Baillie Gifford Japan Trust PLC

Annual Report • Nov 7, 2024

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. 7 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 11 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