Final Results

RNS Number : 4621Z

Baillie Gifford Shin Nippon PLC

16 March 2012

 



Press Release

Baillie Gifford Shin Nippon PLC

Results for the year to 31 January 2012

Over the year the Company's net asset value per share (after deducting borrowings at fair value) fell by 1.7%, whilst the comparative index* rose by 0.5% in sterling terms. The share price rose 2.4% and its discount to net asset value narrowed from 8.8% to 4.9%.

In sterling terms over three years, the Company's comparative index is up 17.9%, whilst the net asset value and share price are up by 43.9% and 74.7% respectively.

¾  Many of the top performing holdings were internet companies that are creating new markets by innovating, or companies that rely on the internet as a business tool capable of disrupting an existing inefficient marketplace. Growth companies with an overseas focus tended to underperform due to the strengthening yen and demand concerns in end markets.

¾  Turnover within the portfolio remains low given our patient investment approach but we continue to find lots of companies with attractive long term growth prospects. Examples of new holdings include: Bit-isle, a leading data centre operator that benefits from booming mobile data consumption; GMO Payment Gateway, an online payment processing service provider that is growing rapidly as the e-commerce market expands; Endo Lighting, which manufactures and installs low energy consumption LED lighting systems in commercial facilities; and Siix Corp, which provides outsourced manufacturing services to Japanese automobile and consumer electronics companies as they look to diversify their production bases across Asia.

¾  Having been impacted negatively by the catastrophic consequences of last year's earthquake and concerns over the state of the global economy, the Japanese economy should benefit this year from the commencement of restructuring programmes in the regions affected by the natural disaster and from any US economic recovery.

¾  The Board and Managers believe that the Company is invested in a portfolio of dynamic, high growth, attractively valued stocks which should be in a position to grow their profits over many years.

* The Company's comparative index for the year to 31 January 2012 was the MSCI Japan Small Cap Index (total return in sterling terms).

Shin Nippon aims to achieve long term capital growth through investment principally in small Japanese companies which are believed to have above average prospects for growth. At 31 January 2012 the Company had total assets of £64.4m (before deduction of bank loan of £9.6m).

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £79 billion under management and advice as at 15 March 2012.

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. The Company has borrowed money to make further investments. This is commonly referred to as gearing. The risk is that, when this money is repaid by the Company, the value of these investments may not be enough to cover the borrowing and interest costs, and the Company makes a loss. If the Company's investments fall in value, gearing will increase the amount of this loss. The more highly geared the Company, the greater this effect will be.

Investment in investment trusts should be regarded as medium to long term. You can find up to date performance information about Shin Nippon at www.shinnippon.co.uk.†

15 March 2012

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, Broadgate Mainland Marketing

Tel: [phone] or 07831 401309

Chairman's Statement

Performance

The Board reviews the Managers' performance over the previous 1, 3 and 5 years, with most emphasis placed on the 3 year figures. In the three years to 31 January 2012 the Company's comparative index[1] rose 17.9% in sterling terms. Shin Nippon's net asset value per share [2] rose by 43.9% during the period, while the share price rose by 74.7%. Borrowings were beneficial as was the strengthening of the yen against sterling, but the bulk of our outperformance resulted from good stock selection. The discount of the share price to net asset value narrowed from 21.7% to 4.9%. The Company's performance against its peer group was again encouraging with a net asset value total return ranking of 2/5 over 1 and 3 years and 1/5 over 5 years[3].

Over the twelve months to 31 January 2012 the comparative index rose by 0.5% in sterling terms. Shin Nippon's net asset value per share[2] fell by 1.7% during the period and the share price rose by 2.4%. The discount of the share price to net asset value narrowed from 8.8% to 4.9%, having ranged between a discount of 13.0% and a premium of 1.2% in the year.

[1] MSCI Japan Small Cap Index (total return) from 1 February 2012, and prior to that a composite index.

[2] After deducting borrowings at fair value.
[3] Source: Morningstar.

Borrowing

The Company's debt of ¥1.15bn was due for repayment in 2011 and was renegotiated and rolled over at maturity. It now bears an interest rate of 2.24% and is due for repayment in 2014. Our resultant gearing at the end of our year was 17.4% gross and 14.3% net of cash balances.

Hedging

The Company undertook no hedging in the year during which the yen strengthened 9.1% against sterling. The Board continues to monitor currency exposure actively and will consider hedging if it is felt that the yen has diverged significantly from fair value.

Revenue

The Company's revenue earnings per share declined from 0.37p in the previous year to 0.32p. Dividend income increased by 10%, but this was more than offset by management charges and other expenses, as well as higher financing costs. The Board continues to manage expenses carefully and monitors the total expense ratio very closely.

AGM

At this year's AGM the Board is seeking to renew the facility to issue new shares (and to re-issue any shares held in treasury, of which there are none at present), of up to 5% of the Company's issued share capital for cash, on a non pre-emptive basis, but only at a premium to net asset value. No shares were issued during the financial year. Such authority would be used to feed natural market demand and would enhance the net asset value per share for existing shareholders.

Approval is also sought to renew the authority to buy back shares. The purpose of this facility is to enable the Board to buy back shares when the discount is substantial in absolute terms and in relation to its peers should that be deemed to be desirable. Any such purchase would improve the net asset value per share for remaining shareholders.

Board

We were very sorry that Angus Tulloch stepped down from the Board during the year and thank him for his robust and realistic contribution to the debates on our policies. We are delighted to welcome Merryn Somerset Webb in his place. Merryn has a strong knowledge of, and interest in Japan and has worked there as a stockbroker.

Outlook

2011 was unfortunately very eventful in Japan. In the spring it suffered its worst earthquake on record. The resulting tsunami was catastrophic, causing incredible damage even 6 miles inland and wiping out much of the area's infrastructure and economy. Considerable damage was done to the Fukushima nuclear plant. There were some criticisms of the Government in its handling of the ensuing crisis but much liquidity was pumped into the economy and many industries developed innovative responses to the challenges created.

Later on in the year, the widespread flooding in Thailand also caused considerable supply chain problems for several Japanese industries resulting in a fall in GNP in the final quarter of the year.

Politics continued to disappoint as Japan announced its 6^th prime minister in 5 years. In this area there always seem to be rays of hope, but the gestation period for good policies is incredibly long. In this case there are indications that Japan is moving gradually towards higher rates of consumption tax (VAT), and we would see this as a positive development. Interestingly, and purely as an aside, a VAT rate comparable to the West could reduce significantly the Japanese government deficit.

As with politics, we have always had concerns about the quality of corporate governance in Japan's companies, albeit that this has certainly improved dramatically over the years. However, although not held by Shin Nippon, we were taken by surprise by the revelations that have come out of the Olympus scandal. Here it is alleged that very large trading losses have been routinely swept under the carpet, and when the new CEO, Michael Woodford, uncovered this scandal he was promptly sacked for his efforts. It is to be hoped that this scandal will accelerate the movement to much better governance standards.

With this background one may be forgiven for thinking that we may have lost our confidence in the future of the small company sector in Japan. Rather the opposite is the case. Indeed, it was notable that many of the portfolio's holdings continued to record excellent rates of growth last year despite all the problems I have listed. As I said in last year's statement we are rather encouraged by the interesting companies with good growth prospects that our Managers are increasingly identifying. Valuations are reasonable and there are many companies with strong competitive advantage and industry leadership both at home and overseas. Your Board and Managers remain optimistic for the sector and portfolio, and continue to maintain a reasonable level of gearing.

Barry M Rose

Chairman

15 March 2012

Past performance is not a guide to future performance.

Managers' Report

Recent coverage of the Japanese economy has been downbeat. Growth expectations have been pared in the wake of last year's earthquake and tsunami while the strong yen has clearly created challenges for exporters. However there are still areas that are experiencing very impressive rates of expansion. Spending on e-commerce, smartphones, energy efficient products and healthcare has risen sharply over the past five years for example. This has benefited the leading companies in developing industries such as internet shopping, online payment systems, mobile gaming, data storage, recycling, retail pharmacy, medical testing and nursing facilities for the elderly.

It is these emerging growth areas within Japan's 'new economy' that Shin Nippon, which translates as 'New Japan', tends to focus on. Many of the holdings in these dynamic sectors are run by younger, more entrepreneurial managements than average and in our opinion will be able to generate strong earnings growth irrespective of whether the broader economy is expanding.

Performance

The MSCI Japan Small Cap index (total return in sterling terms) rose 0.5% over the year while Shin Nippon's net asset value per share (after deducting borrowings at fair value) fell by 1.7%. Sterling returns benefited from the strengthening of the yen. The broad Japanese market underperformed world markets as a whole over the year and fared particularly badly in the period immediately after the earthquake and tsunami. However despite the inevitable short term disruption to the domestic economy, smaller companies, which as a whole tend to be more focused on the Japan market, in aggregate held up better over the year than did their large cap peers. It appears that investors were more concerned about the impact of a faltering global recovery on the larger Japanese exporters than about domestic demand.

Many of the top performing companies within the portfolio over the year were innovative internet companies working to create new markets or companies that use the internet as a business tool in order to disrupt an existing inefficient marketplace. Most of these companies have been held by Shin Nippon for several years so it is pleasing to see their multi-year growth opportunities continuing to develop and expand.

Zozotown, Start Today's market leading online apparel website, continued to gain new customers and attract new fashion brands. The value of items sold currently on Start Today's multi-brand website is still significantly less than the total revenues at some of Japan's leading single brand traditional bricks and mortar apparel retailers; this suggests Zozotown has significant scope to continue capturing market share. Similarly, M3 Inc's low cost, internet based, direct marketing to doctors continues to appeal to drug companies globally looking to reduce their overall promotion costs. The company has continued to expand overseas by buying specialist medical websites in Europe and by forming an alliance with an American company that has close relationships with a high proportion of US physicians. Digital Garage, an internet investment company with stakes in Japan's leading price comparison website and Twitter amongst others, was another one of the better performing holdings.

Even in older segments of the economy Japanese companies are harnessing the power of the internet. Monotaro, which supplies a huge variety of components to small manufacturing businesses, has developed an advanced online distribution system that has been winning customers away from inefficient, small traditional wholesalers. The strength of Monotaro's supply chain was highlighted in the aftermath of the earthquake; thanks to the inventory stored at its vast, industry leading, distribution centres, the company was one of the few distributors that managed to continue reliably supplying customers.

Given the market's worries about the direction of the global economy over the course of the year and the consequent impact on exporting companies, it is perhaps unsurprising that some of the domestic healthcare related holdings with good demand for their services and products performed well.

Message, a leading but still expanding operator of residential care homes for the elderly is benefitting from the rising demand for such facilities nationally. Our retail pharmacy operators, Cocokara Fine and Cosmos Pharmaceutical, are also doing well as demand for prescriptions increases and the market consolidates around a few efficient expanding chains that should dominate the market in the longer term.

This consolidation ties in with the pick-up in merger and acquisition activity in Japan, another positive and accelerating trend. Some companies are using their strong balance sheets and the yen's strength to expand overseas by acquiring international competitors something that should increase their long term growth prospects. Indeed, last year witnessed a record amount of overseas deals by value for Japanese companies. Following disruption caused by the earthquake, many management teams appear to have re-evaluated their companies' long term prospects and adopted a more aggressive strategy. Domestically, many ageing small business owners, because they lack a successor, are also seeking mergers to secure a future for their company. This kind of action should help make currently fragmented markets more efficient in the long term and is good for Nihon M&A, a holding that specialises in merger advisory services. It is adding more and more consultants every year to help it deal with the increasing number of enquiries it is receiving thanks to strong relationships with local accountancy offices.

Management buy-outs and the trend by which parent companies buy out their listed subsidiaries continued to be a feature of the market as well. Management teams and business owners clearly think that the market is significantly undervaluing many listed smaller companies and taking things into their own hands as a result. Two Shin Nippon holdings were bid for over the year with the most recent offer, for property company Sankei Building, representing approximately a 150% premium to the share price at the time.

Some of our holdings, in particular those that rely more on overseas demand did not perform as well as hoped this year but we remain convinced of the long term prospects for investments that benefit from long term trends such as rising incomes in developing markets and the introduction of automated production processes as wage costs rise in other Asian countries.

Portfolio

Given our long term investment horizon, stock turnover within the portfolio over the year remained relatively low at just 19.7%. Several of the most recent purchases have been focused on the new, emerging areas of the economy mentioned earlier. Some of the new holdings were too small to invest in until recently, but the companies are increasing in value as the market recognises just how quickly earnings are progressing. 

For example, Bit-isle is one of the leading operators of large data centres in Japan. Demand for data storage is rising rapidly as the penetration of data consumptive smartphones increases and as cloud computing becomes more popular. Obtaining permission for new data centres takes a long time given the power consumption of these buildings, so there is currently a significant shortage of storage capacity. Bit-isle is expanding some of its existing facilities and increasing the rental charges for its storage servers. GMO Payment Gateway, another recent investment, is a leading provider of payment processing services to shopping websites in Japan. GMO Payment has more than thirty thousand websites using its services and is a direct beneficiary of the rapid growth in the e-commerce market in Japan. F@N Communications is another example of a holding operating in a new industry that would not have existed just a decade or so ago. The company is one of Japan's largest providers of affiliate marketing services to companies looking to advertise on the internet. F@N Communications aggregates the details of huge numbers of tiny websites, particularly bloggers, and introduces them to large advertisers that are looking to place adverts on specialist websites where readers should be more interested in buying a related product. F@N Communications earns a commission when customers click through and buy from the original advertisers' website.

Other recent new purchases in more traditional parts of the economy include Endo Lighting, a company that designs, manufactures and installs architectural lighting in large commercial facilities. The company has been swift to switch to focus on energy efficient LED lighting systems and many companies, including supermarkets and convenience stores, have been rushing to introduce new lighting systems in the wake of the power shortages that followed the devastation at the Fukushima power plant. Another new holding that has seen existing beneficial trends accelerate since the natural disasters last year is Siix Corp. This company provides outsourced manufacturing and assembly services to the Japanese automobile and consumer electronics industries at low cost plants around the rest of Asia. Interest in Siix' services has been picking up following the disruption to supply chains in Japan last year as companies look to diversify their production base and minimise potential for disruption.

The portfolio continues to offer attractive exposure to a mix of smaller Japanese growth companies that are expanding both in Japan, by innovating or disrupting an existing market, or by tapping into rising demand in overseas markets.

Outlook

The Japanese economy should benefit this year as the long awaited reconstruction programmes finally commence in the regions worst affected by the tsunami. Furthermore, recent moves by the Bank of Japan suggest that the Japanese authorities may be adopting a more proactive stance towards weakening the yen, which would help sentiment towards the Japanese market as a whole. Japan tends to perform well when the global economy is expanding, so the tentative signs that the US economy may be recovering are encouraging. We are finding many new and interesting investment ideas and Shin Nippon's portfolio of dynamic, high growth, lowly valued stocks is well placed to benefit from a variety of investment themes.

Baillie Gifford & Co

15 March 2012

Past performance is not a guide to future performance.

Portfolio Performance Attribution for the Year to 31 January 2012^*

Computed relative to the comparative index^†

	Index		Shin Nippon		Performance#		Contribution	Contribution  attributable to:
	asset allocation		asset allocation		Shin		to relative	Stock	Asset
	31.01.11	31.01.12	31.01.11	31.01.12	Nippon	Index	return	selection	allocation	Gearing
Portfolio Breakdown	%	%	%	%	%	%	%	%	%	%
Consumer Discretionary	21.6	20.8	31.0	25.1	(4.9)	5.9	(2.4)	(2.8)	0.4	-
Consumer Staples	8.5	10.1	6.7	10.4	16.8	11.3	0.4	0.3	0.1	-
Energy	0.7	0.7	2.3	1.3	(0.5)	5.7	(0.1)	(0.2)	0.1	-
Financials	18.5	18.1	8.1	7.1	(3.8)	(2.6)	0.1	(0.2)	0.3	-
Healthcare	4.5	4.6	13.0	14.6	7.1	8.3	0.5	(0.3)	0.8	-
Industrials	22.7	22.9	23.8	24.2	2.7	1.8	0.3	0.3	-	-
Information Technology	10.9	10.2	12.2	14.6	(0.8)	(9.8)	0.9	1.0	(0.1)	-
Materials	12.2	12.3	2.9	2.7	9.4	(6.9)	1.2	0.4	0.8	-
Telecommunication     Services	0.1	-	-	-	-	-	-	-	-	-
Utilities	0.3	0.3	-	-	-	1.3	-	-	-	-
Total (excluding gearing)	100.0	100.0	100.0	100.0	1.3	0.5	0.8	(1.5)	2.3	-
Impact of gearing					(1.7)	-	(1.7)	-	-	(1.7)
Total (including gearing) **	100.0	100.0	100.0	100.0	(0.4)	0.5	(0.9)	(1.5)	2.3	(1.7)

Past performance is not a guide to future performance.

Source: Baillie Gifford & Co/Statpro.

Contributions cannot be added together, as they are geometric; for example to calculate how a return of 1.3% against an index return of 0.5% translates into a relative return of 0.8%, divide the portfolio return of 101.3 by the index return of 100.5 and subtract one.

*      The performance attribution table is based on total assets

†      The comparative index for the year to 31 January 2012 was the MSCI Japan Small Cap index, total return and in sterling terms.

#      The returns are total returns (net income reinvested), calculated on a monthly linked method.

**     The total return performance of (0.4%) excludes expenses and therefore differs from the NAV return (after deducting borrowings at fair value) of (1.7%) as a result.

Income statement

The following is the unaudited preliminary statement for the year to 31 January 2012 which was approved by the Board on 15 March 2012. No dividend is payable.

	For the year ended 31 January 2012 (unaudited)			For the year ended 31 January 2011 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments*	-	(256)	(256)	-	12,795	12,795
Currency losses (note 2) †	-	(703)	(703)	-	(812)	(812)
Income	1,219	-	1,219	1,108	-	1,108
Investment management fee (note 3)	(546)	-	(546)	(503)	-	(503)
Other administrative expenses	(272)	-	(272)	(234)	-	(234)
Net return before finance costs and taxation	401	(959)	(558)	371	11,983	12,354
Finance costs of borrowings (note 4)	(218)	-	(218)	(179)	-	(179)
Net return on ordinary activities before taxation	183	(959)	(776)	192	11,983	12,175
Tax on ordinary activities	(85)	-	(85)	(78)	-	(78)
Net return on ordinary activities after taxation	98	(959)	(861)	114	11,983	12,097
Net return per ordinary share (note 6)	0.32p	(3.08p)	(2.76p)	0.37p	38.53p	38.90p

*      (Losses)/gains on investments include gains and losses on disposals and holding gains and losses on the investment portfolio resulting from: i) changes in the local currency fair value of the investments and, ii) movements in the yen/sterling exchange rate.

†      Currency losses include: i) currency exchange gains and losses on yen bank loans, ii) exchange differences on the settlement of investment transactions and, iii) other exchange differences arising from the retranslation of cash balances.

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

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

Balance sheet

	At 31 January 2012 (unaudited)		At 31 January 2011 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments		62,698		63,245
Current assets
Debtors	182		124
Cash and short term deposits	1,712		1,333
	1,894		1,457
Creditors
Amounts falling due within one year (note 7)	(230)		(9,036)
Net current assets/(liabilities)		1,664		(7,579)
Total assets less current liabilities		64,362		55,666
Creditors
Amounts falling due after more than one year (note 7)		(9,557)		-
Total net assets		54,805		55,666
Capital and reserves
Called up share capital		3,110		3,110
Share premium		7,674		7,674
Capital redemption reserve		21,521		21,521
Capital reserve		26,932		27,891
Revenue reserve		(4,432)		(4,530)
Shareholders' funds		54,805		55,666
Net asset value per ordinary share (after deducting borrowings at fair value)		176.0p		179.0p
Net asset value per ordinary share (after deducting borrowings at par value)		176.2p		179.0p

Reconciliation of movements in shareholders' funds

For the year ended 31 January 2012 (unaudited)

	Called up share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2011	3,110	7,674	21,521	27,891	(4,530)	55,666
Net return on ordinary activities after taxation	-	-	-	(959)	98	(861)
Shareholders' funds at 31 January 2012	3,110	7,674	21,521	26,932	(4,432)	54,805

For the year ended 31 January 2011 (audited)

	Called up share capital £'000	Share premium £'000	Capital  redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2010	3,110	7,674	21,521	15,908	(4,644)	43,569
Net return on ordinary activities after taxation	-	-	-	11,983	114	12,097
Shareholders' funds at 31 January 2011	3,110	7,674	21,521	27,891	(4,530)	55,666

Cash flow statement

	For the year ended 31 January 2012 (unaudited)		For the year ended 31 January 2011 (audited)
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities (note 9)		342		440
Servicing of finance
Interest and breakage costs paid	(255)		(171)
Net cash outflow from servicing of finance		(255)		(171)
Taxation
Overseas tax paid	(80)		(83)
Total tax paid		(80)		(83)
Financial investment
Purchases of investments	(12,120)		(9,016)
Sales of investments	12,401		9,510
Exchange differences on settlement of investment transactions	16		(47)
Net cash inflow from financial investment		297		447
Increase in cash		304		633
Reconciliation of net cash flow to movement in net debt
Increase in cash		304		633
Exchange movement on bank loans		(794)		(846)
Exchange differences on cash		75		81
Movement in net debt in the year		(415)		(132)
Opening net debt		(7,430)		(7,298)
Closing net debt		(7,845)		(7,430)

Twenty largest equity holdings at 31 January 2012 (unaudited)

Name	Business	2012 Value £'000	2012 % of total assets	2011 Value £'000
Start Today	Internet fashion retailer	2,925	4.5	3,537
Message	Provides nursing services for the elderly	2,883	4.5	2,723
Don Quijote	Discount store chain	2,514	3.9	2,151
Nabtesco	Hydraulic equipment	2,060	3.2	2,872
Hamakyorex	Third party logistics	1,911	3.0	1,874
Cocokara Fine	Drugstore chain	1,766	2.7	1,409
Monotaro	Supplies small machinery parts	1,689	2.6	809
M3	Online medical database	1,583	2.5	1,372
Nakanishi	Dental equipment	1,494	2.3	1,558
First Juken	Builds and sells residential buildings	1,461	2.3	1,656
Unipres	Manufactures automotive components	1,460	2.3	934
Daikokutenbussan	Discount store for food and sundry goods	1,428	2.2	1,657
EPS	Clinical testing services	1,418	2.2	1,800
Osaka Securities Exchange	Stock exchange operator	1,370	2.1	1,183
FP Corp	Manufacture and sale of food containers	1,218	1.9	1,072
Nihon M&A Center	M&A advisory services	1,191	1.8	828
Dainippon Screen Manufacturing	Manufacturer of graphic arts equipment	1,151	1.8	1,241
Nippon Information Development	Computer system integration services	1,136	1.8	967
Iriso Electronics	Specialist connectors	1,134	1.8	1,171
Pronexus	Financial printing services	1,124	1.7	1,127
		32,916	51.1	31,941

Notes (unaudited)

1.	The financial statements for the year to 31 January 2012 have been prepared on the basis of the same accounting policies used for the year to 31 January 2011. 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, and on the assumption that approval as an investment trust under section 1158 of the Corporation Tax Act 2010 will continue to be granted. After making enquiries, the financial statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.
2.	Currency (losses)/gains	31 January 2012 £'000	31 January 2011 £'000
	Exchange differences on bank loans	(794)	(846)
	Other exchange differences	91	34
		(703)	(812)
3.	Investment management fee - all charged to revenue	31 January 2012 £'000	31 January 2011 £'000
	Investment management fee	546	503
	Baillie Gifford & Co are employed by the Company as Managers and Secretaries under a management agreement which is terminable on not less then six months' notice or on shorter notice in certain circumstances. The fee in respect of each quarter is 0.25% of the total net assets of the Company attributable to its shareholders on the last day of that quarter. Miss SJM Whitley, who was a Director of the Company until she retired on 17 June 2010, is a partner of Baillie Gifford & Co.
4.	The Company paid interest on bank loans of £218,000 (2011 - £179,000).
5.	No dividend will be declared.

Notes (unaudited) (ctd)

6.	Net return per ordinary share	31 January 2012 £'000		31 January 2011 £'000
	Revenue return	98		114
	Capital return	(959)		11,983
	Total return	(861)		12,097
	The returns per ordinary share set out below are based on the above returns and on 31,100,497 ordinary shares (2011 - 31,100,497), being the weighted average number of ordinary shares in issue during the year.  There are no dilutive or potentially dilutive shares in issue.
	Revenue return	0.32p		0.37p
	Capital return	(3.08p)		38.53p
	Total return	(2.76p)		38.90p
7.	During the year, the company refinanced its borrowings with The Royal Bank of Scotland plc. The 7 year ¥1,150 million loan matured on 10 August 2011 and was replaced by a 3 year ¥1,150 million loan at 2.24% maturing on 8 August 2014.
8.	At 31 January 2012 the Company had authority to buy back 4,661,964 shares. No shares were bought back during the year. Share buy-backs are funded from the capital reserve.
9.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	31 January 2012 £'000		31 January 2011 £'000
	Net return before finance costs and taxation	(558)		12,354
	Losses/(gains) on investments	256		(12,795)
	Currency losses	703		812
	(Increase)/decrease in accrued income	(67)		68
	Decrease/(increase) in other debtors	14		(17)
	(Decrease)/increase in creditors	(6)		18
	Net cash inflow from operating activities	342		440
10.	The Report and Accounts will be available on the Company's website www.shinnippon.co.uk† on or around 29 March 2012.
11.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 January 2012. The financial information for 2011 is derived from the statutory accounts for 2011, which have been delivered to the Registrar of Companies. The Auditors have reported on the 2011 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2012 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 4 May 2012. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

†Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

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