Interim Results

Baillie Gifford Shin Nippon PLC 29 August 2003 BAILLIE GIFFORD SHIN NIPPON PLC Results for the six months to 31 July 2003 Baillie Gifford Shin Nippon PLC's net asset value per share rose 26.0% over the six months to 31 July 2003, in comparison with a 31.5% rise in sterling terms in the Company's comparative index.* The last six months have seen small companies significantly outperforming their larger peers, with the broad TOPIX index increasing 16.4% in sterling terms. We continue to find businesses with strong market positions and growth prospects on valuations below the market average. • Optimistic outlook. With the prospect of sustained earnings and cashflow growth, combined with an improving dividend outlook, the Board remains optimistic about the outlook for small Japanese companies. • Portfolio overweight in growth areas. The Company continues to find small specialist retailers which can benefit from mismanagement of Japan's large retailers. It is also overweight in Commerce and services where the Managers believe the best secular growth opportunities can be found. • Strong corporate profit growth. Operating profit growth for non-financial companies exceeded 35% for the year to March 2003 as companies increased their focus on returns rather than sales, leading to better cash generation as evidenced by rising dividends. • Japanese economic news exceeded expectations. Industrial production has remained positive to meet real end demand, with exports, particularly into China, stronger than expected. GDP forecasts have risen significantly from less than 0.5%, with expectations of 1.5%-2.0% growth for the year to March 2004. * The Company's comparative index is a market-capitalisation weighted composite index of the Tokyo Second Section Index, the TOPIX Small Index and the JASDAQ OTC Index, in sterling terms. -/more Baillie Gifford Shin Nippon PLC aims to achieve capital growth through investment in smaller Japanese companies. At 31 July 2003 the Company had total assets of £42.5 million. An ISA and Share Plan are available. The Company is managed by Baillie Gifford & Co., the leading independent Edinburgh based fund management group with over £24 billion funds under management and advice. - ends - For further information please contact: Mark Urquhart / Alistair Way Baillie Gifford & Co 0131 222 4000 Mike Lord, Director Broadgate Marketing 020 7726 6111 Baillie Gifford & Co. is authorised and regulated by the Financial Services Authority. BAILLIE GIFFORD SHIN NIPPON PLC Interim Report The six months since January 2003 have provided some welcome relief after three years of falling markets, with Shin Nippon's net asset value per share rising by 26.0% as compared to a sterling rise of 31.5% in the weighted index of the Tokyo Stock Exchange Second Section, TOPIX Small and JASDAQ OTC. Small companies have significantly outperformed their larger peers with the broad TOPIX index rising 16.4% in sterling terms over the same six month period. The net asset value and share price have continued to increase since the end of July, at the time of writing. The market has rallied for a number of reasons encompassing both improving fundamentals and sentiment. The economic news over the period has been considerably better than expected. Industrial production has remained positive to meet real end demand as capital expenditures have increased; exports have been stronger than expected with Chinese demand a notable source of upside surprise and consumption has been reasonably stable. Forecasts for GDP have risen significantly over the first half of the year with most economists now expecting growth of 1.5% - 2.0% for the fiscal year to March 2004. At the corporate level, the behaviour of companies continues to improve. Operating profit growth in the year to March 2003 was over 35% for non-financial companies and we expect a further double digit increase this year as companies continue to focus more on returns rather than sales maximisation. This change in attitude has manifested itself in far better cash generation for corporate Japan and there are signs that shareholders will share in these cashflows with a quarter of listed companies raising dividends this year and many companies starting to buy back their shares. We also continue to see foreign buyers of assets and during the period Tesco, the UK supermarket group, made a tender offer for one of Shin Nippon's holdings, C-Two Network, at a substantial premium to the prevailing share price. These fundamental developments have underpinned an improvement in market sentiment. Volumes have improved substantially over the first six months of the year and there has been consistent evidence of foreigners, who have long had an underweight position in Japan, buying equities. There has also been a marked reversal in the bond market with yields on ten year bonds rising from lows around 0.5% back toward 1.0%. The period has seen some speculation returning to the market. For example, the weighted index return was helped significantly by the strong performance of the JASDAQ index which rose 41.1% in sterling terms during the period buoyed by Yahoo Japan which represents almost one-fifth of the index rising by 144%. This stock is relisting to the Tokyo Stock Exchange which it will join as one of the thirty largest capitalisation stocks marking a welcome removal of a distortion to small cap indices. There have been several new holdings added to the portfolio over the last six months as we continue to find attractive investment opportunities. In the Commerce and services sector, new holdings include Hamakyorex, which manages logistics for retailers, and Fullcast, which is benefiting from the trend to temporary and part-time labour. We have also bought several companies classified within the broadly defined Miscellaneous manufacturing sector: Nakanishi, which is a leading supplier of dental hardware with a particularly strong presence in China; Tamron, which is a specialist maker of camera lenses benefiting from the strong demand for digital cameras; and Arrk, which is a product design and prototype manufacturer profiting from the move by manufacturers to outsource more development. The shape of the portfolio in terms of overweights and underweights has remained similar to the end of January. The portfolio's largest overweights remain in the Retail sector where we continue to find small specialists capitalising on the mismanagement of Japan's large retailers and Commerce and services where the best secular growth opportunities continue to be found. There are also small overweights in Financials, Miscellaneous manufacturing and Real estate and construction. The largest underweight positions are in Information, communication and utilities and Chemicals and other materials. Valuations in Japan remain attractive despite the rise in stockmarkets since January with growth coming through as companies change their behaviour to focus more on profits and the uses of cashflows. At the smaller end of the market, valuations remain lower than the large companies with price-earnings ratios in the mid teens versus high teens for the market as a whole. The current average price-earnings ratio for the portfolio is 16x. With the prospect of sustained earnings and cashflow growth through a combination of secular top-line expansion and restructuring gains combined with more cash coming back to shareholders we remain optimistic about the outlook for small Japanese companies. The following is the interim statement for the six months ended 31 July 2003 which has been neither reviewed nor audited by the auditors. This statement is being printed and will be sent to all shareholders on 11 September 2003. Copies will be available for inspection at the Registered Office of the Company or may be obtained on request from the Managers and Secretaries after that date. BAILLIE GIFFORD SHIN NIPPON PLC STATEMENT OF TOTAL RETURN (unaudited and incorporating the revenue account*) for the six months ended for the six months ended for the year ended 31 July 2003 31 July 2002 31 January 2003 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Realised losses - (4,633) (4,633) - (1,862) (1,862) - (6,077) (6,077) on investments Unrealised - 11,969 11,969 - 3,466 3,466 - (3,741) (3,741) gains/(losses) on investments Currency - (70) (70) - 2 2 - 335 335 (losses)/gains (note 1) Income (note 2) 305 - 305 244 - 244 398 - 398 Investment (167) - (167) (208) - (208) (358) - (358) management fee Other (74) - (74) (63) - (63) (157) - (157) administrative expenses Net return before 64 7,266 7,330 (27) 1,606 1,579 (117) (9,483) (9,600) finance costs and taxation Finance costs of (83) - (83) (107) - (107) (231) - (231) borrowings Return on (19) 7,266 7,247 (134) 1,606 1,472 (348) (9,483) (9,831) ordinary activities before taxation Tax on ordinary (28) - (28) (36) - (36) (59) - (59) activities Return on (47) 7,266 7,219 (170) 1,606 1,436 (407) (9,483) (9,890) ordinary activities after taxation Transfer (47) 7,266 7,219 (170) 1,606 1,436 (407) (9,483) (9,890) (from)/to reserves Return per (0.15p) 23.69p 23.54p (0.55p) 5.20p 4.65p (1.32p) (30.69p) (32.01p) ordinary share (note 4) * The revenue 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. BAILLIE GIFFORD SHIN NIPPON PLC SUMMARISED BALANCE SHEET at 31 July 2003 (unaudited) 31 July 2003 31 July 2002 31 January 2003 £'000 £'000 £'000 NET ASSETS Listed Japanese equities 24,948 34,504 24,893 Unlisted equities - traded on the OTC/ Hercules Japan markets 12,025 12,262 6,573 - other unlisted 734 694 614 Total fixed asset investments 37,707 47,460 32,080 Net liquid assets 4,802 2,842 3,307 Total assets (before deduction of bank loans) 42,509 50,302 35,387 Bank loans (note 5) (7,225) (10,690) (7,101) 35,284 39,612 28,286 CAPITAL AND RESERVES Called-up share capital 3,060 3,090 3,090 Capital reserves 36,171 40,185 29,096 Revenue reserve (3,947) (3,663) (3,900) EQUITY SHAREHOLDERS' FUNDS 35,284 39,612 28,286 NET ASSET VALUE PER ORDINARY SHARE (note 6) 115.3p 128.2p 91.5p Ordinary shares in issue (note 7) 30,600,492 30,900,492 30,900,492 BAILLIE GIFFORD SHIN NIPPON PLC SUMMARISED CASH FLOW STATEMENT (unaudited) Six months Six months to Year to to 31 July 2003 31 July 2002 31 January 2003 £'000 £'000 £'000 NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 40 (52) (120) NET CASH OUTFLOW FROM SERVICING OF FINANCE (82) (126) (255) TOTAL TAX PAID (28) (34) (59) FINANCIAL INVESTMENT Acquisitions of investments (7,843) (10,693) (18,719) Disposals of investments 9,912 9,098 20,456 Realised currency gains/(losses) 54 98 (51) NET CASH INFLOW/(OUTFLOW) FROM FINANCIAL INVESTMENT 2,123 (1,497) 1,686 NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 2,053 (1,709) 1,252 FINANCING Net inflow/(outflow) from bank loans - 544 (2,563) Shares purchased for cancellation (221) - - NET CASH (OUTFLOW)/INFLOW FROM FINANCING (221) 544 (2,563) INCREASE/(DECREASE) IN CASH 1,832 (1,165) (1,311) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase/(decrease) in cash in the period 1,832 (1,165) (1,311) Net (inflow)/outflow from bank loans - (544) 2,563 Exchange movement on bank loans (124) (96) 386 MOVEMENT IN NET DEBT IN THE PERIOD 1,708 (1,805) 1,638 NET DEBT AT START OF PERIOD (4,115) (5,753) (5,753) NET DEBT AT END OF PERIOD (2,407) (7,558) (4,115) BAILLIE GIFFORD SHIN NIPPON PLC TWENTY LARGEST EQUITY HOLDINGS at 31 July 2003 Name Business Market % of total value assets £'000 * Fuji Seal Packaging and shrink-wrap materials 1,260 3.0 Arisawa Manufacturing Specialist electronic materials 1,257 3.0 Bandai Maker of toys, cartoons and character goods 1,249 2.9 * LeoPalace21 Condominium developer and lessor 1,234 2.9 * Kappa Create Revolving sushi restaurants 1,222 2.9 USS Company Second-hand car auctioneer 1,178 2.8 Sumisho Lease Specialist leasing operator 1,103 2.6 Koei Games software developer 1,068 2.5 * Tamron Camera lens manufacturer 1,057 2.5 * Goodwill Group Part-time labour and nursing care 1,052 2.5 Nissin Consumer loans and business finance 1,018 2.4 Sanyo Shinpan Finance Consumer loans and credit cards 988 2.3 Kose Cosmetics manufacturer 916 2.2 Eneserve Power generation equipment 848 2.0 Japan Retail Fund Investment Corp Shopping centre real estate investment trust 837 2.0 Uniden Phone handset manufacturer 808 1.9 * MEW Information Systems Business software developer 805 1.9 Taiyo Ink Manufacturing Maker of specialist inks 799 1.9 Tsumura Herbal medicines 787 1.8 Taito Arcade operator 774 1.8 20,260 47.8 * Denotes unlisted holdings traded on the OTC/Hercules Japan markets. BAILLIE GIFFORD SHIN NIPPON PLC NOTES 31 July 2003 31 July 2002 31 January 2003 £'000 £'000 £'000 1. Currency (losses)/gains Realised exchange differences 54 64 77 Movement in unrealised exchange differences (124) (62) 258 (70) 2 335 2. Income includes stock lending fee income of £27,000 (31 July 2002 and 31 January 2003 - £nil). 3. No interim dividend will be declared. 4. Return per ordinary share Revenue return (47) (170) (407) Capital return 7,266 1,606 (9,483) Return per ordinary share is based on the above totals of revenue and capital and on 30,663,475 (31 July 2002 and 31 January 2003 - 30,900,492) ordinary shares, being the weighted average number of ordinary shares in issue during the period. 5. Bank loans of £7.2 million (Y1.4 billion) have been drawn down under yen loan facilities which are repayable between August 2004 and May 2005 (31 July 2002 - £10.7 million (Y2.0 billion); 31 January 2003 - £7.1 million (Y1.4 billion)). 6. There was no dilution to net asset value per share at any date. The 2,517,896 outstanding warrants at 31 July 2003 are exercisable at 200p on 30 April in either of the remaining years 2004 or 2005. No warrants were exercised during the period. 7. Between 1 February 2003 and the date of the AGM in May 2003 the Company bought back 300,000 ordinary shares with a nominal value of £30,000 at a total cost of £221,000. The Company's authority to buy back its own ordinary shares was renewed at the AGM in May 2003 in respect of 4,587,013 ordinary shares (equivalent to 14.99% of its share capital at that date). No further shares were bought back during the period and, therefore, at 31 July 2003 the Company's authority to buy back its own shares remained unchanged at 4,587,013 ordinary shares. 8. The financial information for the year ended 31 January 2003 has been extracted from the full accounts, which have been filed with the Registrar of Companies and which contain an unqualified Auditors' Report. 9. The accounting policies applied in calculating the interim figures are consistent with those used in the Annual Financial Statements. The Interim Report was approved by the Board on 28 August 2003. This information is provided by RNS The company news service from the London Stock Exchange

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