Annual Financial Report

RNS Number : 5481K

Baillie Gifford Shin Nippon PLC

11 April 2018

 

Baillie Gifford Shin Nippon PLC

Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83

Regulated Information Classification: Annual Financial and Audit Reports

Annual Financial Report

This is the Annual Financial Report of Baillie Gifford Shin Nippon PLC as required to be published under DTR 4 of the UKLA Listing Rules.

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 January 2017 or 31 January 2018 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2017 and 2018; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 January 2017 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 January 2018 will be delivered to the Registrar in due course.

The Annual Report and Financial Statements for the year ended 31 January 2018, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on the Shin Nippon page of the Baillie Gifford website at: www.shinnippon.co.uk

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.

Baillie Gifford & Co Limited

Managers and Secretaries

11 April 2018

Chairman's Statement

Performance

I am delighted to report that Shin Nippon has enjoyed another excellent year. Your Board however places primary importance on reviewing performance on a rolling three year basis. Over this period Shin Nippon's net asset value per share* (NAV) rose by 145.5% and its share price by 187.2% versus the comparative index (MSCI Japan Small Cap Index, total return in Sterling terms) return of 75.0%. This was once again another period of strong performance in both absolute and relative terms. It is pleasing to note that Shin Nippon is among the top 3 performing investment trusts (in NAV total return terms) over 3, 5 and 10 years across the entire investment trust universe in the UK. This is testament to the fact that Japan offers a fertile hunting ground for exciting, high-growth businesses and investing in these can prove rewarding for shareholders over the long-term.

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

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

Share Issuance

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

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

Borrowings

The Manager continues to use gearing to enhance portfolio performance and your Board is supportive of this strategy. Gearing at the year end was equivalent to 10.5% of net assets.

The Company started the year with bank debt of ¥3.35bn. In March 2017 the Board drew down additional fixed rate secured borrowings of ¥2.0bn. These borrowings mature in November 2020 in line with the existing debt. Additionally, in December 2017 a new 7 year fixed rate facility of ¥2.1bn was drawn down, maturing in December 2024, bringing total borrowings at 31 January 2018 to ¥7.45bn (£47.9m). The level of gearing had fallen due to the Company's strong growth over recent years and these additional borrowings restore the gearing to a level commensurate with the Board's conviction in the Company's long term investment strategy.

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

Revenue

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

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

Investment Policy

The Board has approved a modest amendment to the Company's investment policy to allow an increase in the individual holding size at time of purchase from 3% to 5% of total assets (see page 7 of the Annual Report and Financial Statements). This will provide the Managers with the opportunity to take slightly larger initial positions or make additional investments when conviction in the investment case is strong.

AGM

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

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

The sharp rise in the Company's share price over the last few years - to over £9 today - has been excellent news for existing investors. However, the Board is aware that it might be mildly off-putting to new investors and that it can cause problems for those who invest small sums monthly (they will often find that a considerable part of their monthly payment stays uninvested). With that in mind the Board would like to split each share into five. As explained on page 24 of the Annual Report and Financial Statements, a sub-division of each of the current ordinary shares of 10p shares into five ordinary shares of 2p nominal value is proposed. If this resolution is approved, your holding will be multiplied by five and the share price of each new share is anticipated to adjust downwards accordingly. For shareholders who hold their shares in certificated form, new share certificates will be issued and the old certificates will become invalid.

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

Governance

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

Outlook

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

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

Tourism continues to grow strongly in Japan and last year tourist numbers in Okinawa overtook those in Hawaii! I reported previously that the number of foreign workers in Japan had surpassed 1m. That figure is now nearly 1.3m. There is much to be positive about. There is a drive to improve corporate governance. More external, independent directors are being appointed to Boards and this in turn will afford greater consideration and protection for shareholders.

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

M Neil Donaldson

26 March 2018

* After deducting borrowings at fair value - see Glossary of Terms at the end of this announcement.

Past performance is not a guide to future performance.

See disclaimer at the end of this document.

Managers' Report

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

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

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

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

Performance

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

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

Among the poor performers were companies beset by internal management issues and unfavourable industry changes. Both Cookpad, a user-generated recipe website, and Yonex, a global

brand of badminton equipment, continue to suffer from poor operational execution by management. Condominium builder Takara Leben and specialist running shoes manufacturer ASICS are both struggling to adapt to shifts in consumer preferences although we are encouraged by steps taken by management so far to address these issues.

Portfolio

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

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

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

Outlook

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

Baillie Gifford & Co

26 March 2018

Past performance is not a guide to future performance.

See disclaimer at the end of this document.

Portfolio Performance Attribution for the Year to 31 January 2018^*

Computed relative to the comparative index^††

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

Past performance is not a guide to future performance.

Source: Baillie Gifford/Statpro and relevant underlying index providers. See disclaimer at the end of this announcement.

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

*        The performance attribution table is based on total assets.

†        The comparative index for the year to 31 January 2018 was the MSCI Japan Small Cap index, total return and in sterling terms.

#        The returns are total returns (net income reinvested), calculated on a monthly linked method.

Investment Changes (£'000)

	Valuation  at 31.01.17 £'000	Net acquisitions/ (disposals) £'000	Appreciation/ (depreciation) £'000	Valuation at 31.01.18 £'000
Equities:
Consumer Discretionary	64,386	15,367	18,003	97,756
Consumer Staples	14,523	3,035	1,916	19,474
Financials	4,321	260	1,102	5,683
Healthcare	37,155	14,626	17,314	69,095
Industrials	59,443	9,937	34,259	103,639
Information Technology	64,183	34,731	33,769	132,683
Real Estate	6,716	6,437	2,434	15,587
Telecommunication Services	953	(543)	(410)	-
Total investments	251,680	83,850	103,387	443,917
Net liquid assets*	5,768	47	(443)	5,372
Total assets	257,448	83,897	107,944	449,289
Bank loans	(23,576)	(28,377)	4,076	(47,877)
Shareholders' funds	233,872	55,520	112,020	401,412

* See Glossary of Terms at the end of this announcement.

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

-        the movement in net asset value per share compared to the comparative index;

-        the movement in the share price;

-        the discount/premium of the share price to the net asset value per share; and

-        the ongoing charges.

An explanation of these measures can be found in the Glossary of Terms at the end of this announcement.

These are also compared against the Company's peers. Performance is assessed over periods of one, three and five years, although the Board reviews performance principally over rolling three year periods.

A historical record of the KPIs is shown on pages 4 to 6 and on page 21 of the Annual Report and Financial Statements.

Future Developments of the Company

The outlook for the Company for the next year is set out in the Chairman's Statement and the Managers' Report above.

Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 32 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the years reported no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

The management fee due to Baillie Gifford and Co Limited is set out in note 3 on page 44 of the Annual Report and Financial Statements and the amount accrued at 31 January 2018 is set out in note 10 on page 47 of the Annual Report and Financial Statements. Details of the Investment Management Agreement are set out below.

Management fee arrangements

The Board as a whole fulfils the function of the Management Engagement Committee.

The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner. The annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets, calculated and payable quarterly.

The details of the management fees are as follows:

	2018 £'000		2017 £'000
Investment management fee	2,131		1,590

Principal Risks

As explained on pages 28 and 29 of the Annual Report and Financial Statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk - The Company's assets consist of listed securities and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 17 to the Financial Statements on pages 49 to 52 of the Annual Report and Financial Statements. To mitigate this risk the Board considers at each meeting various portfolio metrics including individual stock performance and weightings, the top and bottom contributors to performance and relative sector weightings against the comparative index. The Manager provides rationale for stock selection decisions. A comprehensive strategy meeting is held annually to facilitate challenge of the Company's strategy.

Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or an ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their Net Asset Value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to Net Asset Value at which the shares trade; and movements in the share register.

Discount Risk - the discount/premium at which the Company's shares trade relative to its Net Asset Value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the Board to be in the best interests of the Company and its shareholders.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Small Company Risk - the Company has investments in smaller companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller companies may do less well in periods of unfavourable economic conditions. To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the investment case and portfolio weightings with the Managers. A spread of risk is achieved by holding a minimum of 40 stocks and the relative industry weightings against the comparative index are considered at each Board meeting.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.

Leverage Risk - the Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in listed securities that are readily realisable. Further information on leverage can be found on page 60 of the Annual Report and Financial Statements and in the Glossary of Terms at the end of this announcement.

Political Risk - Political developments are closely monitored and considered by the Board. The Board has noted the Government's intention that the UK should leave the European Union on 29 March 2019. Whilst there remains considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.

Viability Statement

In accordance with provision C2.2 of the UK Corporate Governance Code the Directors have assessed the prospects of the Company over a period of five years. The Directors continue to believe this period to be appropriate as it reflects the Company's longer term investment strategy and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the effectiveness of the controls employed to mitigate those risks. Furthermore, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a period of five years.

In considering the viability of the Company, the Directors have conducted a robust assessment of each of the principal risks and uncertainties detailed on page 8 of the Annual Report and Financial Statements and in particular the impact of market risk where a significant fall in Japanese small equities markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's leverage and liquidity in the context of the fixed term secured bank loans which were increased during the year by ¥4.1bn and which are due to expire in 2020 and 2024. Although the Company's revenue account is expected to remain in deficit, its investments are primarily listed equities which are readily realisable and so capable of being sold to provide funding if required. Specific leverage and liquidity stress testing was conduced during the year and no matters of concern were noted. In addition, all of the key operations required by the Company are outsourced to third party service providers and it is reasonably considered that alternative providers could be engaged at relatively short notice.

Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Going Concern

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained below. The Company's assets, which are primarily investments in quoted securities which are readily realisable, 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 Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

Financial Instruments and Risk Management

As an Investment Trust, the Company invests in small Japanese company securities and makes other investments so as to achieve its investment objective of long term capital growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests and could result in a reduction in the Company's net assets.

These risks are categorised as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility.

The Company may enter into derivative transactions as explained in the Objective and Policy on page 7 of the Annual Report and Financial Statements. No such transactions were undertaken in the year under review.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting year.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis. Details of the Company's investment portfolio are shown in note 8 of the Annual Report and Financial Statements.

(i) Currency Risk

The Company's assets, liabilities and income are principally denominated in yen. The Company's functional currency and that in which it reports its results is sterling. Consequently, movements in the yen/sterling exchange rate will affect the sterling value of those items.

The Investment Managers monitor the Company's yen exposure (and any other overseas currency exposure) and report to the Board on a regular basis. The Investment Managers assess the risk to the Company of the overseas currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Yen borrowings are used periodically to limit the Company's exposure to anticipated future changes in the yen/sterling exchange rate which might otherwise adversely affect the value of the portfolio of investments. The Company may also use forward currency contracts, although none have been used in the current or prior year.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 31 January 2018	Investments £'000		Cash and deposits £'000		Bank loans £'000		Other debtors and creditors* £'000		Net exposure £'000
Yen	443,917		4,200		(47,877)		(1,461)		398,779
Total exposure to currency   risk	443,917		4,200		(47,877)		(1,461)		398,779
Sterling	-		1,468		-		1,165		2,633
	443,917		5,668		(47,877)		(296)		401,412

At 31 January 2017	Investments £'000		Cash and deposits £'000		Bank loans £'000		Other debtors and creditors* £'000		Net exposure £'000
Yen	251,680		5,459		(23,576)		681		234,244
Total exposure to currency risk	251,680		5,459		(23,576)		681		234,244
Sterling	-		61		-		(433)		(372)
	251,680		5,520		(23,576)		248		233,872

Currency Risk Sensitivity

At 31 January 2018, if sterling had strengthened by 10% against the yen, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have decreased by £39,878,000 (2017 - £23,424,000). A 10% weakening of sterling against the yen, with all other variables held constant, would have had a similar but opposite effect on the Financial Statement amounts.

(ii)   Interest Rate Risk

Interest rate movements may affect directly the level of income receivable on cash deposits. They may also impact upon the market value of the Company's investments as the effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and the income receivable on cash deposits.

The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

The interest rate risk profile of the Company's financial assets and liabilities at 31 January 2018 is shown below. There was no significant change to the interest rate risk profile during the year.

Financial Assets

	2018 Fair value £'000	2018 Weighted average interest rate		2017 Fair value £'000	2017 Weighted average interest rate
Cash:
Yen	4,200	Nil		5,459	Nil
Sterling	1,468	0.02%		61	0.01%
	5,668			5,520

The cash deposits generally comprise overnight call or short term money market deposits and earn interest at floating rates based on prevailing bank base rates.

Financial Liabilities

The interest rate risk profile of the Company's financial liabilities at 31 January was:

	2018			2017
	Book value £'000	Weighted average interest rate	Weighted average period until maturity	Book value £'000	Weighted average interest rate	Weighted average period until maturity
Bank Loans:
Yen denominated - fixed rate	47,877	1.8%	48 months	23,576	2.2%	46 months

An interest rate risk sensitivity analysis has not been performed as the Company does not hold bonds and has borrowed funds at a fixed rate of interest.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 8 of the Annual Report and Financial Statements.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index, investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.

Other Price Risk Sensitivity

A full list of the Company's investments is shown on pages 18 to 19 of the Annual Report and Financial Statements. In addition, various analyses of the portfolio by industrial sector, exchange listing, holding period and investment theme are shown on pages 17 and 20 of the Annual Report and Financial Statements.

110.2% of the Company's net assets are invested in Japanese quoted equities (2017 - 107.6%). A 10% increase in quoted equity valuations at 31 January 2018 would have increased total net assets and net return on ordinary activities after taxation by £44,253,000 (2017 - £25,168,000). A decrease of 10% would have had an equal but opposite effect. This analysis does not include the effect on the management fee of changes in quoted equity valuations.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant in normal market conditions as the majority of the Company's assets are in investments that are readily realisable.

The Company's investment portfolio is in Japanese small-cap equities which are typically less liquid than larger capitalisation stocks. The Managers monitor the liquidity of the portfolio on an ongoing basis and relevant guidelines are in place.

The Board provides guidance to the Investment Managers as to the maximum exposure to any one holding (see Objective and Policy on page 7 of the Annual Report and Financial Statements).

The maturity profile of the Company's financial liabilities at 31 January was:

	2018 £'000	2017 £'000
In less than one year: -      accumulated interest In more than one year, but not more than five years: -      repayment of loan -      accumulated interest	887 34,466 2,125	533 23,653 1,502
In more than five years: -      repayment of loan -       accumulated interest	13,529 437	- -
	51,444	25,688

The Company has the power to take out borrowings, which gives it access to additional funding when required.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

- The Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. For the period up to the date of these Financial Statements, the Depositary delegated the custody function to The Bank of New York Mellon (International) Limited. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting their findings to the Board;

- Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

- The creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Managers; and

- At 31 January 2018 and 2017, all cash deposits were held with the custodian bank. The credit risk of the custodian is reviewed as detailed above. Cash may also be held at banks that are regularly reviewed by the Managers. If the credit rating of a bank where a cash deposit was held fell significantly, the Managers would endeavour to move the cash to an institution with a superior credit rating.

Credit Risk Exposure

The maximum exposure to credit risk at 31 January was:

	2018 £'000	2017 £'000
Cash and deposits	5,668	5,520
Debtors	2,810	778
	8,478	6,298

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Company's investments are stated at fair value and the Directors are of the opinion that the reported values of the Company's other financial assets and liabilities approximate to fair value with the exception of the long term borrowings which are stated at amortised cost. The fair value of the loan is shown below.

			2018				2017
		Book Value £'000	Par Value £'000	Fair* Value £'000	Book Value £'000	Par Value £'000		Fair* Value £'000
Fixed rate yen bank loans		47,877	47,995	48,646	23,576	23,653		24,216

*The fair value of each bank loan is calculated by reference to a Japanese government bond of comparable yield and maturity.

Capital Management

The capital of the Company is its share capital and reserves as set out in note 13 of the Annual Report and Financial Statements together with its borrowings (see note 11 of the Annual Report and Financial Statements). The Company's investment objective and policy is set out on page 7 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on pages 8 to 9 and pages 28 to 29 of the Annual Report and Financial Statements, respectively. The Company has the ability to buy back and issue shares (see pages 24 and 25 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in note 12 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loan which are detailed in note 11 of the Annual Report and Financial Statements.

Fair Value of Financial Instruments

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 valuation techniques used by the Company are explained in the accounting policies on page 43 of the Annual Report and Financial Statements.

The financial assets designated as valued at fair value through profit or loss are all categorised as Level 1 in the above hierarchy. None of the financial liabilities are designated at fair value through profit or loss in the Financial Statements.

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM remuneration policy is available at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements) and the most recent numerical remuneration disclosures in respect of the AIFM (year ended 31 March 2017) are available at www.bailliegifford.com.

The Company's maximum and actual leverage levels (see Glossary of Terms at the end of this announcement) at 31 January 2018 are as follows:

Leverage

	Gross method	Commitment method
Maximum Limit	2.50:1	2.00:1
Actual	1.11:1	1.12:1

Investments

As at 31 January 2018	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	442,526	-	-	442,526
Unlisted equities	-	-	1,391	1,391
Total financial asset investments	442,526	-	1,391	443,917

As at 31 January 2017	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	251,680	-	-	251,680
Unlisted equities	-	-	-	-
Total financial asset investments	251,680	-	-	251,680

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they are required to prepare the Financial Statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these Financial Statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and estimates that are reasonable and prudent;

- state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;

- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

- use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm that to the best of our knowledge:

- the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

- the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

M Neil Donaldson

Chairman

26 March 2018

Income statement

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

* Gains on investments include gains and losses on disposals and holding gains and losses on the investment portfolio resulting from: i) changes in the local currency fair value of the investments and, ii) movements in the yen/sterling exchange rate.

†Currency gains include: i) currency exchange gains and losses on yen bank loans, ii) exchange differences on the settlement of investment transactions and, iii) other exchange differences arising from the retranslation of cash balances.

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Balance sheet at 31 January 2018

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

Statement of changes in equity

For the year ended 31 January 2018

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

For the year ended 31 January 2017

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

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

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

Notes

1.	The Financial Statements for the year to 31 January 2018 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
		31 January 2018 £'000		31 January 2017 £'000
2.	Currency gains/(losses)
	Exchange differences on bank loans	4,076		(4,131)
	Other exchange differences	(485)		1,059
		3,591		(3,072)
		31 January 2018 £'000		31 January 2017 £'000
3.	Investment management fee - all charged to revenue
	Investment management fee	2,131		1,590
	The annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets, calculated quarterly. Prior to 1 September 2016 the fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net assets.
4.	The Company paid interest on bank loans of £717,000 (2017 - £537,000) and £15,000 (2017 - £7,000) in respect of Yen deposits held by the Custodian Bank.
5.	No dividend will be declared.
		31 January 2018 £'000		31 January 2017 £'000
6.	Net return per ordinary share
	Revenue return	(227)		101
	Capital return	111,978		55,758
	Total return	111,751		55,859
	The returns per ordinary share set out below are based on the above returns and on 42,818,456 ordinary shares (2017 - 39,024,022), being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
	Revenue return	(0.53p)		0.26p
	Capital return	261.52p		142.88p
	Total return	260.99p		143.14p
7.	The Company has arranged secured fixed rate borrowings, drawn down as follows: At 31 January 2018 ING Bank N.V. - 7 year ¥3,350 million loan at 2.217% maturing 27 November 2020. ING Bank N.V. - 3 year 8 month ¥2,000 million loan at 1.301% maturing 27 November 2020. ING Bank N.V. - 7 year ¥2,100 million loan at 1.693% maturing 18 December 2024. At 31 January 2017 ING Bank N.V. - 7 year ¥3,350 million loan at 2.217% maturing 27 November 2020. During the year the Company drew down the following additional borrowings from ING Bank N.V. - ¥2,000 million at 1.301%, maturing 27 November 2020 and ¥2,100 million at 1.693% maturing on 18 December 2024.

8.	At 31 January 2018 the Company had authority to buy back 6,148,972 shares. No shares were bought back during the year (2017 - nil). Share buy-backs are funded from the capital reserve. During the year the Company issued 7,090,000 shares on a non pre-emptive basis at a premium to net asset value for net proceeds of £55,789,000 (2017 - 2,620,000 shares for net proceeds of £14,623,000).
9.	The Annual Report and Financial Statements will be available on the Company's website www.shinnippon.co.uk† on or around 11 April 2018.
10.	The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 January 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2017 accounts, their report was unqualified and did not contain a statement under section 495 to 497 of the Companies Act 2006. The statutory accounts for 2018 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held on 18 May 2018. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

†      Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Glossary of Terms

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

Net Asset Value

Also described as shareholders' funds. Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Asset Value (Borrowings at Fair Value)

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

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

Net Asset Value (Borrowings at Book Value)

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

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

Net Asset Value (Borrowings at Par Value)

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

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

Net Liquid Assets

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

Discount/Premium

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Total Return

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

Ongoing Charges

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

Companies.

Gearing

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing represents its cash borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds.

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Portfolio Performance Attribution

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

Active Share

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Share Split

A share split (or stock split) is the process by which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases, the total value of the shares remains the same with respect to the pre-split value.

The Company is proposing a share split at the AGM on 18 May 2018. Please refer to the explanations in the Chairman's Statement above and in the Directors Report on page 24 of the Annual Report and Financial Statements.

Third party data provider disclaimers

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data.  No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

MSCI Index data

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

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

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FR SFLSAFFASEFL