Final Results

RNS Number : 2839C

Baillie Gifford Shin Nippon PLC

14 March 2014

 



RNS Announcement: Preliminary Results

Baillie Gifford Shin Nippon PLC

Results for the year to 31 January 2014

Over the year the Company's net asset value per share (after deducting borrowings at fair value) rose 45.5%, whilst the comparative index^* rose by 17.3% in sterling terms.  The share price rose 46.4% and ended the year at a 6.6% premium to net asset value (2013 - premium of 5.9%).

In sterling terms over three years, the Company's comparative index is up 21.9%, whilst the net asset value and share price are up by 72.0% and 100.9% respectively.

¾    Shin Nippon continues to focus on investing in innovative young companies that are creating entirely new markets and disruptive new businesses that are gaining share from pedestrian incumbents.

¾    Many of the top performing holdings were e-commerce related stocks such as F@N Communications, GMO Payment Gateway and Start Today.

¾    Turnover within the portfolio remains low, 14.4% versus 15.9% the prior year, however several new holdings were taken: Oisix operates the most popular organic grocery website in Japan; Jeol is a specialist manufacturer of high-powered microscopes and other scientific analysis equipment; and Yume No Machi, which aggregates online takeaway menu information.

¾    Economic conditions within Japan are much healthier than they have been in recent years, supported by accommodative policies from the Bank of Japan and Prime Minister Abe's government.

¾    During the year, the Company issued 4.02m shares, 12.3% of its 31 January 2013 issued share capital, at an average premium to net asset value per share of 4.6%.

^* The Company's comparative index for the year to 31 January 2014 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 2014 the Company had total assets of £133.8m (before deduction of bank loan of £19.8m).

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £105 billion under management and advice as at 13 March 2014.

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.

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, Broadgate Mainland

Tel: [phone] or 07831 401309

Chairman's Statement

Performance

Your Board reviews performance mainly over rolling three year periods. I am pleased to report that in the three year period to 31 January 2014 Shin Nippon's net asset value per share rose 72.0%, significantly more than the 21.9% increase in the Company's comparative index (MSCI Japan Small Cap Index total return in sterling terms). Our share price rose by 100.9% over this period. Our Yen borrowings were beneficial to performance and stock selection was very strong.

Over the year to 31 January 2014 Shin Nippon's net asset value per share rose 45.5%, also significantly above the 17.3% rise in the Company's comparative index. The share price rose by 46.4% in the year. Stock selection was extremely good in the year and borrowings were helpful to performance. The 13.7% weakening of the yen against GBP was adverse for sterling based investors but its weakness has improved the margins of Japanese exporters and has encouraged overseas and domestic investors, to return to the market.

I am delighted that our strong performance was recognised at the Investment Week Investment Trust of the Year Awards in November where we were voted the 'Best Overseas Smaller Companies Trust'.

Share Issuance

The share price stood at a premium to net asset value throughout most of the year and ended the year at a premium of 6.6%. During this period the opportunity was taken to issue 4.02m shares (12.3% of our share capital at 31 January 2013) raising £11.4m. These shares were all issued at a premium to net asset value, which averaged 4.6%. Over the year this resulted in an enhancement of net asset value of 0.7% per share.  In approving these share issues we are mindful that in increasing the size of the Company our shares are likely to have improved liquidity and to be more attractive to a wider range of shareholders.

Borrowing and Hedging

During the year we reviewed our borrowing arrangements. We have negotiated a new loan facility of ¥3.35bn. This is a 7 year facility from ING expiring in November 2020. Gearing at 31 January 2014 was 11% compared to 10% at January last year. The gearing is likely to be maintained as the Managers continue to find interesting Japanese smaller company investments.

The Company undertook no currency hedging in the period, but we continue to monitor the situation.

Revenue

Although portfolio income continued to benefit from dividend growth this factor was more than offset by higher expenses and finance costs. The Company's revenue earnings per share declined from a loss of 0.07p to a loss of 0.69p. The uplift in net asset value over the year resulted in higher absolute fees payable to the Managers. Finance costs increased due to interest payable on the increased yen borrowings.

It is pleasing to note that a new management fee structure was agreed with Baillie Gifford & Co which was effective from 1 April 2013 (see note 3 for details of the management fee arrangements). Had the former structure been in place for the full year, approximately a further £186,000 would have been payable to the Managers.  The Board continues to monitor the Company's expenses carefully.

AGM

At this year's AGM the Board is seeking to renew the facility to issue new shares (and to reissue any shares held in treasury, of which there are currently none), of up to 25% of the Company's issued share capital for cash, on a pre-emptive basis, but only at a premium to net asset value so enhancing net asset value for existing shareholders.

There has been notable demand for the Company's shares over the past 15 months resulting in them trading at a premium, often substantial, to the underlying net asset value.  To ensure that the premium does not reach a level that dissuades investment from regular savers and those wishing to take a new holding, the Company envisages issuing further shares into the market in an attempt to redress the recent imbalance between supply and demand.  The Board has contemplated more substantive one off issuance events, such as a 'C' Share Issue, but considers supplying natural market demand, as and when it materialises, to be in the best interest of existing shareholders. The Board is also mindful that at current market levels the Managers' investment philosophy and process is not compromised by extensive levels of cash requiring investment.

Approval will also be sought to renew the authority to buy back shares. This would enable the Board to buy back shares if the discount to net asset value is substantial in absolute terms or in relation to its peers, should that be deemed to be desirable. Any such activity would be net asset value enhancing for remaining shareholders.

Governance

Your Board and Manager have spent a very large amount of time during the year ensuring that our processes and procedures will be compliant with the new Alternative Investment Fund Managers Directive to be implemented later this year. We are minded to appoint Baillie Gifford and Co Ltd as our Alternative Investment Fund Manager under this legislation, and will make a formal decision about this later in the year. Personally, I am very doubtful that this legislation will bring any real benefit to our Company or to the Investment Trust sector. However, the requirement to appoint a depositary will provide additional oversight and should mitigate risk in a number of areas, particularly those of custody and cash monitoring.

Over the years we have been very keen to ensure that we refresh your Board in a sensible fashion. With this in mind I have informed my colleagues of my intention to stand down from the Chair and Board at the AGM in 2015. They will identify and recruit my successor in the coming months so that there can be a suitable period of continuity during the transition.

Outlook

In my report to you last year I commented that "The Japanese political environment had a rare positive impact on the market over the last year". I am delighted to be able to report that this has continued. Prime Minister Abe has continued to pursue his growth agenda, and there are encouraging signs that his policies are being implemented gradually and are having an impact. The programme of consumption tax increases is now agreed for April 2014; there are signs that monetary easing is stimulating Japan out of its long period of deflation and that the 2% inflation target could be met; exporters are delighted by the weakness in the yen and there are encouraging signs that companies will begin to increase wages. There are some negatives of course, and the principal one is arguably the deteriorating diplomatic relations between Japan and China due mainly to the ongoing altercation about the Senkaku Islands (known as the Diaoyu Islands in China).

This political and economic background has encouraged many international and domestic investors into the Japanese market and contributed to the large market rise we have seen. My point in writing about these developments is to caution that should Abe and his Government falter in these plans then there must be a risk that these inflows could easily reverse. We have no particular insight to believe that this may happen in the short term at least, but I feel it would be remiss not to highlight the pronounced market risk.

However, the more important point I want to stress is that Baillie Gifford Shin Nippon is very much a stock picking fund. The strategy is to identify and invest in smaller companies that have competitive advantage, strong managements and potential for growth. It is not founded on the fundamentals of the Japanese market itself. I am pleased to report that the Managers are still finding attractive companies in which we can invest and, despite the sharp market rise, share price ratings are not excessive. More information about our portfolio is contained in the Managers' detailed report.

Barry M Rose

Chairman

13 March 2014

Past performance is not a guide to future performance.

Managers' Report

Last year's Managers' report noted increased entrepreneurial activity in Japan and suggested that this might lead to greater commercialisation of the undoubted innovation taking place within Japanese research laboratories. Since then there has been further evidence of Japan's ability to generate world leading research, notably in the fields of robotics and biotechnology, while positive signs regarding the monetisation of these breakthroughs has emerged. Google's purchase of a Tokyo University-related humanoid robot company hints that Japan is finally managing to adapt its vast industrial robotics knowledge base to other emerging applications.

Encouragingly, the profile of Japan's leading entrepreneurs, who act as inspirational role-models to the founders of start-ups, also continues to blossom. One of the strands of 'Abenomics', as the current government's growth plan has become known, highlights some of the newer industries (that many of these entrepreneurs' companies dominate) as key growth markets and drivers for the Japanese economy. Several of these role-models have become involved in advising the government on progressive policy changes that could increase growth opportunities for other 'new economy' businesses. It seems like a world away from the 'old' Japan where up-and-coming entrepreneurs with disruptive business practices were stymied regularly by regulators focussed on protecting sleepy incumbents. There is increasing acceptance, and even praise, of successful self-made businesspeople within Japanese society, something we hope will encourage more of Japan's most talented to set up their own companies. The resurgent IPO market should encourage this trend and broadens the choice of potential holdings for Shin Nippon. Last year witnessed the largest number of new listings since 2007 as many companies in new, expanding industries, previously prevented from listing by weak market conditions, finally came to market.  

Most of Shin Nippon's holdings operate in expanding niches that are largely unaffected by the vacillations of the broader economy. None the less, the greater sense of optimism as the Japanese economy recovers, and the potential increased appetite for measured risk-taking as inflation returns, should benefit the business start-up environment. Regulatory efforts to reduce personal liability, in the case of a start-up business bankruptcy, may also stimulate new business creation in the long term. The positive impact on national pride and general confidence from winning the 2020 Olympics, after a long period struggling to deal with the rising prowess of China, should not be underestimated.

Performance

The MSCI Japan Small Cap Index (total return in sterling terms) rose by 17.3% over the year while Shin Nippon's net asset value per share (after deducting borrowings at fair value) rose by 45.5%. Japanese markets rose strongly in local currency terms over the year, as investors reacted positively to the Government and Central Bank's concerted efforts to kick-start the economy. These moves contributed to the continued weakening in the yen, reducing moderately sterling based returns. Over the year, the Company's gearing had a positive impact on performance.  

The e-commerce market in Japan, as elsewhere in the world, continues to expand rapidly and several of the best performing holdings benefited from this positive background. Japan's belated shift to a smartphone dominated mobile market has accelerated this trend. Internet advertising company F@N Communications was the largest positive contributor to performance over the year. It provides affiliate marketing services to help big advertisers, particularly e-commerce companies, identify the most productive small specialist websites/blogs on which to place adverts. If a customer clicks through and purchases a product, F@N Communications earns a lucrative commission fee. Profits have been growing because the company has developed a strong presence in the nascent, but rapidly expanding, mobile telephone advertising market. 

GMO Payment Gateway is one of the leading providers of digital payment processing services, facilitating transactions on over 40,000 small websites in Japan. Growth expectations for the company were continually increased over the course of 2013 as more websites signed up to use the services, boosting the outlook for recurring annual fees. In addition, the company collects revenues related to the number of transactions that are processed and its customers' websites appear to have been performing very well. It has also been adding new value-added services to allow customers to analyse the performance of different parts of their websites. 

Start Today, Japan's dominant online apparel retailer, had a much stronger year after struggling a little as Japan transitioned to a smartphone environment. Rather than just offering a simpler version of its PC website, the company has started to improve its mobile offering to take advantage of some of the inherent consumer benefits of mobile internet. The latest Start Today mobile app has proved very popular with fashion conscious users who can now scan the barcodes of clothes in shops to upload images and then visualise how they look with other items. Images can be shared with friends and if the user decides to go ahead and make a purchase, they can do so easily through the app.  

Several holdings that have been building their websites, with the intention of becoming the de facto online marketplace for their particular industry, also performed well. Infomart operates a web-based platform that allows restaurants to order their supplies online from multiple suppliers through one convenient website. Restaurants are able to make significant efficiency gains by not having to phone different suppliers every day with orders. The website has the added advantage of allowing restaurants to monitor food traceability closely, which has been more of a concern since the Fukushima nuclear incident. 

Next's real estate focused website provides the broadest selection of listings for rental apartments and homes to buy in Japan. The revenue model was changed a few years ago and is now aligned more to the number of enquiries generated through the website. Next's profits have been increasing sharply as activity in the property market has picked up, driven by the belief that real estate prices may well have bottomed and in part by people buying new homes ahead of the planned increase in consumption tax later this year. 

After performing strongly in 2012, Endo Lighting, the commercial LED lighting manufacturer, was the worst contributor to performance. Having shifted much of its production to what at the time were low cost manufacturing bases overseas, it has suffered from cost increases as the yen has weakened. 

Portfolio

Annualised turnover within the portfolio was 14.4%, consistent with our long term, patient investment approach. However, several new holdings, in exciting companies with high growth potential, were taken over the course of the year. 

Oisix operates the most popular organic grocery website in Japan. The penetration rate for organic food in Japan has been increasing from a very low rate, a trend that has been accelerated by food contamination scares in recent years. Oisix has a strong first mover advantage thanks to its exclusive relationships with the limited number of organic farmers in Japan. The company's low risk business model means that fruit and vegetables are only picked after an online order has been placed.   

Jeol is a specialist manufacturer of high-powered microscopes and other scientific analysis equipment. The company has strong global market shares for its niche products and demand should rise over the medium term as funding for numerous nanotechnology research projects increases both in Japan and overseas.

Yume No Machi operates several websites, the most interesting of which aggregates takeaway menu information and allows customers to order their meal deliveries online. The popularity of this service has risen sharply since the introduction of the company's mobile phone app. As more users download the app, more takeaway facilities sign up to have their menus included on the site, creating a virtuous circle. Yumo No Machi earns a base fee from the restaurant and then receives a percentage fee from every meal ordered over the service.  

Zuiko is one of the leading manufacturers of diaper manufacturing machines globally. These large scale machines are remarkably difficult to make and Zuiko has strong relationships with the leading diaper makers. The company generally receives orders as their customers expand into Emerging Markets where the outlook for diaper demand is attractive given rising incomes and hygiene standards.  Three quarters of Zuiko's revenues are now from outside Japan, while increasing demand for adult diapers supports demand amongst ageing populations in developed markets.
 

Outlook

Although cognisant that risks exist, economic conditions within Japan are much healthier than they have been in recent years, with positive signs that the Bank of Japan's aggressive actions may be helping to defeat deflation. Shin Nippon's holdings are generally making good progress, in terms of profit growth, and we are encouraged that the choice of businesses that might meet our criteria for high growth potential is broadening. The positive entrepreneurship trends that we have observed in the start-up market are gradually producing more investable, high-growth listed businesses. Given the low turnover within the portfolio, it is interesting to note that we have held eight businesses listed within the last three years. Shin Nippon continues to focus on the most dynamic smaller businesses in Japan; innovative young companies that are creating entirely new markets and disruptive new businesses that are gaining share from pedestrian incumbents.

Baillie Gifford & Co

13 March 2014

Past performance is not a guide to future performance.

Portfolio Performance Attribution for the Year to 31 January 2014*

Computed relative to the comparative index^†

	Index		Shin Nippon		Performance#		Contribution	Contribution attributable to:
	asset allocation		asset allocation		Shin		to relative	Stock	Asset
	31.01.13	31.01.14	31.01.13	31.01.14	Nippon	Index	return	selection	allocation	Gearing
Portfolio Breakdown	%	%	%	%	%	%	%	%	%	%
Consumer   Discretionary	20.2	18.8	23.2	26.5	52.5	16.9	6.5	6.7	(0.2)	-
Consumer Staples	9.9	8.9	8.0	5.2	10.7	4.7	0.8	0.5	0.3	-
Energy	0.5	0.7	1.3	1.5	17.6	12.0	0.1	0.1	-	-
Financials	19.7	18.8	10.3	8.8	21.8	6.9	2.3	1.8	0.5	-
Healthcare	5.0	5.4	15.2	13.1	29.2	8.0	1.8	2.2	(0.4)	-
Industrials	22.8	24.7	21.5	17.4	18.9	22.5	(0.7)	(0.5)	(0.2)	-
Information   Technology	10.5	11.4	18.0	24.9	89.5	46.8	8.3	5.8	2.5	-
Materials	11.2	11.1	1.7	1.0	1.1	15.6	-	(0.1)	0.1	-
Telecommunication    Services	-	-	0.8	1.6	232.2	-	1.2	1.3	(0.1)	-
Utilities	0.2	0.2	-	-	-	(9.4)	-	-	-	-
Total (excluding gearing)	100.0	100.0	100.0	100.0	42.4	17.3	21.4	18.7	2.3	-
Impact of gearing					3.4		3.4	-	-	3.4
Total (excluding gearing)**	100.0	100.0	100.0	100.0	47.3	17.3	25.6	18.7	2.3	3.4

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 47.3% against an index return of 17.3% translates into a relative return of 25.6%, divide the portfolio return of 147.3 by the index return of 117.3 and subtract one.

*      The performance attribution table is based on total assets.

†      The comparative index for the year to 31 January 2014 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 47.3% excludes expenses and therefore differs from the NAV return (after deducting borrowings at par value) of 46.8% as a result.

Income statement

The following is the unaudited preliminary statement for the year to 31 January 2014 which was approved by the Board on 13 March 2014. No dividend is payable.

	For the year ended 31 January 2014 (unaudited)			For the year ended 31 January 2013 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments*	-	32,841	32,841	-	9,688	9,688
Currency gains (note 2) †	-	858	858	-	1,378	1,378
Income	1,259	-	1,259	1,165	-	1,165
Investment management fee (note 3)	(869)	-	(869)	(621)	-	(621)
Other administrative expenses	(301)	-	(301)	(283)	-	(283)
Net return before finance costs and taxation	89	33,699	33,788	261	11,066	11,327
Finance costs of borrowings (note 4)	(231)	(15)	(246)	(201)	-	(201)
Net return on ordinary activities before taxation	(142)	33,684	33,542	60	11,066	11,126
Tax on ordinary activities	(97)	-	(97)	(82)	-	(82)
Net return on ordinary activities after taxation	(239)	33,684	33,445	(22)	11,066	11,044
Net return per ordinary share (note 6)	(0.69p)	96.62p	95.93p	(0.07p)	35.53p	35.46p

*      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 gains 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 2014 (unaudited)		At 31 January 2013 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments		126,381		75,817
Current assets
Debtors	202		432
Cash and short term deposits	7,606		2,378
	7,808		2,810
Creditors
Amounts falling due within one year	(361)		(1,553)
Net current assets		7,447		1,257
Total assets less current liabilities		133,828		77,074
Creditors
Amounts falling due after more than one year (note 7)		(19,867)		(7,948)
Total net assets		113,961		69,126
Capital and reserves
Called up share capital		3,668		3,266
Share premium		21,783		10,795
Capital redemption reserve		21,521		21,521
Capital reserve		71,682		37,998
Revenue reserve		(4,693)		(4,454)
Shareholders' funds		113,961		69,126
Net asset value per ordinary share (after deducting borrowings at fair value)		307.8p		211.6p
Net asset value per ordinary share (after deducting borrowings at par value)		310.7p		211.7p

Reconciliation of movements in shareholders' funds

For the year ended 31 January 2014 (unaudited)

	Share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2013	3,266	10,795	21,521	37,998	(4,454)	69,126
Ordinary shares issued	402	10,988	-	-	-	11,390
Net return on ordinary activities after taxation	-	-	-	33,684	(239)	33,445
Shareholders' funds at 31 January 2014	3,668	21,783	21,521	71,682	(4,693)	113,961

* Capital reserve as at 31 January 2014 included investment holding gains of £49,993,000.

For the year ended 31 January 2013 (audited)

	Share capital £'000	Share premium £'000	Capital  redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2012	3,110	7,674	21,521	26,932	(4,432)	54,805
Ordinary shares issued	156	3,121	-	-	-	3,277
Net return on ordinary activities after taxation	-	-	-	11,066	(22)	11,044
Shareholders' funds at 31 January 2013	3,266	10,795	21,521	37,998	(4,454)	69,126

* Capital reserve as at 31 January 2013 included investment holding gains of £21,361,000

Cash flow statement

	For the year ended 31 January 2014 (unaudited)		For the year ended 31 January 2013  (audited)
	£'000	£'000	£'000	£'000
Net cash inflow from operating activities (note 9)		94		309
Servicing of finance
Interest paid	(180)		(209)
Breakage costs paid	(15)		-
Net cash outflow from servicing of finance		(195)		(209)
Taxation
Overseas tax paid	(89)		(82)
Total tax paid		(89)		(82)
Financial investment
Purchases of investments	(33,513)		(13,173)
Sales of investments	14,767		10,775
Exchange differences on settlement of investment transactions	(188)		(83)
Net cash outflow from financial investment		(18,934)		(2,481)
Financing
Ordinary shares issued	11,390		3,277
Bank loan repaid	(6,882)		-
Bank loan drawn down	19,926		-
Net cash inflow from financing		24,434		3,277
Increase in cash		5,310		814
Reconciliation of net cash flow to movement in net debt
Increase in cash		5,310		814
Net inflow from bank loans		(13,044)		-
Exchange movement on bank loans		1,128		1,609
Exchange differences on cash		(82)		(148)
Other non-cash changes		(3)		-
Movement in net debt in the year		(6,691)		2,275
Opening net debt		(5,570)		(7,845)
Closing net debt		(12,261)		(5,570)

Twenty largest equity holdings at 31 January 2014 (unaudited)

Name	Business	2014 Value £'000	2014 % of total assets	2013 Value £'000
F@N Communications	Internet advertising services	3,904	2.9	992
MonotaRO	Online business supplies	3,413	2.6	3,007
Digital Garage	Internet business incubator	3,358	2.5	1,144
Nihon M&A Center	M&A advisory services	3,233	2.4	1,697
Don Quijote	Discount store chain	2,969	2.2	2,372
Iriso Electronics	Specialist electronic connectors	2,921	2.2	1,058
Cyberagent	Internet advertising and content	2,846	2.1	-
M3	Online medical database	2,812	2.1	1,606
Asahi Intecc	Specialist medical equipment	2,783	2.1	1,391
Start Today	Internet fashion retailer	2,626	2.0	1,438
Next	Online real estate information	2,622	2.0	1,038
Asics	Sports shoes and clothing	2,475	1.8	1,627
GMO Payment Gateway	Online payment processing	2,431	1.8	594
Message	Provides nursing services for the elderly	2,381	1.8	1,989
Japan Exchange Group	Stock exchange operator	2,355	1.8	1,409
Nabtesco	Robotic components	2,277	1.7	2,011
Nakanishi	Dental equipment	2,194	1.6	1,758
SMS	Online nurse recruitment	2,103	1.6	800
Infomart	Internet platform for restaurant supplies	2,059	1.5	328
Wirelessgate	Wireless communication services	2,057	1.5	624
		53,819	40.2	26,883

Notes to the condensed financial statements (unaudited)

1.	The financial statements for the year to 31 January 2014 have been prepared on the basis of the same accounting policies used for the year to 31 January 2013. In accordance with the Financial Reporting Council'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 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. Accordingly, 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 gains/(losses)	31 January 2014 £'000	31 January 2013 £'000
	Exchange differences on bank loans	1,128	1,609
	Other exchange differences	(270)	(231)
		858	1,378
3.	Investment management fee - all charged to revenue	31 January 2014 £'000	31 January 2013 £'000
	Investment management fee	869	621
	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. With effect from 1 April 2013 the annual management fee was changed to 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated and payable quarterly. The annual fee previously was 1.0% of net assets, calculated and payable quarterly.
4.	The Company paid interest on bank loans of £231,000 (2013 - £201,000) and loan breakage costs of £15,000 (2013 - nil).
5.	No dividend will be declared.

6.	Net return per ordinary share	31 January 2014 £'000	31 January 2013 £'000
	Revenue return	(239)	(22)
	Capital return	33,684	11,066
	Total return	33,445	11,044
	The returns per ordinary share set out below are based on the above returns and on 34,861,637 ordinary shares (2013 - 31,146,303), 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	(0.69p)		(0.07p)
	Capital return	96.62p		35.53p
	Total return	95.93p		35.46p

Notes to the condensed financial statements (unaudited) (ctd)

7.	During the year the Company repaid its borrowings with the Royal Bank of Scotland plc and drew down a 7 year loan with  ING Bank N.V for ¥3,350 million.
8.	At 31 January 2014 the Company had authority to buy back 5,089,931shares. No shares were bought back during the year. Share buy-backs are funded from the capital reserve. During the year the Company issued 4,019,980 shares on a non pre-emptive basis at a premium to net asset value for proceeds of £11.4m.

9.	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities	31 January 2014 £'000	31 January 2013 £'000
	Net return before finance costs and taxation	33,788	11,327
	Gains on investments	(32,841)	(9,688)
	Currency gains losses	(858)	(1,378)
	Increase in accrued income and prepayments	(32)	(6)
	Increase in creditors	37	54
	Net cash inflow from operating activities	94	309

10.

The Report and Accounts will be available on the Company's website www.shinnippon.co.uk† on or around 4 April 2014.

11.

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 January 2014. The financial information for 2013 is derived from the statutory accounts for 2013, which have been delivered to the Registrar of Companies. The Auditors have reported on the 2013 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 2014 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 9 May 2014. 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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