Final Results

RNS Number : 4820H

Baillie Gifford Shin Nippon PLC

13 March 2018

 

RNS Announcement: Preliminary Results

Baillie Gifford Shin Nippon PLC

Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83 Results for the year to 31 January 2018

Over the year the Company's net asset value per share (after deducting borrowings at fair value) rose 46.1% (46.0% with borrowings at book value), whilst the comparative index^* rose by 17.0% in sterling terms. The share price increased by 54.2%.

In sterling terms over three years, the Company's comparative index is up 75.0%, whilst the net asset value and share price are up by 145.5% and 187.2% respectively.

¾ The past year saw good operational and share price performance from smaller companies in Japan.

¾ Specialist staffing company Outsourcing was the biggest positive contributor to performance. It is continuing to benefit from the tight labour market in Japan.  

¾ Some of our favourite online disruptors continued to perform well and are taking innovative measures to expand their addressable market.

¾ During the year the Company issued 7.1m shares representing 17.6% of its share capital as at 31 January 2017.

¾ The Ongoing Charges Ratio has fallen from 0.96% to 0.89% as more assets now fall under the lowest rate tier of the management fee structure. This illustrates the benefit to all shareholders of enlarging the Company through share issuance.

^* The Company's comparative index for the year to 31 January 2018 was the MSCI Japan Small Cap Index (total return in sterling terms).

Source: Thomson Reuters/Baillie Gifford and relevant underlying index providers.

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 2018 the Company had total assets of £449.3m (before deduction of bank loans of £47.9m).

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £186 billion under management and advice as at 12 March 2018.

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.

See disclaimer at the end of this document.

12 March 2018

 

For further information please contact:

Alex Blake, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, Four Broadgate

Tel: [phone] or 07831 401309

Chairman's Statement

Performance

I am delighted to report that Shin Nippon has enjoyed another excellent year.  Your Board however places primary importance on reviewing performance on a rolling three year basis.  Over this period Shin Nippon's net asset value per share[*] (NAV) rose by

145.5% and its share price by 187.2% versus the comparative index (MSCI Japan Small Cap Index, total return in Sterling terms) return of 75.0%.  This was once again another period of strong performance in both absolute and relative terms. It is pleasing to note that Shin Nippon is among the top 3 performing investment trusts (in NAV total return terms) over 3, 5 and 10 years across the entire investment trust universe in the UK. This is testament to the fact that Japan offers a fertile hunting ground for exciting, high-growth businesses and investing in these can prove rewarding for shareholders over the long-term.

Over the year to 31 January 2018 the Company's NAV per share increased by 46.1% versus the comparative index return of 17.0%. The Company's share price also performed very well indeed with an increase of 54.2% over the year. Once again, this has been another excellent year for the Company. The share price remained at a premium to net asset value throughout the year and stood at a premium of 9.3% at the year end. The Board is mindful that the shares have recently been trading at a substantial premium and actively seeks to reduce the imbalance between buyers and sellers by issuing shares, as noted below.

In the Manager's Report below you will find a more detailed explanation of the Company's performance and some of the holdings.  It is pleasing that the policy of identifying and investing in small, entrepreneurial and disruptive Japanese companies has produced such excellent results in recent years.

Share Issuance

During the year the Company issued 7,090,000 shares.  This represented 17.6% of the Company's share capital at 31 January 2017. These shares were issued at an average premium to net asset value of 6.5% and raised £55.8m. Owing to the strong demand for the Company's shares, two general meetings were convened to seek shareholder approval for the additional issuance authorities required.

In addition to helping moderate the premium, by approving these share issuances your Board continues to recognise that by increasing the size of the Company the shares are more likely to have improved liquidity and be more attractive to a wider range of shareholders.

Borrowings

The Manager continues to use gearing to enhance portfolio performance and your Board is supportive of this strategy.  Gearing at the year end was equivalent to 10.5% of net assets.  The Company started the year with bank debt of Y3.35bn.  In March 2017 the Board drew down additional fixed rate secured borrowings of Y2.0bn.  These borrowings mature in November 2020 in line with the existing debt.  Additionally, in December 2017 a new 7 year fixed rate facility of Y2.1bn was drawn down, maturing in December 2024, bringing total borrowings at 31 January 2018 to Y7.45bn (£47.9m). The level of gearing had fallen due to the Company's strong growth over recent years and these additional borrowings restore the gearing to a level commensurate with the Board's conviction in the Company's long term investment strategy.

During the year the Yen weakened against Sterling by 8.8%.  The Company undertook no currency hedging during the year and has no plans to do so.

Revenue

The revenue return per share fell from a surplus of 0.26p to a deficit of 0.53p during the year.  This was due to the increase in portfolio dividend income being outpaced by the negative effect of the increased management fee (due to the rise in NAV) and higher finance costs from the increased gearing.

The year to 31 January 2018 was the first full year under the new management fee arrangements and it is pleasing to note that the ongoing charges ratio has fallen from 0.96% to 0.89% as more assets now fall under the lowest rate tier of the management fee structure. This illustrates the benefit to all shareholders from enlarging the Company through share issuance. Net assets increased from £234m at the previous year end to over £401m at 31 January 2018.

Investment Policy

The Board has approved a modest amendment to the Company's investment policy to allow an increase in the individual holding size at time of purchase from 3% to 5% of total assets. This will provide the Managers with the opportunity to take slightly larger initial positions or make additional investments when conviction in the investment case is strong.

AGM

At this year's AGM we are again seeking authority to issue new shares of up to 10% of the Company's share capital.  Any shares issued would be for cash, on a non-pre-emptive basis and only at a premium to net asset value thereby enhancing the net asset value for existing shareholders.  Your Board continues to believe that by satisfying natural supply and demand for our shares we are acting in the best interests of existing shareholders.  We will monitor this closely.

Your Board will again be seeking approval to buy back shares should they start trading at a substantial discount either in absolute terms or in relation to its peers.  Similarly, if required this activity would enhance the net asset value attributable to existing shareholders.

The sharp rise in the Company's share price over the last few years - to over £9 today - has been excellent news for existing investors. However, the Board is aware that it might be mildly off-putting to new investors and that it can cause problems for those who invest small sums monthly (they will often find that a considerable part of their monthly payment stays uninvested). With that in mind the Board would like to split each share into five and accordingly a sub-division of each of the current ordinary shares of 10p shares into five ordinary shares of 2p nominal value is proposed. If this resolution is approved, your holding will be multiplied by five and the share price of each new share is anticipated to adjust downwards accordingly. For shareholders who hold their shares in certificated form, new share certificates will be issued and the old certificates will become invalid.

At the AGM we will also be seeking approval to increase the aggregate annual limit in the Company's Articles of Association for Directors' fees from £150,000 per annum to £200,000.  This is proposed to allow for a temporary increase in Board numbers (see Governance below) and for future fee increases. This limit was last increased in 2009.

Governance

Francis Charig and Iain McLaren will both retire from the Board at the AGM in 2019.  During the next six months the Board will be actively seeking their replacements.  It is hoped that this can be completed by the autumn of this year to help engineer a smooth transition for the new Board members.  I will thank Messrs Charig and McLaren more fully for their services to the Company in next year's Chairman's Statement.

Outlook

Concerns about global growth remain.  Following last year's anxieties over Brexit and the election of President Trump, there is now a realisation that interest rates in the US and to a lesser extent in the UK are on the rise.  Whilst these uncertainties remain, the argument in favour of selective stock picking is robust and over the years the management team has developed a strong reputation in this regard.

Along with the Managers, your Board had the opportunity to visit Japan in November.  We met presidents and CEOs of companies that we hold and companies that are on the Managers' radar screen for potential investment.  It was evident to us that the entrepreneurial spirit in Japan is strong.  There are still issues in the country, most notably with a tightening of the labour market and an ageing population, but the last eight consecutive quarters have all shown positive GDP growth - its longest continuous run for more than a decade.  This growth has been driven by all corners of the economy and more recently we have even seen the services sector outpace manufacturing.  We are also seeing more and more companies raising prices, including a number of our portfolio holdings, and this may well lead to a welcome return to modest inflation over the months ahead.

Tourism continues to grow strongly in Japan and last year tourist numbers in Okinawa overtook those in Hawaii!  I reported previously that the number of foreign workers in Japan had surpassed 1m.  That figure is now nearly 1.3m.

There is much to be positive about.  There is a drive to improve corporate governance. More external, independent directors are being appointed to Boards and this in turn will afford greater consideration and protection for shareholders.

Our visit reinforced our belief that growth prospects remain exciting.  Your Board continues to support the stock picking approach of the Company and are wholly supportive of the Managers in seeking those opportunities.  Your Company has an enviable track record of performance and we continue to remain encouraged by the outlook.

M Neil Donaldson

Chairman

12 March 2018

Past performance is not a guide to future performance.

See disclaimer at the end of this document.

 

Managers' Report

The past year saw good operational and share price performance from smaller companies in Japan. They benefitted from a strong domestic economy that is currently experiencing its longest continuous expansion since the 1980s. This is being driven by rising domestic consumption and corporate capex, as well as robust demand from overseas markets, especially from exciting growth areas such as factory automation. Regulation in Japan continues to be loosened, allowing young, dynamic and entrepreneurial companies to prosper. The overall business environment therefore remains very favourable and is having a positive effect on companies from a range of sectors.

Structural trends such as the labour shortage and expansion of tourism remain embedded in the domestic economy and are providing new growth opportunities for smaller companies. The Japanese labour market continues to be very tight and there are now over 150 jobs for every 100 applicants. This ratio is at its highest level in almost 4 decades and is having a dramatic effect on some sectors such as construction and services. Specialist staffing companies are among the chief beneficiaries of this trend and are witnessing rapid sales and earnings growth. Inbound tourism also remains strong. The Japanese government has doubled its target from 20 to 40 million tourists by 2020 as it achieved its original target five years early. With just under 30 million visitors in 2017, Japan is well on its way to meeting the new target. The continued strength in inbound tourism is benefitting a whole range of companies such as discount store operator Seria, online cosmetics retailer Istyle and one of Japan's largest travel operators, H.I.S. Interestingly, Istyle has also been raising prices for some of its top clients and more generally, we are seeing mounting evidence of companies exercising their pricing power.

Along with supportive trends in the domestic market, Japanese smaller companies are also enjoying a healthy level of demand from overseas customers. Factory automation and semiconductors are two areas where Japanese manufacturers witnessed exceptionally strong order-flow over the past year. Factory automation is a well-documented secular trend globally but technological advances in robotics have meant that the areas of application are broadening beyond the factory shop-floor. Healthcare is an example where we are seeing increasing use of smaller robots equipped with advanced sensors and artificial intelligence-enabled software. Consequently, there has been a noticeable acceleration in orders for companies such as Harmonic Drive that makes critical components for these robots. The global semiconductor industry is also witnessing an upswing, driven in part by China's ambitious investment plan in this area as well as long-term structural trends such as auto electrification. This is resulting in strong demand for semiconductor equipment manufacturers such as Horiba and auto sensor makers such as Nippon Ceramic.

Healthcare is another area where we see significant growth potential for smaller companies in Japan. We have previously noted the desire of the Japanese government to lead the world in regenerative medicine and the legislative changes that have been made to grant accelerated approval for innovative therapies. Portfolio holdings SanBio and Healios are developing stem cells-based treatments for brain injury-related stroke and degenerative age-related blindness respectively. Both companies have made encouraging progress towards attaining fast-track approval. We are also encouraged by the deepening co-operation between the healthcare industry and academia in Japan. The quality of fundamental life sciences research in Japanese universities is world-renowned but commercialization has been a major failing due to a lack of support from the corporate sector and the government. Young and ambitious biotech companies such as SanBio and Healios are taking the lead in harnessing academic research and with strong support from the Abe government, we may yet see some of the exciting academic research being brought to the market over the next few years.

Performance

The MSCI Japan Small Cap Index (total return in sterling terms) rose by 17% over the year while Shin Nippon's net asset value per share (after deducting borrowings at fair value) rose by 46.1%. It is pleasing to note that this strong performance was driven by stocks from a wide range of sectors.

Some of our favourite online disruptors continued to perform well and are taking innovative measures to expand their addressable market. Fashion e-commerce website operator Start Today recently launched its own branded clothing that is customized based on each individual user's body measurements. For a nominal fee, users are sent a unique bodysuit fitted with tiny sensors that allow them to record accurate measurements which are then electronically transmitted to Start Today. In addition, it has also started offering a personal styling service for users, all of which should improve customer engagement. Specialist staffing company Outsourcing was the biggest positive contributor to performance. It is continuing to benefit from the tight labour market in Japan, has been raising prices and reported a more than doubling of profits in its most recent annual results. IRISO Electronics, which makes connectors for cars, and Optex, a leading global manufacturer of sensors for security systems and factory automation, also performed strongly. They saw robust demand for their products as car electrification and industrial automation remained strong global themes. Among the healthcare stocks in the portfolio, holding company Noritsu Koki was the standout performer. Its shares have almost tripled in value since our initial purchase just over a year ago. The new management team has exited the legacy photo processing business and has used the proceeds to build an impressive portfolio of potentially high growth healthcare-related companies.

Among the poor performers were companies beset by internal management issues and unfavourable industry changes. Both Cookpad, a user-generated recipe website, and Yonex, a global brand of badminton equipment, continue to suffer from poor operational execution by management. Condominium builder Takara Leben and specialist running shoes manufacturer ASICS are both struggling to adapt to shifts in consumer preferences although we are encouraged by steps taken by management so far to address these issues.

Portfolio

We pay less attention to the benchmark and focus more on a company's individual attractions. Consequently, Shin Nippon's active share figure continues to be high at 93%, implying just a 7% overlap with the comparative index. Annualised turnover within the portfolio was 7.4%, consistent with our long-term investment approach. However, we made new investments in a few exciting, high growth companies.

Online retailing of shoes is inherently difficult because of very high return rates but Locondo is attempting to change this through its differentiated online business model. It has developed a clever inventory management system that allows it to reduce return rates whilst offering free returns. The company is growing rapidly as its business model is attracting many shoe brands. We participated in the IPO of Katitas, a niche renovation specialist. Following the Second World War, Japan saw significant housing construction but a subsequent decline in population has resulted in many empty houses. Katitas is trying to address this problem by renovating such houses to a high standard and selling them at an affordable price to first-time buyers. We think this is a unique business with a sizeable growth opportunity given the significant stock of empty houses in Japan. We took a small holding in Moneytree, an unlisted fintech company that is building a financial data aggregation and analysis platform using artificial intelligence technologies.

Online advertising company F@N Communications was among the holdings that were sold over the past year. The company has struggled to adapt its business model to smartphones and growth has decelerated as a result. We lacked conviction in management's ability to get the business growing again and hence decided to sell our holdings. We also sold our holdings in toy maker Tomy following the resignation of its first foreign CEO whom we rated quite highly. Mobile virtual network operator Wirelessgate was another stock that was sold. The telecoms market in Japan will get more competitive with the entry of local e-commerce giant Rakuten and sub-scale players such as Wirelessgate are likely to suffer as a result.

Outlook

The combination of cyclical and structural tailwinds both in Japan and overseas is providing an ideal business environment for smaller companies in Japan. For those willing to embrace these opportunities, the long-term growth potential should be exciting. Our endeavour remains to seek out and invest in rapid growth businesses with dynamic management teams and we remain encouraged by the quality and breadth of investment opportunities.

Baillie Gifford & Co

12 March 2018

Past performance is not a guide to future performance.

See disclaimer at the end of this document.
 

Portfolio Performance Attribution for the Year to 31 January 2018*

Computed relative to the comparative index^†

	Index		Shin Nippon		Performance#		Contribution	Contribution attributable to:
	asset allocation		asset allocation		Shin		to relative	Stock	Asset
	31.01.17	31.01.18	31.01.17	31.01.18	Nippon	Index	return	selection	allocation	Gearing
Portfolio Breakdown	%	%	%	%	%	%	%	%	%	%
Consumer   Discretionary	17.6	17.3	26.9	25.4	26.7	15.6	2.3	2.4	(0.1)	-
Consumer Staples	10.6	10.6	5.8	5.4	15.8	14.0	0.3	0.1	0.2	-
Energy	0.7	0.7	-	-	-	43.8	(0.1)	-	(0.1)	-
Financials	8.3	7.8	1.7	1.5	25.2	(1.3)	1.4	0.3	1.1	-
Health Care	5.6	5.8	14.8	13.5	41.4	17.2	2.7	2.6	0.1	-
Industrials	23.8	24.8	23.6	24.0	56.0	25.8	5.2	5.3	(0.1)	-
Information   Technology	11.8	12.3	24.1	27.5	44.8	28.8	4.9	3.4	1.5	-
Materials	10.7	10.6	-	-	-	21.2	(0.4)	-	(0.4)	-
Real Estate	10.2	9.2	2.7	2.3	22.0	(0.5)	1.8	0.6	1.2	-
Telecommunication    Services	-	-	0.4	0.4	-	-	(0.2)	-	(0.2)	-
Utilities	0.7	0.9	-	-	-	1.4	0.2	-	0.2	-
Total (excluding gearing)	100.0	100.0	100.0	100.0	39.6	17.0	19.3	15.4	3.4	-
Impact of gearing					4.2		4.2			4.2
Total (including gearing)	100.0	100.0	100.0	100.0	45.5	17.0	24.4	15.4	3.4	4.2

Past performance is not a guide to future performance.

Source: Baillie Gifford/Statpro and relevant underlying index providers.

Contributions cannot be added together, as they are geometric; for example to calculate how a return of 45.5% against an index return of 17.0% translates into a relative return of 24.4%, divide the portfolio return of 145.5 by the index return of 117.0, subtract one and multiply by 100.

*      The performance attribution table is based on total assets.

†      The comparative index for the year to 31 January 2018 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.

See disclaimer and the Glossary of Terms at the end of this document.

 

Income statement

The following is the unaudited preliminary statement for the year to 31 January 2018 which was approved by the Board on 12 March 2018. No dividend is payable.

	For the year ended 31 January 2018			For the year ended 31 January 2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments*	-	108,387	108,387	-	58,830	58,830
Currency gains/(losses) (note 2) †	-	3,591	3,591	-	(3,072)	(3,072)
Income	3,496	-	3,496	2,912	-	2,912
Investment management fee (note 3)	(2,131)	-	(2,131)	(1,590)	-	(1,590)
Other administrative expenses	(510)	-	(510)	(386)	-	(386)
Net return before finance costs and taxation	855	111,978	112,833	936	55,758	56,694
Finance costs of borrowings (note 4)	(732)	-	(732)	(544)	-	(544)
Net return on ordinary activities before taxation	123	111,978	112,101	392	55,758	56,150
Tax on ordinary activities	(350)	-	(350)	(291)	-	(291)
Net return on ordinary activities after taxation	(227)	111,978	111,751	101	55,758	55,859
Net return per ordinary share (note 6)	(0.53p)	261.52p	260.99p	0.26p	142.88p	143.14p

*      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. 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 all gains and losses of the Company have been reflected in the above statement.

 

Balance sheet

	At 31 January 2018		At 31 January 2017
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		443,917		251,680
Current assets
Debtors	2,833		801
Cash and cash equivalents	5,668		5,520
	8,501		6,321
Creditors
Amounts falling due within one year	(3,129)		(553)
Net current assets		5,372		5,768
Total assets less current liabilities		449,289		257,448
Creditors
Amounts falling due after more than one year (note 7)		(47,877)		(23,576)
Net assets		401,412		233,872
Capital and reserves
Share capital		4,749		4,040
Share premium account		95,174		40,094
Capital redemption reserve		21,521		21,521
Capital reserve		285,451		173,473
Revenue reserve		(5,483)		(5,256)
Shareholders' funds		401,412		233,872
Net asset value per ordinary share (after deducting borrowings at book value)		845.3p		579.0p

 

Statement of changes in equity

For the year ended 31 January 2018

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2017	4,040	40,094	21,521	173,473	(5,256)	233,872
Ordinary shares issued (note 8)	709	55,080	-	-	-	55,789
Net return on ordinary activities after taxation	-	-	-	111,978	(227)	111,751
Shareholders' funds at 31 January 2018	4,749	95,174	21,521	285,451	(5,483)	401,412

For the year ended 31 January 2017

	Share capital £'000	Share premium account £'000	Capital  redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2016	3,778	25,733	21,521	117,715	(5,357)	163,390
Ordinary shares issued (note 8)	262	14,361	-	-	-	14,623
Net return on ordinary activities after taxation	-	-	-	55,758	101	55,859
Shareholders' funds at 31 January 2017	4,040	40,094	21,521	173,473	(5,256)	233,872

 

Cash flow statement

	For the year ended 31 January 2018		For the year ended 31 January 2017
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	112,101		56,150
Net gains on investments	(108,387)		(58,830)
Currency (gains)/losses	(3,591)		3,072
Finance costs of borrowings	732		544
Overseas withholding tax	(328)		(252)
Increase in debtors, accrued income and prepaid expenses	(227)		(379)
Increase in creditors and prepaid income	253		102
Cash inflow from operations		553		407
Interest paid		(736)		(509)
Net cash outflow from operating activities		(183)		(102)
Cash flows from investing activities
Acquisitions of investments	(107,413)		(43,987)
Disposals of investments	25,850		28,822
Net cash outflow from investing activities		(81,563)		(15,165)
Shares issued	53,950		14,623
Bank loans drawn down	28,429		-
Net cash inflow from financing activities		82,379		14,623
Increase/(decrease) in cash and cash equivalents		633		(644)
Exchange movements		(485)		1,058
Cash and cash equivalents at 1 February		5,520		5,106
Cash and cash equivalents at 31 January*		5,668		5,520

* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

 

Twenty largest equity holdings at 31 January 2018

Name	Business	2018 Value £'000	2018 % of total assets	Absolute#   Performance %			2017 Value £'000
Outsourcing	Employment placement services	12,801	2.8	150.2			3,939
iStyle	Beauty product review website	12,515	2.8		30.2			6,517
Asahi Intecc	Specialist medical equipment	11,983	2.7		69.0			6,031
Nihon M&A Center	M&A advisory services	11,876	2.6		81.8			6,304
Optex	Infrared detection devices	11,402	2.5		143.7			3,513
MonotaRO	Online business supplies	10,919	2.4		6.7			7,618
Megachips	Electronic components	10,799	2.4		38.5			4,437
Start Today	Internet fashion retailer	10,165	2.3		39.1			6,982
Peptidream	Drug discovery and development platform	10,121	2.2		47.4			3,990
GMO Payment Gateway	Online payment processing	10,101	2.2		56.5			5,095
Cyberagent	Internet advertising and content	10,048	2.2		55.6			3,771
Nifco	Value-added plastic car parts	10,010	2.2		24.9			4,773
Yume No Machi	Online meal delivery service	9,917	2.2		102.8			6,834
Digital Garage	Internet business investor	9,864	2.2		60.6			2,993
Sanbio	Stem cell based stroke treatment	9,506	2.1		201.6			2,673
Noritsu Koki	Holding company with interests in biotech   and agricultural products	9,475	2.1		171.6			3,397
Harmonic Drive	Robotic components	9,105	2.0		101.7			5,893
Horiba	Manufacturer of measuring instruments	8,603	1.9		9.4			3,879
Iriso Electronics	Specialist auto connectors	8,473	1.9		100.7			4,253
M3	Online medical services	7,989	1.8		20.6			5,729
		205,672	45.5

^#     Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 February 2017 to 31 January 2018.

Source: Baillie Gifford/Statpro and underlying data providers. See disclaimer at end of this document.

 

Notes to the condensed financial statements

1.		The Financial Statements for the year to 31 January 2018 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 in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
2.		Currency gains/(losses)	31 January 2018 £'000			31 January 2017 £'000
		Exchange differences on bank loans	4,076			(4,131)
		Other exchange differences	(485)			1,059
			3,591			(3,072)
3.		Investment management fee - all charged to revenue	31 January 2018 £'000			31 January 2017 £'000
		Investment management fee	2,131			1,590
		The annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets, calculated quarterly. Prior to 1 September 2016 the fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net assets.
4.		The Company paid interest on bank loans of £717,000 (2017 - £537,000) and £15,000 (2017 - £7,000) in respect of Yen deposits held by the Custodian Bank.
5.		No dividend will be declared.
6.	Net return per ordinary share		31 January 2018 £'000	31 January 2017 £'000
	Revenue return		(227)	101
	Capital return		111,978	55,758
	Total return		111,751	55,859
	The returns per ordinary share set out below are based on the above returns and on 42,818,456 ordinary shares (2017 - 39,024,022), 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		(0.53p)		0.26p
	Capital return		261.52p		142.88p
	Total return		260.99p		143.14p

 

Notes to the condensed financial statements  (ctd)

7.	The Company has arranged secured fixed rate borrowings, drawn down as follows: At 31 January 2018 ING Bank N.V. - 7 year ¥3,350 million loan at 2.217% maturing 27 November 2020. ING Bank N.V. - 3 year 8 month ¥2,000 million loan at 1.301% maturing 27 November 2020. ING Bank N.V. - 7 year ¥2,100 million loan at 1.693% maturing 18 December 2024. At 31 January 2017 ING Bank N.V. - 7 year ¥3,350 million loan at 2.217% maturing 27 November 2020. During the year the Company drew down the following additional borrowings from ING Bank N.V. - ¥2,000 million at 1.301%, maturing 27 November 2020 and ¥2,100 million at 1.693% maturing on 18 December 2024.
8.	At 31 January 2018 the Company had authority to buy back 6,148,972 shares. No shares were bought back during the year (2017 - nil). Share buy-backs are funded from the capital reserve. During the year the Company issued 7,090,000 shares on a non pre-emptive basis at a premium to net asset value for net proceeds of £55,789,000 (2017 - 2,620,000 shares for net proceeds of £14,623,000).
9.	The Annual Report and Financial Statements will be available on the Company's website www.shinnippon.co.uk† on or around 11 April 2018.
10.	The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 January 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2017 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 2018 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 18 May 2018. 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.

Glossary of Terms

Total Assets

Total assets less current liabilities, before deduction of all 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 share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Asset Value (Borrowings at Fair Value)

Borrowings are valued at an estimate of their market worth. The Company's yen denominated loans are fair valued with reference to Japanese government bonds of comparable yield and maturity.

The net asset value per share on this basis at 31 January 2018 is 843.7p.

Net Asset Value (Borrowings at Book Value)

Borrowings are valued at adjusted net issue proceeds. The Company's yen denominated loans are valued at their sterling equivalent and adjusted for their arrangement fees.

The net asset value per share on this basis at 31 January 2018 is 845.3p.

Net Asset Value (Borrowings at Par Value)

Borrowings are valued at their nominal par value. The Company's yen denominated loans are valued at their sterling equivalent.

The net asset value per share on this basis at 31 January 2018 is 845.1p.

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities, excluding borrowings.

Discount/Premium

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 share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Total Return

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. The Company does not pay a dividend.

Ongoing Charges

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment

Companies.

Gearing

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.

Gearing represents its cash borrowings at par 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.

Leverage

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, 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.

Portfolio Performance Attribution

Portfolio Performance Attribution illustrates how the portfolio has performed in absolute terms and relative to the comparative index. Performance is calculated on this basis for the portfolio holdings according to their relevant industrial sector classifications. Contributions to relative performance against the index are attributed to either stock selection (relative performance derived from the selection of stocks within an industrial sector) or asset allocation (relative performance derived from overall allocation to each industrial sector).

Active Share

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.

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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, judgments, 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.

MSCI Index data

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This document is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Regulated Information Classification: Additional regulated information required to be disclosed under the laws of a Member State

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[*] After deducting borrowings at fair value - see Glossary of Terms at end of this document.

 

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