1
Annual Report and Financial Statements
31 August 2024
The Baillie Gifford Japan Trust PLC
Managed by
Baillie Gifford
TM
2
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.
Investor Disclosure Document
The UK Alternative Investment Fund Managers Regulations require certain information to be made
available to investors prior to their investment in the Company. The Company’s Investor Disclosure
Document is available for viewing at japantrustplc.co.uk.
Notes
None of the views expressed in this document should be construed as advice to buy or sell a particular
investment.
Investment trusts are UK public listed companies and as such comply with the requirements of the
Financial Conduct Authority (FCA). They are not authorised or regulated by the FCA.
The Baillie Gifford Japan Trust PLC currently conducts its affairs, and intends to continue to conduct
its affairs, so that the Company’s ordinary shares can qualify to be considered as a mainstream
investment product and can be recommended by Independent Financial Advisers to ordinary retail
investors in accordance with the rules of the FCA in relation to non-mainstream investment products.
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you reside in the UK and you are in any doubt as to the action you should take, you should consult
your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised
under the Financial Services and Markets Act 2000 immediately. If you are outside the UK, you should
consult an appropriately authorised financial adviser.
If you have sold or otherwise transferred all of your ordinary shares in The Baillie Gifford Japan Trust
PLC, please forward this document, together with any accompanying documents, but not your
personalised Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker,
bank or other agent through whom the sale or transfer was or is being effected for delivery to
the purchaser or transferee.
japantrustplc.co.uk
Baillie Gifford
TM
3
Contents
Introduction
Financial Highlights 02
Strategic Report
Chairman’s Statement 05
Portfolio Managers 08
Managers’ Review 09
Relative Contribution 12
Review of Investments 13
Distribution of Total Assets and Main Portfolio Themes 17
Portfolio Positioning 18
List of Investments 20
Environmental, Social and Governance Engagement 22
Proxy Voting 26
Business Review 27
Governance Report
Directors 39
Directors’ Report 42
Corporate Governance Report 47
Directors’ Remuneration Report 52
Audit Committee Report 55
Statement of Directors’ Responsibilities 58
Financial Report
Independent Auditor’s Report 61
Income Statement 68
Balance Sheet 69
Statement of Changes in Equity 70
Cash Flow Statement 71
Notes to the Financial Statements 72
Glossary of Terms and Alternative Performance Measures 84
Shareholder Information
Notice of Annual General Meeting 87
Five Year Summary 92
Ten Year Record 93
Further Shareholder Information 95
Third Party Data Provider Disclaimer 97
Sustainable Finance Disclosure Regulation 98
Communicating with Shareholders 99
Company Information 101
4
Financial Highlights
Year to 31 August 2024
The following information illustrates how the Company has performed over the year to 31
August 2024. The net asset value total return was 10.0%, underperforming the Company’s
benchmark total return which was 14.7%.
31 August
2024
31 August
2023
%
change
Total return (%)*
Net asset value per ordinary share
10.0
(5.4)
Share price
4.4
(4.0)
Benchmark
†
14.7
6.7
Total assets (before deduction of bank loans)*
£889.0m
£864.7m
Bank loans
£140.6m
£131.7m
Shareholders’ funds
£748.4m
£733.0m
Net asset value per ordinary share
855.0p
787.7p
8.5%
Share price
756.0p
735.0p
2.9%
Discount*
(11.6%)
(6.7%)
Revenue earnings per ordinary share
8.23p
10.52p
Dividend per ordinary share payable and paid in respect of the
financial year
10.00p
10.00p
–
Dividend yield
1.3%
1.4%
Ongoing charges*
0.69%
0.67%
Yen/sterling exchange rate
191.4
184.5
(3.6%)
Active share*
84%
83%
Year to 31 August
2024
2024
2023
2023
Year’s high and low
High
Low
High
Low
Net asset value per ordinary share
879.7p
707.5p
876.0p
749.0p
Share price
766.0p
641.0p
827.0p
703.0p
Premium/(discount)*
(6.1%)
(14.8%)
0.2%
(11.9%)
Year to 31 August
2024
2023
Net return per ordinary share
Revenue return
8.23p
10.52p
Capital return
62.55p
(56.79p)
Total return
70.78p
(46.27p)
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Source: LSEG/Baillie Gifford and relevant underlying index providers. See disclaimer on page 97.
Past performance is not a guide to future performance.
5
NAV, Share Price and Benchmark Total Return*
(figures rebased to 100 at 31 August 2023)
CHART
Discount* to Net Asset Value
(figures plotted on a weekly basis)
CHART
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Source: LSEG/Baillie Gifford and relevant underlying index providers. See disclaimer on page 97.
Past performance is not a guide to future performance.
6
Strategic Report
The Strategic Report, which comprises pages 05 to 37 and incorporates the Chairman’s
statement, has been prepared in accordance with the Companies Act 2006.
Chairman’s Statement
David Kidd
Chairman
Appointed to the Board in 2015, and as Chairman in 2022
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.
NAV, Share Price and Benchmark Total Return*
CHART
* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Source: LSEG and underlying data providers. See disclaimer on page 97.
Past performance is not a guide to future performance.
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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 15 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.
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.
8
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 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
9
Portfolio Managers
Matthew Brett
Manager
Matthew is an Investment Manager in the Japanese Equities Team. He joined Baillie Gifford in 2003
and became a Partner of Baillie Gifford in 2018. He has managed The Baillie Gifford Japan Trust since
2018. Matthew has managed the Japanese All Cap Strategy since 2008 and is Co-Manager of the
Japanese Income Growth Strategy. Matthew graduated BA (Hons) in Natural Sciences (Psychology)
from the University of Cambridge in 2000 and holds a PhD in Psychology from the University of
Bristol.
Praveen Kumar
Deputy Manager
Praveen joined Baillie Gifford in 2008 and is an Investment Manager in the Japanese Equities Team.
He became Deputy Manager of The Baillie Gifford Japan Trust in 2018. Praveen is also the Manager
of Baillie Gifford Shin Nippon and the Baillie Gifford Japanese Smaller Companies Fund, and a
founding member of the Baillie Gifford International Smaller Companies Strategy. He previously
worked for FKI Logistex as a management consultant. Praveen graduated BEng in Computer Science
from Bangalore University in 2001 and gained an MBA from the University of Cambridge in 2008.
10
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 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.
For a definition of terms, see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
Past performance is not a guide to future performance.
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
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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
12
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
13
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
14
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 UFJ Financial Group
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 on page 97.
15
Review of Investments
A review of the Company’s ten largest investments as at 31 August 2024.
SoftBank Group
Diversified holding company run by dynamic entrepreneur Masayoshi Son, who holds over 25% of the
shares. It encompasses large investments in ARM (global semiconductor designer), mobile telecoms,
and, through its Vision Funds, many early-stage technology investments. The underlying businesses
continue to grow, some very rapidly; we believe Masayoshi Son to be an excellent allocator of capital
and the discount that the shares trade at to the value of the underlying holdings remains significant.
Valuation
£55,926,000
% of total investments
6.3%
Valuation at 31 August 2023
£45,420,000
% of total investments at 31 August 2023
5.3%
Net purchases/(sales) in year to 31 August 2024
(£241,000)
Rakuten
Internet conglomerate with strength in e-commerce and online financial services and an innovative
points system that links them together. Successes include building Japan’s largest credit card business
and large online banking and brokerage operations. Recently the company has built a new mobile
phone network in Japan and is growing the customer base. The dynamic founder, Hiroshi Mikitani,
owns around a third of the shares, providing close alignment of interests.
Valuation
£49,690,000
% of total investments
5.6%
Valuation at
31 August 2023
£27,787,000
% of total investments
at 31 August 2023
3.2%
Net purchases/(sales) in year to 31 August 2024
£711,000
Sumitomo Mitsui Trust Bank
Sole remaining independent trust bank in Japan following consolidation of the sector. It has a
significant asset management business and fees form a major part of the business, which differentiates
it from the megabanks. It could be a major beneficiary of reflation as domestic investors shift from vast
cash savings into risk assets. We believe that management show a healthy balance between ambition
and conservatism, which is especially important in managing a bank.
Valuation
£38,903,000
% of total investments
4.4%
Valuation at 31 August 2023
£31,818,000
% of total investments at 31 August 2023
3.7%
Net purchases/(sales) in year to 31 August 2024
(£1,459,000)
16
SBI Holdings
Leading internet-focused financial services company in Japan offering online brokerage, internet
banking, online life insurance and venture capital. As the company once put it: ‘utilising opportunities
provided by the powerful price-destruction forces of the Internet and developing financial services that
further enhance benefits to customers.’ The founder, Yoshitaka Kitao, has succeeded in building a
company with a very good reputation among its customers and been alert to the opportunities presented
by new technologies.
Valuation
£34,395,000
% of total investments
3.9%
Valuation at 31 August 2023
£29,900,000
% of total investments at 31 August 2023
3.5%
Net purchases/(sales) in year to 31 August 2024
(£167,000)
Calbee
Leading snack foods company with very high market shares in Japan and several opportunities. First,
we think it has scope to improve margins in the domestic business over time. Second, it has a small
overseas business mostly in the US and Asia that has potential to generate sales growth for many years.
Finally, Pepsi, which has a strategic shareholding in the business, could see it as an attractive bolt-on
acquisition.
Valuation
£26,617,000
% of total investments
3.0%
Valuation at 31 August 2023
£25,206,000
% of total investments at 31 August 2023
2.9%
Net purchases/(sales) in year to 31 August 2024
(£415,000)
Sony
Major owner of game, music and film content with some hardware businesses. The PlayStation is the
leading console platform for networked games and a front-runner in virtual reality (VR). Sony is the
world’s largest music publisher and a major film producer and benefits from growing content demand.
It is investing in its areas of strength, notably content and its dominant position in image sensors. We
believe CEO Kenichiro Yoshida continues to provide effective leadership.
Valuation
£26,447,000
% of total investments
3.0%
Valuation at 31 August 2023
£24,747,000
% of total investments at 31 August 2023
2.9%
Net purchases/(sales) in year to 31 August 2024
(£1,366,000)
GMO Internet
Domestic internet conglomerate and leading provider of internet infrastructure. It is the number one
provider of domain name registrations and hosting services and has a strong position in hosting e-
commerce websites and processing transactions as well as providing a variety of internet-related
services. Founder Masatoshi Kumagai owns over 40% of the shares, providing alignment between
management and shareholders. Finally, the company trades at a significant discount to the value of its
holdings.
Valuation
£24,468,000
% of total investments
2.8%
Valuation at 31 August 2023
£23,367,000
% of total investments at 31 August 2023
2.7%
Net purchases/(sales) in year to 31 August 2024
£422,000
17
FANUC
FANUC manufactures factory automation systems and robots, with strength in CNCs (computerised
numerical controls) which are specialist computers attached to machine tools to synchronise the
actions. We expect the global automation market to continue to grow as companies focus on efficiency
and productivity to improve their competitiveness. We believe that FANUC’s high market share and
reputation in automation and robotics will allow it to continue generating attractive returns on capital
and grow profitably.
Valuation
£23,915,000
% of total investments
2.7%
Valuation at 31 August 2023
£25,540,000
% of total investments at 31 August 2023
3.0%
Net purchases/(sales) in year to 31 August 2024
(£1,470,000)
Recruit
Recruit is an internet company with a key focus on simplifying labour-intensive hiring processes. Most
of its revenues and profits come from recruitment and human resource related activities, which include
Indeed, the highest-traffic job search website in the world, and the job review website, Glassdoor. It
has also internally developed successful software service solutions for smaller businesses in Japan,
which have promising long-term potential. Finally, Recruit has an unusual entrepreneurial and
adaptable culture.
Valuation
£23,071,000
% of total investments
2.6%
Valuation at 31 August 2023
£17,467,000
% of total investments at 31 August 2023
2.0%
Net purchases/(sales) in year to 31 August 2024
(£5,535,000)
CyberAgent
CyberAgent is an internet company focused on advertising, gaming and providing streaming video
content. The online streaming video service, AbeemaTV, has attracted significant viewer numbers and
we think has considerable future value. We believe that the different businesses mutually support each
other allowing for the development and curation of new content. The Founder-President Susumu Fujita
has resolutely pursued domestic growth opportunities and we continue to see strong growth prospects
ahead.
Valuation
£22,648,000
% of total investments
2.6%
Valuation at 31 August 2023
£17,967,000
% of total investments at 31 August 2023
2.1%
Net purchases/(sales) in year to 31 August 2024
£3,455,000
18
Distribution of Total Assets and Main Portfolio Themes
Sectoral 2024
PIE CHART
Main Portfolio Themes
Internet and Digitilisation
Japan catching up with other developed nations
SoftBank, Rakuten, SBI, CyberAg
ent, GMO Internet, Recruit
Automation and Robotics
Global leader in a growing industry
FANUC, Kubota, Keyence, Misumi
Asian Consumer and Healthcare
Resilient to a changing world
Shiseido, Pola Orbis, Kose, Nippon Paint, Kansai Paint, Chugoku
Marine Paint,
Olympus, Sysmex, Eisai
19
Portfolio Positioning
As at 31 August 2024
Holding period
Secular Growth
53.1%*
Growth Stalwarts
16.9%*
Special Situations
13.9%*
Cyclical Growth
16.1%*
>10 Years 41.5%
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 23.4%
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 35.1%
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
20
Holding period
Secular Growth
53.1%*
Growth Stalwarts
16.9%*
Special Situations
13.9%*
Cyclical Growth
16.1%*
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
21
Secular Growth
CHART
Opportunity to grow rapidly but where there are a number of potential outcomes.
Growth Stalwarts
CHART
Growth is less rapid but more predictable.
Special Situations
CHART
Performance has not been good but there is a reason to believe improvements are underway.
Cyclical Growth
CHART
Earnings do not rise every year but are expected to be higher from one cycle to the next.
22
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)
23
Name
Business
2024
Value
£’000
2024
% of total
investments
Absolute*
performance
%
Relative*
performance
%
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 on page 97.
Past performance is not a guide to future performance.
24
Environmental, Social and Governance Engagement
The Company has given discretionary voting powers to Baillie Gifford. The Managers vote against
resolutions they consider may damage shareholders’ rights or economic interests and report their
actions to the Board.
The Company believes that it is in the shareholders’ interests to consider environmental, social and
governance (‘ESG’) factors when selecting and retaining investments and has asked the Managers to
take these issues into account. The Managers do not exclude companies from their investment universe
purely on the grounds of ESG factors but adopt a positive engagement approach whereby matters are
discussed with management with the aim of improving the relevant policies and management systems
and enabling the Managers to consider how ESG factors could impact long-term investment returns.
The Managers’ Statement of Compliance with the UK Stewardship Code can be found on the
Managers’ website: bailliegifford.com. The Managers’ policy has been reviewed and endorsed by the
Board. The Managers, Baillie Gifford & Co, are signatories to the United Nations Principles for
Responsible Investment. Baillie Gifford & Co, the Managers, has considered the Sustainable Finance
Disclosures Regulations (‘SFDR’) and further details can be found on page 98.
As long-term investors, the Managers believe due consideration of a company’s material
environmental, social and governance characteristics will enable the Managers to understand its long-
term resilience and growth potential better. As such, ESG factors are not just complementary to
achieving attractive long-term returns, but they enable it when done sensibly and thoughtfully. At the
most fundamental and integrated level, the Japan team’s four factor investment research framework
includes an explicitly ESG-themed question:
‘Taking in turn environmental, social and governance factors, which do you believe are important and
relevant to the investment case?’
This enables the investment analyst to assess relevant ESG factors alongside growth opportunity,
competitive advantage and financial characteristics for every company the Managers analyse.
Importantly, the Managers’ focus on materiality means the precise ESG considerations will vary
depending on several variables, including core business model, size and sector.
The Japan team also has a designated ESG analyst who provides additional expertise and support on
ESG matters, contributes to stock discussions and assists the investors in further integrating ESG
considerations into their investment research and analysis process. Where a particular ESG issue
warrants additional work, the team may also avail of the support of the Managers’ central ESG
function on voting, ESG data and emerging ESG-related regulations. The Managers also have
independent researchers based in Tokyo who can conduct ESG research where an on the ground
perspective is helpful. This process ensures that despite ESG’s vast complexity, for any individual
company, the Managers have the scope and flexibility to go into the appropriate degree of detail to
support the delivery of long-term returns for shareholders.
By engaging with companies, the Managers seek to build constructive relationships with them, to
better inform our investment activities and, where necessary, effect change within our holdings,
ultimately with the goal of achieving better returns for our shareholders. The table below shows the
companies the Managers engaged with during the 12 months to 31 August 2024. The examples on
pages 24 and 25 demonstrate our stewardship approach through constructive, ongoing engagement.
25
Engagements during the 12 months to 31 August 2024
Environmental
Social
Governance
BASE
●
●
●
Bengo4.com
●
Bridgestone
●
Calbee
●
Chugoku Marine Paints
●
Colopl
●
CyberAgent
●
Daikin Industries
●
●
●
Demae-can
●
●
Digital Garage
●
DMG Mori
●
FANUC
●
●
●
GA Technologies
●
GMO Internet
●
Infomart
●
Istyle
●
●
Kao
●
Keyence
●
Kose
●
Lifenet Insurance
●
M3
●
●
Misumi
●
mixi
●
MonotaRO
●
Murata Manufacturing
●
Nakanishi
●
Nidec
●
Nifco
●
Nihon M&A Center
●
Nintendo
●
●
Nippon Ceramic
●
Nippon Paint
●
Oisix
●
Olympus
●
●
Park24
●
●
●
Pola Orbis
●
Rakuten
●
Recruit
●
●
Rohm
●
Sawai Pharmaceutical
●
SBI Holdings
●
Seria
●
●
Shima Seiki
●
Shiseido
●
SMC
●
Sony
●
●
●
Sugi
●
Sumitomo Metal Mining
●
●
Sumitomo Mitsui Trust Bank
●
Sysmex
●
Topcon
●
●
Unicharm
●
●
26
Portfolio Company Engagement: Environmental
Bridgestone
Objective: We met with Bridgestone to discuss its progress towards carbon neutrality and a circular
economy. The Company believes that these steps will continue to enhance its competitiveness in the
long-term. Key discussions revolved around its strategic integration of sustainability and emissions
reduction plans.
Discussion: Bridgestone has exceeded its 2030 CO2 reduction target, achieving a 64 per cent decrease
for Scope 1 and 2 emissions. Its current priority is to electrify the energy-intensive vulcanisation
process, creating a technological barrier to reducing emissions. However, the company seeks to
balance energy use in this area with increased production outputs. Bridgestone aims to increase the use
of recyclable materials in its tyres to 37-39 per cent. A collaboration with Michelin on tyre recycling is
underway to improve the supply of tyres being recycled. Establishing this supply chain and
understanding the value premium that tyres could provide are the current priorities in this area.
Bridgestone aims to reduce its supply chain (Scope 3) emissions by more than five times its Scope 1
and 2 emissions. This target involves engaging suppliers to adopt sustainable practices to have 92 per
cent of suppliers, on an emissions basis, achieve its Science-Based Targets (SBTs) by 2027. However,
achieving absolute Scope 3 reductions requires more management buy-in and deeper integration of
climate considerations into the upstream supply chain, presenting a complex challenge that Bridgestone
is still navigating.
We also explored how R&D investments focus on sustainable manufacturing and material innovation.
Challenges such as the impact of electric vehicles on tyre lifespan are being addressed through
specialised products, and it is demonstrating the potential for innovation in emerging product segments.
We also explored Bridgestone’s commitment to supporting the efficiency and resilience of its
smallholder rubber suppliers. Enhancing supply chain resilience underscores its holistic approach to
sustainability.
Outcome: While Bridgestone’s meeting showcased its commitment to sustainability and significant
achievements in CO2 reductions, the path to achieving its ambitious Scope 3 emissions targets presents
considerable challenges. We will continue to monitor the progress that it makes in this area.
Nintendo
Objective: We met with gaming company Nintendo’s Investor Relations (‘IR’) Team to assess
Nintendo’s climate action, board composition and share incentives approach.
Discussion: We started by discussing Nintendo’s lack of emissions reduction targets and poor
Transition Pathway Initiative (TPI) scoring. This score led to Nintendo’s inclusion on investment
restriction lists of some investment companies, which harmed the company’s access to capital. While
no commitment was made to a timeline to set more stringent targets, the company was receptive to our
feedback about the potential implications.
On governance, IR shared that Nintendo has taken steps to improve the composition of its board to
include more independence and diversity of thought. A newly appointed board member appears to have
relevant skills in merchandising; however, progress could still be made on the proportion of outside
directors to provide effective challenge.
Share incentives were also discussed. Stock awards as a percentage of overall pay are low, representing
only 3 per cent of total pay. The discussion revealed a cautious approach to stock awards in part due to
volatility through gaming console cycles. We fed back the principles underlying our support for share-
based incentives, particularly the alignment with shareholders. They said they would take our feedback
on board.
Outcome: While there are signs of progress on shareholder engagement and board construction, gaps
remain in climate action and share incentive alignment. We will continue to scrutinise and challenge
Nintendo’s progress on these topics.
27
Portfolio Company Engagement: Social
Recruit
Objective: We spoke to Recruit’s Sustainability Team about how its ‘Prosper Together’ ESG Strategy
can have a positive societal impact while supporting Recruit’s growth.
Discussion: We discussed how Recruit’s ESG strategy helps boost shareholder returns. This primarily
happens via its staff and customers. On the former, Recruit believes that having an ESG Strategy helps
motivate staff and leads to a higher retention rate than peers. On the latter, enhancing job seeker
outcomes increases the number of employers and job seekers on its platform, strengthening the
network effect and helping drive market share. At the same time, Recruit acknowledged the challenge
of measuring its social impact given the limited touch points during the hiring process.
Outcome: The conversation was valuable in understanding Recruit’s strategic direction and efforts to
balance core business execution with broader societal contributions.
Portfolio Company Engagement: Governance
Nihon M&A Center
Objective: We met with the management team of consultancy Nihon M&A, including Suguru Miyake
(at the time President), Naoki Takeuchi (Head of Strategy Headquarters) and members of the IR team.
The firm’s human capital management and succession planning strategies were two focus areas. This
follows recent challenges, underscoring a commitment to bolstering the company’s resilience and long-
term growth.
Discussion: Since 2022, the company has seen a high turnover rate in its consultants. Given the
importance of these personnel to the sourcing and dealmaking process, we wanted to increase our
understanding of how Nihon M&A was approaching this issue. President Miyake acknowledged past
recruitment challenges, attributing them to diverted management focus. In response to these turnover
numbers, Nihon M&A is revitalising its hiring approach, reintroducing senior management
involvement in final interviews and leveraging referral hiring. The firm aims to hire a larger cohort of
consultants to backfill any potential gaps.
It will also focus on hiring recent graduates to support a long-term human capital pipeline.
These changes are positive, considering the competitive landscape, with Nihon M&A increasingly
vying for talent against large international consulting firms. They demonstrate that Nihon M&A is
taking the issue of staff turnover seriously.
Efforts are also being made to enhance company culture and retention through qualitative programmes.
President Miyake and Mr Takeuchi have been engaging in informal meetings and dinners with senior
consultants to revitalise the company’s culture and understand consultants’ long-term goals to improve
their understanding of the needs and challenges of this cohort.
Regarding succession planning, President Miyake, who initiated the process upon turning 70,
mentioned that our previous discussions prompted deeper consideration of his successor. He suggested
that knowing we would ask about succession had prompted him to inform Mr Takeuchi of his
consideration as a possible future manager of the overall business.
Outcome: The meeting offered valuable insights into the company’s approach to overcoming human
capital challenges. Subsequent to our meeting, Mr Takeuchi was appointed as President and Mr
Miyake has moved to Chairman confirming that engagement on succession has been effective.
28
Proxy Voting
The Company has given discretionary voting powers to Baillie Gifford. Baillie Gifford believes that
‘active ownership’ of its clients’ holdings is as important as selecting the right investments in the first
instance. These guidelines are aligned with its stewardship principles and describe Baillie Gifford’s
approach to proxy voting and company engagement, the key levers of active ownership, often
described as ‘stewardship’.
While these guidelines are intended to provide an insight into how Baillie Gifford approaches voting
on its clients’ behalf, it is important to note that every company is individually assessed. In voting,
proposals will always be evaluated on a case-by-case basis, based on what Baillie Gifford believes to
be in the best long-term interests of its clients, rather than rigidly applying a policy.
A broad cross section of Baillie Gifford’s investment staff is involved in its ongoing work on
stewardship. In the same way that the investment approach is based around empowered and
independent teams, voting and engagement is led by the individual investment teams. In keeping with a
decentralised and autonomous culture, investment teams will, on occasion, elect to vote differently on
the same general meeting resolutions. Where this happens, it is reported accordingly in the proxy
voting disclosure on the website. Baillie Gifford also has clear processes in place to identify, prevent
and manage potential proxy voting related conflicts of interest to ensure that in all cases the firm acts in
the clients’ best interest. Baillie Gifford’s firm-wide conflict of interest disclosure is available on its
website.
Prior to taking any voting action, specific ESG concerns are usually addressed by engaging directly
with the company, using voting as an escalation mechanism if sufficient progress has not been seen.
Voting activity and the reasons for any resolutions voted against in the period is disclosed on the
Company’s page of the Managers’ website and can be viewed at japantrustplc.co.uk.
Company Meeting Record
PIE CHART
PIE CHART
29
Business Review
Business Model
Business and Status
The Company is an investment company within the meaning of section 833 of the Companies Act
2006 and carries on business as an investment trust. Investment trusts are UK public listed companies
and their shares are traded on the London Stock Exchange. They invest in a portfolio of assets in order
to spread risk. The Company has a fixed share capital, although, subject to shareholder approval sought
annually, it may purchase its own shares or issue shares. The price of the Company’s shares is
determined, like other listed shares, by supply and demand.
The Company has been approved as an investment trust by HM Revenue & Customs subject to the
Company continuing to meet the eligibility conditions. The Directors are of the opinion that the
Company has continued to conduct its affairs so as to enable it to comply with the ongoing
requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011.
The Company is an Alternative Investment Fund (‘AIF’) for the purposes of the UK Alternative
Investment Fund Managers Regulations.
Objective and Policy
The Baillie Gifford Japan Trust 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, although it invests in larger companies when considered appropriate.
The Company’s holdings are generally listed in Japan although the portfolio can also include
companies listed elsewhere whose business is predominantly in Japan as well as unlisted companies.
From time to time, fixed interest holdings, or non equity investments, may be held.
The portfolio is constructed through the identification of individual companies which offer long-term
growth potential, typically over a three to five year horizon. The portfolio is actively managed and does
not seek to track the benchmark; hence a degree of volatility against the index is inevitable.
In constructing the equity portfolio, a spread of risk is achieved by diversifying the portfolio through
investment in 40 to 70 holdings. Although sector concentration and the thematic characteristics of the
portfolio are carefully monitored, there are no maximum limits to deviation from benchmark, stock or
sector weights, except as imposed by banking covenants on borrowings.
On acquisition, no holding shall exceed 5% of the portfolio at the time of purchase and any holding
that as a result of good performance exceeds 5% of the portfolio is subject to particular scrutiny.
A holding greater than 5% will be retained only if the Managers continue to be convinced of the merits
of the investment case.
On acquisition, no more than 15% of the Company’s total assets will be invested in other UK listed
investment companies.
The Company may use derivatives which will be principally, but not exclusively, for the purpose of
efficient portfolio management (i.e. for the purpose of reducing, transferring or eliminating investment
risk in its investments, including protection against currency risks).
The Company recognises the long-term advantages of gearing and has a maximum equity gearing level
of 30% of shareholders’ funds.
Borrowings are invested in securities when it is considered that investment grounds merit the Company
taking a geared position. Gearing levels, and the extent of equity gearing, are discussed by the Board
and Managers at every Board meeting.
A detailed analysis of the Company’s Investment Portfolio is set out on pages 17 to 21 and in the
Managers’ Review and Review of Investments on pages 09 to 16.
30
Key Performance Indicators
The Board uses key performance indicators (KPIs) to measure the progress and performance of
the Company over time when discharging its duties as set out on page 47. These KPIs are
established industry measures.
Share price, net asset value and benchmark total returns*
The total return is the return to shareholders after reinvesting the net dividend on the date that the share
price goes ex-dividend.
CHART
Share price (discount)/premium*
As stock markets and share prices vary, an investment trust’s share price is rarely the same as its net
asset value (NAV). When the share price is lower than the NAV per ordinary share it is said to
be trading at a discount. If the share price is higher than the NAV per ordinary share, this situation is
called a premium.
CHART
Ongoing charges*
Ongoing charges are the total recurring expenses (excluding the Company’s cost of dealing in
investments and borrowing costs) incurred by the Company as a percentage of the daily average
net asset value.
CHART
In addition to the total return of the Company’s principal comparative index (TOPIX Total Return (in
sterling terms)) the Board considers the performance of comparable companies. Across these measures,
the Board looks for relative outperformance over the long-term, while remaining mindful that the
nature of the investment policy and the growth characteristics of the portfolio investments may entail
periods of underperformance over the short and medium-term.
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Past performance is not a guide to future performance.
31
Borrowings
Borrowings at 31 August 2024 and 2023 are set out below and further details can be found in note 11
on page 77.
Facility
Lender
Maturing
2024
2023
¥15,000 million
Bank of New York
Mellon
August 2025
£78.386 million
£81.311 million
¥9,300 million
ING Bank N.V.
November 2024
£48.599 million
£57.655 million
¥2,600 million
Mizuho Bank Ltd
March 2025
£13.587million
–
The main loan covenants are: total borrowings shall not exceed 30% of the Company’s net asset value;
and, the Company’s minimum net asset value shall be ¥48,545,000,000 (£315,000,000). There were no
breaches of loan covenants during the year.
In July 2024, the Company secured ¥12 billion of fixed rate, senior, unsecured private notes split
across three tranches of ¥4 billion, maturing in 5, 10 and 14 years from the funding date of
20 November 2024. The new funding has a competitive interest rate of 2.05%. The proceeds of this
funding will be used to repay the existing ¥9.3 billion ING loan maturing in November 2024 and the
¥2.6 billion Mizuho loan, maturing March 2025.
Currency Hedging
It is extremely difficult to predict currency movements and currencies can appear cheap or expensive
for long periods of time. The Board remains of the view that it will not engage in currency hedging.
Viability Statement
Notwithstanding that the continuation vote of the Company is subject to the approval of shareholders
annually, the Directors have, in accordance with provision 31 of the UK Corporate Governance Code,
assessed the prospects of the Company over a period of five years from the Balance Sheet date. The
Directors continue to believe this period to be appropriate as it reflects the Company’s longer term
investment strategy and to be a period during which, in the absence of any adverse change to the
regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect
there to be any significant change to the current principal and emerging risks facing the Company nor
to the effectiveness of the controls employed to mitigate those risks. Furthermore, the Directors do not
reasonably envisage any change in strategy or any events which would prevent the Company from
operating over a period of five years. The Directors have no reason to believe that the continuation
resolution will not be passed at the Annual General Meeting.
In considering the viability of the Company, the Directors have conducted a robust assessment of each
of the principal and emerging risks and uncertainties detailed on pages 30 to 33, and in particular the
impact of market risk where a significant fall in Japanese equity markets would adversely impact the
value of the investment portfolio. Specific leverage and liquidity stress testing was conducted during
the year, including the impact of heightened market volatility and macroeconomic and geopolitical
concerns, including inflation and interest rates. The Company’s investments are listed and readily
realisable and can be sold to meet its liabilities as they fall due with the main liability currently being
the bank borrowings. 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 addition, all of the key
operations required by the Company are outsourced to third party service providers and it is reasonably
considered that alternative providers could be engaged at relatively short notice.
The Board has considered the Company’s leverage and liquidity in the context of its borrowings. The
leverage stress testing identified the impact of leverage in scenarios where gross assets fall by 25% and
50%, reflecting a range of market conditions that may adversely impact the portfolio. The liquidity
stress testing identified the reduction in value of assets that can be liquidated within one month that
would result in the value of those assets falling below the value of the borrowings. The stress testing
did not indicate any matters of concern.
32
Based on the Company’s processes for monitoring revenue projections, share price premium/discount,
the Managers’ compliance with the investment objective, asset allocation, the portfolio risk profile,
leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that
there is a reasonable expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the next five years.
Principal and Emerging Risks
As explained on pages 49 and 50 there is an ongoing process for identifying, evaluating and managing
the risks, including emerging risks, faced by the Company on a regular basis. The Directors have
carried out a robust assessment of the principal and emerging risks facing the Company including those
that would threaten its business model, future performance, solvency or liquidity. There have been no
material changes to the principal risks during the year. Baillie Gifford’s Business Risk Department
provides regular updates covering the Company’s principal and emerging risks. A description of these
risks and how they are being managed or mitigated is set out below.
The Board considers the current global economic environment to be a factor which exacerbates
existing risks, rather than it being a new emerging risk. The impact of this is considered within the
relevant risks.
Investment and Strategic Risks
Financial risk
What is the risk?
The Company’s assets consist of
listed securities and its principal
financial risks are therefore market
related and include market risk
(comprising currency risk, interest
rate risk and other price risk),
liquidity risk and credit risk. An
explanation of those risks and how
they are managed is contained in note
19 to the Financial Statements and on
pages 80 to
83.
How is it managed?
The Board has, in particular,
considered the impact of heightened
market volatility due to
macroeconomic factors such as
inflation, interest rates and
geopolitical concerns. To mitigate
this risk the Board considers various
portfolio metrics including individual
stock performance, the composition
and diversification of the portfolio by
growth category, purchases and sales
of investments, the holding period of
each investment, liquidity
characteristics and the top and bottom
contributors to performance.
The
Manager provides rationale for
stock selection decisions. A strategy
meeting is
held annually.
The value of the Company’s
investment portfolio would be
affected by any impact, positively or
negatively, on sterling but such
impact would be partially offset by
the effect of exchange movements on
the Company’s yen denominated
borrowings.
─
Current assessment of risk
The prospect of market volatility
remains, given continuing
geopolitical instability.
Discount risk
What is the risk?
The premium/discount at w
hich the
Company’s shares trade relative to its
net asset value can change. The risk
of a widening discount is that it may
undermine investor confidence in the
Company.
How is it managed?
The Board monitors the level of
premium/discount at which the shares
trade and the Company has authority
to issue new shares or buy back its
existing shares when deemed by the
Board to be in the best interests of the
Company and its
shareholders.
─
Current assessment of risk
The Company’s shares traded at an
average discount of 10.9% throughout
the year and it bought back 5,515,000
ordinary shares during the year.
33
Investment strategy and smaller company risk
What is the risk?
Pursuing an in
vestment strategy to
fulfil the
Company’s objective which
the market perceives to be
unattractive or inappropriate, or the
ineffective implementation of an
attractive or appropriate strategy, may
lead to reduced returns for
shareholders and, as a result, a
decreased demand for the Company’s
shares. This may lead to the
Company’s shares trading at a
widening discount to their net asset
value.
The Company has investments in
smaller companies which are
generally considered higher risk as
changes in their share prices may be
greater and the shares may be harder
to sell. Smaller companies may do
less well in periods of unfavourable
economic conditions.
How is it managed?
To mitigate these risks, the Board
regularly reviews and monitors: the
Company’s objective and investment
policy and strategy; the investment
portfolio, discussing the investment
case and portfolio weightings with the
Managers, and its performance; the
level of premium/discount to net asset
value at which the shares trade; and
movements in the sha
re register and
raises any matters of concern with the
Managers. A spread of risk is
achieved by holding a minimum of 40
stocks.
↑
Current assessment of risk
During the year, the Company’s NAV
total return was behind the
benchmark. However, there are signs
that the market’s appetite for growth
stocks, typically held by the
Company, is recovering.
Climate and governance risk
What is the risk?
Perceived problems on
environmental, social and governance
(‘ESG’) matters in an investee
company could lead to that
company’s shares being less attractive
to investors, adversely affecting its
share price, in addition to potential
valuation issues arising from any
direct impact of the failure to address
the ESG weakness on the operations
or management of the investee
company (for example in the event of
an industrial accident or spillage).
Repeated failure by the Managers to
identify ESG weaknesses in investee
companies could lead to the
Company’s own shares being less
attractive to investors, adversely
affecting its own share price. In
addition, the valuation of investments
could be impacted by climate change.
How is it managed?
This is mitigated by the application of
the Manager’s ESG stewardship and
engagement policies, which are
integrated into the investment
process, as well as the extensive
upfront and ongoing due diligence
which the Manager undertakes on
each investee company. This includes
the risk inherent in climate change
(see pages
36 and 37). The Directors
have considered the impact of climate
change on the Financial Statements of
the Company and this is included in
note 1a to
the Financial Statements on
page
72.
─
Current assessment of risk
The Manager continues to employ
strong ESG
stewardship and
engagement
policies.
Leverage risk
What is the risk?
The Company may borrow money for
investment purposes (sometimes
known as
‘gearing’ or ‘leverage’). If
the inve
stments fall in value, any
borrowings will magnify the extent of
this loss. If borrowing facilities are
not renewed, the Company may have
to sell investments to repay
borrowings.
How is it managed?
To mitigate this risk, all borrowings
require the prior approval of the
Board and leverage levels are
discussed by the Board and Managers
at every meeting. Covenant levels are
monitored regularly. The Company
has a maximum equity gearing level
of 30% of shareholders’ funds. The
Company’s investments are in listed
securities that are readily realisable.
Further information on leverage can
be found on page 85 and in the
Glossary of Terms and Alternative
Performance Measures on page 84
and 85.
─
Current assessment of risk
No significant change in risk level.
During t
he year, the Company
secured new private placement loan
notes which will be used to repay the
ING and Mizuho loans maturing late
2024/early 2025.
34
Operational Risks
Custody, Depositary and reliance on third party service provider risk
What is the risk?
Safe custody of the Company’s assets
may be compromised through control
failures by the Depositary, including
cyber security incidents.
Failure of Baillie Gifford’s systems or
those of other third party service
providers could lead to an inability to
provide accurate reporting and
monitoring or a misappropriation of
assets.
How is it managed?
To mitigate this risk, the Audit
Committee receives six monthly
reports from the Depositary
confirming safe custody of the
Company’s assets held by the
Custodian. Cash and portfolio
holdings are independently reconciled
to the Custodian’s records by the
Managers and the existence of assets
is subject to annual external audit.
Baillie Gifford has a comprehensive
business continuity plan which
facilitates continued operation of the
business in the event of a service
disruption or major disaster. The
Audit Committee reviews Baillie
Gifford’s Report on Internal Controls
and the reports of the Depositary,
Custodian and other key third party
service providers are reviewed by
Baillie Gifford on behalf of the Board
and any concerns investigated. The
Depositary, Custodian and third party
service providers have not
experienced significant operational
difficulties affecting their respective
services to the Company.
─
Current assessment of risk
Control procedures are working
effectively with no interruption to
Depositary, Custodian, Broker or
Registrar services during the
year.
Cyber security risk
What is the risk?
A cyber attack on Baillie Gifford’s
network or t
hat of a third party
service provider could impact the
confidentiality, integrity or
availability of data and systems.
Emerging technologies, including AI
and quantum computing capabilities,
may introduce new, and increase
existing information security risks
that impact operations.
How is it managed?
To mitigate this risk, the Audit
Committee reviews reports on
Internal Controls published by Baillie
Gifford and other third party service
providers. Baillie Gifford’s Business
Risk Department reports to the Audit
Committee on the effectiveness of
information security controls in place
at Baillie Gifford and its business
continuity framework. Cyber security
due diligence is performed by Baillie
Gifford on third party service
providers which includes a review of
crisis management and business
continuity frameworks.
↑
Current assessment of risk
This risk is seen as increasing due to
recent indications that geopolitical
tensions are continuing and could
lead to more cyber attacks. Emerging
technologies, including AI, could
potentially increase information
security risk
s. In addition, service
providers operate a hybrid approach
of remote and office working, thereby
increasing the potential of
a cyber
security
threat.
35
External Risks
Regulatory risk
What is the risk?
Failure to comply with applicable
legal and regulatory requirements
such as the tax rules for investment
trust companies, the FCA Listing
Rules and the Companies Act could
lead to suspension of the Company’s
Stock Exchange listing, financial
penalties, a qualified Audit Report
and the Company being subject to tax
on capital gains. Changes to the
regulatory environment could
negatively impact the Company.
How is it managed?
To mitigate this risk, Baillie Gifford’s
Business Risk, Internal Audit and
Compliance Departments provide
regular reports to the Audit
Committee on Baillie Gifford’s
monitoring programmes. Should
major regulatory change seem likely
to impose disproportionate
compliance burdens on the Company,
representations are made to the
relevant authorities to ensure that the
special circumstances of investment
trusts are recognised. Shareholder
documents and announcements,
including the Company’s published
Interim and Annual Report and
Financial Statements, are subject to
stringent review processes and
procedures are in place to ensure
adherence to the Transparency
Directive and the Market Abuse
Directive with reference to inside
information.
─
Current assessment of risk
All control procedures are working
effectively. There have been no
material regulatory changes that have
impacted the Company during the
year.
Political and associated economic risk
What is the risk?
Political change in areas
in which the
Company invests or may invest may
have practical consequences for the
Company.
How is it managed?
To mitigate this risk, developments
are closely monitored and considered
by the Board and are regularly
discussed at Board meetings.
─
Current assessment of risk
The prospect of market volatility
remains, given continuing
geopolitical instability.
Emerging Risks
As explained on pages 49 and 50, the Board has regular discussions on principal and emerging risks, including any risks
which are not an immediate threat but could arise in the longer term. The Board considers emerging risks at each Board
meeting and discusses any mitigations required.
↑ Increasing Risk ↓ Decreasing Risk ─ No Change
36
Promoting the Success of the Company (Section 172 Statement)
Under section 172 of the Companies Act 2006, the directors of a company must act in the way they
consider, in good faith, would be most likely to promote the success of the company for the benefit of
its members as a whole, and in doing so have regard (amongst other matters and to the extent
applicable) to: a) the likely consequences of any decision in the long-term; b) the interests of the
company’s employees; c) the need to foster the company’s business relationships with suppliers,
customers and others; d) the impact of the company’s operations on the community and the
environment; e) the desirability of the company maintaining a reputation for high standards of business
conduct; and f) the need to act fairly as between members of the company.
In this context, having regard to Baillie Gifford Japan Trust being an externally managed investment
company with no employees, the Board considers the Company’s key stakeholders to be: its existing
and potential new shareholders; its externally-appointed Managers and Secretaries (Baillie Gifford); its
portfolio companies; other professional service providers (Corporate Broker, Registrar, Auditors and
Depositary); lenders; and wider society and the environment.
The Board considers that the interests of the Company’s key stakeholders are aligned, in terms of
wishing to see the Company deliver sustainable long-term capital growth, in line with the Company’s
stated objective and strategy, and meet the highest standards of legal, regulatory, and commercial
conduct, with the differences between stakeholders being merely a matter of emphasis on those
elements.
Stakeholder
Why we engage
How we engage and what we do
Shareholders
Shareholders are, collectively, the
Company’s owners: providing them with
a return for their investment in
accordance with the Company’s
investment policy and objective is the
reason for its existence.
The Board places great importance on
communication with shareholders. The Annual
General Meeting provides the key forum for the
Board and Managers to present to shareholders
on the Company’s performance, future plans and
prospects. It
also allows shareholders the
opportunity to meet with the Board and Managers
and raise questions and concerns. The
Chairman
is available to meet with shareholders as
appropriate. The Managers meet regularly with
shareholders and their representatives, reporting
their views back to the Board. Directors also
attend certain shareholder presentations, in order
to gauge shareholder sentiment first hand.
Shareholders may also communicate with
members of the Board at any time by writing to
them at the Company’s registered office or to the
Company’s Broker. These communication
opportunities help inform the Board when
considering how best to promote the success of
the Company for the benefit of all shareholders
over the long
-term.
Baillie Gifford – Managers and
Secretaries
The Company’s Board has delegated the
management of the Company’s portfolio,
and the administration of the Company’s
operations including fulfilment of
regulatory and taxation reporting
requirements, to
Baillie Gifford.
The Board seeks to engage with its Managers,
and other service providers, in a collaborative and
collegiate manner, encouraging open and
constructive discussion and debate, while also
ensuring that appropriate and regular challenge is
brought and evaluation conducted. This approach
aims to enhance service levels and strengthen
relationships with the Company’s providers, with
a view to ensuring the interests of the Company’s
shareholders are best served by keeping cost
levels proportionate and competitive, and by
maintaining the highest standards of business
conduct.
37
Stakeholder
Why we engage
How we engage and what we do
Portfolio companies
As all of the Company’s operations are
conducted by third party professional
providers, it is the companies held in its
investment portfolio which have the
primary real
-world impact in terms of
social and environmental change, both
positively and negatively, as well as
generating, through their commercial
success, the investment growth sought by
the Company’s shareholders.
The Board is cognisant of the need to consider
the impact of the Company’s investment strategy
and policy on wider society and the environment.
In addition to monitoring the performance of the
Company’s investment portfolio, the Board
considers that its oversight of environmental,
social and governance (‘ESG’) matters is an
important part of its responsibility to all
stakeholders and that proper consideration of
ESG factors sits naturally with Baillie Gifford
Japan Trust’s aim of providing a sustainable basis
for adding value for shareholders. The Board’s
review of the Managers
includes an assessment
of their ESG approach and its application in
making investment decisions. Information on
how the Managers engage with investee
companies can be found on pages 22 to 26.
Service providers
•
Broker
•
Depositary
•
Custodian
•
Registrar
The Company’s third party service
providers ensure the Company’s day
-to-
day operations run smoothly.
The Board ensures that it promotes the success of
the Company by engaging third party service
providers who have the resources to deliver the
service required. The service providers report
regularly to the Board throughout the year and
the Managers also engage regularly with the
providers and inform the Board should any areas
of concern arise. The
Management Engagement
Committee carries out a review annually of the
level of services delivered by each service
provider and the terms on which they are
engaged. The Board seeks assurance that there
has been no disruption to services provided to the
Company during the year.
Auditor
The Company’s Auditor has a
responsibility to provide an opinion on
whether the Company’s Financial
Statements as a whole are free from
material misstatement, as set out in more
detail in the Auditor’s Report to the
Members on pages 61 to 67.
The Company’s Auditor meets with the Audit
Chair and the Board, in the absence of the
Managers where deemed necessary, and the
Managers undertake to provide all information
requested by the Auditor in connection with the
Company’s annual audit promptly and to ensure
that it is complete and accurate in all respects.
Lenders
Lenders such as holders of debt
instruments (private placement loan
notes) and banks providing fixed,
floating or revolving credit facilities have
an interest in the Company’s ongoing
financial health and viability.
The Company’s legal advisers review all legal
agreements in connection with the Company’s
debt arrangements and advise the Board on the
appropriateness of the terms and covenants. The
Managers and Secretaries ensure compliance
with lenders’ covenants and maintain a good
working relationship.
AIC/industry peers
The Association of Investment
Companies (‘AIC’) and the Company’s
investment trust industry peers have an
interest in the Company’s conduct and
performance, as
adverse market
sentiment towards one investment trust
can affect attitudes towards
the wider
industry.
The Company is a member of the AIC, and the
Directors and/or the Managers and Secretaries (as
appropriate) participate in technical reviews,
requests for feedback on proposed legislation or
regulatory developments, corporate governance
discussions and/or training.
38
Stakeholder
Why we engage
How we engage and what we do
Investment platforms
Investment platforms provide an
interface with
shareholders who invest in
the Company
indirectly.
The Managers liaise with the various investment
platforms on strategies for improving
communications with the Company’s
shareholders who hold their shares via these
platforms. Up
-to-date information about the
Company, including monthly commentary, recent
portfolio information, performance figures and an
annual timetable of key dates is published on the
Company’s website, for the ease of reference of
such shareholders.
Wider society and the
environment
No entity, corporate or otherwise, can
exist without having an influence on the
society in
which it operates or utilising
the planet’s resources. Through its third
party relationships, as noted above, the
Company seeks to be a positive influence
and, in circumstances where that is not
possible, to mitigate its negative impacts
insofar as is possible.
The Board and Managers’ interactions with the
various stakeholders as noted above comprise the
principal forms of direct engagement with wider
society and in respect of the environment
(commercial, financial, and in terms of planetary
health and resources).
The Board recognises the importance of keeping the interests of the Company and its stakeholders, in
aggregate, firmly front of mind in its decision making. The Company Secretaries are available at all
times to the Board to ensure that suitable consideration is given to the range of factors to which the
Directors should have regard. In addition to ensuring that the Company’s stated investment objective
was being pursued, key decisions and actions during the year which required the Directors to have
regard to applicable section 172 factors included:
• in July 2024, the Board secured ¥12 billion of fixed rate, senior, unsecured privately placed
notes split into three tranches of ¥4 billion, maturing in 5, 10 and 14 years from the funding date
of 20 November 2024 at an average interest rate of 2.05%. The proceeds of this funding will be
used to repay the existing ING ¥9.3 billion fixed rate loan maturing in November 2024 and the
Mizuho ¥2.6 billion revolving credit facility maturing in March 2025.
• the purchase of 5,515,000 of the Company’s own shares into Treasury at a discount to net asset
value, for subsequent reissue, in order to ensure the Company’s shareholders found liquidity for
their shares when natural market demand was insufficient, and on terms that enhance net asset
value for remaining shareholders;
• between 1 September and 24 October 2024, the purchase of 1,445,000 shares, at a discount,
enhancing net asset value for continuing shareholders; and,
• the Board’s decision to declare a final dividend of 10p per ordinary share.
Culture
As an externally managed investment company with no employees, Baillie Gifford Japan’s culture is
expressed through its Board and its third party service providers, in particular its Managers, in their
interactions with shareholders and other stakeholders. The Board’s assessment of its own interactions
is described in its Section 172 Statement on pages 34 to 36 and the Baillie Gifford Statement on
Stewardship, which describes the Managers’ culture of constructive engagement, which can be found
on the Managers’ website: bailliegifford.com.
Employees, Human Rights and Community Issues
The Board recognises the requirement to provide information about employees, human rights and
community issues. As the Company has no employees, all its Directors are non-executive and all its
functions are outsourced, there are no disclosures to be made in respect of employees, human rights
and community issues. Further information on the Company’s approach to environmental, social and
governance (‘ESG’) matters is provided on pages 22 to 25.
39
Environmental, Social and Governance Policy
Details of the Company’s policy on socially responsible investment can be found on page 22.
The Company considers that it does not fall within the scope of the Modern Slavery Act 2015 and it is
not, therefore, obliged to make a slavery and human trafficking statement. In any event, the Company
considers its supply chains to be of low risk as its suppliers are typically professional advisers.
A statement by the Managers under the Act has been published on the Managers’ website
at bailliegifford.com.
Climate Change
The Board recognises that climate change poses a serious threat to our environment, our society and to
economies and companies around the globe. Addressing the underlying causes is likely to result in
companies that are high emitters of carbon facing greater societal and regulatory scrutiny and higher
costs to account for the true environmental impact of their activities. Baillie Gifford’s Task Force on
Climate-Related Financial Disclosures (‘TCFD’) Climate Report is available on the Managers’
website at bailliegifford.com. A Japan Trust specific TCFD climate report is also available on the
Company’s page of the Managers’ website at japantrustplc.co.uk and is a means by which the
portfolio’s carbon footprint and exposure to climate risk are measured and reported. Companies
disclosing their emissions and communicating emissions plans will be a helpful place from which to
begin more useful discussions with management teams, industry experts and regulators. Although this
can direct our efforts, the Managers believe that carbon footprint metrics in isolation are unhelpful –
that some firms pollute more than others is a mostly meaningless observation. More significant is the
Managers’ pursuit of long-term growth opportunities which typically involves investment in
entrepreneurial, disruptive and technology-driven businesses. These companies are often capital-light
with a low carbon footprint. The Managers utilise data sourced from a third party provider (MSCI via
the Factset platform) to map the carbon footprint of The Baillie Gifford Japan Trust’s portfolio which
is estimated to be 64.2% lower than the Company’s benchmark (TOPIX) and is based on 97.7% of the
value of the Company’s equity portfolio which reports on carbon emissions and other carbon
related characteristics.
The Managers, Baillie Gifford & Co, are signatories to the Carbon Disclosure Project, the Net Zero
Asset Managers initiative and are also members of the Asian Corporate Governance Association and
the International Corporate Governance Network.
Gender Representation
At 31 August 2024, the Board comprises five Directors, two male and three female. The Company has
no employees. The Board’s policy on diversity is set out on page 48.
Future Developments of the Company
The outlook for the Company for the next 12 months is set out in the Chairman’s Statement on page 7
and the Managers’ Review on page 11.
The Strategic Report which comprises pages 05 to 37 was approved by the Board of Directors and
signed on its behalf on 28 October 2024.
David Kidd
Chairman
40
Governance Report
This Governance Report, which includes pages 39 to 59 outlines the Board’s approach to the
governance of your Company. We believe that good governance builds better outcomes and we
are committed to high standards of corporate governance and transparency.
Directors
David Kidd
Chairman
Appointed 2015
David Kidd was appointed a Director in 2015 and became Chairman in June 2022. He has over
40 years investment experience in the City, in the roles of chief investment officer and independent
professional trustee. He is chair of Trustees, ABRSM Pension Scheme and chairman of Mid Wynd
International Investment Trust PLC. He was previously a director of Shires Income PLC, Martin Currie
International Portfolio Trust PLC, the Salvation Army International Trustee Company, and The Golden
Charter Trust.
Sharon Brown
Director
Appointed 2019
Sharon Brown was appointed a Director in 2019. She is Chair of the Audit Committee and a qualified
accountant. She is currently a director and audit committee chair of European Opportunities Trust plc
and Celtic plc. She was previously finance director of Dobbies Garden Centres plc and a director of
McColl’s Retail Group plc, Fidelity Special Values plc, CT UK Capital and Income Investment Trust
PLC and a number of unlisted companies in the retail sector.
Joanna Pitman
Director
Appointed 2018
Joanna Pitman was appointed a Director in 2018 and appointed Senior Independent Director in June
2022. She is Chair of the Remuneration Committee. She read Japanese Studies at Cambridge
University and speaks Japanese. She was Tokyo Bureau Chief of The Times from 1989 to 1994 and
has since worked as a corporate research analyst focused on Japan. She is vice chair of the Great
Britain Sasakawa Foundation and UK chair of SAIDIA.
Sam Davis
Director
Appointed 2021
Sam Davis was appointed a Director in 2021. He is Chair of the Management Engagement Committee.
Sam studied Japanese at Oxford before joining Morgan Grenfell & Co. Ltd, working initially in
corporate finance in both London and Tokyo. He moved to Morgan Grenfell Asset Management in
1996 to work with a Tokyo-based team. In 2000 he joined Putnam Investments first in Boston, MA and
then in London where, over his 19 year tenure, he managed Asian, European and broad international
equity portfolios. As Putnam’s co-head of equities he oversaw a global investment team and was
CEO of Putnam Investments Ltd, the group’s UK regulated entity. Sam is a non-executive director of
Allianz Technology Trust PLC and Schroder Oriental Income Fund Ltd.
41
Patricia Lewis
Director
Appointed 2023
Patricia Lewis was appointed a Director in 2023. She is a financial services executive with 25 years’
experience advising clients globally in investment and capital management. Most recently, she held the
position of Managing Director and Head of EMEA Loans and Special Situations Sales at Bank of
America Merrill Lynch. She is also a director and Audit and Risk Committee Chair of Snowball Impact
Management Ltd.
All Directors are members of the following Committees: Nomination, Remuneration and Management
Engagement. With the exception of David Kidd, all are members of the Audit Committee. No Director
holds a Directorship in common with another member of the Board.
42
Board of Directors
Comprises independent
non-executive Directors
Chairman: David Kidd
Senior Independent Director:
Joanna Pitman
Audit
Committee
Chair: Sharon Brown
Purpose
To provide oversight of:
• the financial reporting
process;
• the audit process;
• the Company’s system
of internal controls; and,
• compliance with laws
and regulations.
Management
Engagement
Committee
Chair: Sam Davis
Purpose
To ensure that:
• the Managers remain
suitable to manage the
portfolio;
• the management contract
is competitive and
reasonable for
shareholders;
• the Company maintains
appropriate
administrative and
company secretarial
support; and,
• performance of other
third party service
providers is reviewed.
Nomination Committee
Chair: David Kidd
Purpose
To oversee:
• Board recruitment;
• succession planning;
and,
• Board appraisals
including identifying
training needs.
Remuneration
Committee
Chair: Joanna Pitman
Purpose
To review:
• the level of remuneration
paid to Directors within
the limits approved by
shareholders; and
• to set the Company’s
remuneration policy.
Key Third Party Service Providers
Appointed by the Board
Alternative Investment Fund Manager and Company Secretary:
Baillie Gifford & Co Limited (wholly owned
subsidiary of Baillie Gifford & Co)
Dealing activity and transaction reporting:
Baillie Gifford Overseas Limited and
Baillie Gifford Asia (Hong Kong) Limited
Ernst &
Young LLP
Auditor
The Bank of
New York Mellon
(International) Limited
Depositary
Computershare
Investor
Services PLC
Registrar
Investec Bank plc
Company Broker
43
Directors’ Report
The Directors present their Report together with the Financial Statements of the Company for
the year to 31 August 2024.
Corporate Governance
The Corporate Governance Report is set out on pages 47 to 51 and forms part of this Report.
Managers and Company Secretaries
Baillie Gifford is one of the largest investment trust managers in the UK and currently manages
thirteen closed-ended investment companies. Baillie Gifford also manages open-ended investment
companies, together with investment portfolios on behalf of pension funds, charities and other
institutional clients, both in the UK and overseas. Funds under the management or advice of Baillie
Gifford total around £220.0 billion at 24 October 2024. Based in Edinburgh, it is one of the leading
privately owned investment management firms in the UK, with 58 partners and approximately 1,700
employees.
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed
as the Company’s Alternative Investment Fund Manager (‘AIFM’) and Company Secretaries. Baillie
Gifford & Co Limited and Baillie Gifford & Co are both authorised and regulated by the Financial
Conduct Authority. Baillie Gifford & Co Limited has delegated portfolio management and services to
Baillie Gifford & Co. Dealing activity and transaction reporting have been further sub-delegated to
Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
Baillie Gifford & Co is an investment management firm formed in 1927 out of the legal firm Baillie
Gifford, WS, which had been involved in investment management since 1908.
The Investment Management Agreement between the AIFM and the Company sets out the matters
over which the Managers have authority in accordance with the policies and directions of, and subject
to restrictions imposed by, the Board. The Management Agreement is terminable on not less than 6
months’ notice or on shorter notice in certain circumstances. Compensation would only be payable if
termination occurred prior to the expiry of the notice period. Careful consideration has been given by
the Board as to the basis on which the management fee is charged. The Board considers that
maintaining a relatively low ongoing charges ratio is in the best interests of shareholders. The Board is
also of the view that calculating the fee with reference to performance would be unlikely to exert a
positive influence over the long-term performance. 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. Prior to 1 September 2024, the annual management fee was 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.
The Board considers the Company’s investment management and secretarial arrangements on an
ongoing basis and a formal review is conducted by the Management Engagement Committee annually.
The Committee considers, amongst others, the following topics in its review: the quality of the
personnel assigned to handle the Company’s affairs; the investment process and the results achieved to
date; investment performance; the administrative services provided by the Secretaries and the quality
of information provided; the marketing efforts undertaken by the Managers; and the relationship with
the Managers.
Following the most recent review, it is the opinion of the Management Engagement Committee that the
continuing appointment of Baillie Gifford on the terms agreed is in the best interests of the Company
and shareholders as a whole. This is due to the strength and quality of the investment management
team, the Managers’ commitment to the investment trust sector and the comprehensive efficiency of
the secretarial and administrative functions.
44
Depositary
The Bank of New York Mellon (International) Limited has been appointed as the Company’s
Depositary in accordance with the requirements of the UK Alternative Investment Fund Managers
(‘AIFM’) Regulations.
The Company’s Depositary also acts as the Company’s Custodian. The Depositary’s responsibilities
include cash monitoring, safe keeping of the Company’s financial instruments, verifying ownership
and maintaining a record of other assets and monitoring the Company’s compliance with investment
limits and leverage requirements.
Directors
Information about the Directors, including their relevant experience, can be found on pages 39 and 40.
All Directors will retire at the Annual General Meeting and offer themselves for re-election. Following
formal performance evaluation, the Chairman confirms that the Board considers that each Director’s
performance continues to be effective and that they remain committed to the Company. The Board
therefore recommends their re-election to shareholders.
Director Indemnification and Insurance
The Company has entered into qualifying third party deeds of indemnity in favour of each of its
Directors. The deeds which were in force during the year to 31 August 2024 and up to the date of
approval of this Report, cover any liabilities that may arise to a third party, other than the Company, for
negligence, default or breach of trust or duty. The Directors are not indemnified in respect of liabilities
to the Company, any regulatory or criminal fines, any costs incurred in connection with criminal
proceedings in which the Director is convicted or civil proceedings brought by the Company in which
judgement is given against him/her. In addition, the indemnity does not apply to any liability to the
extent that it is recovered from another person.
The Company maintains Directors’ and Officers’ liability insurance.
Conflicts of Interest
A register of potential conflicts of interest of each Director is maintained and considered at each Board
meeting and also annually to the Nomination Committee. The Board and Nomination Committee
consider these carefully, taking into account the circumstances surrounding them and confirms whether
or not the potential conflicts should be authorised. Having considered the lists of potential conflicts
there were no situations which gave rise to a direct or indirect interest of a Director which conflicted
with the interests of the Company.
Dividends
The Board recommends a final dividend of 10p per ordinary share. If approved, the recommended final
dividend will be paid on 18 December 2024 to shareholders on the register at the close of business on
15 November 2024. The ex-dividend date is 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 the election
is 27 November 2024.
The ordinary shares carry a right to receive dividends. Interim dividends are determined by the
Directors, whereas the proposed final dividend is subject to shareholder approval.
Share Capital
Capital Structure
The Company’s capital structure consists of 87,532,614 ordinary shares of 5p each at 31 August 2024
(2023 – 93,047,614). At 31 August 2024, 6,795,595 shares were held in treasury (2023 – 1,280,595).
There are no restrictions concerning the holding or transfer of the Company’s ordinary shares and there
are no special rights attached to any of the shares.
45
Capital Entitlement
On a winding up, after meeting the liabilities of the Company, the surplus assets would be paid to
ordinary shareholders in proportion to their shareholdings.
Voting
Each ordinary shareholder present in person or by proxy is entitled to one vote on a show of hands and,
on a poll, to one vote for every share held.
Information on the deadlines for proxy appointments can be found on pages 90 and 91.
Major Interests Disclosed in the Company’s Shares
Name
No. of ordinary
5p shares held
at 31 August
2024
% of
issue*
Rathbones Investment Management Ltd (indirect)
9,053,564
10.3
1607 Capital Partners LLC (indirect)
9,051,590
10.3
Quilter plc (indirect)
8,191,231
9.4
Brewin Dolphin Limited (indirect)
4,635,012
5.3
City of London Investment Management Ltd (indirect)
4,598,778
5.3
Allspring Global Investments Holdings LLC (indirect)
4,511,715
5.2
* Ordinary shares in issue excluding treasury shares.
There have been no changes to the major interests in the Company’s shares intimated up to 24 October
2024.
Analysis of Shareholders at 31 August
2024
2023
Number of
shares held
%
Number of
shares held
%*
Institutions
32,822,402
37.5
26,161,102
28.1
Intermediaries/ Retail savings platforms
53,392,298
61.0
66,177,792
71.1
Individuals
48,733
0.1
451,669
0.5
Marketmakers
1,269,181
1.4
257,051
0.3
87,532,614
100.0
93,047,614
100.0
* Ordinary shares in issue excluding treasury shares.
Share Issuance Authority
At the last Annual General Meeting, the Directors were granted authority to issue shares up to an
aggregate nominal amount of £459,213.07 and to issue shares or sell shares held in treasury on a non
pre-emptive basis for cash up to an aggregate nominal amount of £459,213.07. These authorities are
due to expire at the Annual General Meeting on 11 December 2024.
Resolution 12 in the Notice of Annual General Meeting seeks to renew the Directors’ general authority
to issue shares up to an aggregate nominal amount of £430,438.07. This amount represents 10% of the
Company’s total ordinary share capital in issue at 24 October 2024 and meets institutional guidelines.
No issue of ordinary shares will be made pursuant to the authorisation in Resolution 12 which would
effectively alter the control of the Company without the prior approval of shareholders in
general meeting.
Resolution 13, which is proposed as a special resolution, seeks to provide the Directors with authority
to issue shares or sell shares held in treasury on a non pre-emptive basis for cash (i.e. without first
offering such shares to existing shareholders pro-rata to their existing holdings) up to an aggregate
nominal amount of £430,438.07 (representing 10% of the issued ordinary share capital of the Company
as at 24 October 2024). The authorities sought in Resolutions 12 and 13 will continue until the
conclusion of the Annual General Meeting to be held in 2025 or on the expiry of 15 months from the
passing of this Resolution, if earlier.
46
Such authorities will only be used to issue shares or re-sell shares from treasury at a premium to net
asset value and only when the Directors believe that it would be in the best interests of the Company to
do so. The Directors believe that the ability to buy back shares at a discount and re-sell them or issue
new shares at a premium are useful tools in smoothing supply and demand.
Market Purchases of Own Shares
At the last Annual General Meeting, the Company was granted authority to purchase up to 13,615,808
ordinary shares (equivalent to 14.99% of its issued share capital), such authority to expire at the 2024
Annual General Meeting. The Directors are seeking shareholders’ approval at the Annual General
Meeting to renew the authority to make market purchases up to 14.99% of the Company’s ordinary
shares in issue, excluding treasury shares, at the date of passing of the Resolution, such authority to
expire at the Annual General Meeting of the Company to be held in 2025.
During the year to 31 August 2024, 5,515,000 shares were bought back at a cost of £39,186,000 and
held in treasury (2023 – 851,845 shares were bought back at a cost of £6,372,000 and held in treasury).
Between 1 September and 24 October 2024, the Company bought back 1,445,000 shares into treasury
at a cost of £10,639,000. 8,240,595 shares were held in treasury as at 24 October 2024.
The principal reasons for share buy-backs are:
• to enhance net asset value for continuing shareholders by purchasing shares at a discount to the
prevailing net asset value; and
• to address any imbalance between the supply of and the demand for the Company’s shares that
results in a discount of the quoted market price to the published net asset value per ordinary
share.
The Company may hold bought-back shares ‘in treasury’ and then:
• sell such shares (or any of them) for cash (or its equivalent under the Companies Act 2006); or
• cancel the shares (or any of them).
All buy-backs will initially be held in treasury and shares will only be resold from treasury at a
premium to net asset value per ordinary share. Treasury shares do not receive distributions and the
Company shall not be entitled to exercise the voting rights attaching to treasury shares.
In accordance with the Listing Rules of the FCA, the maximum price (excluding expenses) that may be
paid on the exercise of the authority must not exceed the higher of:
• 5 per cent above the average closing price on the London Stock Exchange of an ordinary share
over the five business days immediately preceding the date of purchase; and
• an amount equal to the higher of the price of the last independent trade of an ordinary share and
the highest current independent bid for an ordinary share on the trading venue where the
purchase is carried out.
The minimum price (exclusive of expenses) that may be paid will be 5p per ordinary share. Purchases
of shares will be made within guidelines established, from time to time, by the Board. Your attention is
drawn to the authority sought in Resolution 14 in the Notice of Annual General Meeting, which relates
to the renewal of the Company’s authority to buy back ordinary shares. This authority, if conferred,
will only be exercised if to do so would result in an increase in net asset value per ordinary share for
the remaining shareholders and if it is considered in the best interests of shareholders generally.
Directors’ Fee Limit
The Company’s Articles of Association provide that Directors’ fees may not exceed £200,000 per
annum in aggregate, or such larger amount as may be agreed by the Company by ordinary resolution.
Articles of Association
The Company’s Articles of Association may only be amended by special resolution at a general
meeting of shareholders.
47
Continuation of the Company
The Company’s Articles of Association give shareholders the right to vote annually at the Annual
General Meeting of the Company on whether to continue the Company. The Directors wish to draw
your attention to Resolution 11 in the Notice of Annual General Meeting, which proposes that the
Company continues in operation until the 2025 Annual General Meeting.
Financial Instruments
The Company’s financial instruments comprise its investment portfolio, cash balances, bank
borrowings and debtors and creditors that arise directly from its operations such as sales and purchases
awaiting settlement and accrued income. The financial risk management objectives and policies arising
from its financial instruments and the exposure of the Company to risk are disclosed in note 19 to the
Financial Statements.
Disclosure of Information to Auditor
The Directors confirm that, so far as each of them is aware, there is no relevant audit information of
which the Company’s Auditor is unaware and the Directors have taken all the steps that they might
reasonably be expected to have taken as Directors in order to make themselves aware of any relevant
audit information and to establish that the Company’s Auditor is aware of that information.
Independent Auditor
The Auditor, Ernst & Young LLP, is willing to continue in office and in accordance with section
489(1) of the Companies Act 2006, resolutions concerning Ernst & Young LLP’s appointment and
remuneration will be submitted to the Annual General Meeting.
Post Balance Sheet Events
The Directors confirm that there have been no significant post Balance Sheet events up to 24 October
2024.
Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting (‘SECR’)
All of the Company’s activities are outsourced to third parties. The Company therefore has no
greenhouse gas emissions to report from its operations, nor does it have responsibility for any other
emissions producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports)
Regulations 2013. For the same reasons as set out above, the Company considers itself to be a low
energy user under the SECR regulations and therefore, is not required to disclose energy and carbon
information.
Bribery Act
The Company has a zero tolerance policy towards bribery and is committed to carrying out business
fairly, honestly and openly. The Managers also adopt a zero tolerance approach and have policies and
procedures in place to prevent bribery.
Criminal Finances Act 2017
The Company has a commitment to zero tolerance towards the criminal facilitation of tax evasion.
Recommendation
The Directors consider each resolution being proposed at the Annual General Meeting to be in the best
interests of the Company and its shareholders as a whole and they unanimously recommend that all
shareholders vote in favour of them, as they intend to do where possible in respect of their own
beneficial holdings.
On behalf of the Board
David Kidd
Chairman
28 October 2024
48
Corporate Governance Report
The Board is committed to achieving and demonstrating high standards of corporate
governance. This statement outlines how the principles of the 2018 UK Corporate Governance
Code (the ‘Code’), which can be found at frc.org.uk, and the relevant principles of the
Association of Investment Companies Code of Corporate Governance (the ‘AIC Code’) issued in
2019 were applied throughout the financial year. The AIC Code provides a framework of best
practice for investment companies and can be found at theaic.co.uk
Compliance
The Financial Reporting Council (‘FRC’) has confirmed that AIC member companies who report
against the AIC Code will be meeting their obligations in relation to the UK Code. The Company has
complied throughout the year under review with the relevant provisions of the Code and the
recommendations of the AIC Code except that the Company does not have a separate internal audit
function, as explained on page 55. Given that the Company is an externally managed investment trust,
the Board considers the provisions relating to the role of the chief executive and executive-directors
remuneration are not relevant.
The Board
The Board has overall responsibility for the Company’s affairs. It has a number of matters formally
reserved for its approval including strategy, investment policy, currency hedging, gearing, treasury
matters, dividend and corporate governance policy. A separate strategy session is held annually. The
Board also reviews the Financial Statements, investment transactions, revenue budgets and
performance of the Company. Full and timely information is provided to the Board to enable it to
function effectively and to allow Directors to discharge their responsibilities.
At 31 August 2024, the Board comprises five Directors, each of whom are non-executive. The
Chairman, David Kidd, is responsible for organising the business of the Board, ensuring its
effectiveness and setting its agenda.
The Senior Independent Director (‘SID’) is Joanna Pitman, and as such, is available to shareholders if
they have concerns not properly addressed by the Chairman. The SID leads the Chairman’s appraisal
and chairs the Nomination Committee when it considers the Chairman’s succession.
The executive responsibility for investment management has been delegated to the Company’s
Alternative Investment Fund Manager (‘AIFM’), Baillie Gifford & Co Limited, and, in the context of a
Board comprising entirely non-executive Directors, there is no chief executive officer.
The Directors believe that the Board has a balance of skills and experience that enables it to provide
effective strategic leadership and proper governance of the Company. Information about the Directors,
including their relevant experience, can be found on pages 39 and 40.
There is an agreed procedure for Directors to seek independent professional advice, if necessary, at the
Company’s expense.
Appointments to the Board
The terms and conditions of Directors’ appointments are set out in formal letters of appointment which
are available for inspection on request.
Under the provisions of the Company’s Articles of Association, a Director appointed during the year is
required to retire and seek election by shareholders at the next Annual General Meeting. In accordance
with the Code, all Directors are subject to annual re-election by shareholders.
Chairman and Directors’ Tenure
It is the Board’s policy that all Directors, including the Chairman, shall normally have tenure limited to
nine years from their first appointment to the Board. Exceptions may be made in particular
49
circumstances, for example to facilitate effective succession planning or if the Company were in the
middle of a corporate action, when an extension may be appropriate.
Independence of Directors
All the Directors are considered by the Board to be independent of the Managers and free of any
business or other relationship which could interfere with the exercise of their independent judgement.
The Directors recognise the importance of succession planning for company boards and review the
Board composition annually.
The Board is of the view that length of service will not necessarily compromise the independence or
contribution of Directors of an investment trust company, where continuity and experience can be a
benefit to the Board. The Board concurs with the view expressed in the AIC Code that long serving
Directors should not be prevented from being considered independent.
Meetings
There is an annual cycle of Board meetings which is designed to address, in a systematic way, overall
strategy, review of investment policy, investment performance, marketing, revenue budgets, dividend
policy and communication with shareholders. The Board considers that it meets sufficiently regularly
to discharge its duties effectively. The table below shows the attendance record for the Board and
Committee meetings held during the year. The Annual General Meeting was attended by all Directors.
Directors’ Attendance at Meetings
Board
Audit
Committee
Nomination
Committee
Remuneratio
n Committee
Management
Engagement
Committee
Number of meetings
4
2
1
1
1
David Kidd*
4
–
1
1
1
Sharon Brown
4
2
1
1
1
Sam Davis
4
2
1
1
1
Joanna Pitman
4
2
1
1
1
Patricia Lewis
4
2
1
1
1
* David Kidd is not a member of the Audit Committee but attends by invitation.
Nomination Committee
The Nomination Committee consists of the whole Board and the Chairman of the Board is the
Chairman of the Committee. The Committee meets on an annual basis and at such other times as may
be required. The Committee has written terms of reference which include reviewing the composition of
the Board, identifying and nominating new candidates for appointment to the Board, Board appraisal,
succession planning and training. The Committee also considers whether Directors should be
recommended for re-election by shareholders. The Committee is responsible for considering Directors’
potential conflicts of interest and for making recommendations to the Board on whether or not the
potential conflicts should be authorised.
The Committee’s terms of reference are available on request from the Company and on the Company’s
website: japantrustplc.co.uk.
Board Diversity
Appointments to the Board are made on merit with due regard for the benefits of diversity including
gender, social and ethnic backgrounds, and cognitive and personal strengths. The priority in succession
planning and appointing new Directors is to identify the candidate with the best range of skills and
experience to complement existing Directors, with a view to ensuring that the Board remains well
placed to help the Company achieve its investment and governance objectives. The following
disclosures are provided in respect of the FCA Listing Rules targets that i) 40% of a board should be
50
women, ii) at least one senior role should be held by a woman; and iii) at least one board member
should be from a non-white ethnic background as defined by the Office of National Statistics criteria.
The Board has considered the Company’s year end date to be the most appropriate date for disclosure
purposes. At 31 August 2024, the Board comprised five non-executive Directors, two men and three
women.
Gender
Number
%
Senior
roles*
Men
2
40
1
Women
3
60
2
Ethnic background
Number
%
Senior
roles*
White
4
80
3
Black/African/Caribbean/
Black British
1
20
–
* As an externally managed investment company with no chief executive officer or chief financial officer, the roles which qualify as senior
under FCA guidance are Chairman and Senior Independent Director (‘SID’). The Chairman is a man and the SID a woman. The Board
also considers the role of Audit Committee Chair to represent a senior role within this context and this role is performed by a woman.
The Board currently complies in all respects with the FCA Listing Rules targets.
Board Composition
The Committee reviewed the Board’s composition during the year. The Board recognises the
importance of having Directors with a range of skills and experiences balancing the benefits of length
of service and knowledge of the Company with the desirability of ensuring refreshment of the Board.
Performance Evaluation
An appraisal of the Chairman and each Director and a performance evaluation and review of the Board
as a whole and its Committees, was carried out during the year. After inviting each Director and the
Chairman to consider and respond to an evaluation questionnaire, each Director met with the Chairman
and the Chairman’s appraisal was led by Joanna Pitman, the Senior Independent Director. The
appraisals and evaluations considered, amongst other criteria, the balance of skills of the Board,
training and development requirements, the contribution of individual Directors, the overall
competency and effectiveness of the Board and its Committees and the continuing professional
development undertaken by the Directors during the year.
Following this process, it was concluded that the performance of each Director, the Chairman, the
Board and its Committees continues to be effective and that each Director and the Chairman remain
committed to the Company. A review of the Chairman’s and other Directors’ commitments was carried
out and the Nomination Committee was satisfied that they are capable of devoting sufficient time to the
Company.
Lintstock, an independent company which assists companies with the design and execution of board
evaluations, facilitated an external performance evaluation in 2022. It is intended that the evaluation
will again be externally facilitated in 2025.
Induction and Training
New Directors are provided with an induction programme which is tailored to the particular
circumstances of the appointee. Briefings were provided during the year on industry and regulatory
matters. Directors receive other relevant training as necessary.
Management Engagement Committee
The Management Engagement Committee consists of all Directors and Sam Davis is Chair of the
Committee. The Board considers each member of the Committee to be independent. To discharge its
duties, the Committee met on one occasion during the year to consider: the performance and suitability
51
of the Manager; the terms and conditions of the AIFM Agreement, including fees; the performance of
other third party service providers; and the Committee’s Terms of Reference.
The Committee’s Terms of Reference are available on request from the Company and on the
Company’s pages of the Managers’ website: japantrustplc.co.uk.
Remuneration Committee
The Remuneration Committee consists of all Directors and Joanna Pitman is Chair of the Committee.
The Remuneration Committee reviews and makes recommendations to the Board in respect of the level
of remuneration paid to Directors within the limits approved by shareholders. The Company’s policy
on remuneration is set out in the Directors’ Remuneration Report on page 52.
The Committee’s Terms of Reference are available on request from the Company and on the
Company’s page of the Managers’ website: japantrustplc.co.uk.
Audit Committee
The report of the Audit Committee is set out on pages 55 to 57.
Internal Controls and Risk Management
The Directors acknowledge their responsibility for the Company’s risk management and internal
control systems and for reviewing their effectiveness. The systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and can only provide reasonable but not
absolute assurance against material misstatement or loss.
The Board confirms that there is an ongoing process for identifying, evaluating and managing the
significant risks faced by the Company in accordance with the FRC guidance ‘Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting’.
The practical measures in relation to the design, implementation and maintenance of control policies
and procedures to safeguard the Company’s assets and to manage its affairs properly, including the
maintenance of effective operational and compliance controls, have been delegated to the Managers
and Secretaries.
The Board oversees the functions delegated to the Managers and Secretaries and the controls managed
by the AIFM in accordance with the UK Alternative Investment Fund Managers Regulations (as
detailed below). Baillie Gifford & Co’s Internal Audit and Compliance Departments and the AIFM’s
permanent risk function provide the Audit Committee with regular reports on their monitoring
programmes. The reporting procedures for these departments are defined and formalised within a
service level agreement. Baillie Gifford & Co conducts an annual review of its system of internal
controls which is documented within an internal controls report which complies with ISAE 3402 –
Assurance Reports on Controls at a Service Organisation. This report is independently reviewed by
Baillie Gifford & Co’s Auditor and a copy of the report is submitted to the Audit Committee.
A report identifying the material risks faced by the Company and the key controls employed to manage
these risks is reviewed by the Audit Committee.
These procedures ensure that consideration is given regularly to the nature and extent of risks facing
the Company and that they are being actively monitored. Where changes in risk have been identified
during the year they also provide a mechanism to assess whether further action is required to manage
these risks.
The Directors confirm that they have reviewed the effectiveness of the Company’s risk management
and internal controls systems, which accord with the FRC’s ‘Guidance in the Risk Management,
Internal Control and Related Financial and Business Reporting’ and they have procedures in place to
review their effectiveness on a regular basis. No significant weaknesses were identified in the year
under review and up to the date of this Report.
The Board confirms that these procedures have been in place throughout the Company’s financial year
and continue to be in place up to the date of approval of this Report.
52
To comply with the UK Alternative Investment Fund Managers Regulations, The Bank of New York
Mellon (International) Limited acts as the Company’s Depositary, and Baillie Gifford & Co Limited as
AIFM.
The Depositary’s responsibilities include cash monitoring, safe keeping of the Company’s financial
instruments, verifying ownership and maintaining a record of other assets and monitoring the
Company’s compliance with investment limits and leverage requirements. The Depositary is liable for
the loss of financial instruments held in custody. The Depositary will ensure that any delegate
segregates the assets of the Company. As explained on page 43, the Company’s Depositary also acts as
the Company’s Custodian. The Custodian prepares a report on its key controls and safeguards which is
independently reviewed by KPMG LLP. The reports are reviewed by Baillie Gifford’s Business Risk
Department and a summary of the key points is reported to the Audit Committee and any concerns are
investigated.
The Depositary provides the Audit Committee with a report on its monitoring activities twice a year.
The AIFM has established a permanent risk management function to ensure that effective risk
management policies and procedures are in place and to monitor compliance with risk limits. The
AIFM has a risk management policy which covers the risks associated with the management of the
portfolio, and the adequacy and effectiveness of this policy is reviewed and approved at least annually.
This review includes the risk management processes and systems and limits for each risk area.
The risk limits, which are set by the AIFM and approved by the Board take into account the objectives,
strategy and risk profile of the portfolio. These limits, including leverage (see page 85), are monitored
and the sensitivity of the portfolio to key risks is undertaken periodically as appropriate to ascertain the
impact of changes in key variables in the portfolio. Exceptions from limits monitoring and stress
testing are escalated to the AIFM and reported to the Board along with remedial measures being taken.
Going Concern
In accordance with FRC’s guidance on going concern and liquidity risk the Directors have undertaken
a rigorous review of the Company’s ability to continue as a going concern.
The Company’s principal and emerging risks are market related and include market risk, liquidity risk
and credit risk. An explanation of these risks and how they are managed is contained in note 19 to
the Financial Statements.
The Board has considered severe but plausible downside scenarios, which include the impact of
heightened market volatility and macroeconomic and geopolitical concerns, including inflation and
interest rates through the performance of stress testing using a variety of parameters which have the
potential to impact the Company’s share price and net asset value. The Directors do not believe the
Company’s going concern status is affected. In addition, in accordance with the Company’s Articles of
Association, the Company is subject to an annual continuation vote which in previous years has been
passed with a significant majority. At the December 2023 Annual General Meeting, of the votes
received in respect of continuation, 90.9% were in favour, 9.0% were against and 0.1% were withheld.
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. For these reasons
the Directors have prepared the Financial Statements on a going concern basis.
The Company’s assets, the majority of which are investments in quoted securities which are readily
realisable, exceed its liabilities significantly. All borrowings, excluding revolver facility rollovers,
require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are
reviewed by the Board on a regular basis.
During the year, the Company secured ¥12 billion of fixed rate, senior, unsecured privately placed
notes split into three tranches of ¥4 billion, maturing in 5, 10 and 14 years from the funding date of
20 November 2024 at an average interest rate of 2.05%. The proceeds of this funding will be used to
repay the existing ING ¥9.3 billion fixed rate loan maturing in November 2024 and the Mizuho
¥2.6 billion revolving credit facility maturing in March 2025. The ¥15 billion floating rate loan facility
53
with Bank of New York Mellon, maturing in August 2025, was fully drawn throughout the year and
the Board will discuss the Company’s future borrowing requirements ahead of its maturity.
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) Regulations 2011.
The Company’s third party suppliers, including its Managers and Secretaries, Custodian and
Depositary, Registrar, Auditor and Broker are not experiencing significant operational difficulties
affecting their respective services to the Company.
Accordingly, the Financial Statements have been prepared on the 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 which assesses the prospects of the Company over a period of five
years, that the Company will meet its liabilities as they fall due for a period of at least twelve months
from the date of approval of these Financial Statements. If the continuation resolution is not passed, the
Articles provide that the Directors shall convene a General Meeting within three months at which a
special resolution will be proposed to wind up the Company voluntarily. If the Company is wound up,
its investments may not be realised at their full market value.
Relations with Shareholders
The Board places great importance on communication with shareholders. The Company’s Managers
meet regularly with shareholders and their representatives, accompanied by the Chairman when
requested and report shareholders’ views to the Board. The Chairman is available to meet with
shareholders as appropriate. Shareholders wishing to communicate with any members of the Board
may do so by writing to them at the Company’s registered office or through the Company’s Broker,
Investec Bank plc (see contact details on page 101).
The Company’s Annual General Meeting (‘AGM’)provides a forum for communication with all
shareholders. The level of proxies lodged for each resolution is announced at the Meeting and is
published at japantrustplc.co.uk subsequent to the meeting. The notice period for the AGM is at least
twenty working days. Shareholders and potential investors may obtain up-to-date information on the
Company from the Managers’ website at japantrustplc.co.uk.
On behalf of the Board
David Kidd
Chairman
28 October 2024
54
Directors’ Remuneration Report
This report has been prepared in accordance with the requirements of the Companies Act 2006.
Composition
The Remuneration Committee consists of all Directors, none of whom has a service contract with the
Company. Joanna Pitman is Chair of the Remuneration Committee.
Role
The determination of the Directors’ fees is a matter considered by the Remuneration Committee and
recommended to the Board for approval. Baillie Gifford & Co Limited, the Company Secretaries,
provide comparative information when the Board considers the level of Directors’ fees.
The Committee’s authority and duties are clearly defined within its written terms of reference which
are available on request from the Company Secretaries and at japantrustplc.co.uk. The terms
of reference are reviewed annually.
Review of Directors’ Fees
The Board reviewed the level of fees during the year and it was agreed that, with effect from
1 September 2024, the Chairman’s fee would increase from £43,000 to £44,000, the other Directors’
fees would increase from £31,000 to £31,500 and the additional fee for the Chair of the Audit
Committee would remain at £6,000. The fees were last increased on 1 September 2023.
Directors’ Remuneration Policy
The Directors’ Remuneration Policy is subject to shareholder approval every three years or sooner if an
alteration to the policy is proposed. The Remuneration Policy which is set out below was approved at
the Annual General Meeting in December 2023 and no changes to the policy are proposed.
The Board’s policy is that the remuneration of Directors should be set at a reasonable level that is
commensurate with the duties and responsibilities of the role and consistent with the requirement to
attract and retain Directors of the appropriate quality and experience. The Board believes that the fees
paid to the Directors should reflect the experience of the Board as a whole, be fair and should take
account of the level of fees paid by comparable investment trusts. Any views expressed by
shareholders on the fees being paid to Directors will be taken into consideration by the Board when
reviewing the Board’s policy on remuneration.
Non-executive Directors are not eligible for any other remuneration or benefits apart from the
reimbursement of allowable expenses. There are no performance conditions relating to Directors’ fees
and there are no long-term incentive schemes or pension schemes. No compensation is payable on loss
of office.
Limits on Directors’ Remuneration
The fees for the non-executive Directors are payable monthly and are determined within the limit set
out in the Company’s Articles of Association which is currently £200,000 per annum in aggregate.
The fees paid to Directors in respect of the year ended 31 August 2024 and the expected fees payable
in respect of the year ending 31 August 2025 are set out in the table below. The fees payable to the
Directors in the subsequent financial periods will be determined following an annual review of the
Directors’ fees.
55
Expected
fees for the
year ending
31 August
2025
£
Fees as at
31 August
2024
£
Chairman’s fee
44,000
43,000
Non-executive Director fee
31,500
31,000
Additional fee for Audit Committee Chair
6,000
6,000
Total aggregate annual fees that can be paid to the Directors in any year
under the Directors’ Remuneration Policy, as set out in the Company’s
Articles of Association
200,000
200,000
Directors’ Remuneration for the Year (Audited)
The Directors who served during the year received the following remuneration in the form of fees and
taxable benefits. This represents the entire remuneration paid to the Directors.
Name
2024
Fees
£
2024
Taxable
benefits*
£
2024
Total
£
2023
Fees
£
2023
Taxable
benefits*
£
2023
Total
£
David Kidd
43,000
2,483
45,483
40,000
3,384
43,384
Sharon Brown
37,000
1,229
38,229
34,000
627
34,627
Sam Davis
31,000
2,390
33,390
29,000
3,294
32,294
Patricia Lewis
†
31,000
3,304
34,304
2,417
–
2,417
Joanna Pitman
31,000
1,686
32,686
29,000
2,792
31,792
173,000
11,092
184,092
134,417
10,097
144,514
* Comprises expenses incurred by Directors in the course of travel to attend Board and Committee meetings. These amounts have been
grossed up for income tax.
† Appointed a Director 1 August 2023.
Annual Percentage Change in Directors’ Remuneration
The following table sets out the annual percentage changes in Directors’ fees to 31 August.
2024
%
2023
%
2022
%
2021*
%
Chairman
7.5
8.1
2.8
–
Audit Committee Chair
8.8
9.7
5.1
–
Director
6.9
7.4
3.8
–
* There was no increase in Directors’ fees between 1 September 2019 and 31 August 2021.
Directors’ Interests (Audited)
The Directors at the end of the year under review, and their interests in the Company, are shown in the
following table. There have been no further changes in the Directors’ interests up to 24 October 2024.
Name
Nature
of interest
Ordinary
5p shares
held at
31 August
2024
Ordinary
5p shares
held at
31 August
2023
David Kidd
Beneficial
42,500
42,500
Sharon Brown
Beneficial
3,995
3,995
Sam Davis
Beneficial
7,887
5,059
Patricia Lewis
Beneficial
5,100
–
Joanna Pitman
Beneficial
5,262
5,262
56
Annual Report on Remuneration
An ordinary resolution for the approval of this report will be put to the members at the forthcoming
Annual General Meeting.
The law requires the Company’s Auditor to audit certain of the disclosures provided in this report.
Where disclosures have been audited, they are indicated as such. The Auditor’s opinion is included in
the Independent Auditor’s Report on pages 61 to 67.
Statement of Voting at Annual General Meeting
At the last Annual General Meeting, of the proxy votes received in respect of the Directors’
Remuneration Report, 99.5% were in favour, 0.2% were against and votes withheld were 0.3%. At the
last Annual General Meeting at which the Directors’ Remuneration Policy was considered (December
2023), 99.6% were in favour, 0.2% were against and votes withheld were 0.2%.
Relative Importance of Spend on Pay
The table below shows the actual expenditure during the year in relation to Directors’ fees and
distributions to shareholders.
Name
2024
£’000
2023
£’000
%
change
Directors’ fees
173
134
28.7*
Dividends paid to shareholders
9,157
8,426
8.7
* Patricia Lewis joined the Board on 1 August 2023, increasing the number of Directors to five from four.
Company Performance
The graph below compares the share price total return (assuming all dividends are reinvested) to
ordinary shareholders compared with the total shareholder return on a notional investment made up of
shares in the component parts of the TOPIX total return (in sterling terms). This index was chosen for
comparison purposes as it is the index against which the Company has measured its performance over
the period covered by the graph.
Performance Graph
(figures rebased to 100 at 31 August 2014)
GRAPH
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
Past performance is not a guide to future performance.
Approval
The Directors’ Remuneration Report on pages 52 to 54 was approved by the Board of Directors and
signed on its behalf on 28 October 2024.
Joanna Pitman
Remuneration Committee Chair
57
Audit Committee Report
Composition
The Audit Committee consists of all Directors with the exception of David Kidd, who attends by
invitation. Sharon Brown is Chair of the Audit Committee. The members of the Committee consider
that they have the requisite financial skills and experience to fulfil the responsibilities of the
Committee.
Role
The Committee’s authority and duties are clearly defined within its written terms of reference which
are available on request from the Company Secretaries and at japantrustplc.co.uk. The terms of
reference are reviewed annually.
The Committee’s effectiveness is reviewed on an annual basis as part of the Board’s performance
evaluation process.
At least once a year the Committee meets with the external Auditor without any representative of the
Manager being present.
Main Activities of the Committee
The Committee met two times during the year and Ernst & Young, the external Auditor, attended both
of these meetings. In addition Ernst & Young met with the Audit Chair on two occasions during the
year. Baillie Gifford & Co’s Internal Audit and Compliance Departments and the AIFM’s permanent
risk function provided reports on their monitoring programmes for each of these meetings.
The matters considered, monitored and reviewed by the Committee during the course of the year
included the following:
• the results announcement and the Annual and Interim reports;
• the Company’s accounting policies and practices;
• the regulatory changes impacting the Company;
• the fairness, balance and understandability of the Annual Report and Financial Statements and
whether it provided the information necessary for shareholders to assess the Company’s
performance, business model and strategy;
• the effectiveness of the Company’s internal control environment including the internal audit
work of the Manager;
• the reappointment, remuneration and terms of engagement of the external Auditor;
• the policy on the engagement of the external Auditor to supply non-audit services;
• the independence and objectivity of the external Auditor and the effectiveness of the audit
process;
• the need for the Company to have its own internal audit function;
• the internal controls reports received from the Managers and Custodian; and
• the arrangements in place within Baillie Gifford & Co whereby their staff may, in confidence,
raise concerns about possible improprieties in matters of financial reporting or other matters.
Internal Audit
The Committee continues to believe that the compliance and internal control systems and the internal
audit function in place within the Managers provide sufficient assurance that a sound system of internal
control, which safeguards shareholders’ investment and the Company’s assets, is maintained. An
internal audit function, specific to the Company, is therefore considered unnecessary.
58
Financial Reporting
The Committee considers that the most significant areas of risk likely to impact the Financial
Statements are the existence and valuation of investments, as they represent 99.7% of total assets.
Another area of risk considered by the Committee is the accuracy, completeness and allocation of
income from investments.
All of the investments are quoted securities and market prices are readily available from independent
external pricing sources. The Committee reviewed the Managers’ Report on Internal Controls which
details the controls in place regarding recording and pricing of investments, accurate recording of
investment income and the reconciliation of investment holdings to third party data.
The value of all the investments at 31 August 2024 were agreed by the Managers to external price
sources and the portfolio holdings agreed to confirmations from the Company’s Custodian.
The Committee reviewed the Managers’ Report on Internal Controls which details the controls in place
regarding completeness and accurate recording of investment income. The accounting treatment of
each special dividend received or receivable during the year was reviewed by the Managers. One
special dividend of £93,000 was received in the year to 31 August 2024.
The Committee considered the factors, including increasing geopolitical tensions, that might affect the
Company’s viability over a period of five years and its ability to continue as a going concern for at
least twelve months from the date of signing of the Financial Statements, together with reports from the
Managers on the cash position and cash flow projections of the Company, the liquidity of its
investment portfolio, compliance with debt covenants, availability of borrowing facilities, and the
Company’s ability to meet its obligations as they fall due. The Committee also reviewed the Viability
Statement on page 29 and statement on Going Concern on pages 50 and 51. Following this assessment,
the Committee recommended to the Board the appropriateness of the Going Concern basis in preparing
the Financial Statements and confirmed the accuracy of the Viability Statement and statement on
Going Concern.
The Managers confirmed to the Committee that they were not aware of any material misstatements in
the context of the Financial Statements as a whole and that the Financial Statements are in accordance
with applicable law and accounting standards.
Internal Controls and Risk Management
The Committee reviewed the effectiveness of the Company’s risk management and internal controls
systems as described on pages 49 and 50. No significant weaknesses were identified in the year under
review.
External Auditor
Following a formal audit tender process in 2022, Ernst & Young LLP was appointed as the Company’s
Auditor at the Annual General Meeting held on 15 December 2022.
Ernst & Young LLP has confirmed that it believes it is independent within the meaning of regulatory
and professional requirements and that the objectivity of the audit partner and staff is not impaired.
To fulfil its responsibility regarding the independence and objectivity of the external Auditor, the
Committee reviewed:
• the audit plan for the current year;
• a report from the Auditor describing their arrangements to manage Auditor independence and
received confirmation of its independence; and
• the extent of non-audit services provided by the external Auditor. The Auditor will not provide
any non-audit services unless approved in advance by the Committee. There were no non-audit
fees for the year to 31 August 2024 or 31 August 2023.
To assess the effectiveness of the external Auditor, the Committee reviewed and considered:
• the Auditor’s fulfilment of the agreed audit plan;
59
• feedback from the Managers on the performance of the audit team; and
• the Audit Quality Review from the FRC.
To fulfil its responsibility for oversight of the external audit process the Committee considered and
reviewed:
• the Auditor’s engagement letter;
• the Auditor’s proposed audit strategy;
• the audit fee; and
• a report from the Auditor on the conclusion of the audit.
The audit partner responsible for the audit will be rotated at least every five years in accordance with
professional and regulatory standards in order to protect independence and objectivity and to provide
fresh challenge to the business. Caroline Mercer, the current partner, has held this role for 2 years and
will continue as audit partner until the conclusion of the 2027 audit.
Having carried out the review described above, the Committee is satisfied that the Auditor remains
independent and effective for the purposes of this year’s audit.
There are no contractual obligations restricting the Committee’s choice of external Auditor.
The audit fee has increased from £49,000 to £51,000. There continues to be significant change in the
regulatory environment with additional audit procedures now being required. The Committee
considered the increase by benchmarking fees for similar trusts and agreed the increase was justified.
Regulatory Compliance
The Committee confirms that the Company is in compliance with the requirements of the Statutory
Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and
governance of tenders for the appointment of the external Auditor and the setting of policy on the
provision of non-audit services.
Accountability and Audit
The respective responsibilities of the Directors and the Auditor in connection with the Financial
Statements are set out on pages 58 to 67.
On behalf of the Board
Sharon Brown
Audit Committee Chair
28 October 2024
60
Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that
law they are required to prepare the Financial Statements in accordance with applicable law and United
Kingdom Accounting Standards, including FRS 102, the Financial Reporting Standard applicable in
the UK and Republic of Ireland.
Under company law the Directors must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the
Company for that year. In preparing these Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable United Kingdom Accounting Standards have been followed, subject to
any material departures disclosed and explained in the Financial Statements;
• make judgements and accounting estimates that are reasonable and prudent;
• assess the Company’s ability to continue as a going concern, disclosing as applicable, matters
related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the Financial Statements comply with the
Companies Act 2006. They are responsible for such internal control as they determine is necessary to
enable the preparation of Financial Statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic
Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that
complies with those laws and regulations.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the Financial Statements will
form part of the Annual Financial Report prepared using the single electronic reporting format under
the TD ESEF Regulation. The Auditor’s Report on these Financial Statements provides no assurance
over the ESEF format.
The Directors are responsible for the maintenance and integrity of the Company’s page on the
Managers’ website. Legislation in the United Kingdom governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the Annual Financial Report
We confirm to the best of our knowledge:
• the Financial Statements, which have been prepared in accordance with applicable law and
United Kingdom Accounting Standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
• the Strategic Report and Directors’ Report includes a fair review of the development and
performance of the business and the position of the Company, together with a description of the
principal risks and uncertainties that it faces.
61
We consider the Annual Report and Financial Statements taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Company’s
performance, business model and strategy.
On behalf of the Board
David Kidd
28 October 2024
62
Financial Report
The Financial Statements for the year to 31 August 2024 set out on pages 68 to 83 have been
prepared in accordance with FRS 102 ‘The Financial Reporting Standard applicable in the UK
and Republic of Ireland’.
Independent Auditor’s Report
to the members of The Baillie Gifford Japan Trust PLC
Opinion
We have audited the financial statements of Baillie Gifford Japan Trust plc (“the Company”) for the
year ended 31 August 2024 which comprise the Income Statement, Balance Sheet, Statement of
Changes in Equity, Cash Flow Statement and the related notes 1 to 19, including a summary of
significant accounting policies. The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom Accounting Standards including FRS 102 “The
Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom
Generally Accepted Accounting Practice).
In our opinion, the financial statements:
• give a true and fair view of the Company’s affairs as at 31 August 2024 and of its profit for the
year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Company
and we remain independent of the Company in conducting the audit.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the
Directors’ assessment of the Company’s ability to continue to adopt the going concern basis of
accounting included:
• Confirmation of our understanding of the Company’s going concern assessment process and
engagement with the Directors and the Company secretary to determine if all key factors that we
have became aware of during our audit were considered in their assessment.
• Inspection of the Directors’ assessment of going concern, including the revenue forecast, for the
period to 31 October 2025 which is at least twelve months from the date the financial statements
63
were authorised for issue. In preparing the revenue forecast, the Company has concluded that it
is able to continue to meet its ongoing costs as they fall due.
• Review of the factors and assumptions, including the impact of the current economic
environment, as applied to the revenue forecast and the liquidity assessment of the investments.
We considered the appropriateness of the methods used to calculate the revenue forecast and the
liquidity assessment and determined, through testing of the methodology and calculations, that
the methods, inputs and assumptions utilised were appropriate to be able to make an assessment
for the Company.
• In relation to the Company’s borrowing arrangements, we have inspected the Directors’
assessment of the risk of breaching the debt covenants as a result of a reduction in the value of
the Company’s portfolio. We recalculated the Company’s compliance with debt covenants in the
scenarios assessed by the Directors and performed reverse stress testing in order to identify what
factors would lead to the Company breaching the financial covenants.
• Consideration of the mitigating factors included in the revenue forecast and covenant
calculations that are within the control of the Company. We reviewed the Company’s
assessment of the liquidity of investments held and evaluated the Company’s ability to sell those
investments in order to cover working capital requirements should revenue decline significantly.
• For the continuation vote to be held at the AGM in 2024, reviewed analysis of the shareholder
base; voting results of previous AGMs to establish voting patterns; and obtained feedback from
the Company’s shareholders and brokers on their assessment of expected voting intentions, to
ascertain the likely outcome of the vote.
• Review of the Company’s going concern disclosures included in the annual report in order to
assess that the disclosures were appropriate and in conformity with the reporting standards.
Based on the work we have performed, we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant doubt on the Company’s
ability to continue as a going concern for a period to 31 October 2025 which is at least 12 months from
when these financial statements are authorised for issue.
In relation to the Company’s reporting on how they have applied the UK Corporate Governance Code,
we have nothing material to add or draw attention to in relation to the Directors’ statement in the
financial statements about whether the Directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are
described in the relevant sections of this report. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the Company’s ability to continue as a
going concern.
Overview of our audit approach
Key audit matters
Risk of incomplete or inaccurate revenue recognition, including the
classification of special dividends as revenue or capital items in the
Income Statement.
Risk of incorrect valuation or ownership of the investment portfolio
Materiality
Overall materiality of £7.48m which represents 1% of shareholders’
funds.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance
materiality determine our audit scope for the Company. This enables us to form an opinion on the
financial statements. We take into account size, risk profile, the organisation of the Company and
effectiveness of controls, the potential impact of climate change and changes in the business
64
environment when assessing the level of work to be performed. All audit work was performed directly
by the audit engagement team.
Climate change
Stakeholders have been increasingly interested as to how climate change will impact companies. The
Company has determined that the impact of climate change could affect the Company’s investments
and the overall investment process. This is explained on page 31 in the principal and emerging risks
section, which form part of the “Other information,” rather than the audited financial statements. Our
procedures on these disclosures therefore consisted solely of considering whether they are materially
consistent with the financial statements or our knowledge obtained in the course of the audit or
otherwise appear to be materially misstated.
Our audit effort in considering climate change was focused on the adequacy of the Company’s
disclosures in the financial statements as set out in Note 1a and concluded that there was no further
impact of climate change to be taken into account as the investments are valued based on market
pricing as required by FRS 102. We also challenged the Directors’ considerations of climate change in
their assessment of viability and associated disclosures.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate
opinion on these matters.
65
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Incomplete or inaccurate
revenue recognition,
including the classification of
special dividends as revenue
or capital items in the
Income Statement
Refer to the Audit Committee
Report (page 55); Accounting
policies (page 73); and Note
2
of the Financial Statements
(page 74)
The total revenue for the year
to 31 August 2024 was £15.8m
(2023: £18.7m), consisting
primarily of dividend income
from listed equity investments.
The investment income
receivable by the Company
during the year directly affects
the Company’s revenue return.
There is a risk of incomplete or
inaccurate recognition of
revenue through the failure to
recognise proper income
entitlements or to apply an
appropriate
accounting
treatment.
In addition, the Directors may
be required to exercise
judgment in determining
whether income receivable in
the form of special dividends
should be classified as
‘revenue’ or ‘capital’ in the
Income Statement.
We have performed the following procedures:
We obtained an understanding of Baillie Gifford’s
processes and controls surrounding revenue recognition,
including the classification of special dividends, by
performing walkthrough
procedures.
For all dividends received, we recalculated the dividend
income by multiplying the investment holdings at the ex
-
dividend date, traced from the accounting records, by the
dividend per share, which was agreed to an independent
data vendor. We also agreed all exchange rates to an
external source. In addition, we agreed the dividends
received to bank statements.
For all dividends accrued at the year end, we reviewed the
investee company announcements to assess whether the
entitlement arose prior to 31 August 2024. We agreed the
dividend rate to corresponding announcements made by the
investee Company, recalculated the amount receivable and
agreed the subsequent cash receipts to post
-year end bank
statements where received.
To test completeness of recorded income, we verified that
dividends had been recorded for each investee Company
held during the year with reference to investee Company
announcements obtained from an independent data vendor.
For all investments held during the year, we reviewed the
type of dividends paid with reference to an external data
source to identify those which were ‘special’ dividends. We
identified that one special dividend, amounting to £0.09m,
was received during the year. We tested the special
dividend received by recalculating the amount received and
assessing the appropriateness of classification as revenue
by reviewing the underlying circumstances.
The results of our procedures
identified no material
misstatement in relation to the
risk of incomplete or
inaccurate revenue recognition,
including incorrect
classification of special
dividends as revenue or capital
items in the Income
Statement.
66
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Risk of incorrect valuation
or
ownership of the
investment
portfolio
Refer to the Audit Committee
Report (page 55); Accounting
policies (page 73); and Note
9
of the Financial Statements
(pages
76 and 77)
The valuation of the
investment portfolio at 31
August 2024 was £886.3m
(2023: £858.5m) consisting of
listed equities.
The valuation of investments
held in the investment portfolio
is the key driver of the
Company’s net asset value and
total return. Incorrect
investment pricing, or failure
to maintain proper legal title of
the investments held by the
Company, could have a
significant impact on the
portfolio valuation and the
return generated
for
shareholders.
The fair value of listed
investments is determined
using listed market bid prices
at close of business on the
reporting date.
We have performed the following procedures:
We obtained an understanding of Baillie Gifford’s
processes and controls surrounding investment valuation
and legal title by performing walkthrough procedures.
For all investments in the portfolio, we compared the
market prices and exchange rates applied to an independent
pricing vendor and recalculated the investment valuations
as at the year end.
We inspected the stale pricing reports produced by Baillie
Gifford to identify prices that have not changed within one
business day and verified whether the listed price is a valid
fair value. We did not identify any investments with stale
pricing.
We compared the Company’s investment holdings at 31
August 2024 to independent confirmations received
directly from the Company’s Depositary.
The results of our procedures
identified no material
misstatements in relation to the
risk of incorrect valuation or
ownership of the
investment
portfolio.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of the financial statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Company to be £7.48m (2023: £7.33m), which is 1% of
shareholders’ funds. We believe that shareholders funds’ provides us with a materiality aligned to the
key measure of the Company’s performance.
Performance materiality
The application of materiality is at the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Company’s overall control
environment, our judgement was that performance materiality was 75% (2023: 75%) of our planning
materiality, namely £5.61m (2023: £5.50m). We have set performance materiality at this percentage
due to our past experience of the audit that indicates a lower risk of misstatements, both corrected
and uncorrected.
67
Given the importance of the distinction between revenue and capital for investment trusts, we also
applied a separate testing threshold for the revenue column of the Income Statement of £0.45m
(2023: £0.59m), being 5% of the net revenue return before taxation.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in
excess of £0.37m (2023: £0.37m), which is set at 5% of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, other than the financial
statements and our Auditor’s Report thereon. The Directors are responsible for the other information
contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the
course of the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are required
to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared
in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors’ report for the financial year for
which the financial statements are prepared is consistent with the financial statements; and
• the strategic report and Directors’ reports have been prepared in accordance with applicable
legal requirements;
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Company and its environment obtained in the
course of the audit, we have not identified material misstatements in the Strategic Report or Directors’
Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act
2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our audit have not been
received from branches not visited by us; or
• the financial statements and the part of the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
68
Corporate Governance Statement
We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that
part of the Corporate Governance Statement relating to the Company’s compliance with the provisions
of the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following
elements of the Corporate Governance Statement is materially consistent with the financial statements
or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of
accounting and any material uncertainties identified set out on pages 50 and 51;
• Directors’ explanation as to its assessment of the Company’s prospects, the period this
assessment covers and why the period is appropriate set out on page 29;
• Directors’ statement on whether it has a reasonable expectation that the Company will be able to
continue in operation and meets its liabilities set out on page 29;
• Directors’ statement on fair, balanced and understandable set out on pages 58 and 59;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal
risks set out on page 29;
• The section of the annual report that describes the review of effectiveness of risk management
and internal control systems set out on pages 49 and 50; and;
• The section describing the work of the audit committee set out on pages 55 to 57.
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement set out on pages 58 and 59, the
Directors are responsible for the preparation of the financial statements and for being satisfied that they
give a true and fair view, and for such internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an Auditor’s Report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
69
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the Company and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the
Company and determined that the most significant are United Kingdom Generally Accepted
Accounting Practice, the Companies Act 2006, the Listing Rules, UK Corporate Governance
Code, the Association of Investment Companies’ Code and Statement of Recommended
Practice, Section 1158 of the Corporation Tax Act 2010 and The Companies (Miscellaneous
Reporting) Regulations 2018.
• We understood how the Company is complying with those frameworks through discussions with
the Audit Committee and Company Secretary and review of Board minutes and the Company’s
documented policies and procedures within the financial statements.
• We assessed the susceptibility of the Company’s financial statements to material misstatement,
including how fraud might occur by considering the key risks impacting the financial
statements. We identified a fraud risk with respect to the incomplete or inaccurate revenue
recognition through incorrect classification of special dividends as revenue or capital items in
the Income Statement. Further discussion of our approach is set out in the section on key audit
matters above.
• Based on this understanding we designed our audit procedures to identify non-compliance with
such laws and regulations. Our procedures involved review of the reporting to the Directors with
respect to the application of the documented policies and procedures and review of the financial
statements to ensure compliance with the reporting requirements of the Company.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our Auditor’s Report.
Other matters we are required to address
• Following the recommendation from the Audit Committee, we were appointed by the Company
on 15 December 2022 to audit the financial statements for the year ending 31 August 2023 and
subsequent financial periods.
• The period of total uninterrupted engagement including previous renewals and reappointments is
two years, covering the year ending 31 August 2023 and 31 August 2024.
• The audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in an Auditor’s Report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Caroline Mercer (Senior statutory Auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
Edinburgh
28 October 2024
70
Income Statement
For the year ended 31 August
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.
The accompanying notes on pages 72 to 83 are an integral part of the Financial Statements.
Notes
2024
Revenue
£’000
2024
Capital
£’000
2024
Total
£’000
2023
Revenue
£’000
2023
Capital
£’000
2023
Total
£’000
Gains/(losses) on
investments
9
–
51,567
51,567
–
(70,082)
(70,082)
Currency gains
14
–
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
4
(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
5
(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
6
(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
7
8.23p
62.55p
70.78p
10.52p
(56.79p)
(46.27p)
71
Balance Sheet
As at 31 August
Notes
2024
£’000
2024
£’000
2023
£’000
2023
£’000
Fixed assets
Investments
9
886,335
858,486
Current assets
Debtors
10
2,871
1,811
Cash and cash equivalents
19
5,305
6,030
8,176
7,841
Creditors
Amounts falling due within one
year
11
(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
12
–
(131,723)
Net assets
748,379
732,963
Capital and reserves
Share capital
13
4,717
4,717
Share premium
213,902
213,902
Capital redemption reserve
203
203
Capital reserve
14
514,122
496,965
Revenue reserve
14
15,435
17,176
Equity shareholders’ funds
748,379
732,963
Net asset value per ordinary
share
15
855.0p
787.7p
The Financial Statements of The Baillie Gifford Japan Trust PLC (Company registration number
SC075954) on pages 68 to 83 were approved and authorised for issue by the Board and were signed on
28 October 2024.
David Kidd
Chairman
The accompanying notes on pages 72 to 83 are an integral part of the Financial Statements.
72
Statement of Changes in Equity
For the year ended 31 August 2024
Notes
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Shareholde
rs’
funds
£’000
Shareholders’ funds at 1
September 2023
4,717
213,902
203
496,965
17,176
732,963
Ordinary shares bought
back
13, 14
–
–
–
(39,186)
–
(39,186)
Return on ordinary
activities after taxation
14
–
–
–
56,343
7,416
63,759
Dividends paid during the
year
8
–
–
–
–
(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
Notes
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Shareholde
rs’
funds
£’000
Shareholders’ funds at
1 September 2022
4,717
213,902
203
556,414
15,770
791,006
Ordinary shares bought
back
13, 14
–
–
–
(6,372)
–
(6,372)
Net return on ordinary
activities after taxation
14
–
–
–
(53,077)
9,832
(43,245)
Dividends paid in the year
8
–
–
–
–
(8,426)
(8,426)
Shareholders’ funds at
31 August 2023
4,717
213,902
203
496,965
17,176
732,963
The accompanying notes on pages 72 to 83 are an integral part of the Financial Statements.
73
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
9
(51,567)
70,082
Currency gains
14
(4,776)
(17,005)
Finance costs of borrowings
5
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
8
(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
19
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).The accompanying notes on pages 72 to 83 are an integral part of the Financial Statements.
The accompanying notes on pages 72 to 83 are an integral part of the Financial Statements.
74
Notes to the Financial Statements
The Baillie Gifford Japan Trust PLC (the ‘Company’) was incorporated under the Companies
Act 2006 in Scotland as a public limited company with registered number SC075954. The
Company is an investment company within the meaning of section 833 of the Companies Act
2006 and carries on business as an investment trust.
01 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.
a. Basis of Accounting
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, 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 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.
75
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)), 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 Manager, who are subject to the UK’s regulatory environment,
are also UK based.
b. Financial Instruments
The Company’s investments are classified as held at fair value through profit and loss in
accordance with sections 11 and 12 of FRS 102.
Purchases and sales of investments are recognised on a trade date basis.
Investments in securities are initially recognised at fair value which is taken to be their
cost excluding expenses incidental to purchases, and are subsequently measured at fair
value through profit and loss. The fair value of listed investments is the last traded price
which is equivalent to the bid price on Japanese markets. Changes in the fair value of
investments and gains and losses on disposal are recognised as capital items in the
Income Statement.
c. Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and deposits repayable on demand.
Deposits are repayable on demand if they can be withdrawn at any time without notice
and without penalty or if they have a maturity or period of notice of not more than one
working day.
d. Income
i. Income from equity investments is brought into account on the date on which the
investments are quoted ex-dividend or, where no ex-dividend date is quoted, when
the Company’s right to receive payment is established.
ii. Special dividends are treated as repayments of capital or income depending on the
facts of each particular case.
iii. If scrip is taken in lieu of dividends in cash, the net amount of the cash dividend
declared is credited to the revenue account. Any excess in the value of the shares
received over the amount of the cash dividend foregone is recognised as capital.
iv. Interest from fixed interest securities is recognised on an effective yield basis
(none were held in the period).
v. Overseas dividends include withholding tax deducted at source.
vi. Interest receivable on bank deposits is recognised on an accruals basis.
e. Expenses
All expenses are accounted for on an accruals basis and are charged to the revenue
account except where they relate directly to the acquisition or disposal of an investment
(transaction costs), in which case they are recognised as capital within gains/losses on
investments. Expenses directly relating to the issuance of shares are deducted from the
proceeds of such issuance.
76
f. Finance Costs
Long-term borrowings are carried in the Balance Sheet at amortised cost, representing the
cumulative amount of net proceeds after issue, plus accrued finance costs. The finance
costs of such borrowings are allocated to the revenue account at a constant rate on the
carrying amount.
Gains and losses on the repurchase or early settlement of debt are wholly charged to
capital.
g. Taxation
The taxation charge represents non-recoverable overseas taxes which is charged to the
revenue account as it relates to income received. Deferred taxation is provided on all
timing differences which have originated but not reversed by the Balance Sheet date,
calculated on a non-discounted basis at the tax rates expected to apply when the timing
differences reverse, based on what has been enacted or substantially enacted, relevant to
the benefit or liability. Deferred tax assets are recognised only to the extent that it is more
likely than not that there will be taxable profits from which underlying timing differences
can be deducted.
h. Foreign Currencies
Transactions involving foreign currencies are converted at the rate ruling at the time of
the transaction. Monetary assets, liabilities and equity investments held at fair value in
foreign currencies are translated at the closing rates of exchange at the Balance Sheet
date. Any gain or loss arising from a change in exchange rate subsequent to the date of
the transaction is included as an exchange gain or loss in the Income Statement and
classified as a revenue or capital item as appropriate.
i. Capital Reserve
Gains and losses on disposal of investments, changes in the fair value of investments
held, exchange differences of a capital nature and the amount by which other assets and
liabilities valued at fair value differ from their book cost are dealt with in this reserve.
Purchases of the Company’s own shares for cancellation are also funded from this
reserve.
j. Significant Estimates and Judgements
The Directors do not believe that any accounting judgements or estimates have been
applied to these accounting statements that have a significant risk of causing material
adjustment to the carrying amount of assets and liabilities within the next financial year.
The Directors consider that the preparation of the Financial Statements involves the
following key judgements:
(i) the functional currency of the Company is sterling (see rationale in 1(a) above);
and
(ii) the determination as to whether special dividends should be treated as a repayment
of capital or income depending on the facts of each particular case.
k. Single Segment Reporting
The Company is engaged in a single segment of business, being that of an investment
trust company, consequently no business segmental analysis is required.
77
02 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.
03 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. 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.
04 Other Administrative Expenses – All Charged to Revenue
2024
£’000
2023
£’000
General administrative expenses
48
38
Directors’ fees
173
134
Custody charges
109
73
Marketing*
95
74
Depositary fees
79
96
Auditors’ remuneration for audit services
51
49
Stock Exchange Listing fees
34
34
Regulatory fees
32
31
Broker fees
30
30
Registrar fees
26
24
AIC fees
21
21
Director’s liability insurance
14
15
Legal fees
3
69
715
688
* The Company is part of a marketing programme which includes all the Investment Trusts managed by the Manager. The
marketing strategy has an ongoing objective to stimulate demand for the Company’s shares. The cost of this marketing strategy
is borne in partnership by the Company and the Manager. The Manager matches the Company’s marketing contribution and
provides the resource to manage and run the programme.
There were no non-audit fees paid to the Auditor during the year (2023 – none).
05 Finance Costs of Borrowings
2024
£’000
2023
£’000
On bank loans
1,795
1,869
The bank loan interest disclosed includes £17,000 (2023 – £38,000) paid in respect of yen
deposits held at the Custodian bank.
78
06 Tax on Ordinary Activities
2024
£’000
2023
£’000
Analysis of charge in year
Overseas taxation
1,580
1,870
Factors affecting tax charge for year
The tax assessed for the year is lower than the average standard rate
of corporation tax in the
UK of 25% (2023
– 21.515%*). The differences are explained
below:
Revenue return on ordinary activities before taxation
65,339
(41,375)
Net return multiplied by the average standard rate of corporation tax
in the UK of 25%
(2023 – 21.515%*)
16,335
(8,900)
Effects of:
Capital returns not taxable
(14,086)
11,420
Income not taxable
(3,950)
(4,024)
Overseas withholding tax
1,580
1,870
Taxable losses in year not utilised
1,701
1,504
Tax charge for the year
1,580
1,870
* This reflects an increase in the UK corporation tax rate from 19% to 25% from 1 April 2023.
Factors that may affect Future Tax Charges
At 31 August 2024 the Company had surplus management expenses and losses on non-trading
loan relationships of £21,151,000 (2023 – £19,448,000). No deferred tax asset has been
recognised in respect of these amounts because the Company is not expected to generate taxable
income in a future period in excess of the deductible expenses of that future period and,
accordingly, it is unlikely that the Company will make taxable revenue profits in the future and
it is not liable to tax on its capital gains. The potential deferred tax asset has been calculated
using a corporation tax rate of 25% (2023 – 25%).
Due to the Company’s status as an investment trust, and the intention to continue meeting the
conditions required to maintain that status in the foreseeable future, the Company has not
provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of
investments.
07 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.
79
08 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.
09 Investments
2024
£’000
2023
£’000
Financial assets
Listed equities
886,335
858,486
Total financial asset investments
886,335
858,486
Listed
equities
£’000
Listed
equities
£’000
Cost of investments held at start of year
814,448
792,685
Unrealised appreciation at start of year
44,038
137,669
Value of investments held at start of year
858,486
930,354
Movements in year:
Purchases at cost
105,190
99,694
Sales – proceeds
(128,908)
(101,480)
Sales – realised gains/(losses) on sales
56,492
23,549
Movement in unrealised appreciation
(4,925)
(93,631)
Value of investments held at end of year
886,335
858,486
Cost of investments held at end of year
847,222
814,448
Unrealised appreciation at end of year
39,113
44,038
Value of investments held at end of year
886,335
858,486
The transaction costs of purchases and sales were £49,000 (2023 – £34,000) and £45,000 (2023
– £29,000) respectively.
The Company received £128,908,000 (2023 – £101,480,000) from investments sold during the
year. The book costs of these investments when they were purchased was £72,416,000 (2023 –
£77,931,000). These investments have been revalued over time and until they were sold, any
unrealised gains/losses were included in the fair value of the investments.
80
2024
£’000
2023
£’000
Net gains/(losses) on investments
Realised gains on sales
56,492
23,549
Changes in investment holding gains
(4,925)
(93,631)
51,567
(70,082)
10 Debtors
2024
£’000
2023
£’000
Due within one year:
Income accrued and prepaid expenses
2,001
1,789
Sales for subsequent settlement
810
–
Other debtors
60
22
2,871
1,811
The carrying amount of debtors is a reasonable approximation of fair value.
11 Creditors – Amounts Falling Due Within One Year
2024
£’000
2023
£’000
Purchases for subsequent settlement
1,399
182
Bank loans
140,572
–
Other creditors and accruals
4,161
1,459
146,132
1,641
Included in other creditors is £1,104,000, (2023 – £1,083,000) in respect of the investment
management fee.
Borrowing facilities
At 31 August 2024
Drawings
At 31 August 2023
Drawings
Revolving credit facility with
Mizuho Bank, Ltd. for ¥2,600
million, expiring March 2025
¥500 million (£2.613 million
at 1.2156%
¥1,000 million (£5.226 million)
at 1.428%
¥1,100 million (£5.748 million)
at 1.2802%
–
–
–
7 year fixed rate loan facility
with ING Bank N.V. for
¥9,300 million, expiring
November 2024
¥9,300 million (£48.599
million)
at 1.585%
¥9,300 million (£57.655
million)
at 1.585%
2 year floating rate loan
facility with Bank of New
York Mellon for ¥15,000
million, expiring August 2025
¥15,000 million (£78.386
million)
at 1.15909%
¥15,000 million (£81.311
million)
at 1.14909%
The main covenants relating to the above loans are:
i. Total borrowings shall not exceed 30% of the Company’s net asset value; and
ii. The Company’s minimum net asset value shall be ¥48,545,000,000 (£315,000,000).
There were no breaches of loan covenants during the year.
81
12 Creditors – Amounts Falling Due After More Than One Year
2024
£’000
2023
£’000
Bank loans (see Note 11 above)
–
131,723
13 Called-up Share Capital
2024
Number
2024
£’000
2023
Number
2023
£’000
Authorised ordinary shares of 5p each
87,532,614
4,377
93,047,614
4,653
Treasury shares of 5p each
6,795,595
340
1,280,595
64
Allotted, called-up and fully paid
ordinary shares of 5p each
94,328,209
4,717
94,328,209
4,717
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.
14 Capital and Reserves
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Shareholde
rs’
funds
£’000
At 1 September 2023
4,717
213,902
203
496,965
17,176
732,963
Ordinary shares bought back
(39,186)
–
(39,186)
Gains on investments
–
–
–
56,492
–
56,492
Changes in investment holding
gains
–
–
–
(4,925)
–
(4,925)
Exchange differences on bank
loans
–
–
–
5,029
–
5,029
Other exchange differences
–
–
–
(253)
–
(253)
Dividends paid in the year
–
–
–
–
(9,157)
(9,157)
Net revenue for the year
–
–
–
–
7,416
7,416
At 31 August 2024
4,717
213,902
203
514,122
15,435
748,379
82
Share
capital
£’000
Share
premium
account
£’000
Capital
redemption
reserve
£’000
Capital
reserve
£’000
Revenue
reserve
£’000
Shareholde
rs’
funds
£’000
At 1 September 2022
4,717
213,902
203
556,414
15,770
791,006
Ordinary shares bought back
–
–
–
(6,372)
–
(6,372)
Gains on investments
–
–
–
23,549
–
23,549
Changes in investment holding
gains
–
–
–
(93,631)
–
(93,631)
Exchange differences on bank
loans
–
–
–
18,677
–
18,677
Other exchange differences
–
–
–
(1,672)
–
(1,672)
Dividends paid in the year
–
–
–
–
9,832
9,832
Net revenue for the year
–
–
–
–
(8,426)
(8,426)
At 31 August 2023
4,717
213,902
203
496,965
17,176
732,963
The capital reserve includes unrealised investment holding gains of £39,113,000 (2023 –
£44,038,000) as disclosed in note 9.
The revenue reserve of £15,435,000 and the capital reserve (to the extent it constitutes realised
profits) of £460,974,000 are distributable.
15 Shareholders’ funds per ordinary share
The net asset value per ordinary share and the net assets attributable to the ordinary shareholders
at the year end calculated in accordance with the Articles of Association were as follows:
2024
2023
Shareholders’ funds
£748,379,000
£732,963,000
Number of ordinary shares in issue at the year end*
87,532,614
93,047,614
Shareholders’ funds per ordinary share
855.0p
787.7p
* Excluding shares held in treasury at 31 August 2024 and 31 August 2023.
16 Analysis of Change in Net Debt
At
1 September
2023
£’000
Cash flows
£’000
Other
non-cash
changes
£’000
Exchange
movement
£’000
At
31 August
2024
£’000
Cash at bank and in hand
6,030
542
–
(1,267)
5,305
Loans due within one year
–
(13,878)
(126,985)
291
(140,572)
Loans due after one year
(131,723)
–
126,985
4,738
–
(125,693)
(13,336)
–
3,762
(135,267)
17 Contingent Liabilities, Guarantees and Financial Commitments
At 31 August 2024, the Company had secured ¥12 billion of fixed rate, senior unsecured private
notes in July 2024 which will be drawn down on 20 November 2024 (see page 6 for more
detail). There were no other contingent liabilities, guarantees or financial commitments at 31
August 2024.
There were no contingent liabilities, guarantees or financial commitments at 31 August 2023.
18 Related Party Transactions and Transactions with Manager
Related Party Transactions
The Directors’ fees for the year and Directors’ shareholdings at 31 August 2024 are detailed in
the Directors’ Remuneration Report on pages 52 to 54 respectively. No Director has a contract
of service with the Company.
83
Transactions with Manager
The management fee due to Baillie Gifford and Co Limited is set out in note 3 on page 74 and
the amount accrued at 31 August 2024 is set out in note 11 on page 77. Details of the Investment
Management Agreement are set out on page 42.
19 Financial Instruments
The Company invests in medium to smaller sized Japanese companies and makes other
investments so as to achieve its investment objective of long-term capital growth. The Company
borrows money when the Board and Managers have sufficient conviction that the assets funded
by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its
investment objective, the Company is exposed to various types of risk that are associated with
the financial instruments and markets in which it invests and could result in a reduction in the
Company’s net assets.
These risks are categorised here as market risk (comprising currency risk, interest rate risk and
other price risk), liquidity risk and credit risk. The Board monitors closely the Company’s
exposures to these risks but does so in order to reduce the likelihood of a permanent loss of
capital rather than to minimise the short-term volatility.
The risk management policies and procedures outlined in this note have not changed
substantially from the previous accounting period.
Market Risk
The fair value or future cash flows of a financial instrument or other investment held by the
Company may fluctuate because of changes in market prices. This market risk comprises three
elements – currency risk, interest rate risk and other price risk. The Board of Directors reviews
and agrees policies for managing these risks and the Company’s Manager assesses the exposure
to market risk when making individual investment decisions as well as monitoring the overall
level of market risk across the investment portfolio on an ongoing basis. Details of the
Company’s investment portfolio are shown on pages 20 and 21.
i. Currency Risk
The Company’s assets, liabilities and income are principally denominated in yen. The
Company’s functional currency and that in which it reports its results is sterling. Consequently,
movements in the yen/sterling exchange rate will affect the sterling value of those items.
The Manager monitors the Company’s yen exposure (and any other overseas currency exposure)
and reports to the Board on a regular basis. The Manager assesses the risk to the Company of the
overseas currency exposure by considering the effect on the Company’s net asset value and
income of a movement in the rates of exchange to which the Company’s assets, liabilities,
income and expenses are exposed. However, the currency in which a company’s share price is
quoted is not necessarily the one in which it earns its profits. The movement in exchange rates
on overseas earnings may have a more significant impact upon a company’s valuation than a
simple translation of the currency in which the share price of the company is quoted.
Yen borrowings are used periodically to limit the Company’s exposure to anticipated future
changes in the yen/sterling exchange rate which might otherwise adversely affect the value of
the portfolio of investments. The Company has the authority to use forward currency contracts
to limit the Company’s exposure to anticipated future changes in exchange rates so that the
currency risks entailed in holding the assets are mainly eliminated. No forward currency
contracts have been used in the current or prior year.
Exposure to currency risk through asset allocation, which is calculated by reference to the
currency in which the asset or liability is quoted, is shown below.
84
At 31 August 2024
Investments
£’000
Cash and cash
equivalents
£’000
Bank
loans
£’000
Other debtors
and creditors
£’000
Net
exposure
£’000
Yen
886,335
5,248
(140,572)
849
751,860
US$
–
1
–
–
1
Total exposure to currency
risk
886,335
5,249
(140,572)
849
751,861
Sterling
–
56
–
(3,538)
(3,482)
886,335
5,305
(140,572)
(2,689)
748,379
At 31 August 2023
Investments
£’000
Cash and cash
equivalents
£’000
Bank
loans
£’000
Other debtors
and creditors
£’000
Net
exposure
£’000
Total exposure to currency
risk (yen)
858,486
5,970
(131,723)
1,278
734,011
Sterling
–
60
–
(1,108)
(1,048)
858,486
6,030
(131,723)
170
732,963
Currency Risk Sensitivity
At 31 August 2024, if sterling had strengthened by 10% against the yen, with all other variables
held constant, total net assets and net return on ordinary activities after taxation would have
decreased by £75,211,000 (2023 – £73,401,000). A 10% weakening of sterling against the yen,
with all other variables held constant, would mean total net assets and net return on ordinary
activities after taxation would have had a similar but opposite effect on the Financial Statement
amounts.
ii. Interest Rate Risk
Interest rate movements may affect the level of income receivable on cash deposits. They may
also impact upon the market value of the Company’s investments as the effect of interest rate
movements upon the earnings of a company may have a significant impact upon the valuation of
that company’s equity.
The possible effects on fair value and cash flows that could arise as a result of changes in
interest rates are taken into account when making investment decisions and when entering
borrowing agreements.
The Board reviews on a regular basis the amount of investments in cash and the income
receivable on cash deposits.
The Company finances part of its activities through borrowings at approved levels. The amount
of such borrowings and the approved levels are monitored and reviewed regularly by the Board.
The interest rate risk profile of the Company’s interest bearing financial assets and liabilities at
31 August 2024 is shown below.
Financial Assets
2024
Fair value
£’000
2024
Weighted
average
interest rate
2024
Weighted
average
period until
maturity *
2023
Fair value
£’000
2023
Weighted
average
interest rate
2023
Weighted
average
period until
maturity *
Cash:
Yen
5,248
(<0.1%)
n/a
5,970
(0.1%)
n/a
US$
1
n/a
n/a
n/a
n/a
n/a
Sterling
56
0.7%
n/a
60
0.2%
n/a
5,305
6,030
* Based on expected maturity date.
85
The cash deposits generally comprise overnight call or short-term money deposits and earn, or
are charged, interest at floating rates based on prevailing bank base rates.
Financial Liabilities
The interest rate risk profile of the Company’s loans at 31 August was:
2024
Book value
£’000
2024
Weighted
average
interest rate
2024
Weighted
average
period until
maturity *
2023
Book value
£’000
2023
Weighted
average
interest rate
2023
Weighted
average
period until
maturity *
Bank loans:
Yen
denominated
140,572
1.3%
8 months
131,723
1.3%
20 months
Interest Rate Risk Sensitivity
An increase of 100 basis points in interest rates, with all other variables held constant, would
have decreased the Company’s total net assets and total return on ordinary activities for the year
ended 31 August 2024 by £149,000 (2023 – decreased by £134,000). This is mainly due to the
Company’s exposure to interest rates on its cash balances and floating rate bank loans.
A decrease of 100 basis points would have had an equal but opposite effect. The Company does
not hold bonds.
iii. Other Price Risk
Changes in market prices other than those arising from interest rate risk or currency risk may
also affect the value of the Company’s net assets.
The Board manages the market price risks inherent in the investment portfolio by ensuring full
and timely access to relevant information from the Manager. The Board meets regularly and at
each meeting reviews investment performance, the investment portfolio and the rationale for the
current investment positioning to ensure consistency with the Company’s objectives and
investment policies. The portfolio does not seek to reproduce the index, investments are selected
based upon the merit of individual companies and therefore performance is highly likely to
diverge from the comparative index.
Other Price Risk Sensitivity
A full list of the Company’s investments is shown on pages 20 and 21. In addition, analyses of
the sector listing and portfolio positioning are shown on pages 17 to 19.
118% (2023 – 117%) of the Company’s net assets are invested in Japanese quoted equities. A
20% (2023 – 20%) increase in quoted equity valuations at 31 August 2024 would have increased
total net assets and net return on ordinary activities after taxation by £177,267,000 (2023 –
£171,697,000). A decrease of 20% (2023 – 20%) would have had an equal but opposite effect.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated
with financial liabilities. Liquidity risk is not significant as the majority of the Company’s assets
are in investments that are readily realisable.
The Board provides guidance to the Manager as to the maximum exposure to any one holding
(see Investment Policy on page 27).
The Company has the power to take out borrowings, which give it access to additional funding
when required. The Company’s borrowing facilities are detailed in note 11.
86
The maturity profile of the Company’s financial liabilities at 31 August was:
2024
£’000
2023
£’000
In less than one year
140,572
–
In more than one year, but not more than two years
–
131,723
140,572
131,723
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations under
that transaction could result in the Company suffering a loss. This risk is managed as follows:
• where the Manager makes an investment in a bond or other security with credit risk, that
credit risk is assessed and then compared to the prospective investment return of the
security in question;
• the Depositary is liable for the loss of financial instruments held in custody. The
Depositary will ensure that any delegate segregates the assets of the Company. The
Depositary has delegated the custody function to Bank of New York Mellon
(International) Limited. Bankruptcy or insolvency of the Custodian may cause the
Company’s rights with respect to securities held by the Custodian to be delayed. The
Manager monitors the Company’s risk by reviewing the Custodian’s internal control
reports and reporting its findings to the Board.
• investment transactions are carried out with a large number of Brokers whose
creditworthiness is reviewed by the Manager. Transactions are ordinarily undertaken on a
delivery versus payment basis whereby the Company’s Custodian bank ensures that the
counterparty to any transaction entered into by the Company has delivered on its
obligations before any transfer of cash or securities away from the Company is
completed;
• the creditworthiness of the counterparty to transactions involving derivatives, structured
notes and other arrangements, wherein the creditworthiness of the entity acting as Broker
or counterparty to the transaction is likely to be of sustained interest, are subject to
rigorous assessment by the Manager; and
• cash is only held at banks that have been identified by the Managers as reputable and of
high credit quality. Credit quality of our banking provider is publicly available.
Credit Risk Exposure
The exposure to credit risk at 31 August was:
2024
£’000
2023
£’000
Cash and cash equivalents
5,305
6,030
Debtors
2,871
1,811
8,176
7,841
None of the Company’s financial assets are past due or impaired.
87
Fair Value of Financial Assets and Financial Liabilities
The Company’s investments are stated at fair value and the Directors are of the opinion that the
reported values of the Company’s other financial assets and liabilities approximate to fair value
with the exception of the long-term borrowings which are stated at amortised cost. The fair
value of borrowings is shown below.
2024
Book
value
£’000
2024
Fair*
value
£’000
2023
Book
value
£’000
2023
Fair*
value
£’000
Yen bank loans
140,572
140,653
131,723
131,584
* The fair value of each bank loan is calculated with reference to a Japanese government bond of comparable yield and maturity.
Capital Management
The Company does not have any externally imposed capital requirements other than the loan
covenants detailed in note 11 on page 77. The capital of the Company is the ordinary share
capital as detailed in note 13. It is managed in accordance with its investment policy in pursuit
of its investment objective, both of which are detailed on page 27, and shares may be
repurchased or issued as explained on pages 44 to 45.
Fair Value of Financial Instruments
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 financial assets designated as valued at fair value through profit or loss are all categorised
as Level 1 in the above hierarchy (2023 – all categorised as Level 1). None of the financial
liabilities are designated at fair value through profit or loss in the Financial Statements.
88
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.
89
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.
90
Shareholder Information
Notice of Annual General Meeting
MAP
By Rail:
Edinburgh Waverley – approximately a 5 minute walk away
By Bus:
Lothian Buses local services include: 1, 3, 5, 7, 8, 10, 14, 15, 16, 25, 34
By Tram:
Stops at St Andrew Square and Picardy Place
Access to Waverley Train Station on foot
The Annual General Meeting of The Baillie Gifford Japan Trust PLC will be held at the offices of
Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, on Wednesday,
11 December 2024 at 12.30pm. You will find directions to the venue by scanning the QR code above.
To accurately reflect the views of shareholders of the Company, the Board intends to hold the AGM
voting on a poll, rather than by a show of hands as has been customary.
The Board encourages all shareholders to submit proxy voting forms as soon as possible and, in any
event, by no later than 12.30pm on Monday, 9 December 2024. We would encourage shareholders to
monitor the Company’s website at japantrustplc.co.uk. Should shareholders have questions for the
Board or the Managers or any queries as to how to vote, they are welcome, as always, to submit them
by email to trustenquiries@bailliegifford.com or call 0800 917 2112. Baillie Gifford may record
your call. Further details on voting can be found on pages 90 to 91.
91
Notice is hereby given that the forty third Annual General Meeting of The Baillie Gifford Japan Trust
PLC will be held at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh
EH1 3AN, on Wednesday, 11 December 2024 at 12.30pm for the following purposes:
Ordinary Business
To consider and, if thought fit, to pass the following Resolutions as Ordinary Resolutions.
01. To receive and adopt the Financial Statements of the Company for the year to 31 August 2024
with the Reports of the Directors and of the Independent Auditor thereon.
02. To approve the Directors’ Annual Report on Remuneration for the year to 31 August 2024.
03. To declare a final dividend of 10p per ordinary share.
04. To re-elect David Kidd as a Director.
05. To re-elect Sharon Brown as a Director.
06. To re-elect Joanna Pitman as a Director.
07. To re-elect Sam Davis as a Director.
08. To re-elect Patricia Lewis as a Director.
09. To re-appoint Ernst & Young LLP as Independent Auditor of the Company to hold office from
the conclusion of this meeting until the conclusion of the next Annual General Meeting at which
the Financial Statements are laid before the Company.
10. To authorise the Directors to determine the remuneration of the Independent Auditor of
the Company.
11. That, pursuant to article 165 of the Articles of Association of the Company, this meeting hereby
approves the continuance of the Company until the Annual General Meeting of the Company
held in respect of the year to 31 August 2025.
12. That, in substitution for any existing authority, but without prejudice to the exercise of any such
authority prior to the date hereof, the Directors of the Company be and they are hereby generally
and unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the
‘Act’) to exercise all the powers of the Company to allot shares in the Company and to grant
rights to subscribe for or to convert any security into shares in the Company (‘Securities’)
provided that such authority shall be limited to the allotment of shares and the grant of rights in
respect of shares with an aggregate nominal value of up to £430,438.07 such authority to expire
at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution or on the expiry of 15 months from the passing of this resolution, whichever is the
earlier, unless previously revoked, varied or extended by the Company in a general meeting,
save that the Company may at any time prior to the expiry of this authority make an offer or
enter into an agreement which would or might require Securities to be allotted or granted after
the expiry of such authority and the Directors shall be entitled to allot or grant Securities in
pursuance of such an offer or agreement as if such authority had not expired.
To consider and, if thought fit, to pass Resolutions 13 and 14 as Special Resolutions.
13. That, subject to the passing of Resolution 12 above, and in substitution for any existing power
but without prejudice to the exercise of any such power prior to the date hereof, the Directors of
the Company be and they are hereby generally empowered, pursuant to sections 570 and 573 of
the Companies Act 2006 (the ‘Act’), to allot equity securities (within the meaning of section
560(1) of the Act), for cash pursuant to the authority given by Resolution 12 above, and to sell
treasury shares for cash, as if section 561(1) of the Act did not apply to any such allotment or
sale, provided that this power:
a. expires at the conclusion of the next Annual General Meeting of the Company after the
passing of this Resolution or on the expiry of 15 months from the passing of this
Resolution, whichever is the earlier, save that the Company may, before such expiry,
92
make an offer or agreement which would or might require equity securities to be allotted
or treasury shares to be sold after such expiry and the Directors may allot equity
securities or sell treasury shares in pursuance of any such offer or agreement as if the
power conferred hereby had not expired; and
b. shall be limited to the allotment of equity securities or the sale of treasury shares up to an
aggregate nominal value of £430,438.07 being approximately 10% of the nominal value
of the issued share capital of the Company, as at 24 October 2024.
14. That, in substitution for any existing authority but without prejudice to the exercise of any such
authority prior to the date hereof, the Company be and is hereby generally and unconditionally
authorised, pursuant to and in accordance with section 701 of the Companies Act 2006 (the
‘Act’) to make market purchases (within the meaning of section 693(4) of the Act) of fully paid
ordinary shares of 5 pence each in the capital of the Company (‘ordinary shares’) (either for
retention as treasury shares for future reissue, resale, transfer or cancellation), provided that:
a. the maximum aggregate number of ordinary shares hereby authorised to be purchased is
12,904,533, or, if less, the number representing approximately 14.99% of the issued
ordinary share capital of the Company as at the date of the passing of this Resolution;
b. the minimum price (excluding expenses) which may be paid for each ordinary share is
5 pence;
c. the maximum price (excluding expenses) which may be paid for each ordinary share shall
not be more than the higher of:
i. 5 per cent. above the average closing price on the London Stock Exchange of an
ordinary share over the five business days immediately preceding the date of
purchase; and
ii. the amount equal to the higher of the price of the last independent trade of an
ordinary share and the highest current independent bid for an ordinary share on the
trading venue where the purchase is carried out; and
d. unless previously varied, revoked or renewed by the Company in a general meeting, the
authority hereby conferred shall expire at the conclusion of the Annual General Meeting
of the Company to be held in respect of the year ending 31 August 2025, save that the
Company may, prior to such expiry, enter into a contract to purchase ordinary shares
under such authority which will or might be completed or executed wholly or partly after
the expiration of such authority and may make a purchase of ordinary shares pursuant to
any such contract.
By Order of the Board
Baillie Gifford & Co Limited
Company Secretaries
28 October 2024
93
Notes
01. As a member you are entitled to appoint a proxy or proxies to exercise all or any of your rights
to attend, speak and vote at the AGM. A proxy need not be a member of the Company but must
attend the AGM to represent you. You may appoint more than one proxy provided each proxy is
appointed to exercise rights attached to different shares. You can only appoint a proxy using the
procedure set out in these notes and the notes to the proxy form. You may not use any electronic
address provided either in this notice or any related documents (including the Financial
Statements and proxy form) to communicate with the Company for any purpose other than those
expressly stated.
02. To be valid any proxy form or other instrument appointing a proxy, together with any power of
attorney or other authority under which it is signed or a certified copy thereof, must be received
by post or (during normal business hours only) by hand at the Registrars of the Company at
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY or
eproxyappointment.com no later than 2 days (excluding non-working days) before the time of
the meeting or any adjourned meeting.
03. CREST members who wish to appoint a proxy or proxies through the CREST electronic
proxy appointment service may do so by using the procedures described in the CREST Manual
and/or by logging on to the website euroclear.com/CREST. CREST personal members or other
CREST sponsored members, and those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able
to take the appropriate action on their behalf.
04. In order for a proxy appointment or instruction made using the CREST service to be valid, the
appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in
accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the
information required for such instruction, as described in the CREST Manual. The message,
regardless of whether it constitutes the appointment of a proxy or is an amendment to the
instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as
to be received by the Company’s Registrar (ID 3RA50) no later than 2 days (excluding non-
working days) before the time of the meeting or any adjournment. For this purpose, the time of
receipt will be taken to be the time (as determined by the timestamp applied to the message by
the CREST Application Host) from which the Company’s Registrar is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this time any change
of instructions to proxies appointed through CREST should be communicated to the appointee
through other means.
05. CREST members and, where applicable, their CREST sponsors, or voting service providers
should note that Euroclear UK & Ireland Limited does not make available special procedures in
CREST for any particular message. Normal system timings and limitations will, therefore, apply
in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST
member concerned to take (or, if the CREST member is a CREST personal member, or
sponsored member, or has appointed a voting service provider(s), to procure that his/her CREST
sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a
message is transmitted by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their CREST sponsors or voting service
providers are referred, in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
06. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in
Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
07. The return of a completed proxy form or other instrument of proxy will not prevent you
attending the AGM and voting in person if you wish.
08. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 and section 311 of
the Companies Act 2006 the Company specifies that to be entitled to attend and vote at the
94
Annual General Meeting (and for the purpose of the determination by the Company of the votes
they may cast), shareholders must be registered in the Register of Members of the Company no
later than 2 days (excluding non-working days) prior to the commencement of the AGM or any
adjourned meeting. Changes to the Register of Members after the relevant deadline shall be
disregarded in determining the rights of any person to attend and vote at the meeting.
09. Any person to whom this notice is sent who is a person nominated under section 146 of the
Companies Act 2006 to enjoy information rights (a ‘Nominated Person’) may, under an
agreement between him/her and the shareholder by whom he/she was nominated, have a right to
be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If
a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she
may, under any such agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
10. The statement of the rights of shareholders in relation to the appointment of proxies in notes 1
and 2 above does not apply to Nominated Persons. The rights described in those notes can only
be exercised by shareholders of the Company.
11. The members of the Company may require the Company to publish, on its website, (without
payment) a statement (which is also passed to the Auditor) setting out any matter relating to the
audit of the Company’s Financial Statements, including the Auditor’s Report and the conduct of
the audit. The Company will be required to do so once it has received such requests from either
members representing at least 5% of the total voting rights of the Company or at least 100
members who have a relevant right to vote and hold shares in the Company on which there has
been paid up an average sum per member of at least £100. Such requests must be made in
writing and must state your full name and address and be sent to the Company at Calton Square,
1 Greenside Row, Edinburgh, EH1 3AN.
12. Information regarding the Annual General Meeting, including information required by section
311A of the Companies Act 2006, is available from the Company’s page of the Managers’
website at japantrustplc.co.uk.
13. Members have the right to ask questions at the meeting in accordance with section 319A of the
Companies Act 2006.
14. Any corporation which is a member can appoint one or more corporate representatives who may
exercise on its behalf all of its powers as a member provided that each representative does so in
relation to distinct shares.
15. As at 24 October 2024 (being the last practicable day prior to the publication of this notice) the
Company’s issued share capital consisted of 86,087,614 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 24 October 2024 were 86,087,614 votes.
16. Any person holding 3% or more of the total voting rights of the Company who appoints a
person other than the Chairman of the meeting as his/her proxy will need to ensure that both
he/she and his/her proxy complies with their respective disclosure obligations under the UK
Disclosure and Transparency Rules.
17. No Director has a contract of service with the Company.
95
Five Year Summary
The following charts indicate how an investment in Baillie Gifford Japan has performed relative
to its benchmark† over the five year period to 31 August 2024.
Five Year Total Return Performance*
(figures rebased to 100 at 31 August 2019)
CHART
Premium/(Discount)* to Net Asset Value
(figures plotted on a monthly basis)
CHART
Annual Change in Net Asset Value Total Return and Share Price Total Return*
CHART
Annual Change in Net Asset Value Total Return and Share Price Total Return* Relative to the
Benchmark†
CHART
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Source: Refinitiv/Baillie Gifford and relevant underlying index providers. See disclaimer on page 97.
Past performance is not a guide to future performance.
96
Ten Year Record
at 31 August 2024
At 31 August
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Capital
Total assets (£’m)
889.0
864.7
940.4
1,097.6
923.8
859.7
870.6
657.7
500.3
377.9
290.4
Bank loans (£’m)
140.6
131.7
149.4
142.2
151.4
127.6
114.5
82.5
75.3
54.7
41.7
Shareholders' funds (£’m)
748.4
733.0
791.0
955.4
772.4
732.1
756.1
575.2
425.0
323.2
248.7
Net asset value per
ordinary share (p)
855.0
787.7
842.2
1,012.6
840.8
792.1
835.8
685.8
539.8
430.2
358.7
Share price (p)
756.0
735.0
774.0
1,022.0
817.0
791.0
855.0
711.5
517.5
444.8
352.3
(Discount)/premium (%)*
(11.6)
(6.7)
(8.1)
0.9
(2.8)
(0.1)
2.3
3.7
(4.1)
3.4
(1.8)
Revenue
Income (£’m)
15.80
18.71
20.08
17.22
15.34
13.50
10.87
8.48
7.09
4.32
3.75
Net revenue after tax £’m)
7.42
9.83
10.66
7.34
6.05
4.76
2.23
2.24
1.82
0.20
0.32
Net return per ordinary
share (p)
8.23
10.52
11.31
7.89
6.56
5.18
2.54
2.80
2.35
0.28
0.47
Dividend paid and
proposed per
ordinary
share (p)
10.00
10.00
9.00
6.00
4.50
3.50
0.60
–
–
–
–
Ongoing charges (%)*
0.69
0.67
0.66
0.66
0.68
0.70
0.73
0.77
0.87
0.90
0.89
Gearing
Gearing (%)*
18
17
18
10
4
12
11
13
17
14
15
Potential gearing (%)*
19
18
19
15
20
17
15
14
18
17
17
Performance Total
Returns
Net asset value per
ordinary share % change*
10.0
(5.4)
(16.3)
21.0
6.6
(5.2)
21.9
27.0
25.5
19.9
10.9
Share price % change*
4.4
(4.0)
(23.8)
25.7
3.7
(7.4)
20.2
37.5
16.4
26.3
10.8
Benchmark % change*†
14.7
6.7
(3.9)
16.3
(0.1)
(0.6)
7.8
18.8
21.5
13.4
3.7
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Past performance is not a guide to future performance.
97
Compound Annual Returns
Net asset
value per
ordinary share
total return *
Share price
total return *
Benchmark
total return *†
5 year
1.5%
(0.9%)
6.5%
10 year
9.1%
7.9%
7.8%
Ten Year Total Return Performance*
CHART
* Alternative Performance Measure – see Glossary of Terms and Alternative Performance Measures on pages 84 and 85.
† The benchmark is the TOPIX total return (in sterling terms).
Source: Refinitiv/Baillie Gifford and relevant underlying index providers. See disclaimer on page 97.
Past performance is not a guide to future performance.
98
Further Shareholder Information
How to Invest
The Company’s shares are traded on the London Stock Exchange. They can be bought by placing an
order with a stockbroker or by asking a professional adviser to do so. If you are interested in investing
directly in Baillie Gifford Japan, you can do so online. There are a number of companies offering real
time online dealing services. Find out more by visiting the investment trust pages at
bailliegifford.com.
Sources of Further Information on the Company
The price of shares is quoted daily in the Financial Times and can also be found on the Company’s
page of the Managers’ website at japantrustplc.co.uk, Trustnet at trustnet.co.uk and on other
financial websites. Monthly factsheets are also available on the Baillie Gifford website. These are
available from Baillie Gifford on request.
Baillie Gifford Japan Identifiers
ISIN GB0000485838
Sedol 0048583
Ticker BGFD
Legal Entity Identifier 54930037AGTKN765Y741
The ordinary shares of the Company are listed on the London Stock Exchange and their price is shown
in the Financial Times and The Scotsman under ‘Investment Companies’.
Key Dates
The Annual Report and Financial Statements are normally issued in October and the AGM is normally
held in December. Dividends will be paid by way of a single final payment shortly after the
Company’s AGM.
Capital Gains Tax
The cost for capital gains taxation purposes to shareholders who subscribed for ordinary shares (with
warrants attached) is apportioned between the ordinary shares and the warrants on the following basis:
Cost of each ordinary share
96.548p
Cost of fraction for warrant
3.452p
100.000p
The market value of the ordinary shares on 31 March 1982 was 15.4p. The market values on
20 November 1991 (first day of dealing of new warrants) were as follows:
Ordinary shares
120p
Warrants
26p
The above cost and market value figures have been restated for the five for one share split in
November 2000.
Share Register Enquiries
Computershare Investor Services PLC maintains the share register on behalf of the Company. In the
event of queries regarding shares registered in your own name, please contact the Registrars on
0370 889 3221.
This helpline also offers an automated self-service functionality (available 24 hours a day, 7 days a
week) which allows you to:
• hear the latest share price;
99
• confirm your current share holding balance; and
• order Change of Address and Stock Transfer forms.
You can also check your holding on the Registrars’ website at investorcentre.co.uk. They also offer a
free, secure share management website service which allows you to:
• view your share portfolio and see the latest market price of your shares;
• calculate the total market price of each shareholding;
• view price histories and trading graphs;
• change address details; and
• use online dealing services.
To take advantage of this service, please log in at investorcentre.co.uk and enter your Shareholder
Reference Number and Company Code (this information can be found on your share certificate).
Dividend Reinvestment Plan
Computershare operates a Dividend Reinvestment Plan which can be used to buy additional shares
instead of receiving your dividend via cheque or into your bank account. For further information log
into investorcentre.co.uk and follow the instructions or telephone 0370 707 1694.
Electronic Proxy Voting
If you hold stock in your own name you can choose to vote by returning proxies electronically at
eproxyappointment.com.
If you have any questions about this service please contact Computershare on 0370 889 3221.
CREST Proxy Voting
If you are a user of the CREST system (including a CREST Personal Member), you may appoint
one or more proxies or give an instruction to a proxy by having an appropriate CREST message
transmitted. For further information please refer to the CREST Manual.
Voting via an Investment Platform
If you are a shareholder who holds shares via a platform, you should be able to exercise your right to
vote by contacting the platform provider directly. You can instruct the platform how to vote your
shares or ask to be appointed as a proxy in respect of your shareholding should you wish to attend,
speak and vote at the Annual General Meeting. Further guidance can be obtained from your platform
provider or the Association of Investment Companies at the aic.co.uk/how-to-vote-your-shares.
Data Protection
The Company is committed to ensuring the confidentiality and security of any personal data provided
to it. Further details on how personal data is held and processed on behalf of the Company can be
found in the privacy policy available on the Company’s website japantrustplc.co.uk.
UK Alternative Investment Fund Managers (AIFM) Regulations
In accordance with the UK AIFM Regulations, information in relation to the Company’s leverage and
the remuneration of the Company’s AIFM, Baillie Gifford & Co Limited, is required to be made
available to investors. In accordance with the Regulations, the AIFM remuneration policy is available
at bailliegifford.com or on request (see contact details on page 99). The numerical remuneration
disclosures in respect of the AIFM’s reporting period (year ended 31 March 2024) are available at
bailliegifford.com.
The Company’s maximum and actual leverage (see Glossary of Terms and Alternative
Performance Measures on pages 84 and 85) levels at 31 August 2024 are shown below:
100
Leverage
Gross
method
Commitment
method
Maximum limit
2.50:1
2.00:1
Actual
1.19:1
1.19:1
Automatic Exchange of Information
In order to fulfil its obligations under UK Tax Legislation relating to the automatic exchange of
information, the Company is required to collect and report certain information about certain
shareholders.
The legislation requires investment trust companies to provide personal information to HMRC on
certain investors who purchase shares in investment trusts. As an affected company, The Baillie
Gifford Japan Trust PLC must provide information annually to the local tax authority on the tax
residencies of a number of non-UK based certificated shareholders and corporate entities.
All new shareholders, excluding those whose shares are held in CREST, who come on to the share
register will be sent a certification form for the purposes of collecting this information.
For further information, please see HMRC’s Quick Guide: Automatic Exchange of Information –
information for account holders gov.uk/government/publications/exchange-of-information-
account-holders.
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.
101
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 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.
102
Communicating with Shareholders
Trust Magazine
Trust is the Baillie Gifford investment trust magazine which is published twice a year. It provides an
insight to our investment approach by including interviews with our fund managers, as well as
containing investment trust news, investment features and articles about the trusts managed by Baillie
Gifford, including Baillie Gifford Japan. Trust plays an important role in helping to explain our
products so that readers can really understand them.
You can subscribe to Trust magazine or view a digital copy at bailliegifford.com/trust
Suggestions and Questions
Any suggestions on how communications with shareholders can be improved are welcomed, so please
contact the Baillie Gifford Client Relations Team and give them your suggestions. They will also be
very happy to answer questions that you may have about Baillie Gifford Japan.
Baillie Gifford Japan on the Web
Up-to-date information about Baillie Gifford Japan, including a monthly commentary, recent portfolio
information and performance figures, can be found on the Company’s page of the Managers’ website
at japantrustplc.co.uk.
You can also find a brief history of Baillie Gifford Japan, an explanation of the effects of gearing
and a flexible performance reporting tool.
Client Relations Team Contact Details
You can contact the Baillie Gifford Client Relations Team by telephone, email or post:
Telephone: 0800 917 2112
Your call may be recorded for training or monitoring purposes.
Email: trustenquiries@bailliegifford.com
Website: bailliegifford.com
Address:
Baillie Gifford Client Relations Team
Calton Square
1 Greenside Row
Edinburgh EH1 3AN
Please note that Baillie Gifford is not permitted to give financial advice. If you would like advice,
please ask an authorised intermediary.
103
Recent Articles
SWCC Showa: rewiring Japan
by Joji Sakurai
How an ultra-traditional Japanese engineering firm became key to Japan’s power overhaul.
Japan: Opportunities in automation
by Donald Farquharson
Japan’s automation revolution and its global leadership in robotics.
Future Stocks: Our best ideas in Japan
by Thomas Patchett
Thomas Patchett uncovers three companies driving new opportunities in Japan.
These articles can be viewed by scanning the QR codes below each.
104
Company Information
Directors
Chairman: David Kidd
Sharon Brown
Sam Davis
Patricia Lewis
Joanna Pitman
Alternative Investment Fund Managers,
Secretaries and Registered Office
Baillie Gifford & Co Limited
Calton Square
1 Greenside Row
Edinburgh EH1 3AN
T: +44 (0)131 275 2000
bailliegifford.com
Depositary
The Bank of New York Mellon (International)
Limited
180 Queen Victoria Street
London EC4V 4LA
Company Details
japantrustplc.co.uk
Company Registration No. SC075954
ISIN: GB0000485838
Sedol: 0048583
Ticker: BGFD
Legal Entity Identifier:
54930037AGTKN765Y741
Registrar
Computershare Investor
Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
T: +44 (0)370 707 1229
Company Broker
Investec Bank plc
30 Gresham Street
London EC2V 7QP
Further Information
Client Relations Team
Baillie Gifford & Co
Calton Square
1 Greenside Row
Edinburgh EH1 3AN
T: +44 (0)800 917 2112
trustenquiries@bailliegifford.com
Independent Auditor
Ernst & Young LLP Chartered Accountants
and Statutory Auditors
Atria One
144 Morrison Street
Edinburgh EH3 8EX
japantrustplc.co.uk
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN
Telephone +44 (0)131 275 2000