Baillie Gifford Japan Trust Half Year Results

RNS Announcement

The Baillie Gifford Japan Trust PLC

Legal Entity Identifier: 54930037AGTKN765Y741

Regulated Information Classification: Interim Financial Report

Results for the six months to 28 February 2025

The following is the unaudited Interim Financial Report for the six months to 28 February 2025 which was approved by the Board on 27 March 2025.

In the six months to 28 February 2025, The Baillie Gifford Japan Trust's net asset value total return per share was +1.5% and the share price total return was +2.9%. The TOPIX total return (in sterling terms) was +0.9%.

● The five largest positive contributors to performance were SBI Holdings (+1.0%), Topcon (+0.9%), MIXI (+0.7%) and SWCC Showa (+0.5%) as well as not owning Daiichi Sankyo (+0.6%). SBI Holdings (online financial services) has been delivering solid operational performance against the favourable backdrop of rising interest rates and Topcon (maker of positioning and eyecare systems) is rumoured to have been approached by potential acquirers.

● During the period the Company bought back 6,395,000 shares representing 7.3% of the issued share capital as at 31 August 2024.

● Given the highly attractive investment opportunities available and a low funding cost net gearing has been maintained at the significant level of 20%.

Summary of unaudited results

* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement. The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

† Source: Baillie Gifford/London Stock Exchange Group ('LSEG') and relevant underlying data providers. See disclaimer at the end of this document.

Past performance is not a guide to future performance.

Interim Management Report

At first glance, the six month period to the end of February 2025 appears subdued in investment terms. During the period the NAV total return of your Company was +1.5% whilst the share price total return was +2.9% and the TOPIX total return (in sterling terms) was +0.9%.

Beneath the surface, however, action has continued apace. Artificial Intelligence ('AI') continues to advance at a rapid rate with developments in the capabilities of the most advanced models, in the hardware used to run them, and in lowering costs. Our view remains that this is a radically disruptive technology that is re-shaping the competitive environment for many businesses. On the political front, President Trump's re-election is already resulting in geopolitical realignments and trade frictions, putting Japan at risk of direct and indirect effects. Directly, efforts to impose tariffs on, for example, imported cars are unhelpful to some of Japan's major companies. Indirectly, Japan currently benefits from open trade with its major trade partners, the USA and China, so to the extent that policies diminish global trade they will reduce opportunity for Japan's export companies. Domestically, the situation remains solid with modest inflation now embedded. Within the last year, the Bank of Japan ('BoJ') ended its negative interest rate policy and has incrementally increased rates to their current level of 0.5%. In addition, it has been able to move away from yield curve control which targeted a maximum yield of around 1% for the benchmark 10-year Japanese Government Bond ('JGB'). Currently the 10-year JGB yields around 1.5%. This normalisation of monetary policy has left 10-year yields at a similar order of magnitude to various other countries, including China (1.8%), Sweden (2.6%) and Switzerland (0.6%).

Turning to individual stocks, the five largest positive contributors to relative performance were SBI Holdings (+1.0%), Topcon (+0.9%), MIXI (+0.7%) and SWCC Showa (+0.5%) as well as not owning Daiichi Sankyo (+0.6%). The five largest negative contributors to relative performance were Rakuten (-0.7%), Unicharm (-0.6%), Eisai (-0.5%) and Calbee (-0.4%) as well as not owning Mitsubishi UFJ Financial Group (-0.7%). Finally gearing impacted relative performance by -0.4%.

SBI Holdings, which provides online financial services, has been delivering solid operational performance against the favourable background of rising rates. Topcon, which makes positioning and eyecare systems, is strongly rumoured to have been approached by potential acquirers. MIXI, which develops online games and other online businesses, has been growing profits again as a result of successful innovation. Finally, SWCC Showa has achieved rapid profit growth due to its ability to produce high voltage electricity cables that are in high demand as Japan modernises its electricity grid.

With regard to detractors, Rakuten, an internet conglomerate pushing into telecoms, is a large position that experienced a small pull-back after its stand out performance as the top positive contributor to performance in the previous fiscal year. We believe that the investment case of increasing profits across its business remains intact. Unicharm's weakness may be due to concerns around competitive intensity but we continue to regard its products (nappies, adult incontinence products, and feminine hygiene products) as very resilient and management as good stewards of the business. Eisai, which has the exciting Alzheimer's treatment Leqembi, may be perceived as progressing slightly slower than expected but we see huge potential on a longer-term view as adoption expands. Finally, Calbee, which makes snacks, seems to be progressing well from an operational perspective.

During the period we sold a single holding and reinvested the proceeds in existing names where we have higher conviction. The sold holding was long-standing position Tokyo Tatemono which has benefitted from multi-year development of its interests in Yaesu, an area of Tokyo separated from the key Marunouchi business district by Tokyo Station. Looking forward the company will be shifting its business more towards condominium development, which we believe to be less attractive.

With much changing in the world we believe that investors in Japan will be well-served by sticking to the core investment principle of focusing on companies with sound prospects for sales and earnings growth. Your company maintains significant exposure to the long-term secular trends of digitalisation, automation and AI. Furthermore, given that the portfolio currently owns no car manufacturers and has a more domestic orientation than the wider Japanese stock market we believe that it will be relatively resilient to tariffs imposed by the USA. Given the highly attractive investment opportunities available and a low funding cost we have maintained net gearing at the significant level of 20%.

Baillie Gifford & Co

27 March 2025

See Glossary of Terms and Alternative Performance Measures at the end of this document.

Total return information sourced from LSEG/Baillie Gifford. See disclaimer at the end of this document.

Past performance is not a guide to future performance.

The principal risks and uncertainties facing the Company are set out in note 10 of this report.

Responsibility Statement

We confirm that to the best of our knowledge:

a. the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b. the Interim Management Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.7R (being an indication of important events that have occurred during the first six months of the financial year, their impact on the condensed set of Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and

c. the Interim Financial Report includes a fair review of the information required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board

David Kidd

Chairman

27 March 2025

List of Investments

as at 28 February 2025 (unaudited)

Growth category

* Secular Growth - opportunity to grow rapidly but where there are a number of potential outcomes.

† Growth Stalwarts - growth is less rapid but more predictable.

# Special Situations - performance has not been good but there is a reason to believe improvements are underway.

‡ Cyclical Growth - earnings do not rise every year but are expected to be higher from one cycle to the next.

Stocks highlighted in bold are the 20 largest holdings.

Income Statement (unaudited)

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital 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.

The accompanying notes are an integral part of the Financial Statements.

Balance Sheet (unaudited)

* See Glossary of Terms and Alternative Performance Measures at the end of this document.

Statement of Changes in Equity (unaudited)

For the six months ended 28 February 2025

For the six months ended 29 February 2024

* The capital reserve balance at 28 February 2025 includes unrealised investment holding gains of £14,780,000 (29 February 2024 - gains of £59,740,000).

Condensed Cash Flow Statement (unaudited)

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

Notes to the condensed Financial Statements (unaudited)

1. Basis of Accounting

The condensed Financial Statements for the six months to 28 February 2025 comprise the statements set out and with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and updated in July 2022 with consequential amendments. They have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 28 February 2025 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 2024.

Going concern

Having considered the Company's principal risks and uncertainties, as set out in note 10, together with its current position, investment objective and policy, its assets and liabilities, and projected income and expenditure, together with the Company's dividend policy, it is the Directors' opinion that the Company has adequate resources to continue in operational existence for the foreseeable future. The Board has considered severe but plausible downside scenarios, including the impact of heightened market volatility and macroeconomic and geopolitical concerns, including inflation and interest rates, but it does not believe the Company's going concern status is affected. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. In accordance with the Company's Articles of Association, shareholders have the right to vote annually at the Annual General Meeting on whether to continue the Company. The next continuation vote will be in December 2025. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. 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. Accordingly, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue to do so over a period of at least twelve months from the date of approval of these Financial Statements.

2. Financial Information

The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 August 2024 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, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying its report and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

3. Investment Manager

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on not less than 6 months' notice, or on shorter notice in certain circumstances. With effect from 1 September 2024, the annual management fee is 0.65% on the first £250 million of net assets and 0.55% on the remaining net assets, calculated and payable quarterly.

4. Dividends

No interim dividend has been declared.

5. Net Return Per Ordinary Share

Net return per ordinary share is based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.

6. Fair Value Hierarchy

The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit or loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The fair value of listed investments is the last traded price which is equivalent to the bid price on Japanese markets.

The financial assets designated as valued at fair value through profit or loss are all categorised as Level 1 in the above hierarchy. None of the financial liabilities are designated at fair value through profit or loss in the Financial Statements.

All of the Company's investments fall into Level 1 for the periods reported.

7. Bank Loans

In the six month period ending 28 February 2025, the Company repaid loans totaling ¥9.3 billion to ING and ¥2.6 billion to Mizuho. On 20 November 2024 the Company issued ¥12 billion of long-term secured privately placed senior notes with Canada Life.

8. Share Capital

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, no shares were issued and 6,395,000 shares were bought back into Treasury (29 February 2024 - nil issued and 3,135,000 bought back). There were 13,190,595 shares held in Treasury at 28 February 2025 (29 February 2024 - 4,415,595). Between 1 March 2025 and 26 March 2025, the Company bought back a further 940,000 shares into Treasury. The Company has authority remaining to buy back 9,025,019 ordinary shares.

9. Related Party Transactions

There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period.

10. Principal Risks and Uncertainties

The principal risks facing the Company are financial risk, discount risk, investment strategy and smaller company risk, climate and governance risk, leverage risk, custody, depositary and reliance on third party service provider risk, cyber security risk, regulatory risk, political and associated economic risk and emerging risks. An explanation of these risks and how they are managed is set out on pages 30 to 33 of the Company's Annual Report and Financial Statements for the year to 31 August 2024 and is available on the Company's website: japantrustplc.co.uk.

The principal risks and uncertainties have not changed since the date of the Annual Report.

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

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 share is calculated by dividing this amount by the number of ordinary shares in issue. 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 share it is said to be trading at a discount. The size of the discount is calculated by subtracting the NAV per share from the share price 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.

* The dividend adjustment factor is calculated on the assumption that the dividend of 10.00p (2024 - 10.00p) paid by the Company in the period under review was invested into shares of the Company at the cum income NAV per ordinary share/share price, as appropriate, at the ex-dividend date.

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. Th e 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.

* 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 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.

Further Shareholder Information

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 2025, the Company had total assets of £837.5m (before deduction of bank loans of £142.2m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £204bn under management and advice as at 27 March 2025.

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.†

The Interim Financial Report will be available at japantrustplc.co.uk† and will be posted to shareholders on or around 14 April 2025.

For further information please contact:

Naomi Cherry, Baillie Gifford & Co

Tel: 0131 474 5548

Jonathan Atkins, Director, Four Communications

Tel: 0203 920 0555 or 07872 495396

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.

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.

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