RNS Announcement |
Baillie Gifford Shin Nippon PLC |
Results for the six months to 31 July 2014 |
The Company's net asset value per share (after deducting borrowings at fair value) rose by 1.2% compared to a 4.3% rise in the Company's comparative index*. The share price declined by 1.0%.
¾ Japanese markets generally lagged other global indices over the period. Domestically focussed stocks have been impacted by economic uncertainty following the implementation of an increase in the consumption tax while the external environment has not been particularly supportive for Japanese exporters.
¾ In general, automation related stocks had a strong period of performance while internet related stocks gave back some of last year's gains, contributing to the more recent underperformance against the comparative index.
¾ Many of Shin Nippon's holdings are leaders in niche markets that are capable of expanding irrespective of what is happening in the broader domestic or global economy. For example, a small holding was taken in Cyberdyne which is at the forefront of global efforts to use robotic exo-skeleton suits to help with the rehabilitation of stroke patients.
¾ Shin Nippon continues to focus on investing in stocks that represent the new, exciting side of corporate Japan. The holdings are typically driving change in their own specific market and the Managers continue to find many up-and-coming corporate management teams trying to do the same in different areas.
¾ During the period the Company issued 500,000 shares, 1.4% of its pre-existing issued share capital, at an average premium to net asset value of 7.7%, enhancing net asset value per share for continuing shareholders.
* The Company's comparative index is the MSCI Japan Small Cap Index (total return and 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 July 2014 the Company had total assets of £135.9m (before deduction of bank loan of £19.2m).
The Company is managed by Baillie Gifford, an Edinburgh based fund management group with around £111 billion under management and advice as at 18 September 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 long term. You can find up to date performance information about Shin Nippon at www.shinnippon.co.uk.
19 September 2014
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 3276
Roland Cross, Director, Broadgate Mainland
Tel: 0207 726 6111
The following is the unaudited Half-Yearly Financial Report for the six months to 31 July 2014.
Responsibility statement |
We confirm that to the best of our knowledge:
a) the condensed set of financial statements has been prepared in accordance with the Accounting Standards Board's statement 'Half-Yearly Financial Reports';
b) the Half-Yearly Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the financial statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
c) the Half-Yearly Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board
BM Rose
Chairman
19 September 2014
Half-Yearly Management Report |
The performance of Japanese markets generally lagged other global indices over the period as market participants tried to ascertain the impact that the April increase in consumption tax was having on the broader recovery in the Japanese economy. In the six months to 31 July 2014, Shin Nippon's net asset value per share* rose by 1.2% compared to a 4.3% rise in the MSCI Japan Small Cap index (all total return in sterling terms).
It is not clear yet whether recent signs that the domestic recovery may be losing a little momentum are anything other than seasonal noise. However, the external environment has not been particularly supportive for Japanese exporters.
That said, we believe that the success or failure of smaller businesses is ultimately driven by the actions of the companies', rather than by the vacillations of the macro-economy. Many of our holdings are leaders in niche markets that are capable of expanding irrespective of what is happening in the broader economy. Others are gaining share from sleepy, larger incumbents by adopting new, disruptive business models that present end customers with a more compelling value proposition.
Over the six month period there were several very strong performers within the portfolio. WirelessGate offers a cheap, comprehensive Wi-Fi service that is available in most public spaces in Japan. De-regulation of the telecoms market forced the major carriers to open up their networks, so WirelessGate customers can now conveniently switch quickly between whatever Wi-Fi point is closest to them. Iriso Electronics performed well as demand for its specialist electronic connectors rose due to the increasing amount of electronics incorporated into new cars. In general, robotics related stocks had a strong period of performance as demand from Chinese factories rebounded and new robotic applications gained traction. Harmonic Drive, our holding that produces the highly accurate gears that control the movement of precision robotic arms, was no exception. Its gears are needed for both factory automation robotics and many of the service/healthcare robots that are being developed around the world.
Given the slightly uncertain domestic economic environment during the period, some of our holdings with steadier growth outlooks and solid positions in developing markets were positive contributors to performance. In healthcare, Sysmex, the blood testing equipment manufacturer increased its overseas market share, while Nakanishi, one of the leading makers of dental drilling equipment, benefited from the weaker yen. Meanwhile, Calbee and Pigeon continued to expand their respective branded snacks and baby goods businesses in the rest of Asia.
Internet related stocks were generally weaker, giving back a little of last year's strong performance and contributing to the more recent underperformance against the comparative index. This affected a number of our 'new economy' holdings but two stocks, connected to the secular shift within advertising budgets towards online spending, were especially weak. The long term growth potential for F@N Communications and Cyberagent continues to look promising, but the increased debate over how best to exploit the huge opportunity in mobile advertising is causing some short term confusion in the market. Recent purchase Oisix, the online organic grocery company, was also weak. We believe that its strategy of investing more in marketing to gain critical mass will pay off in the long term as the utilisation of the company's distribution infrastructure improves.
Given our long term investment approach, it is unsurprising to report that the turnover of stocks within the portfolio remains low. A new holding was taken in a company called Cookpad that aggregates recipes online. A large proportion of the Japanese population use the site regularly for cooking inspiration and recent moves by the management team suggest that Cookpad finally has worked out a way to monetise its large user-base. Supermarkets and food companies are becoming keener to spend on direct marketing to Cookpad's users. We also bought a small holding in Cyberdyne at its IPO. This is a company that we first met last year and which is at the forefront of global efforts to use robotic exo-skeleton suits to help with the rehabilitation of patients who have suffered strokes. The company's competitive edge lies in its complex sensors that allow the suits to react to the signals that the brain is trying to send to the limbs. Over time, patients' muscles relearn the movements that they have forgotten.
*After deducting borrowings at fair value.
Shin Nippon continues to focus on investing in stocks that represent the new, exciting side of corporate Japan. Our holdings are typically driving change in their own specific market and we continue to find many up-and-coming management teams trying to do the same in different areas. The emergence of businesses like Cyberdyne give us some reassurance that there continues to be innovative, small Japanese companies developing in Japan, businesses with globally relevant technologies that could solve some of the world's big problems.
The principal risks and uncertainties facing the Company are set out in the notes at the end of this report.
Past performance is not a guide to future performance
Income statement (unaudited) |
|
For the six months ended 31 July 2014 |
For the six months ended 31 July 2013 |
For the year ended 31 January 2014 |
||||||
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Net gains on investments (note 3) |
- |
932 |
932 |
- |
25,242 |
25,242 |
- |
32,841 |
32,841 |
Currency gains |
- |
427 |
427 |
- |
156 |
156 |
- |
858 |
858 |
Income from investments |
776 |
- |
776 |
640 |
- |
640 |
1,259 |
- |
1,259 |
Investment management fee (note 4) |
(427) |
- |
(427) |
(433) |
- |
(433) |
(869) |
- |
(869) |
Other administrative expenses |
(177) |
- |
(177) |
(143) |
- |
(143) |
(301) |
- |
(301) |
Net return before finance costs and taxation |
172 |
1,359 |
1,531 |
64 |
25,398 |
25,462 |
89 |
33,699 |
33,788 |
Finance costs of borrowings |
(255) |
- |
(255) |
(85) |
- |
(85) |
(231) |
(15) |
(246) |
Net return on ordinary activities before taxation |
(83) |
1,359 |
1,276 |
(21) |
25,398 |
25,377 |
(142) |
33,684 |
33,542 |
Tax on ordinary activities (note 5) |
(78) |
- |
(78) |
(46) |
- |
(46) |
(97) |
- |
(97) |
Net return on ordinary activities after taxation |
(161) |
1,359 |
1,198 |
(67) |
25,398 |
25,331 |
(239) |
33,684 |
33,445 |
Net return per ordinary share (note 7) |
(0.44p) |
3.68p |
3.24p |
(0.20p) |
74.70p |
74.50p |
(0.69p) |
96.62p |
95.93p |
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.
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 (unaudited) |
|
At 31 July 2014 |
At 31 July 2013 |
At 31 January 2014 |
|
£'000 |
£'000 |
£'000 |
Fixed asset investments |
|
|
|
Listed equities |
128,541 |
107,293 |
126,381 |
|
|
|
|
Current assets |
|
|
|
Debtors |
249 |
513 |
202 |
Cash and short term deposits |
7,500 |
842 |
7,606 |
|
7,749 |
1,355 |
7,808 |
Creditors |
|
|
|
Amounts falling due within one year |
(352) |
(631) |
(361) |
Net current assets |
7,397 |
724 |
7,447 |
Total assets less current liabilities |
135,938 |
108,017 |
133,828 |
|
|
|
|
Creditors |
|
|
|
Amounts falling due after more than one year (note 8) |
(19,191) |
(7,712) |
(19,867) |
Total net assets |
116,747 |
100,305 |
113,961 |
|
|
|
|
Capital and reserves |
|
|
|
Called up share capital |
3,718 |
3,490 |
3,668 |
Share premium account |
23,321 |
16,419 |
21,783 |
Capital redemption reserve |
21,521 |
21,521 |
21,521 |
Capital reserve |
73,041 |
63,396 |
71,682 |
Revenue reserve |
(4,854) |
(4,521) |
(4,693) |
Shareholders' funds |
116,747 |
100,305 |
113,961 |
|
|
|
|
Net asset value per ordinary share (after deducting borrowings at fair value) (note 9) |
311.6p |
287.3p |
307.8p |
Net asset value per ordinary share (after deducting borrowings at par value) |
313.8p |
287.4p |
310.4p |
Ordinary shares in issue (note 10) |
37,175,497 |
34,900,497 |
36,675,497 |
Reconciliation of movements in shareholders' funds (unaudited) |
For the six months ended 31 July 2014
|
Called up share £'000 |
Share account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2014 |
3,668 |
21,783 |
21,521 |
71,682 |
(4,693) |
113,961 |
Ordinary shares issued (note 10) |
50 |
1,538 |
- |
- |
- |
1,588 |
Net return on ordinary activities after taxation |
- |
- |
- |
1,359 |
(161) |
1,198 |
Shareholders' funds at 31 July 2014 |
3,718 |
23,321 |
21,521 |
73,041 |
(4,854) |
116,747 |
For the six months ended 31 July 2013
|
Called up share £'000 |
Share account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2013 |
3,266 |
10,795 |
21,521 |
37,998 |
(4,454) |
69,126 |
Ordinary shares issued (note 10) |
224 |
5,624 |
- |
- |
- |
5,848 |
Net return on ordinary activities after taxation |
- |
- |
- |
25,398 |
(67) |
25,331 |
Shareholders' funds at 31 July 2013 |
3,490 |
16,419 |
21,521 |
63,396 |
(4,521) |
100,305 |
For the year ended 31 January 2014
|
Called up share £'000 |
Share account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2013 |
3,266 |
10,795 |
21,521 |
37,998 |
(4,454) |
69,126 |
Ordinary shares issued (note 10) |
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 |
* The Capital reserve includes investment holding gains of £50,993,000 (31 July 2013 - gains of £45,093,000; 31 January 2014 - gains of £49,993,000).
Condensed cash flow statement (unaudited) |
|
Six months to 31 July 2014 |
Six months to 31 July 2013 |
Year to 31 January 2014 |
|
£'000 |
£'000 |
£'000 |
Net cash inflow from operating activities |
118 |
28 |
94 |
Net cash outflow from servicing of finance |
(249) |
(86) |
(195) |
Total tax paid |
(78) |
(47) |
(89) |
Net cash outflow from financial investment |
(1,222) |
(7,289) |
(18,934) |
Net cash outflow before financing |
(1,431) |
(7,394) |
(19,124) |
Ordinary shares issued |
1,588 |
5,848 |
11,390 |
Bank loan repaid |
- |
- |
(6,882) |
Bank loan drawn down |
- |
- |
19,926 |
Net cash inflow from financing |
1,588 |
5,848 |
24,434 |
Increase/(decrease) in cash |
157 |
(1,546) |
5,310 |
|
|
|
|
Reconciliation of net cash flow to movement in net debt |
|
|
|
Increase/(decrease) in cash in the period |
157 |
(1,546) |
5,310 |
Net inflow from bank loans |
- |
- |
(13,044) |
Exchange movement on bank loan |
685 |
236 |
1,128 |
Exchange differences on cash |
(263) |
10 |
(82) |
Other non-cash changes |
(9) |
- |
(3) |
Movement in net debt in the period |
570 |
(1,300) |
(6,691) |
Net debt at start of the period |
(12,261) |
(5,570) |
(5,570) |
Net debt at end of the period |
(11,691) |
(6,870) |
(12,261) |
|
|
|
|
Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities |
|
|
|
Net return before finance costs and taxation |
1,531 |
25,462 |
33,788 |
Gains on investments |
(932) |
(25,242) |
(32,841) |
Currency gains |
(427) |
(156) |
(858) |
Changes in debtors and creditors |
(54) |
(36) |
5 |
Net cash inflow from operating activities |
118 |
28 |
94 |
Twenty largest equity holdings at 31 July 2014 (unaudited) |
Name |
Business |
Value £'000 |
% of total assets |
MonotaRO |
Online business supplies |
4,151 |
3.1 |
Iriso Electronics |
Specialist electronic connectors |
3,812 |
2.8 |
Infomart |
Internet platform for restaurant supplies |
3,325 |
2.4 |
Nihon M&A Center |
M&A advisory services |
3,197 |
2.4 |
WirelessGate |
Wireless communication services |
3,138 |
2.3 |
Start Today |
Internet fashion retailer |
3,061 |
2.3 |
Nakanishi |
Dental equipment |
3,048 |
2.2 |
M3 |
Online pharmaceutical marketing |
3,004 |
2.2 |
Asics |
Sports shoes and clothing |
2,941 |
2.2 |
F@N Communications |
Internet advertising services |
2,924 |
2.2 |
Asahi Intecc |
Specialist medical equipment |
2,767 |
2.0 |
Message |
Nursing services for the elderly |
2,718 |
2.0 |
Don Quijote |
Discount store chain |
2,546 |
1.9 |
Nifco |
Industrial fastener manufacturer |
2,441 |
1.8 |
Pigeon |
Baby care products |
2,429 |
1.8 |
SMS |
Online nurse recruitment |
2,402 |
1.8 |
Nabtesco |
Robotic components |
2,265 |
1.7 |
GMO Payment Gateway |
Online payment processing |
2,254 |
1.7 |
Cookpad |
Recipe website |
2,218 |
1.6 |
H.I.S. |
Discount travel agency |
2,201 |
1.6 |
|
|
56,842 |
42.0 |
Notes to the condensed financial statements (unaudited) |
1. |
The condensed financial statements have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 January 2014 and in accordance with the ASB's Statement 'Half-Yearly Financial Reports' and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Company's investments, which are in readily realisable quoted securities, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with loan covenants are reviewed by the Board on a regular basis. Accordingly, the Half-Yearly Financial Report has 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. |
|||
2. |
The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 January 2014 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on these accounts was not qualified and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006. |
|||
3. |
|
Six months to 31 July 2014 |
Six months to 31 July 2013 |
Year to 31 January 2014 |
|
|
£'000 |
£'000 |
£'000 |
|
Net gains on investments |
|
|
|
|
Losses/(gains) on sales of investments |
(68) |
1,510 |
4,209 |
|
Movement in investment holdings gains |
1,000 |
23,732 |
28,632 |
|
|
932 |
25,242 |
32,841 |
4. |
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary with effect from 1 July 2014. The Investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. With effect from 1 April 2013 the annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated quarterly. The annual fee previously was 1.0% of net assets, calculated quarterly. |
|||
5. |
The Company suffers overseas withholding tax on its equity income currently at the rate of 10%. |
|||
6. |
No interim dividend will be declared. |
|||
7. |
|
Six months to 31 July 2014 |
Six months to 31 July 2013 |
Year to 31 January 2014 |
|
|
£'000 |
£'000 |
£'000 |
|
Net return per ordinary share |
|
|
|
|
Revenue return |
(161) |
(67) |
(239) |
|
Capital return |
1,359 |
25,398 |
33,684 |
|
Total return |
1,198 |
25,331 |
33,445 |
|
Net return per ordinary share is based on the above totals of revenue and capital and on 36,899,254 (31 July 2013 - 34,001,554 and 31 January 2014 - 34,861,637) ordinary shares, being the weighted average number of ordinary shares in issue during the period. There are no dilutive or potentially dilutive shares in issue. |
|||
8. |
The amounts falling due after more than one year include a bank loan of £19,191,000 (¥ 3.35 billion) outstanding under a yen loan facility repayable on 27 November 2020; (31 July 2013 - £7,712,000 (¥ 1.15 billion) and 31 January 2014 - £19,867,000 (¥3.35 billion)). |
Notes to the condensed financial statements (unaudited) (ctd) |
9. |
The fair value of the bank loan at 31 July 2014 was £20,097,000 (31 July 2013 - £7,737,000; 31 January 2014 - £20,945,000). |
10. |
The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as well as to buy back shares at a discount to net asset value. During the period under review, 500,000 shares were issued at a premium to net asset value raising net proceeds of £1,588,000. No shares were bought back during the period under review. |
11. |
Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £3,000 (31 July 2013 - £7,000; 31 January 2014 - £16,000) and transaction costs on sales amounted to £2,000 (31 July 2013 - £3,000; 31 January 2014 - £6,000). |
12. |
The Half-Yearly Financial Report will be available on www.shinnippon.co.uk ‡ and will be posted to shareholders on or around 25 September 2014. |
13. |
None of the views expressed in this document should be construed as advice to buy or sell a particular investment. |
Principal Risks and Uncertainties The principal risks facing the Company relate to the Company's investment activities. These risks are market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 19 of the Company's Annual Report and Financial Statements for the year to 31 January 2014. The principal risks and uncertainties have not changed since the publication of the Annual Report, which can be obtained free of charge from Baillie Gifford and is available on the Shin Nippon page of the Managers' website: www.shinnippon.co.uk ‡. Other risks facing the Company include the following:
¾ Regulatory Risk: that the loss of investment trust status or a breach of the applicable legal and regulatory requirements could have adverse financial consequences and cause reputational damage;
¾ Operational/Financial Risk: failure of service providers' accounting systems could lead to inaccurate reporting or financial loss;
¾ Discount/Premium Volatility: the risk that the premium or discount can change; and
¾ Gearing Risk: the use of borrowing can magnify the impact of falling markets.
Further information can be found on pages 7 and 8 of the Annual Report. |
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
-Ends-