17,176 | 732,963 |
.
Cash Flow Statement
For the year ended 31 August
| | Notes | 2024 £'000 | 2024 £'000 | 2023 £'000 | 2023 £'000 |
| Cash flows from operating activities | | | | | |
| Net return on ordinary activities before taxation | | 65,339 | | (41,375) | |
| Adjustments to reconcile company profit before tax to net cash flow from operating activities | | | | | |
| Net (gains)/losses on investments | | (51,567) | | 70,082 | |
| Currency gains | | (4,776) | | (17,005) | |
| Finance costs of borrowings | | 1,795 | | 1,869 | |
| Other capital movements | | | | | |
| Changes in debtors | | (250) | | 412 | |
| Changes in creditors | | 22 | | (39) | |
| Taxation | | | | | |
| Overseas withholding tax incurred | | (1,580) | | (1,912) | |
| Cash from operations† | | | 8,983 |
| 12,032 |
| Interest paid | | | (1,783) | | (1,961) |
| Net cash inflow from operating activities | | | 7,200 |
| 10,071 |
| Cash flows from investing activities | | | | | |
| Acquisitions of investments | | (103,973) | | (99,512) | |
| Disposals of investments | | 128,098 | | 101,483 | |
| Net cash inflow from investing activities | | | 24,125 |
| 1,971 |
| Cash flows from financing activities | | | | | |
| Ordinary shares bought back | | (36,519) | | (7,926) | |
| Dividends paid | | (9,157) | | (8,426) | |
| Bank loans drawn down | | 184,231 | | 107,124 | |
| Bank loans repaid | | (170,352) | | (106,131) | |
| Net cash outflow from financing activities | | | (31,797) |
| (15,359) |
| Decrease in cash and cash equivalents | | | (472) | | (3,317) |
| Exchange movements | | | (253) | | (1,670) |
| Cash and cash equivalents at start of period | | | 6,030 | | 11,017 |
| Cash and cash equivalents at end of period* | | | 5,305 |
| 6,030 |
* Cash and cash equivalents represent cash at bank and short-term money market deposits repayable on demand.
† Cash from operations includes dividends received of £15,810,000 (2023 - £19,122,000) and interest received of £3,000 (2023 - £3,000).
Notes to the Financial Statements
1. Principal Accounting Policies
The Financial Statements for the year to 31 August 2024 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out below which are unchanged from the prior year and have been applied consistently.
The Financial Statements have also been prepared in accordance with the Companies Act 2006, and with the AIC's Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in November 2014 and updated in July 2022 with consequential amendments.
All of the Company's operations are of a continuing nature and the Financial Statements are prepared on a going concern basis under the historical cost convention, modified to include the revaluation of fixed asset investments and derivative financial instruments at fair value through profit or loss, and on the assumption that approval as an investment trust under section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 will be retained. The Board has, in particular, considered the impact of heightened market volatility and macroeconomic and geopolitical concerns, including inflation and interest rates. It has reviewed the results of specific leverage and liquidity stress testing and does not believe the Company's going concern status is affected. In addition, the Company is subject to an annual continuation vote which in previous years has been passed with a significant majority. The Directors have no reason to believe that the vote will not continue to be in favour based on their assessment of the Company's performance and the views collated from shareholders. 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.
The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011. The Company's primary third party suppliers, including its Managers and Secretaries, Depositary and Custodian, Registrar, Auditor and Broker, are not experiencing significant operational difficulties affecting their respective services to the Company.
In preparing these Financial Statements, the Directors have considered the impact of climate change risk as a principal risk set out on pages 36 and 37 of the Annual Report and Financial Statements, and have concluded that it does not have a material impact on the Company's investments. The Directors consider the impact of climate change on the value of the investments included in the Financial Statements to already be reflected in their prices as quoted on a stock exchange.
Accordingly, the Financial Statements have been prepared on a going concern basis as it is the Directors' opinion, having assessed the principal and emerging risks and other matters set out in the Viability Statement on page 29 of the Annual Report and Financial Statements which assesses the prospects of the Company over a period of five years, that the Company will continue in operational existence until at least 31 October 2025, which is for a period of at least twelve months from the date of approval of these Financial Statements.
In order to better reflect the activities of the Company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented.
Financial assets and financial liabilities are recognised in the Company's Balance Sheet when it becomes a party to the contractual provisions of the instrument.
The Directors consider the Company's functional and presentation currency to be sterling, (see consideration in accounting policy (j) on page 73 of the Annual Report and Financial Statements), as the Company's shareholders are predominantly based in the UK, the Company pays its dividends and expenses in sterling and the Company and its Investment Manager, who are subject to the UK's regulatory environment, are also UK based.
2. Income
| | | 2024 £'000 | 2023 £'000 |
|
| Income from investments | | |
| | Overseas dividends | 15,800 | 18,704 |
|
| Other income | | |
| | Deposit interest | 3 | 3 |
|
| Total income | 15,803 | 18,707 |
Special dividends received during the year amounted to £93,000 (2023 - £471,000) with £93,000 (2023 - £471,000) classed as revenue and none (2023 - none) classed as capital.
3. Investment Management Fee - All Charged to Revenue
| | | 2024 £'000 | 2023 £'000 |
|
| Investment management fee | 4,297 | 4,448 |
Details of the Investment Management Agreement are disclosed on page 42 of the Annual Report and Financial Statements. For the year to 31 August 2024 and 2023, the annual management fee is 0.75% 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, calculated and payable quarterly. With effect from 1 September 2024, the annual management fee will be 0.65% on the first £250 million of net assets and 0.55% on the remaining net assets, calculated and payable quarterly.
4. Net Return Per Ordinary Share
| | | 2024 Revenue | 2024 Capital | 2024 Total | 2023 Revenue | 2023 Capital | 2023 Total |
|
| Net return per ordinary share | 8.23p | 62.55p | 70.78p | 10.52p | (56.79p) | (46.27p) |
Revenue return per ordinary share is based on the net revenue profit after taxation of £7,416,000 (2023 - net revenue profit of £9,832,000) and on 90,078,258 (2023 - 93,451,827) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.
Capital return per ordinary share is based on the net capital profit for the financial year of £56,343,000 (2023 - net capital loss of £53,077,000) and on 90,078,258 (2023 - 93,451,827) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.
Total return per ordinary share is based on the total profit for the financial year of £63,759,000 (2023 - total loss of £43,245,000) and on 90,078,258 (2023 - 93,451,827) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during the year.
There are no dilutive or potentially dilutive shares in issue.
5. Ordinary Dividends
Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £7,416,000. The revenue reserve and the capital reserve (to the extent it constitutes realised profits) are distributable by way of dividend.
| | | 2024
| 2023
| 2024 £'000 | 2023 £'000 |
|
| Amounts recognised as distributions in the year: | | | | |
| | Previous year's final (paid 20 December 2023. 2022 dividend paid on 21 December 2022) | 10.00p | 9.00p | 9,157 | 8,426 |
| | | 2024
| 2023
| 2024 £'000 | 2023 £'000 |
|
| Dividends paid and payable in respect of the year: | | | | |
| | Proposed final dividend (payable 18 December 2024. 2023 dividend paid 20 December 2023) | 10.00p | 10.00p | 8,753* | 9,305 |
* Based on ordinary shares in issue at 31 August 2024.
6. Total borrowings at 31 August 2024 were ¥26.9 billion (2023 - ¥24.3 billion) and a detailed in note 11 on page 77 of the Annual Report and Financial Statements.
7. The transaction costs of purchases and sales were £49,000 (2023 - £34,000) and £45,000 (2023 - £29,000) respectively.
8. The Company's authority permits it to hold shares bought back in 'treasury'. Such treasury shares may be subsequently either sold for cash at a premium to net asset value per ordinary share or cancelled. In the year to 31 August 2024, 5,515,000 shares with a nominal value of £276,000, representing 5.9% of the issued share capital at 31 August 2023, were bought back at a cost of £39,186,000 and held in treasury (31 August 2023 - 851,845 shares with a nominal value of £42,600 representing 0.9% of the issued share capital at 31 August 2022, were bought back at a cost of £6,372,000 and held in treasury). At 31 August 2024 the Company had authority to buy back 12,484,261 ordinary shares. Over the period from 1 September to 24 October a further 1,445,000 shares have been bought back and held in treasury at a cost of £10,639,000.
Under the provisions of the Company's Articles, the share buy-backs are funded from the capital reserve.
In the year to 31 August 2024, the Company sold no ordinary shares from treasury (2023 - no ordinary shares). The Company issued no further ordinary shares (2023 - no ordinary shares). As at 31 August 2024 the Company had the authority to issue 9,184,261 ordinary shares. Over the period from 1 September 2024 to 24 October 2024 no further shares were issued by the Company.
9. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 August 2024 or 2023 but is derived from those accounts. Statutory accounts for 2023 have been delivered to the registrar of companies, and those for 2024 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 on the Managers' website japantrustplc.co.uk‡ on or around 7 November 2024.
‡ 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.
Glossary of Terms and Alternative Performance Measures ('APM')
Total Assets
The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).
Net Asset Value
Also described as shareholders' funds, net asset value ('NAV') is the value of total assets less liabilities (including borrowings). The NAV per ordinary share is calculated by dividing this amount by the number of ordinary shares in issue (excluding treasury shares). Borrowings are valued at their nominal par value. Par value approximates to amortised cost. The Company's yen denominated loans are valued at their sterling equivalent.
(Discount)/Premium (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 ordinary share it is said to be trading at a discount. The size of the discount is calculated by subtracting the NAV per ordinary share from the share price and is usually expressed as a percentage of the NAV per ordinary share. If the share price is higher than the NAV per ordinary share, this situation is called a premium.
| | | 31 August 2024 | 31 August 2023 |
| Net asset value per ordinary share | (a) | 855.0p | 787.7p |
| Share price | (b) | 756.0p | 735.0p |
| Discount | ((b) - (a)) ÷ (a) | (11.6%) | (6.7%) |
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.
| | | 2024 NAV | 2024 Share price | 2023 NAV | 2023 Share price |
| Closing NAV per ordinary share/share price | (a) | 855.0p | 756.0p | 787.7p | 735.0p |
| Dividend adjustment factor* | (b) | 1.0135 | 1.0150 | 1.0113 | 1.0113 |
| Adjusted closing NAV per ordinary share/share price | (c) = (a) x (b) | 866.5p | 767.3p | 796.6p | 743.3p |
| Opening NAV per ordinary share/share price | (d) | 787.7p | 735.0p | 842.4p | 774.0p |
| Total return | ((c) ÷ (d)) -1 | 10.0% | 4.4% | (5.4%) | (4.0%) |
* The dividend adjustment factor is calculated on the assumption that the dividend of 10.00p (2023 - 9.00p) paid by the Company during the year was invested into shares of the Company at the cum income NAV per ordinary share/share price, as appropriate, at the ex-dividend date.
Turnover
Annual turnover of the investment portfolio shares is calculated on a rolling 12 month basis. The lower of purchases and sales for the 12 months is divided by the average assets, with average assets being calculated on assets as at each month's end.
Ongoing Charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value.
| | | 2024 £'000 | 2023 £'000 |
| Investment management fee | | 4,297 | 4,448 |
| Other administrative expenses | | 715 | 688 |
| Total expenses | (a) | 5,012 | 5,136 |
| Average net asset value* | (b) | £723,432 | £764,686 |
| Ongoing charges | (a) ÷ (b) expressed as a percentage | 0.69% | 0.67% |
* Average of daily net asset values calculated during the year.
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 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.
| | | 2024 | 2023 | ||
| | | Gearing* £'000 | Potential gearing† £'000 | Gearing* £'000 | Potential gearing† £'000 |
| Borrowings | (a) | 140,572 | 140,572 | 131,723 | 131,723 |
| Cash and cash equivalents | (b) | 5,305 | - | 6,030 | - |
| Shareholders' funds | (c) | 748,379 | 748,379 | 732,963 | 732,963 |
| Gearing |
| 18.1% | 18.8% | 17.1% | 18.0% |
* Gearing: ((a) - (b)) divided by (c), expressed as a percentage.
† Potential gearing: (a) divided by (c), expressed as a percentage.
Leverage (APM)
For the purposes of the UK Alternative Investment Fund Managers ('AIFM') Regulations, 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.
Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As Baillie Gifford Japan is marketed in the EU by the AIFM, Baillie Gifford & Co Limited, via the National Private Placement Regime ('NPPR') the following disclosures have been provided to comply with the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines as its policy on integration of sustainability risks in investment decisions.
Baillie Gifford & Co believes that a company cannot be financially sustainable in the long run if its approach to business is fundamentally out of line with changing societal expectations. It defines 'sustainability' as a deliberately broad concept which encapsulates a company's purpose, values, business model, culture, and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build up an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/or governance matters) which it believes will positively or negatively influence the financial returns of an investment. The likely impact on the return of the portfolio from a potential or actual material decline in the value of investment due to the occurrence of an environmental, social or governance event or condition will vary and will depend on several factors including but not limited to the type, extent, complexity and duration of an event or condition, prevailing market conditions and existence of any mitigating factors.
Whilst consideration is given to sustainability matters, there are no restrictions on the investment universe of the Company, unless otherwise stated within in its Investment Objective & Policy. Baillie Gifford & Co can invest in any companies it believes could create beneficial long-term returns for investors. However, this might result in investments being made in companies that ultimately cause a negative outcome for the environment or society.
More detail on the Investment Manager's approach to sustainability can be found in the ESG Principles and Guidelines document, available publicly on the Baillie Gifford website bailliegifford.com and by scanning the QR code below.
The underlying investments do not take into account the EU criteria for environmentally sustainable economic activities established under the EU Taxonomy Regulation.
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