RNS Announcement |
Baillie Gifford Shin Nippon PLC |
Results for the six months to 31 July 2016 |
The Company's net asset value per share† rose by 29.5% compared to a 23.0% rise in the MSCI Japan Small Cap Index*. The share price increased by 31.6%.
- Despite weakness in the broader Japanese market, Japanese smaller companies held up well over the period. Sterling based investors benefitted from a stronger Yen.
- There was a noticeable investor rotation to undervalued real estate related names. Takara Leben, the specialist condominium builder and Sho-Bond, which specialises in reinforcing concrete structures, were strong performers.
- Amongst the other strongest performers in the portfolio were several of the long term internet related holdings. Their focus on rapidly expanding domestic niche markets allowed these businesses to open up new revenue opportunities.
- Shin Nippon continues to focus on investing in the most dynamic, innovative smaller businesses that are emerging in Japan. The short term volatility that we are currently witnessing presents us with an excellent opportunity to invest in attractively valued, exciting high growth companies with the potential to deliver rapid earnings growth for a number of years.
- With effect from 1 September 2016, the Company's annual management fee will be calculated at 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder. As at 31 July 2016, the Company had net assets of approximately £222m.
† After deducting borrowings at fair value.
* The Company's comparative index is the MSCI Japan Small Cap Index (total return and in sterling terms).
Shin Nippon aims to achieve long term capital growth through investment principally in small Japanese companies which are believed to have above average prospects for growth. At 31 July 2016 the Company had total assets of £246.5m (before deduction of bank loan of £24.5m).
The Company is managed by Baillie Gifford, an Edinburgh based fund management group with approximately £144 billion under management and advice as at 19 September 2016.
Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. The Company has borrowed money to make further investments. This is commonly referred to as gearing. The risk is that, when this money is repaid by the Company, the value of these investments may not be enough to cover the borrowing and interest costs, and the Company makes a loss. If the Company's investments fall in value, gearing will increase the amount of this loss. The more highly geared the Company, the greater this effect will be.
Investment in investment trusts should be regarded as long term. You can find up to date performance information about Shin Nippon at www.shinnippon.co.uk.
20 September 2016
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Gareth David, Practice Director, Four Broadgate
Tel: 0203 697 4200 or 77744 44162
The following is the unaudited Interim Financial Report for the six months to 31 July 2016.
Responsibility Statement |
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board
MN Donaldson
Chairman
19 September 2016
Interim Management Report |
The first half of the year witnessed increased volatility across global markets. The EU referendum result in the UK, concerns over global growth and China in particular, rising scepticism over unconventional monetary policy by central banks and speculation over the timing of a rise in US interest rates all served to heighten market uncertainty. In addition, and for Japan in particular, a sluggish GDP reading and a strong currency meant that markets in general were quite weak during this period.
Despite weakness in the broader markets, Japanese smaller companies have held up well. Sterling based investors benefitted from a stronger Yen. In the six months to 31 July 2016, Shin Nippon's net asset value per share (after deducting borrowings at fair value) rose by 29.5% compared to a 23% rise in the MSCI Japan Small Cap index.
Following a weaker than expected GDP reading in Japan, both the Abe administration and the Bank of Japan have announced a number of supportive measures. An additional fiscal stimulus over the next few years and increased buying of index funds by the Bank of Japan are amongst a slew of measures that have been put in place to support the economy and shore up confidence in markets. The Corporate Governance Code which was introduced in Japan on 1st June last year is continuing to have a positive effect on management attitudes. Dividend pay-out ratios continue to rise and share buybacks are now at an all time high, which is good news for the reputation of the overall Japanese market. We believe that the majority of Shin Nippon's holdings are managed by younger, more progressive management.
There was a noticeable investor rotation towards undervalued real estate related names. Beneficiaries of this were stocks such as the specialist condominium builder Takara Leben. Japan is in need of a significant overhaul of its ageing infrastructure, more so in light of the 2020 Tokyo Olympics, and this is where a significant portion of the government's new fiscal stimulus is likely to be spent. Infrastructure related names such as Sho-Bond, which specialises in reinforcing concrete structures such as bridges, highways and tunnels, were particularly strong on the back of this announcement.
Amongst the other strongest performers in the portfolio were several of the long term internet related holdings. Their focus on rapidly expanding domestic niche markets allowed these businesses to open up new revenue opportunities. Start Today, which operates the leading online apparel marketplace, MonotaRO, which operates a website that sells millions of maintenance and repair related items required by small businesses on a daily basis, and M3, which provides online marketing support for pharmaceutical companies, all continued to grow rapidly. Many of these internet businesses are reaching the point where they become sufficiently dominant in their niche that it is possible to start increasing the charges that they levy on their customers. If successful, this should increase the profitability of these businesses.
Turnover within the portfolio remains relatively low; however a few new holdings were taken over the six months. The market for trade receivable guarantees in Japan is still in its infancy compared to other developed markets. eGuarantee is emerging as the dominant player in this large and lucrative market. It is backed by the trading company Itochu, which is also its largest shareholder. Through Itochu's extensive business links, eGuarantee has unparalleled access to small and medium sized businesses that are still in the early stages of improving their balance sheet and working capital management. The ongoing labour shortage in Japan provides an excellent long term growth opportunity for staffing companies, and IT recruitment specialist TechnoPro is among the chief beneficiaries of this trend. Seria is Japan's leading ¥100 store operator. Led by a young, ambitious and dynamic president, the company is using its in-house developed inventory management technology to disrupt what remains a very old-fashioned industry.
There have been further signs that the range of investment opportunities for Shin Nippon continues to broaden out. The environment for new listings continues to be healthy and we took a new holding in a relatively recent IPO, Healios. The company is developing a treatment for age related blindness based on stem cell technologies. We continue to believe that the long term prospects for the Japanese biotech industry are improving. Lastly, a new holding was taken in DesignOne, which creates and manages websites for micro and small businesses. This is a segment with a large number of companies but one that remains under-served. These businesses usually have no experience of using the internet and with DesignOne's help, they are able to develop an online presence and advertise their services to a larger customer base, thereby increasing their business opportunities.
Past performance is not a guide to future performance
Shin Nippon continues to focus on investing in the most dynamic and innovative smaller businesses that are emerging in Japan. The short term volatility that we are currently witnessing presents us with an excellent opportunity to invest in attractively valued, exciting high growth companies with the potential to deliver rapid earnings growth for a number of years.
The principal risks and uncertainties facing the Company are set out at the end of this document.
Baillie Gifford & Co
Income statement (unaudited) |
|
For the six months ended 31 July 2016 |
For the six months ended 31 July 2015 |
||||
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
Net gains on investments (note 3) |
- |
52,676 |
52,676 |
- |
20,455 |
20,455 |
Currency (losses)/gains |
- |
(4,123) |
(4,123) |
- |
1,343 |
1,343 |
Income from investments |
1,315 |
- |
1,315 |
777 |
- |
777 |
Investment management fee (note 4) |
(741) |
- |
(741) |
(546) |
- |
(546) |
Other administrative expenses |
(182) |
- |
(182) |
(180) |
- |
(180) |
Net return before finance costs and taxation |
392 |
48,553 |
48,945 |
51 |
21,798 |
21,849 |
Finance costs of borrowings |
(259) |
- |
(259) |
(200) |
- |
(200) |
Net return on ordinary activities before taxation |
133 |
48,553 |
48,686 |
(149) |
21,798 |
21,649 |
Tax on ordinary activities (note 5) |
(132) |
- |
(132) |
(78) |
- |
(78) |
Net return on ordinary activities after taxation |
1 |
48,553 |
48,554 |
(227) |
21,798 |
21,571 |
Net return per ordinary share (note 7) |
- |
126.84p |
126.84p |
(0.61p) |
58.63p |
58.02p |
The total column of this statement is the profit and loss account of the Company.
All revenue and capital items in this statement derive from continuing operations.
Balance sheet (unaudited) |
|
At 31 July 2016 |
At 31 January 2016 |
|
£'000 |
£'000 |
Fixed asset investments |
|
|
Listed equities |
238,108 |
177,731 |
|
|
|
Current assets |
|
|
Debtors |
538 |
595 |
Cash and cash equivalents |
9,305 |
5,106 |
|
9,843 |
5,701 |
Creditors |
|
|
Amounts falling due within one year |
(1,451) |
(615) |
Net current assets |
8,392 |
5,086 |
Total assets less current liabilities |
246,500 |
182,817 |
|
|
|
Creditors |
|
|
Amounts falling due after more than one year (note 8) |
(24,528) |
(19,427) |
Total net assets |
221,972 |
163,390 |
|
|
|
Capital and reserves |
|
|
Called up share capital |
3,963 |
3,778 |
Share premium account |
35,576 |
25,733 |
Capital redemption reserve |
21,521 |
21,521 |
Capital reserve |
166,268 |
117,715 |
Revenue reserve |
(5,356) |
(5,357) |
Shareholders' funds |
221,972 |
163,390 |
|
|
|
Net asset value per ordinary share (after deducting borrowings at book value) |
560.2p |
432.5p |
Net asset value per ordinary share (after deducing borrowings at fair value) (note 9) |
558.2p |
431.0p |
Net asset value per ordinary share (after deducting borrowings at par value) |
559.9p |
432.3p |
Ordinary shares in issue (note 10) |
39,625,497 |
37,775,497 |
Statement of changes in equity (unaudited) |
For the six months ended 31 July 2016
|
Called up share £'000 |
Share account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2016 |
3,778 |
25,733 |
21,521 |
117,715 |
(5,357) |
163,390 |
Ordinary shares issued (note 10) |
185 |
9,843 |
- |
- |
- |
10,028 |
Net return on ordinary activities after taxation |
- |
- |
- |
48,553 |
1 |
48,554 |
Shareholders' funds at 31 July 2016 |
3,963 |
35,576 |
21,521 |
166,268 |
(5,356) |
221,972 |
For the six months ended 31 July 2015
|
Called up share £'000 |
Share account £'000 |
Capital redemption reserve £'000 |
Capital reserve* £'000 |
Revenue reserve £'000 |
Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2015 |
3,718 |
23,317 |
21,521 |
85,146 |
(5,067) |
128,635 |
Ordinary shares issued (note 10) |
10 |
409 |
- |
- |
- |
419 |
Net return on ordinary activities after taxation |
- |
- |
- |
21,798 |
(227) |
21,571 |
Shareholders' funds at 31 July 2015 |
3,728 |
23,726 |
21,521 |
106,944 |
(5,294) |
150,625 |
* The Capital reserve includes investment holding gains of £127,336,000 (31 July 2015 - gains of £73,563,000).
Condensed Cash Flow Statement (unaudited) |
|
Six months to 31 July 2016 |
Six months to 31 July 2015 |
|
£'000 |
£'000 |
Cash flows from operating activities |
|
|
Net return on ordinary activities before taxation |
48,686 |
21,649 |
Net gains on investments |
(52,676) |
(20,455) |
Currency losses/(gains) |
4,123 |
(1,343) |
Finance costs of borrowings |
259 |
200 |
Overseas withholding tax |
(129) |
(85) |
Changes in debtors and creditors |
53 |
68 |
Cash from operations |
316 |
34 |
Interest paid |
(232) |
(209) |
Net cash inflow/(outflow) from operating activities |
84 |
(175) |
Net cash (outflow)/inflow from investing activities |
(6,725) |
1,080 |
Ordinary shares issued |
10,028 |
419 |
Net cash inflow from financing activities |
10,028 |
419 |
Increase in cash and cash equivalents |
3,387 |
1,324 |
Exchange movements |
812 |
(392) |
Cash and cash equivalents at start of period |
5,106 |
8,181 |
Cash and cash equivalents at end of period * |
9,305 |
9,113 |
* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.
Twenty largest equity holdings at 31 July 2016 (unaudited) |
Name |
Business |
Value £'000 |
% of total assets |
iStyle |
Cosmetics website |
7,423 |
3.0 |
Next |
Provides online property information |
7,089 |
2.9 |
Nihon M&A Center |
M&A advisory services |
6,999 |
2.8 |
MonotaRO |
Online business supplies |
6,987 |
2.8 |
M3 |
Online medical services |
6,514 |
2.6 |
Asahi Intecc |
Specialist medical equipment |
6,476 |
2.6 |
Start Today |
Internet fashion retailer |
6,270 |
2.5 |
Yonex |
Manufacture and sale of sporting goods |
6,077 |
2.5 |
Harmonic Drive |
Robotic components |
5,773 |
2.3 |
GMO Payment Gateway |
Online payment processing |
5,567 |
2.3 |
Nifco |
Industrial fastener manufacturer |
5,290 |
2.1 |
Takara Leben |
Residential property developer |
5,158 |
2.1 |
Toshiba Plant Systems and Services |
Plant engineering company |
4,659 |
1.9 |
Infomart Corp |
Internet platform for restaurant supplies |
4,628 |
1.9 |
Pigeon |
Baby care products |
4,602 |
1.9 |
Hoshizaki Electric |
Commercial kitchen equipment |
4,590 |
1.9 |
Iriso Electronics |
Specialist auto connectors |
4,230 |
1.7 |
Yume No Machi |
Online meal delivery service |
4,113 |
1.7 |
Cyberagent |
Internet advertising and content |
4,073 |
1.7 |
Sho-Bond |
Infrastructure reconstruction |
4,028 |
1.6 |
|
|
110,546 |
44.8 |
Notes to the condensed financial statements (unaudited) |
1. |
The condensed Financial Statements for the six months to 31 July 2016 comprise the statements set out on the previous pages together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 31 July 2016 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 2016. Fair Value In accordance with FRS 102 and FRS 104 fair value measurements have been classified using the following fair value hierarchy: Level 1 - reflects financial instruments quoted in an active market. Level 2 - reflects financial instruments whose fair value is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables includes only data from observable markets. Level 3 - reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data. All of the Company's investments fall into Level 1 for the periods reported. Going Concern 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 Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Interim Financial Statements. |
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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 2016 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on these accounts was not qualified, did not include a reference to any matters to which the Auditors 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. |
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3. |
|
|
Six months to 31 July 2016 |
Six months to 31 July 2015 |
|
|
|
£'000 |
£'000 |
|
Net gains on investments |
|
|
|
|
Gains on sales of investments |
|
8,308 |
5,943 |
|
Movement in investment holdings gains |
|
44,368 |
14,512 |
|
|
|
52,676 |
20,455 |
4. |
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated quarterly. With effect from 1 September 2016, the Company's annual management fee will be calculated at 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder. The fee will continue to be calculated and paid on a quarterly basis. |
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5. |
The Company suffers overseas withholding tax on its equity income currently at the rate of 10%. |
Notes to the condensed financial statements (unaudited) (ctd) |
|
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|
|
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6. |
No interim dividend will be declared. |
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7. |
|
|
Six months to 31 July 2016 |
Six months to 31 July 2015 |
|
|
|
£'000 |
£'000 |
|
Net return per ordinary share |
|
|
|
|
Revenue return |
|
1 |
(227) |
|
Capital return |
|
48,553 |
21,798 |
|
Total return |
|
48,554 |
21,571 |
|
Net return per ordinary share is based on the above totals of revenue and capital and on 38,280,167 (31 July 2015 - 37,178,812) 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. |
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8. |
The amounts falling due after more than one year include a bank loan of £24,528,000 (¥3.35 billion) outstanding under a yen loan facility repayable on 27 November 2020 (31 January 2016 - £19,427,000 (¥3.35 billion)). |
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9. |
The fair value of the bank loan at 31 July 2016 was £25,323,000 (31 January 2016 - £20,022,000). |
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10. |
The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as well as to buy back shares at a discount to net asset value. During the period under review, 1,850,000 shares were issued at a premium to net asset value raising net proceeds of £10,028,000 (31 July 2015 - 100,000 shares raising net proceeds of £419,000). No shares were bought back during the period under review (31 July 2015 - nil). |
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11. |
Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £14,000 (31 July 2015 - £4,000) and transaction costs on sales amounted to £7,000 (31 July 2015 - £5,000). |
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12. |
None of the views expressed in this document should be construed as advice to buy or sell a particular investment. |
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The Interim Financial Report will be available on www.shinnippon.co.uk ‡ and will be posted to shareholders on or around 27 September 2016.
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
-Ends-