Results for the six months to 31 July 2015

RNS Number : 3319Y

Baillie Gifford Shin Nippon PLC

08 September 2015

 

RNS Announcement

Baillie Gifford Shin Nippon PLC

Results for the six months to 31 July 2015

The Company's net asset value per share (after deducting borrowings at fair value) rose by 17.0% compared to a 6.1% rise in the Company's comparative index*. The share price increased by 29.8%.

¾ Japanese equities have outperformed most other markets around the world over the period, buoyed by continued strong earnings growth and improving management attitudes to shareholders.

¾ Amongst the strongest performers in the portfolio were several of the long term Internet related holdings. Their focus on rapidly expanding domestic niche markets allowed these businesses to carry on growing.

¾ Stocks that are seen as beneficiaries of the record numbers of Chinese tourists visiting Japan were also very strong performers over the period.

¾ Shin Nippon continues to focus on investing in the most dynamic, innovative smaller businesses that are emerging in Japan. While the Japanese market has had a strong run over the past few years, we continue to find attractively valued, exciting investment opportunities with the potential to deliver high earnings growth.

¾ During the period the Company's shares traded at or close to net asset value and 100,000 shares were issued at a premium.

* 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 2015 the Company had total assets of £167.9m (before deduction of bank loan of £17.2m).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with approximately £111 billion under management and advice as at 7 September 2015.

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.

7 September 2015

 

For further information please contact:

Alex Blake, Baillie Gifford & Co

Tel: [phone]

Roland Cross, Director, Four Broadgate

Tel: [phone]  

 

The following is the unaudited Interim Financial Report for the six months to 31 July 2015.

Responsibility statement

We confirm that to the best of our knowledge:

a)  the condensed set of financial statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b)  the Interim 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 Interim 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

M N Donaldson

Chairman

7 September 2015

 

Interim Management Report

Japanese equities have outperformed most other markets around the world over the period, buoyed by continued strong earnings growth and improving management attitudes to shareholders.

In the six months to 31 July 2015 Shin Nippon's net asset value per share^* rose by 17.0% compared to a 6.1% rise in the MSCI Japan Small Cap index (all total returns in sterling terms).

The introduction of the Corporate Governance Code in Japan on the 1^st June appears likely to have a major influence on the way businesses are run. For the first time, companies will be forced to comply with new recommendations regarding issues such as the number of outside directors and the amount of crossholdings that can be held. If the minimum standards are not met then boards will have to explain the reasons to their shareholders. We generally believe that Shin Nippon's holdings are managed by younger, more progressive management but this is good news for the reputation of the overall Japanese market. 

Stocks that are seen as beneficiaries of the record numbers of Chinese tourists visiting Japan were very strong performers over the period, such as recent purchase Zojirushi, in contrast to companies that have significant exposure to the Chinese domestic economy which appears to be slowing. Sales of Zojirushi's high-end rice cookers, which are very popular with Asian tourists, continued to rise rapidly.

Amongst the other strongest performers in the portfolio were several of the long-term Internet related holdings. Their focus on rapidly expanding domestic niche markets allowed these businesses to carry on growing. Start Today, which operates the leading online apparel marketplace, Cookpad, the popular recipe sharing website, and Next, a large property information portal, all continued to expand. The business models of these customer facing companies are progressing over time, with new ways to monetise the high volumes of visitors to the websites being developed.  On the commercial side, MonotaRO, which operates a website that sells millions of items required by small businesses on a daily basis, and, Infomart, the online restaurant supply ordering system, both continued to grow rapidly. These two companies are displacing existing, less efficient ways of doing business and still have large untapped market opportunities to expand into within Japan. Many of these Internet businesses are reaching the point where they become sufficiently dominant in their niche that it is possible to start increasing the charges that they levy on their customers. If successful, this should increase the profitability of these businesses.  

Turnover within the portfolio remains relatively low; however several new holdings were taken over the six months. In keeping with the investment case for several of the existing Internet holdings, Sanwa Co is using the Internet to bypass wholesalers, in this instance to sell kitchens and bathrooms direct to customers. By cutting out the costly layers of middlemen that currently dominate this fairly old fashioned industry, Sanwa is able to charge lower prices to customers and demand has been increasing as home refurbishment becomes more popular in Japan.

There have been further signs that the range of investment opportunities for Shin Nippon continues to broaden out. The environment for new listings continues to be healthy and we took a new holding in a relatively recent IPO, Sanbio. The company is developing a treatment for strokes based on stem cell technologies. We continue to believe that the long-term prospects for the Japanese biotech industry are improving. Lastly, a new holding was taken in Sato Holdings, a leader in radio-frequency identification (RFID) chips. The cost of these electronic tags has fallen sufficiently that major clothing retailers are now using them to keep track of garments remotely throughout the supply-chain and within the retail network.

Shin Nippon continues to focus on investing in the most dynamic, innovative smaller businesses that are emerging in Japan. While the Japanese market has had a strong run over the past few years, we continue to find attractively valued, exciting investment opportunities with the potential to deliver high earnings growth.

The principal risks and uncertainties facing the Company are set out at the end of this document.

^*After deducting borrowings at fair value

Past performance is not a guide to future performance

 

Income statement (unaudited)

	For the six months ended 31 July 2015			For the six months ended 31 July 2014
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net gains on investments (note 3)	-	20,455	20,455	-	932	932
Currency gains	-	1,343	1,343	-	427	427
Income from investments	777	-	777	776	-	776
Investment management fee (note 4)	(546)	-	(546)	(427)	-	(427)
Other administrative expenses	(180)	-	(180)	(177)	-	(177)
Net return before finance costs and taxation	51	21,798	21,849	172	1,359	1,531
Finance costs of borrowings	(200)	-	(200)	(255)	-	(255)
Net return on ordinary activities before taxation	(149)	21,798	21,649	(83)	1,359	1,276
Tax on ordinary activities (note 5)	(78)	-	(78)	(78)	-	(78)
Net return on ordinary activities after taxation	(227)	21,798	21,571	(161)	1,359	1,198
Net return per ordinary share (note 7)	(0.61p)	58.63p	58.02p	(0.44p)	3.68p	3.24p

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.

 

Balance sheet (unaudited)

	At 31 July 2015	At 31 January 2015
	£'000	£'000
Fixed asset investments
Listed equities	158,631	140,006
Current assets
Debtors	1,044	757
Cash and short term deposits	9,113	8,181
	10,157	8,938
Creditors
Amounts falling due within one year	(915)	(1,415)
Net current assets	9,242	7,523
Total assets less current liabilities	167,873	147,529
Creditors
Amounts falling due after more than one year (note 8)	(17,248)	(18,894)
Total net assets	150,625	128,635
Capital and reserves
Called up share capital	3,728	3,718
Share premium account	23,726	23,317
Capital redemption reserve	21,521	21,521
Capital reserve	106,944	85,146
Revenue reserve	(5,294)	(5,067)
Shareholders' funds	150,625	128,635
Net asset value per ordinary share (after deducting borrowings at book value)	404.1p	346.0p
Net asset value per ordinary share (after deducing borrowings at fair value) (note 9)	402.2p	343.7p
Net asset value per ordinary share (after deducting borrowings at par value)	403.9p	345.8p
Ordinary shares in issue (note 10)	37,275,497	37,175,497

 

Statement of changes in equity (unaudited)

For the six months ended 31 July 2015

	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 Feb 2015	3,718	23,317	21,521	85,146	(5,067)	128,635
Ordinary shares issued (note 10)	10	409	-	-	-	419
Net return on ordinary activities after taxation	-	-	-	21,798	(227)	21,571
Shareholders' funds at 31 July 2015	3,728	23,726	21,521	106,944	(5,294)	150,625

For the six months ended 31 July 2014

	Called up share capital £'000	Share premium 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

*    The Capital reserve includes investment holding gains of £73,563,000 (31 July 2014 - gains of £50,993,000).

Condensed Cash Flow Statement (unaudited)

	Six months to 31 July 2015	Six months to 31 July 2014
	£'000	£'000
Net cash inflow from operating activities (note 12)	34	40
Interest paid	(209)	(249)
Net cash outflow from operating activities	(175)	(209)
Net cash inflow/(outflow) from investing activities	1,080	(1,222)
Ordinary shares issued	419	1,588
Net cash inflow from financing activities	419	1,588
Increase in cash and cash equivalents	1,324	157
Cash and cash equivalents at start of the period	8,181	7,606
Exchange movements on cash	(392)	(263)
Cash and cash equivalents at end of period †	9,113	7,500

†  Cash and cash equivalents represent cash at bank

Twenty largest equity holdings at 31 July 2015 (unaudited)

Name	Business	Value £'000	% of total assets
MonotaRO	Online business supplies	6,353	3.8
Nihon M&A Center	M&A advisory services	4,654	2.8
Cookpad	Recipe website	4,583	2.7
Infomart Corp	Internet platform for restaurant supplies	4,559	2.7
Asahi Intecc	Specialist medical equipment	4,336	2.6
M3	Online medical database	4,316	2.6
Don Quijote	Discount store chain	4,296	2.6
Asics	Sports shoes and clothing	4,280	2.5
Next	Provides online property information	4,131	2.4
Start Today	Internet fashion retailer	3,952	2.4
Pigeon	Baby care products	3,725	2.2
Iriso Electronics	Specialist auto connectors	3,627	2.2
Japan Exchange Group	Stock exchange operator	3,497	2.1
GMO Payment Gateway	Online payment processing	3,486	2.1
Nifco	Industrial fastener manufacturer	3,435	2.0
Nakanishi	Dental equipment	3,066	1.8
Takara Leben	Residential property developer	2,944	1.8
H.I.S.	Discount travel agency and theme parks	2,742	1.6
Cyberagent	Internet advertising and content	2,635	1.6
Hoshizaki Electric	Commercial kitchen equipment	2,557	1.5
		77,174	46.0

Notes to the condensed financial statements (unaudited)

1.	The condensed Financial Statements for the six months to 31 July 2015 comprise the statements set out on the previous pages together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 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 has adopted FRS 102 for its financial year ending 31 January 2016. Following the application of the new reporting standards and the AIC's issued Statement of Recommended Practice, there has been no impact on the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) for periods previously reported. The Condensed Cash Flow Statement has been restated to reflect presentational changes required and does not include any other material changes. The financial statements for the six months to 31 July 2015 have been prepared on the same basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 January 2015. Fair Value In accordance with FRS102 and FRS104 fair value measurements have been classified using the following fair value hierarchy: Level A - Quoted prices for identical instruments in active markets Level B - Prices of a recent transaction for identical instruments Level C - Valuation techniques that use:  (i) observable market data; or  (ii) non-observable data All of the Company's investments fall into Level A for the periods reported. Going Concern 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 Interim 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 Interim 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 2015 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, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006.
3.			Six months to 31 July 2015	Six months to 31 July 2014
			£'000	£'000
	Net gains on investments
	Gains/(losses) on sales of investments		5,943	(68)
	Movement in investment holdings gains		14,512	1,000
			20,455	932
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. The investment management function has been delegated to Baillie Gifford & Co.  The management agreement can be terminated on six months' notice. The annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated quarterly.
5.	The Company suffers overseas withholding tax on its equity income currently at the rate of 10%.

Notes to the condensed financial statements (unaudited) (ctd)
6.	No interim dividend will be declared.
7.			Six months to 31 July 2015	Six months to 31 July 2014
			£'000	£'000
	Net return per ordinary share
	Revenue return		(227)	(161)
	Capital return		21,798	1,359
	Total return		21,571	1,198
	Net return per ordinary share is based on the above totals of revenue and capital and on 37,178,812 (31 July 2014 - 36,899,254) 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 £17,248,000 (¥ 3.35 billion) outstanding under a yen loan facility repayable on 27 November 2020; (31 January 2015 - £18,894,000 (¥ 3.35 billion)).
9.	The fair value of the bank loan at 31 July 2015 was £17,968,000 (31 January 2015 - £19,745,000).
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, 100,000 shares were issued at a premium to net asset value raising net proceeds of £419,000 (31 July 2014 - 500,000 shares raising net proceeds of £1,588,000). No shares were bought back during the period under review (31 July 2014 - nil).
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 £4,000 (31 July 2014 - £3,000) and transaction costs on sales amounted to £5,000 (31 July 2014 - £2,000).
12.			Six months to 31 July 2015	Six months to 31 July 2014
			£'000	£'000
	Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities
	Net return before finance costs and taxation		21,849	1,531
	Gains on investments		(20,455)	(932)
	Currency gains		(1,343)	(427)
	Changes in debtors and creditors		68	(54)
	Overseas withholding tax		(85)	(78)
	Net cash inflow from operating activities		34	40
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 are financial risk, regulatory risk, operational risk, premium/discount volatility and leverage risk. An explanation of these risks and how they are managed is set out on pages 6 and 7 the Company's Annual Report and Financial Statements for the year to 31 January 2015 which is available on the Company's website: www.shinnippon.co.uk‡ The principal risks and uncertainties have not changed since the date of that report.

The Interim Financial Report will be available on www.shinnippon.co.uk ‡ and will be posted to shareholders on or around 15 September 2015.

‡ 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-

 

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