TIDMBGS
RNS Number : 3672A
Baillie Gifford Shin Nippon PLC
23 September 2022
Baillie Gifford Shin Nippon PLC (BGS)
=====================================
Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83
Regulated Information Classification: Half Yearly Financial Report
Results for the six months to
31 July 2022
-------------------------------------------------------------------
Over the six months to 31 July 2022, the Company's net asset
value per share declined by 4.8% compared to a 0.9% increase in the
MSCI Japan Small Cap Index * . The share price decreased by
9.9%.
3/4 Positive contribution to performance came from an eclectic
group of companies such as GA Technologies, an online real estate
company, Shoei, a motorcycle helmet manufacturer, and Yonex, a
sports equipment manufacturer.
3/4 Many of the portfolio's internet and semiconductor related
companies performed poorly in share price terms.
3/4 Portfolio turnover for the six months was 17% annualised.
Seven names were exited and five new holdings, including one
private company, JEPLAN, bought.
3/4 The Board is disappointed by the weak performance over six
months and three years, but this is not unexpected after a long
period of strong outperformance and especially given the extremely
challenging environment for high-growth small cap stocks more
recently.
3/4 Despite the challenging environment, the Managers remain
confident that the innovative, high-growth companies in the
portfolio are well placed to deliver attractive returns over the
long term given their adaptability and growth opportunity.
After deducting borrowings at fair value.
* The Company's comparative index is the MSCI Japan Small Cap
Index (total return and in sterling terms). See disclaimer at the
end of this announcement.
Source: Refinitiv/Baillie Gifford and relevant underlying index
providers. See disclaimer at end of this announcement.
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
2022 the Company had total assets of GBP613 million (before
deduction of bank loans of GBP87 million).
The Company is managed by Baillie Gifford, an Edinburgh based
fund management group with approximately GBP239 billion under
management and advice as at 22 Sep tember 2022.
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 shinnippon.co.uk .
22 September 2022
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 3276
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
The following is the unaudited Interim Financial Report for the
six months to 31 July 2022.
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 Rule 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 Rule 4.2.8R
(disclosure of related party transactions and changes therein).
On behalf of the Board
MN Donaldson
Chairman
22 September 2022
Interim Management Report
=========================
The first half of this year has been overshadowed by
geopolitical and macroeconomic events. The tragic situation in
Ukraine, aside from human suffering, has caused a spike in energy
prices and exacerbated inflationary pressures globally. While still
low from a Western perspective, inflation in Japan has edged up to
just below 3% after decades of deflation. However, the Bank of
Japan is keeping interest rates low which has led to a weakening of
the yen. Investors tend to seek safety in higher yielding, less
growth-oriented companies under these circumstances. The shocking
assassination of former prime minister Shinzo Abe in early July
also weighed on market sentiment. Despite the challenging
environment, we remain confident that the innovative, high-growth
companies we own in the portfolio are well placed to deliver
attractive returns over the long term given their adaptability and
growth opportunity.
In the six months to 31 July 2022, Shin Nippon's net asset value
per share (after deducting borrowings at fair value) fell by 4.8%
compared to a 0.9% rise in the MSCI Japan Small Cap index (total
return and in sterling terms). The Company's share price ranged
between a premium to net asset value of 1.5% and a discount of
8.9%, averaging a discount of 4.0%. Over three years, the Company's
net asset value per share is down 8.4% compared to the index which
is up 1.6%. We are disappointed by the weak performance over six
months and three years, but this is not unexpected after a long
period of strong outperformance and especially given the extremely
challenging environment for high-growth small cap stocks more
recently. Performance however remains strong over longer periods.
Over five and ten years, the Company's net asset value per share is
up 25.0% and 332.3% versus the index's 11.8% and 154.4%
respectively.
The market rotation away from high-growth stocks to
economically-sensitive businesses has resulted in a significant
valuation compression for the former despite no significant change
in their growth prospects. Strong near-term earnings growth for
cyclical businesses in sectors like shipping and energy has
inflated the overall return of the index, thereby leading to Shin
Nippon's underperformance. We have little exposure to these
traditional cyclical sectors as we believe such companies are
facing long-term structural headwinds which will significantly
impair their current business models and earnings capacity in the
long run.
Given the sharp reversal in sentiment around high growth small
cap stocks, many of our internet companies performed poorly in
share price terms despite recording impressive rates of sales and
profit growth. Online printing, logistics and advertising platform
Raksul was among the poor performers despite recording over 30%
growth in sales and profits so far this year. The company has
suffered from Covid-19 related slowdown but is seeing demand bounce
strongly. Another poor performer was training and employment
assistance company LITALICO. Its offering is geared towards people
with disabilities and children with developmental issues. The
company was impacted by the pandemic and it has at the same time
invested heavily in future growth. We believe that these
investments will stand LITALICO in good stead in the long run.
Management is forecasting a near 30% growth in profits for the
current fiscal year, but recent quarterly results suggest profit
growth running at over 70%.
Longstanding holding Infomart, Japan's leading online food
ordering platform for restaurants, also performed poorly. It is
temporarily sacrificing profitability as management invest in the
business and this was not taken well by the market. It recently
published an ambitious five-year plan that envisages a doubling of
sales and nearly five-fold growth in profits, driven partly by
price hikes.
Cautious investor sentiment towards semiconductor related stocks
resulted in weak share price performance by most of our related
holdings. Among these was JEOL, a specialist semiconductor
equipment manufacturer. Whilst orders for its new semiconductor
production kit remain robust, the market remains concerned about
the likelihood of a sharp slowdown in demand. Sportswear
manufacturer Descente suffered from weak demand in China due to
repeated lockdowns as authorities continue to enforce a zero
Covid-19 policy. China is a key market for Descente where it has a
joint venture with Anta Sports, one of China's largest and most
successful sporting goods manufacturer. Longstanding holding Nihon
M&A, Japan's largest M&A consultancy for small businesses,
was another poor performer. Management had to deal with an improper
accounting issue which distracted its focus from sales and
marketing activities. The problem was largely to do with the timing
of recording sales rather than anything serious. Management has
addressed the issue to the satisfaction of the regulator and has
strengthened internal controls to prevent the recurrence of such
issues in future.
Positive contribution to performance came from an eclectic group
of companies. Bucking the trend of share price weakness among
internet companies in general, online real estate company GA
Technologies put in a strong performance and was the largest
contributor in the period. It is digitalising the staid Japanese
real estate market by offering a number of software-as-a-service
products. Growth in all business segments was very strong and the
company has achieved profitability on an operating basis which was
rewarded by the market. Demand for Shoei's premium motorcycle
helmets has been exceptionally strong as its key markets, most
notably North America and Europe, reopen post the pandemic. In
contrast, the large Chinese market was hampered by supply chain
issues. Overall and despite the weakness in China, Shoei's sales
and profits are continuing to grow at a rapid pace thanks to the
strength of its brand and the safety credentials of its helmets.
Leading global badminton brand Yonex also performed well. It struck
a partnership with the China Badminton Association in 2021 and
subsequently, the Chinese team did very well in the Tokyo Olympics.
This has boosted its profile in China where the company is now
seeing rapid growth in sales and profits. Drugstore chain
MatsukiyoCocokara was another strong performer. It is reaping the
benefits of its merger in 2021 with Cocokara Fine. Synergies from
the merger are flowing through to improved profitability at the
group level. With its focus on beauty and cosmetics, the company
should further benefit from a return of overseas tourists to Japan
once travel restrictions are eased. Following a Covid-19 induced
slump, Optex, a leading global manufacturer of sensors for
residential and industrial security applications and factory
automation, recorded a sharp recovery in orders from clients,
especially those based in Europe.
Portfolio activity was higher than usual as we identified
several exciting investment opportunities. Turnover for the six
months to 31 July 2022 was 17% annualised and active share remains
high at 94%. We sold seven stocks and bought five new holdings,
including one private company. Shopping mall maintenance company
Aeon Delight was sold as we lost faith in management's ability to
drive growth especially in overseas markets. Findex, a software
developer in the healthcare industry, was also sold as we felt that
the company had reached a natural limit in terms of the growth
opportunity in its core market. JP Holdings, Japan's largest
private sector child day-care services provider, continues to
suffer from intensifying competition and we were not convinced that
management has the capabilities to navigate these challenging
circumstances, hence we decided to sell our holding. Game developer
Gumi was sold as well considering its lack of progress in adjacent
fields like virtual reality. The company has spent its significant
cash holdings with no sign of success yet. Biotech company Healios
failed to show statistically significant results in a recent phase
2/3 trial of its main drug to treat ischemic stroke. Given the
disappointing trial results and the lack of exciting drug
candidates in its pipeline, we decided to sell our holding.
Among the new holdings was Avex, one of Japan's largest
music-entertainment businesses with a track record of promoting
several million record selling artists. The company has been
severely impacted by the pandemic, but management has streamlined
the business aggressively and shored up the balance sheet during
this period. We should see a rapid improvement in sales and profits
once business conditions normalise. The founder is still involved
in the business as the chairman and retains a 7% stake which should
provide good alignment. GMO Financial Gate, a provider of offline
digital payments, was another new addition to the portfolio. While
most companies are focused on online payments, GMO Financial Gate
is targeting the offline market which is much larger and very
conservative. It has built its own payments network in partnership
with VISA and Sumitomo Mitsui. Through this, it is able to offer a
fast and low-cost alternative for digital payments to retailers. We
took a new holding in Nittoku, a world- leading manufacturer of
coil winding systems. It is exposed to two exciting end markets:
electric vehicles and 5G. Both these end markets require
significantly more complex and higher volumes of coils. With its
high-end solutions, we believe Nittoku is very well placed to
benefit from increasing demand.
We also made an investment in JEPLAN, a private company. JEPLAN
has developed a novel method to chemically recycle PET
(polyethylene terephthalate) and polyester. Its process is more
energy efficient, environmentally friendly and more scalable than
existing mechanical recycling methods. It is currently working with
a number of bottling companies like Coca Cola Japan and FMCG
(fast-moving consumer-goods) companies like Kao and Nestlé Japan,
turning PET bottles and packaging material into high-purity virgin
PET pellets that can be recycled into newer products. It is also
expanding into recycling apparels using the same technology and is
working with the likes of Uniqlo and Snow Peak. The company is
already generating revenues on the back of these partnerships.
Despite the recent challenges we remain cautiously optimistic.
While increased market volatility is uncomfortable, it also
presents us with some excellent investment opportunities as
valuations can drop to very attractive levels whilst the future
growth prospects remain intact. Young, high-growth companies may
feel less safe to many investors currently, but we believe that
they represent the future of Japan's economy. Long-term growth is
for us a more logical place to be in case of elevated levels of
inflation compared to a flight into value stocks. We therefore
remain excited about the potential of smaller companies in
Japan.
The principal risks and uncertainties facing the Company are set
out following note 13 of this report.
Baillie Gifford & Co
22 September 2022
Past performance is not a guide to future performance
Valuing Private Companies
=========================
We aim to hold our private company investments at `fair value'
i.e. the price that would be paid in an open-market transaction.
Valuations are adjusted both during regular valuation cycles and on
an ad-hoc basis in response to `trigger events'. Our valuation
process ensures that private companies are valued in both a fair
and timely manner.
The valuation process is overseen by a valuations group at
Baillie Gifford which takes advice from an independent third party
(S&P Global). The valuations group is independent from the
investment team, with all voting members being from different
operational areas of the firm, and the portfolio managers only
receive final valuation notifications once they have been
applied.
We revalue the private holdings on a three-month rolling cycle,
with one-third of the holdings reassessed each month. For
investment trusts, the prices are also reviewed twice per year by
the respective investment trust boards and are subject to the
scrutiny of external auditors in the annual audit process.
Beyond the regular cycle, the valuations group also monitors the
portfolio for certain `trigger events'. These may include: changes
in fundamentals; a takeover approach; an intention to carry out an
initial public offering ('IPO'); company news which is identified
by the valuation team or by the portfolio managers or changes to
the valuation of comparable public companies. Any ad-hoc change to
the fair valuation of any holding is implemented swiftly and
reflected in the next published net asset value ('NAV'). There is
no delay.
The valuations group also monitors relevant market indices on a
weekly basis and updates valuations in a manner consistent with our
external valuer's (S&P Global) most recent valuation report
where appropriate. When market volatility is particularly
pronounced the team undertakes these checks daily.
Twenty Largest Equity Holdings at 31 July 2022
==============================================
Value % of Absolute performance *
Name Business GBP'000 total assets %
======================= ============================================ ======== ============= ======================
Shoei Manufactures motor cycle helmets 17,825 2.9 23.1
Designs & manufactures outdoor lifestyle
Snow Peak goods 17,149 2.8 9.0
Sho-Bond Infrastructure reconstruction 16,439 2.7 12.5
GA Technologies Interactive media and services 13,957 2.3 55.4
Provides employment support and learning
support services for people with
Litalico disabilities 13,849 2.3 (15.9)
Technopro Holdings IT staffing 13,779 2.2 2.2
Torex Semiconductor Semiconductor company 13,653 2.2 (1.9)
Katitas Real estate services 12,899 2.1 (8.1)
Harmonic Drive Robotic components 12,535 2.0 7.1
eGuarantee Guarantees trade receivables 12,168 2.0 19.5
Descente Manufactures athletic clothing 12,105 2.0 (24.1)
Nakanishi Dental equipment 12,048 2.0 17.8
Optex Infrared detection devices 11,607 1.9 30.2
JEOL Manufacturer of scientific equipment 11,439 1.9 (6.8)
MatsukiyoCocokara & Co Retail company 11,251 1.8 22.7
Megachips Electronic components 11,117 1.8 (22.1)
Wealthnavi Digital robo wealth-management 10,407 1.7 23.5
Tsugami Manufacturer of automated machine tools 10,283 1.7 (10.8)
Horiba Manufacturer of measuring instruments 10,106 1.6 2.3
Raksul Internet based services 9,972 1.6 (43.6)
254,588 41.5
==================================================================== ======== ============= ======================
* Absolute performance is in sterling terms and has been
calculated on a total return basis over the period 1 February 2022
to 31 July 2022.
Source: Baillie Gifford/StatPro and relevant underlying data
providers.
Past performance is not a guide to future performance.
Income Statement (unaudited)
============================
For the six months For the six months
ended 31 July 2022 ended 31 July 2021
==================================
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================== ======== ======== ============= ======== ======== =============
Net losses on investments
(note 3) - (32,239) (32,239) - (14,428) (14,428)
Currency gains - 3,740 3,740 - 3,442 3,442
Income from investments 4,753 - 4,753 3,342 - 3,342
Investment management fee
(note 4) (1,546) - (1,546) (2,124) - (2,124)
Other administrative expenses (330) - (330) (306) - (306)
================================== ======== ======== ============= ======== ======== =============
Net return before finance
costs and taxation 2,877 (28,499) (25,622) 912 (10,986) (10,074)
================================== ======== ======== ============= ======== ======== =============
Finance costs of borrowings (671) - (671) (456) - (456)
================================== ======== ======== ============= ======== ======== =============
Net return on ordinary activities
before taxation 2,206 (28,499) (26,293) 456 (10,986) (10,530)
================================== ======== ======== ============= ======== ======== =============
Tax on ordinary activities
(note 5) (475) - (475) (334) - (334)
================================== ======== ======== ============= ======== ======== =============
Net return on ordinary activities
after taxation 1,731 (28,499) (26,768) 122 (10,986) (10,864)
================================== ======== ======== ============= ======== ======== =============
Net return per ordinary share
(note 7) 0.55p (9.07p) (8.52p) 0.04p (3.55p) (3.51p)
================================== ======== ======== ============= ======== ======== =============
The accompanying notes on the following pages are an integral
part of the Financial Statements.
The total column of this statement is the profit and loss
account of the Company. The supplementary revenue and capital
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 (unaudited)
=========================
At 31 January
At 31 July 2022
2022 (audited)
GBP'000 GBP'000
======================================= =========== =============
Fixed asset investments
Investments held at fair value through
profit or loss (note 8 ) 608,892 610,857
======================================= =========== =============
Current assets
Debtors 1,664 2,604
Cash and cash equivalents 3,300 33,505
======================================= =========== =============
4,964 36,109
======================================= =========== =============
Creditors
Amounts falling due within one year
(note 9) (1,356) (3,212)
======================================= =========== =============
Net current assets 3,608 32,897
======================================= =========== =============
Total assets less current liabilities 612,500 643,754
======================================= =========== =============
Creditors
Amounts falling due after more than
one year (note 9) (86,616) (91,102)
======================================= =========== =============
Total net assets 525,884 552,652
======================================= =========== =============
Capital and reserves
Share capital 6,285 6,285
Share premium account 260,270 260,270
Capital redemption reserve 21,521 21,521
Capital reserve 239,909 268,408
Revenue reserve (2,101) (3,832)
======================================= =========== =============
Shareholders' funds 525,884 552,652
======================================= =========== =============
Net asset value per ordinary share
(after deducting borrowings at book
value) 167.3p 175.9p
======================================= =========== =============
Ordinary shares in issue (note 11) 314,252,485 314,252,485
======================================= =========== =============
The accompanying notes on the following pages are an integral
part of the Financial Statements.
Statement of Changes in Equity (unaudited)
==========================================
For the six months ended 31 July 2022
Share
Share premium Capital redemption Capital
capital account reserve reserve* Revenue reserve Shareholders' funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ======== ======== ================== ========= =============== ===================
Shareholders' funds at 1
February 2022 6,285 260,270 21,521 268,408 (3,832) 552,652
Net return on ordinary
activities after taxation - - - (28,499) 1,731 (26,768)
Shareholders' funds at 31
July 2022 6,285 260,270 21,521 239,909 (2,101) 525,884
============================= ======== ======== ================== ========= =============== ===================
For the six months ended 31 July 2021
Share
Share premium Capital redemption Capital
capital account reserve reserve* Revenue reserve Shareholders' funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================= ======== ======== ================== ========= =============== ===================
Shareholders' funds at 1
February 2021 6,026 229,149 21,521 446,084 (4,728) 698,052
Ordinary shares issued 239 28,578 - - - 28,817
Net return on ordinary
activities after taxation - - - (10,986) 122 (10,864)
Shareholders' funds at 31
July 2021 6,265 257,727 21,521 435,098 (4,606) 716,005
============================= ======== ======== ================== ========= =============== ===================
* The Capital reserve includes investment holding gains of
GBP36,090,000 (31 July 2021 - gains of GBP238,572,000).
Condensed Cash Flow Statement (unaudited)
=========================================
Six months Six months
to to
31 July 31 July
2022 2021
GBP'000 GBP'000
=========================================== ========== ==========
Cash flows from operating activities
Net return on ordinary activities before
taxation (26,293) (10,530)
Net losses on investments 32,239 14,428
Currency gains (3,740) (3,442)
Finance costs of borrowings 671 456
Overseas withholding tax (521) (356)
Changes in debtors and creditors 397 311
=========================================== ========== ==========
Cash from operations 2,753 867
Interest paid (664) (451)
=========================================== ========== ==========
Net cash inflow from operating activities 2,089 416
=========================================== ========== ==========
Net cash outflow from investing activities (31,524) (34,553)
=========================================== ========== ==========
Ordinary shares issued - 29,431
=========================================== ========== ==========
Net cash inflow from financing activities - 29,431
=========================================== ========== ==========
Decrease in cash and cash equivalents (29,435) (4,706)
Exchange movements (770) (213)
Cash and cash equivalents at start of
period 33,505 10,438
=========================================== ========== ==========
Cash and cash equivalents at end of period
* 3,300 5,519
=========================================== ========== ==========
* Cash and cash equivalents represent cash at bank and short
term money market deposits repayable on demand.
Notes to the Condensed Financial Statements (unaudited)
=======================================================
1. The condensed Financial Statements for the six months to 31
July 2022 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
principles of the AIC's Statement of Recommended Practice issued in
November 2014 and updated in April 2021 with consequential
amendments and have not been audited or reviewed by the Auditor
pursuant to the Auditing Practices Board Guidance on 'Review of
Interim Financial Information'. The Financial Statements for the
six months to 31 July 2022 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 2022.
Going Concern
The Directors have considered the nature of the Company's
principal risks and uncertainties, as set out at the end of this
document, together with its current position, investment objective
and policy, its assets and liabilities and projected income and
expenditure. The Board has, in particular, considered the impact of
heightened market volatility since the Covid-19 pandemic, the
hostilities in Ukraine and current economic conditions and reviewed
the results of specific leverage and liquidity stress testing, but
does not believe the Company's going concern status is affected.
The Company's assets, which are primarily investments in quoted
securities which are readily realisable (Level 1), exceed its
liabilities significantly and could be sold to repay borrowings if
required. 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. The Company has continued to comply
with the investment trust status requirements of section 1158 of
the Corporation Tax Act 2010 and the Investment Trust (Approved
Company) Regulations 2011. Accordingly, the Directors considered it
appropriate to adopt the going concern basis of accounting in
preparing these Financial Statements and confirm that they are not
aware of any material uncertainties which may affect the Company's
ability to continue in operational existence for a period of at
least twelve months from the date of approval of these Financial
Statements.
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 2022 has been extracted
from the statutory accounts which have been filed with the
Registrar of Companies. The Auditor's 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 Six months to
to 31 July
31 July 2021
2022 GBP'000
GBP'000
Net losses on investments
(Losses)/gains on sales of
investments (13,268) 6,841
Movement in investment holding
gains (18,971) (21,269)
=============================== ========== =============
(32,239) (14,428)
=============================== ========== =============
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
0.75% on the first GBP50m of net assets, 0.65% on the next GBP200m
of net assets and 0.55% on the remainder, calculated and payable
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 Six months to
to 31 July
31 July 2021
2022 GBP'000
GBP'000
Net return per ordinary share
Revenue return 1,731 122
Capital return (28,499) (10,986)
============================== ========== =============
Total Return (26,768) (10,864)
============================== ========== =============
Net return per ordinary share is based on the above totals of
revenue and capital and on 314,252,485 (31 July 2021 - 309,882,900)
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. Fair Value
The fair value hierarchy used to analyse the basis on which the
fair values of financial instruments held at fair value through the
profit or loss account are measured is described below. Fair value
measurements are categorised on the basis of the lowest level input
that is significant to the fair value measurement.
Level 1 - using unadjusted quoted prices for identical
instruments in an active market;
Level 2 - using inputs, other than quoted prices included within
Level 1, that are directly or indirectly observable (based on
market data); and
Level 3 - using inputs that are unobservable (for which market
data is unavailable).
The Company's investments are financial assets held at fair
value through profit or loss. In accordance with FRS 102, an
analysis of the Company's financial asset investments based on the
fair value hierarchy described above is shown below.
Level 1 Level 2 Level 3 Total
As at 31 July 2022 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ================== =============== =============== ================
Listed equities 589,580 - - 589,580
Private company securities - - 19,312 19,312
=========================== ================== =============== =============== ================
Total financial asset
investments 589,580 - 19,312 608,892
=========================== ================== =============== =============== ================
Level 1 Level 2 Level 3 Total
As at 31 January GBP'000 GBP'000 GBP'000 GBP'000
2022
=========================== ================== =============== =============== ================
Listed equities 594,241 - - 594,241
Private company securities - - 16,616 16,616
=========================== ================== =============== =============== ================
Total financial asset
investments 594,241 - 16,616 610,857
=========================== ================== =============== =============== ================
There have been no transfers between levels of the fair value
hierarchy during the period. The fair value of listed investments
is last traded price which is equivalent to the bid price on
Japanese markets. Listed investments are categorised as Level 1 if
they are valued using unadjusted quoted prices for identical
instruments in an active market and as Level 2 if they do not meet
all these criteria but are, nonetheless, valued using market data.
Private company investments are valued at fair value by the
Directors following a detailed review and appropriate challenge of
the valuations proposed by the Managers. The Managers' private
company valuation policy applies methodologies consistent with the
International Private Equity and Venture Capital Valuation
guidelines 2018 ('IPEV'). The techniques applied are predominantly
market-based approaches. The market-based approaches available
under IPEV are set out below:
- Multiples;
- Industry Valuation Benchmarks; and
- Available Market Prices.
Further information on the private company valuation process is
provided above.
The Company's holdings in private company investments are
categorised as Level 3 as unobservable data is a significant input
to their fair value measurements.
9. There are no bank loans falling due within one year (31
January 2022 - nil). The amounts falling due after more than one
year include bank loans of GBP86,616,000 (Yen14.10 billion)
outstanding under yen loan facilities repayable between 27 November
2023 and 18 December 2024 (31 January 2022 - GBP91,102,000
(Yen14.10 billion)).
10. The fair value of the bank loans at 31 July 2022 was
GBP86,504,000 (31 January 2022 - GBP91,174,000).
11. 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, no shares were issued (31 July 2021 - 11,960,000 shares
were issued raising net proceeds of GBP28,817,000).
No shares were bought back during the period under review (31
July 2021 - nil).
12. 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 GBP36,000 (31 July 2021 - GBP23,000) and
transaction costs on sales amounted to GBP25,000 (31 July 2021 -
GBP9,000).
13. Related Party Transactions
There have been no transactions with related parties during the
first six months of the current financial year that have materially
affected the financial position or the performance of the Company
during that period and there have been no changes in the related
party transactions described in the last Annual Report and
Financial Statements that could have had such an effect on the
Company during that period.
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,
investment strategy risk, climate and governance risk, discount
risk, regulatory risk, custody and depositary risk, small company
risk, operational risk, leverage risk, political risk and emerging
risk. An explanation of these risks and how they are managed is set
out on pages 8 and 9 of the Company's Annual Report and Financial
Statements for the year to 31 January 2022 which is available on
the Company's website: 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
shinnippon.co.uk ++ and will be posted to shareholders on or around
6 October 2022.
++ 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.
Glossary of Terms and Alternative Performance Measures
('APM')
======================================================
An alternative performance measure is a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The APMs noted below
are commonly used measures within the investment trust industry and
serve to improve comparability between investment trusts.
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 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 value of
the borrowings on this basis is set out in note 9 above.
Net Asset Value (Borrowings at Fair Value) (APM)
This is a widely reported measure across the investment trust
industry. Borrowings are valued at an estimate of their market
worth. The Company's yen denominated loans are fair valued using
methodologies consistent with International Private Equity and
Venture Capital Valuation ('IPEV') guidelines. The value of the
borrowings on this basis is set out in note 10 above.
31 July 2022 31 January 2022
=================================== ================== ===============
Net Asset Value per ordinary share
(borrowings at book value) 167.3p 175.9p
Shareholders' funds (borrowings at GBP525,884,000 GBP552,652,000
book value)
Add: book value of borrowings GBP86,616,000 GBP91,102,000
Less: fair value of borrowings (GBP86,504,000) (GBP91,174,000)
=================================== ================== ===============
Shareholders' funds (borrowings at GBP525,996,000 GBP552,580,000
fair value)
=================================== ================== ===============
Shares in issue at period end 314,252,485 314,252,485
=================================== ================== ===============
Net Asset Value per ordinary share
(borrowings at fair value) 167.4p 175.8p
=================================== ================== ===============
Net Liquid Assets
Net liquid assets comprise current assets less current
liabilities, excluding borrowings.
Discount/Premium (APM)
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.
31 July 2022 31 July 2022 31 January 31 January
NAV (book) NAV (fair) 2022 2022
NAV (book) NAV (fair)
==================== ================== ================ ================== ====================
Closing NAV per
share 167.3p 167.4p 175.9p 175.8p
Closing share price 157.2p 157.2p 174.4p 174.4p
==================== ================== ================ ================== ====================
(Discount) (6.0%) (6.1%) (0.9%) (0.8%)
==================== ================== ================ ================== ====================
Total Return (APM)
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, therefore, the one year total
returns for the share price and NAV per share at book and fair
value are the same as the percentage movements in the share price
and NAV per share at book and fair value as detailed above.
Ongoing Charges (APM)
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 (APM)
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 borrowings at book 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.
Equity gearing is the Company's borrowings adjusted for cash,
expressed as a percentage of shareholders' funds.
Leverage (APM)
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.
Active Share (APM)
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.
Unlisted (Private) Company
An unlisted (private) company means a company whose shares are
not available to the general public for trading and not listed on a
stock exchange.
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contained herein.
MSCI Index Data
Source: MSCI. The MSCI information may only be used for your
internal use, may not be reproduced or redisseminated in any form
and may not be used as a basis for or a component of any financial
instruments or products or indices. None of the MSCI information is
intended to constitute investment advice or a recommendation to
make (or refrain from making) any kind of investment decision and
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performance analysis, forecast or prediction.
The MSCI information is provided on an 'as is' basis and the
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does
not have a direct impact in the UK due to Brexit, however, it
applies to third-country products marketed in the EU. As Shin
Nippon is marketed in the EU by the AIFM, BG & Co Limited, via
the National Private Placement Regime ('NPPR') the following
disclosures have been provided to comply with the high-level
requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's Governance and
Sustainable Principles and Guidelines as its policy on integration
of sustainability risks in investment decisions.
Baillie Gifford & Co believes that a company cannot be
financially sustainable in the long run if its approach to business
is fundamentally out of line with changing societal expectations.
It defines 'sustainability' as a deliberately broad concept which
encapsulates a company's purpose, values, business model, culture,
and operating practices.
Baillie Gifford & Co's approach to investment is based on
identifying and holding high quality growth businesses that enjoy
sustainable competitive advantages in their marketplace. To do this
it looks beyond current financial performance, undertaking
proprietary research to build up an in-depth knowledge of an
individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors
(environmental, social and/or governance matters) which it believes
will positively or negatively influence the financial returns of an
investment. The likely impact on the return of the portfolio from a
potential or actual material decline in the value of investment due
to the occurrence of an environmental, social or governance event
or condition will vary and will depend on several factors including
but not limited to the type, extent, complexity and duration of an
event or condition, prevailing market conditions and existence of
any mitigating factors.
Whilst consideration is given to sustainability matters, there
are no restrictions on the investment universe of the Company,
unless otherwise stated within in its Objective & Policy.
Baillie Gifford & Co can invest in any companies it believes
could create beneficial long-term returns for investors. However,
this might result in investments being made in companies that
ultimately cause a negative outcome for the environment or
society.
More detail on the Investment Manager's approach to
sustainability can be found in the Governance and Sustainability
Principles and Guidelines document, available publicly on the
Baillie Gifford website bailliegifford.com.
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework or
criteria for environmentally sustainable economic activities in
respect of six environmental objectives. It builds on the
disclosure requirements under SFDR by introducing additional
disclosure obligations in respect of Alternative Investment Funds
that invest in an economic activity that contributes to an
environmental objective.
The Company does not commit to make sustainable investments as
defined under SFDR. As such, the underlying investments do not take
into account the EU criteria for environmentally sustainable
economic activities.
-Ends-
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END
IR FLFFRAEIFFIF
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September 23, 2022 02:00 ET (06:00 GMT)
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