Annual Financial and Audit Reports
Source: RNS
The Baillie Gifford Japan Trust PLC
Legal Entity Identifier: 54930037AGTKN765Y741
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the preliminary statement of audited annual results announced to the Stock Exchange on 14 October 2021, The Baillie Gifford Japan Trust PLC ("the Company") announces that the Company's Annual Report and Financial Statements for the year ended 31 August 2021, including the Notice of Annual General Meeting, has been posted to shareholders and submitted electronically to the National Storage Mechanism where it will shortly be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
It is also available on the Company page of the Baillie Gifford website at: japantrustplc.co.uk (as is the preliminary statement of audited annual results announced by the Company on 14 October 2021).
Covid-19 coronavirus - Important note regarding arrangements for the Annual General Meeting (AGM)
The Board of The Baillie Gifford Japan Trust PLC (Baillie Gifford Japan) recognises the public health risk associated with the Covid-19 pandemic arising from public gatherings and notes the Government's measures restricting such gatherings, travel and attendances at workplaces.
At the same time, the Board is conscious of the legal requirement for Baillie Gifford Japan to hold its AGM before the end of February 2022. Given the current uncertainty around when public health concerns will have abated, the Board has for the time being decided to aim to follow the Company's customary corporate timetable and, accordingly, the Company's AGM is being convened to take place at 12.30pm on Thursday 16 December 2021 at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN. At present, the Board expects to be able to welcome shareholders to the meeting. Should public health advice and Government measures change, however, arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business be concluded. The Board will continue to monitor developments and any changes will be updated on the Company's website.
In the meantime, 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 14 December 2021.
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.
Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
Each of the Directors, whose names and functions are listed within the Directors and Managers section of the Annual Report and Financial Statements, confirm that, to the best of their knowledge:
¾ the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' give a true and fair view of the assets, liabilities, financial position and net return of the Company;
¾ 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; and
¾ the Strategic 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 (as also set out below).
Principal and Emerging Risks relating to the Company
As explained on pages 31 and 32 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the 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. Baillie Gifford's Business Risk Department
provides regular updates covering the Company's principal and emerging risks. There have been no significant changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below.
The Board considers the Covid-19 pandemic and Brexit to be factors which exacerbate existing risks, rather than new emerging risks. Their impact is considered within the relevant risks.
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Risk |
Mitigation |
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Financial 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 on pages 55 to 57 of the Annual Report and Financial Statements. The Board has, in particular, considered the impact of heightened market volatility since the Covid-19 outbreak. 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 and the top and bottom contributors to performance. The Manager provides rationale for stock selection decisions. A strategy meeting is held annually. The Board has considered the potential impact on sterling from the remaining Brexit related uncertainties. 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. |
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Investment Strategy Risk - pursuing an investment 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. |
To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of premium/discount to net asset value at which the shares trade; and movements in the share register. |
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Discount Risk - the premium/discount at which 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. |
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. |
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Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment 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 or the Company being subject to tax on capital gains. Changes to the regulatory environment could negatively impact the Company. |
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. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made 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. |
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Environmental, Social and Governance (ESG) Risk - any failure by the Investment Manager to identify potential future problems on ESG matters in an investee company could lead to the Company's shares being less attractive to investors as well as potential valuation issues in the underlying investee company. |
This is mitigated by the Investment Manager's ESG application, which is integrated into the investment process, as well as the extensive up-front and on-going due diligence which the Investment Manager undertakes on each investee company. This includes the risk inherent in climate change (see page 17 of the Annual Report and Financial Statements). |
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Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber security incidents. |
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. The Custodian's audited internal controls 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 investigated. In addition, the existence of assets is subject to annual external audit. |
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Smaller Company Risk - 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. |
To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the investment case and portfolio weightings with the Managers. A spread of risk is achieved by holding a minimum of 40 stocks. |
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Operational Risk - 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. |
To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption (including any disruption resulting from the Covid-19 pandemic) or major disaster. Since the introduction of the Covid-19 restrictions, almost all Baillie Gifford staff have been working from home and operations have continued very largely as normal. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board. In the year under review, the other key third party service providers have not experienced significant operational difficulties affecting their respective services to the Company. |
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Leverage Risk - the Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments 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. |
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 65 of the Annual Report and Financial Statements and in the Glossary of Terms and Alternative Performance Measures on pages 66 and 67 of the Annual Report and Financial Statements. |
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Political and Associated Economic Risk - political change in areas in which the Company invests or may invest may have practical consequences for the Company. |
To mitigate this risk developments are closely monitored and considered by the Board. Following the UK's departure from the European Union the Board believes that the Company's portfolio, which comprises companies which are incorporated or domiciled in Japan, positions the Company to be suitably insulated from Brexit-related risk. |
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Cyber Security Risk - a cyber attack on Baillie Gifford's network or that of a third party service provider could impact the confidentiality, integrity or availability of data and systems. |
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 report 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. |
Emerging Risks - as explained on pages 31 to 32 of the Annual Report and Financial Statements the Board has regular discussions on principal risks and uncertainties, 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.
Baillie Gifford & Co Limited
Company Secretaries
27 October 2021
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