Final Results

RNS Number : 3145C

Baillie Gifford Shin Nippon PLC

04 March 2011

 



BAILLIE GIFFORD SHIN NIPPON PLC

Results for the year to 31 January 2011

The 12 months to 31 January 2011 was a good year for sterling-based investors in small cap equities in Japan, particularly for shareholders in Baillie Gifford Shin Nippon.  Over the period, the Company's net asset value per share (after deducting borrowings at fair value) rose by 28.2% and the share price rose by 41.6%, significantly outperforming the Company's comparative index* which increased by 19.0% in sterling terms.

·	Good relative performance was achieved through stock selection.
·	The Company maintained a moderate level of gearing over the course of the year, with net gearing of 13.3% as at 31 January 2011.  Gearing contributed 1.2 percentage points to performance over the course of the Company's financial year.
·	While the Japanese economy is expected to expand at a modest rate of growth, there still exist Japanese companies that have exciting long term growth opportunities such as: Nabtesco, a specialist manufacturer of industrial joints; online apparel website operator, Start Today; and food packaging company, FP Corp.
·	The Board and Managers continue to believe that the universe of investable Japanese smaller stocks provides numerous opportunities to invest in companies with the potential to grow earnings over the long term and that valuations do not fully reflect this at present.

* The Company's comparative index for the year to 31 January 2011 was 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 January 2011 the Company had total assets of £64.4m (before deduction of bank loan of £8.7m).

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £71 billion under management and advice as at 3 March 2011.

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 medium to long term. You can find up to date performance information about Shin Nippon at www.shinnippon.co.uk.

3 March 2011

For further information please contact:

Anzelm Cydzik

Baillie Gifford & Co                                                                              0131 275 2000

Broadgate Mainland                                                                              020 7726 6111

BAILLIE GIFFORD SHIN NIPPON PLC

Chairman's Statement

Performance

In my report last year I said that we will focus our review of our performance over running three year periods. In the three years to 31 January 2011 the Company's comparative index (see commentary below) appreciated by 34.8%. Shin Nippon's net asset value per share (after deducting borrowings at fair value) rose by 24.0% during this period, while our share price rose by 26.3%. A combination of being geared into a declining market and the illiquid nature of some constituents of the Company's previous comparative index explain partly the underperformance over the three year period. The discount of the share price to net asset value narrowed during the period from 10.5% to 8.8%, and ranged between 27.9% and 0.1%. The Company's performance against its peer group was encouraging with a NAV total return ranking of 1/5 over 1, 3 and 5 year periods.

Over the year to 31 January 2011 the MSCI Japan Small Cap Index appreciated by 19.0% on a total return basis in Sterling terms. Shin Nippon's performance exceeded this with a rise in net asset value per share (after deducting borrowings at fair value) of 28.2%, while the Company's share price rose by 41.6%. The discount of the share price to net asset value narrowed during the year from 17.4% to 8.8%, and ranged between 19.0% and 0.1%.

Stock selection was the source of the Company's good relative and absolute performance over the one year period and this, along with the stock market and the economy, is discussed more fully in the Managers' report.

Borrowing

The Company's debt was unchanged during the year at ¥1.15bn. This has an interest cost of 2.025% and is due for repayment in August 2011. The resultant gearing at the end of the year was 15.7% gross and 13.3% net and was beneficial to performance during the course of the year. It is anticipated that this facility will be replaced in the near future.

Hedging

The Company undertook no hedging during the period, during which the yen strengthened by 10.7% against Sterling, moving from ¥/£145.27 to ¥/£131.23.  Movements in currency markets are monitored closely and hedging would be considered if the Yen diverged significantly from our view of fair value.

Revenue

The Company's revenue earnings per share increased from 0.08p in the previous year to 0.37p. The main reason for the increase was a 27.6% increase in investment income resulting from increased dividend payouts and the strengthening of the yen against sterling over the year. However, Shin Nippon's remit is to pursue capital growth rather than income generation. The Company's revenue reserve remains in deficit so payment of a dividend is not possible.

AGM

At this year's AGM the Board is seeking to renew the facility to issue new shares, and to re-issue any shares held in treasury (of which there are none at present), up to 5% of the Company's issued share capital for cash, on a non pre-emptive basis, but only at a premium to net asset value. No shares were issued during the financial year. Such authority would be used to feed natural market demand and would enhance the net asset value per share for existing shareholders.

Approval is also sought to renew the authority to buy back shares. The purpose of this facility is to enable the Board to buy back shares when the discount is substantial in absolute terms and in relation to its peers should that be deemed to be desirable. Any such purchase would improve the net asset value per share of remaining shareholders.

Past performance is not a guide to future performance

BAILLIE GIFFORD SHIN NIPPON PLC

Chairman's Statement (Ctd)

Comparative Index and Performance

Last year I reported that we had adopted the MSCI Japan Small Cap Index as our comparative index and that our performance would be judged primarily over three year rolling periods on a total return basis measured in sterling. For reference, comparative index performance data prior to 31 January 2010 is based on the old market capitalisation weighted composite of the Tokyo Second Section Index, the TOPIX Small index and the JASDAQ Index, and is linked to the new index to provide longer term performance measures.

Board

We were delighted to welcome Simon Somerville to our Board during the year. Simon has a wealth of knowledge of Japan and its markets being the Co-head of Asian Equities at Jupiter Asset Management and has already made a strong contribution to our deliberations. Sarah Whitley stepped down from the Board after being a Director since the inception of Shin Nippon in 1985. Sarah's contribution to the Board has been immense over the years, and she was also our Investment Manager for the first 16 years of our existence. We are fortunate that we still have access to her wise counsel as the head of the Japan desk at Baillie Gifford.

Outlook

In last year's report I stated that doubts remain about the Japanese political system, but that there were some hopes that structural change was happening below the surface, albeit slowly. The same sentiments still seem to be appropriate although the pace of any change is disappointingly slow. It is true that yet another Prime Minister, Mr Kan, is attempting to follow more radical taxation and free trade policies, but this is being undertaken within the confines of a low Democratic Party of Japan popularity rating. A potential positive is the wide ranging long term economic plans that the Ministry of Economy Trade and Industry is trying to encourage. However, whether and when change will happen and its pace remains rather elusive.

At company level, matters are rather more encouraging. The corporate sector in aggregate has continued to be vigorous in improving its efficiency. A good deal of cost cutting as well as divestment of non core subsidiary activities has taken place and we feel that the quality of many companies is much improved. After the recent rise in the value of the portfolio, shareholders should be reassured that the Managers and Board question regularly whether the valuations of the companies held in the portfolio remain attractive; it is comforting to note that this is the case. Many have a strong competitive advantage and are exposed to the high growth region of China and the rest of the Far East or have strong opportunities in Japan. These advantages should allow them to keep growing profits without the need for a rapidly growing domestic economy nor for substantial political change. Also many of the companies in which the Managers invest are not well researched by the broking community, allowing for perceived  mispricing opportunities to be exploited. It is also encouraging to see the pick up in the number of buy backs in recent months and the large number of MBOs in Japan, suggesting that companies still believe their shares are substantially undervalued. The Managers continue to invest selectively and are comfortable maintaining the present level of gearing.  The Board and Managers remain optimistic that future capital growth can be achieved.

BAILLIE GIFFORD SHIN NIPPON PLC

Managers' Report

Performance

Shin Nippon's net asset value per share (after deducting borrowings at fair value) increased by 28.2% over the year, compared to a rise of 19.0% in the MSCI Japan Small Cap index (total return and in sterling terms). Sterling returns benefited from the strengthening of the yen over the period. The Japanese market outperformed most major markets in sterling terms, while smaller Japanese companies performed significantly better than their larger peers. 

In local currency terms, after an initial rally the Japanese market declined gradually over the year as many investors worried that the global economic recovery might stall and that Japanese companies' profits would be impacted severely. However, Japanese companies continued to deliver impressive earnings growth as the year progressed, despite the effects of a strong yen; the real benefits of the aggressive cost cutting undertaken during 2009 became apparent as companies' revenues began to rebound. Japanese stocks therefore rallied strongly towards the end of the year as it became clearer that the nascent global economic recovery was not fizzling out as various government stimulus packages came to an end.

Unless something dramatic occurs on the policy front, it is hard to argue that the Japanese economy will grow sustainably at high rates to rival some of its rapidly expanding Asian neighbours. However, this does not mean that it is impossible to find some Japanese companies that have exciting long term growth opportunities. Nor does it mean that it is impossible to find good investments in Japan. Empirical research suggests there is not actually any correlation between a country's economic growth and the long term performance of its stockmarket. It can also be argued that the growth potential of some individually selected Japanese companies is often overlooked simply because they happen to be listed in a relatively low growth economy, and because the Japanese stockmarket is undeniably home to a long tail of elderly, low quality companies that really should no longer be listed. This environment provides fantastic opportunities for patient investors willing to hunt out attractive, under-appreciated stocks with good growth prospects. Some of Shin Nippon's long term holdings have been able to grow their profits at over 20% per annum over the last five years, yet they are still poorly understood by the market as a whole and trade on low valuations. With signs emerging that the global economic recovery is filtering through to the domestic Japanese economy and with interest in Japanese stocks starting to pick up again, we expect these attractive stocks to become more highly valued by the market.

Attribution

There are different ways for a Japanese company to achieve growth and broadly speaking Shin Nippon's holdings tend to fall into three categories: companies that benefit from rising overseas demand, particularly in Emerging Markets; innovative companies with a new product or business model that creates an entirely new market; or disruptors, who spot an opportunity to grow by introducing new ways of doing things that challenge some of the older, inefficient business practices in Japan. 

Amongst the best performing stocks in the portfolio over the year were some of the manufacturers with strong market share in overseas growth markets. Nabtesco, a specialist manufacturer of industrial joints, is a good example. The company focuses on niche products where it can become global number one or two to ensure profitable growth. Nabtesco's joints are selling very well in developing countries as they are used in construction and high-speed rail network equipment, and robots for factory automation.  A recent trip to China confirmed that, for the moment, Nabtesco has an edge over its emerging Chinese rivals in terms of product quality and reliability. The threat from Asian competitors is something we monitor closely for all our manufacturing and technology holdings. 

BAILLIE GIFFORD SHIN NIPPON PLC

Managers' Report (Ctd)

Many of our more innovative holdings operate internet businesses that successfully remove some of the costs associated with more traditional business models. Several holdings in this area were very strong performers. Despite the overall retail background not being especially buoyant, online apparel website operator Start Today has grown rapidly as Japanese consumers have overcome their initial nervousness regarding internet shopping. The more new members that sign up to its website, the more top brands want to establish online outlets within Start Today's virtual shopping mall. M3's website for medical professionals was established

to help reduce the huge costs involved in marketing a new drug to Japanese doctors. Medical sales representatives now email doctors, who have signed up, with information on new drugs. This costs pharmaceutical companies a fraction of the cost of a physical marketing visit to a hospital, while doctors much prefer logging on to check messages when they have time, rather than having a busy day interrupted with visits from sales reps.  The initial signs are that this business has a good chance of success in the US as well, which would be a much bigger market opportunity for M3.

Lastly, we would highlight some of the better performing holdings over the year with disruptive business models. The nursing home market in Japan is very fragmented and tightly regulated. There is also a severe shortage of beds as Japan's population ages. However, Message, a small regional operator, has emerged as the market leader by offering more cost competitive homes than smaller, inefficient rivals which is, of course, beneficial to the authorities who are trying to keep overall costs down. Message is therefore finding itself increasingly successful when it applies for permits to operate new nursing homes. Another example is Don Quijote, a company that traditionally operated city centre stores that sold a vast array of cheap products. However, the company's key advantage comes from the recognition that creating an efficient supply chain, that cuts out costly and pointless middlemen, is the key to becoming a successful retailer. Management is therefore in the middle of a process whereby they are translating their cost advantage to other retail formats in Japan to expand Don Quijote's potential market. Recent efforts to introduce lower prices at a suburban supermarket chain that the company purchased,  have proved to be very successful.

Portfolio

Given our long term, patient approach to investing, turnover within the portfolio over the year remained low at just 16.5%. There were, however, some noteworthy changes. New holdings were purchased in several companies that will benefit from a recovery in Japanese real estate. This sector has suffered since the global financial crisis as much of the liquidity in the market was provided by foreign lenders who have now exited Japan. However, there are signs that the market is bottoming and over the last year we have seen office vacancy rates falling from their peak and the number of transactions picking up. Recent new buys include Sankei Building, a company that leases out office space in good locations, and Takara Leben, a condominium developer that is benefiting because its main rivals went bust during the last downturn. Another interesting new purchase is a food packaging company called FP Corp which at first glance may not seem a promising candidate as a growth investment.  However, FP is managing to expand its profits for several reasons. Firstly, the company's proprietary molding technology allows them to create lighter weight packaging than small, cash strapped rivals. This is important because supermarkets and convenience stores are being forced to pay the government levies based on the weight of packaging used. Secondly, FP has established a lucrative recycling network. When the company's representatives deliver new packaging to customers, they pick up old packaging for recycling. FP's input costs are therefore much lower than rivals who do not have access to recycled materials. In addition, the company is also paid a fee by the government for helping to recycle more of Japan's waste.

Economy

The Japanese economy grew faster than many expected over the calendar year, due mainly to the continued recovery in exports to the rest of Asia. The Bank of Japan and the Government both upgraded their assessment of the economy recently, with industrial production having rebounded to close to record levels.

BAILLIE GIFFORD SHIN NIPPON PLC

Managers' Report (Ctd)

There are also signs that the healthier environment for manufacturing and exporting companies is having a positive effect on the domestic economy. Unemployment has been falling steadily and both business and consumer sentiment has rallied. As previously mentioned, demand for property appears to be recovering as well.  One thing to watch closely over the next year will be the pricing situation in Japan where deflation has been persistent. If some of the inflation being witnessed around the world is replicated, even to a much smaller degree, in Japan then the potential impact on consumer and investor behavior, as inflationary expectations rise, could be significant. The government is at least trying to support the recovery, announcing an extra stimulus package at the end of the year including specific measures to boost demand in the real estate markets. Further, the corporate tax rate was cut by 5% to try to encourage more investment in Japan. The Bank of Japan is under pressure not to tighten policy until inflation has well and truly taken hold so rate rises seem unlikely. It is normally safest to assume limited action or improvement on the political front in Japan given the short tenures of most recent Prime Ministers. Indeed, the current incumbent Mr Kan has seen his popularity dwindle sharply as he struggles to cope with infighting and the fact that the Upper and Lower Houses are controlled by different parties. However, the current need to build cross party consensus if anything is to be achieved is at least resulting in much needed public debate about important issues such as more free trade agreements, the reduction in subsidies for inefficient domestic industries such as farming and increases in consumption tax over the long run to help deal with the government debt situation. The biggest risk would appear to be if the monetary tightening underway in many other Asian markets is overdone, resulting in a sharp drop in exports from Japan. 

Outlook

It has been a better period of performance for both Shin Nippon and the Japanese smaller companies market as a whole. However, despite the increase in interest in the sector, valuations are barely above the long term low levels witnessed over the past couple of years. The recent rise in the number of share buybacks in Japan and management buy-outs at significantpremia, would suggest many companies believe their shares are still significantly undervalued on a long term view. The outlook for earnings growth is good and we are finding lots of exciting, relatively unknown, new ideas for the portfolio.

Baillie Gifford & Co

3 March 2011

Portfolio Performance Attribution for the Year to 31 January 2011^†

Computed relative to the comparative index^††

	Index		Shin Nippon		Performance*		Contribution	Contribution attributable to:
	asset allocation		asset allocation		Shin Nippon	Index	to relative	Stock selection	Asset allocation	Gearing
	31.01.10	31.01.11	31.01.10	31.01.11			return

Portfolio Breakdown	%	%	%	%	%	%	%	%	%	%
Consumer Discretionary	20.3	21.6	29.9	31.0	32.7	20.8	3.2	3.0	0.2	-
Consumer Staples	9.3	8.5	8.6	6.7	23.1	12.5	0.9	0.9	-	-
Energy	0.8	0.7	4.1	2.3	(5.1)	4.4	(0.7)	(0.3)	(0.4)	-
Financials	18.0	18.5	7.4	8.1	19.6	14.9	0.7	0.3	0.4	-
Healthcare	5.0	4.5	12.4	13.0	32.3	19.2	1.3	1.3	-	-
Industrials	23.0	22.7	24.1	23.8	34.2	19.2	2.8	2.8	-	-
Information Technology	11.6	10.9	12.4	12.2	17.0	20.6	(0.3)	(0.4)	0.1	-
Materials	11.2	12.2	1.1	2.9	25.9	29.2	(0.8)	(0.1)	(0.7)	-
Telecommunication Services	0.1	0.1	-	-	-	1.4	-	-	-	-
Utilities	0.7	0.3	-	-	-	(17.8)	0.2	-	0.2	-
Total (excluding gearing)	100.0	100.0	100.0	100.0	27.7	19.0	7.3	7.5	(0.2)	-
Impact of gearing					1.2	-	1.2	-	-	1.2
Total (including gearing) **	100.0	100.0	100.0	100.0	29.2	19.0	8.5	7.5	(0.2)	1.2

Past performance is not a guide to future performance.

Source: Baillie Gifford & Co/Statpro

Contributions cannot be added together, as they are geometric; for example to calculate how a return of 27.7% against an index return of 19.0% translates into a relative return of 7.3%, divide the portfolio return of 127.7 by the index return of 119.0 and subtract one.

†    The performance attribution table is based on total assets

††   The comparative index for the year to 31 January 2011 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

**  The total return performance of 29.2% excludes expenses and therefore differs from the NAV return (after deducting borrowings at fair value) of 28.2% as a result.

BAILLIE GIFFORD SHIN NIPPON PLC

 

The following is the unaudited preliminary statement for the year to 31 January 2011 which was approved by the Board on 3 March 2011. No dividend is payable.

INCOME STATEMENT

(unaudited)

	For the year ended 31 January 2011				For the year ended 31 January 2010
	Revenue £'000	Capital £'000	Total  £'000		Revenue £'000	Capital £'000	Total  £'000
Gains on investments†	-	12,795	12,795		-	4,771	4,771
Currency (losses)/gains (note 2)‡	-	(812)	(812)		-	551	551
Income	1,108	-	1,108		868	-	868
Investment management fee (note 3)	(503)	-	(503)		(397)	-	(397)
Other administrative expenses	(234)	-	(234)		(236)	-	(236)
Net return before finance costs and taxation	371	11,983	12,354		235	5,322	5,557
Finance costs of borrowings (note 4)	(179)	-	(179)		(152)	(37)	(189)
Net return on ordinary activities before taxation	192	11,983	12,175		83	5,285	5,368
Tax on ordinary activities	(78)	-	(78)		(59)	-	(59)
Net return on ordinary activities after taxation	114	11,983	12,097		24	5,285	5,309
Net return per ordinary share (note 6)	0.37p	38.53p	38.90p		0.08p	16.99p	17.07p

†    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.

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

   A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been  reflected in the above statement. 

BAILLIE GIFFORD SHIN NIPPON PLC

BALANCE SHEET

at 31 January 2011

(unaudited)

	At 31 January 2011		At 31 January 2010
	£'000	£'000	£'000	£'000
Fixed Assets
Investments		63,245		50,864
Current Assets
Debtors	124		249
Cash and short term deposits	1,333		619
	1,457		868
Creditors
Amounts falling due within one year (note 7)	(9,036)		(246)
Net Current (Liabilities)/Assets		(7,579)		622
Total Assets less Current Liabilities		55,666		51,486
Creditors
Amounts falling due after more than one year (note 7)		-		(7,917)
Total net assets		55,666		43,569
Capital and Reserves
Called-up share capital		3,110		3,110
Share premium		7,674		7,674
Capital redemption reserve		21,521		21,521
Capital reserve		27,891		15,908
Revenue reserve		(4,530)		(4,644)
Shareholders' funds		55,666		43,569
Net Asset Value Per Ordinary Share:
(after deducting borrowings at fair value)		179.0p		139.6p
Net Asset Value Per Ordinary Share:
(after deducting borrowings at par value)		179.0p		140.1p

BAILLIE GIFFORD SHIN NIPPON PLC

 

 

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

(unaudited)

For the year ended 31 January 2011

	Called-up share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2010	3,110	7,674	21,521	15,908	(4,644)	43,569
Net return on ordinary activities after taxation	-	-	-	11,983	114	12,097
Shareholders' funds at 31 January 2011	3,110	7,674	21,521	27,891	(4,530)	55,666

For the year ended 31 January 2010

	Called-up share capital £'000	Share premium £'000	Capital redemption reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2009	3,110	7,674	21,521	10,623	(4,668)	38,260
Net return on ordinary activities after taxation	-	-	-	5,285	24	5,309
Shareholders' funds at 31 January 2010	3,110	7,674	21,521	15,908	(4,644)	43,569

CASH FLOW STATEMENT (unaudited)
	For the year ended 31 January 2011			For the year ended 31 January 2010
	£'000	£'000		£'000	£'000
NET CASH INFLOW FROM OPERATING ACTIVITIES (note 9)		440			207
SERVICING OF FINANCE
Interest and breakage costs paid	(171)			(217)
NET CASH OUTFLOW FROM SERVICING OF FINANCE		(171)			(217)
TAXATION
Overseas tax paid	(83)			(56)
TOTAL TAX PAID		(83)			(56)
FINANCIAL INVESTMENT
Purchases of investments	(9,016)			(10,938)
Sales of investments	9,510			10,036
Exchange differences on settlement of investment transactions	(47)			(70)
NET CASH INFLOW/(OUTFLOW) FROM FINANCIAL INVESTMENT		447			(972)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING		633			(1,038)
FINANCING
Bank loans repaid	-			(1,793)
NET CASH OUTFLOW FROM FINANCING		-			(1,793)
INCREASE/(DECREASE) IN CASH		633			(2,831)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Increase/(decrease) in cash		633			(2,831)
Net cash outflow from bank loans		-			1,793
Exchange movement on bank loans		(846)			1,103
Exchange differences on cash		81			(482)
MOVEMENT IN NET DEBT IN THE YEAR		(132)			(417)
OPENING NET DEBT		(7,298)			(6,881)
CLOSING NET DEBT		(7,430)			(7,298)

 

BAILLIE GIFFORD SHIN NIPPON PLC

TWENTY LARGEST EQUITY HOLDINGS at 31 January 2011 (unaudited)

		2011		2010
Name	Business	Value £'000	% of total assets	Value £'000
Start Today	Internet Fashion Retailer	3,537	5.5	987
Nabtesco	Hydraulic equipment	2,872	4.5	1,967
Message	Nursing services for the elderly	2,723	4.2	1,991
Don Quijote	Discount store chain	2,151	3.3	1,492
Hamakyorex	Third party logistics	1,874	2.9	1,409
EPS	Clinical testing services	1,800	2.8	1,419
Daikokutenbussan	Discount store for food and sundry goods	1,657	2.6	1,746
First Juken	Builds and sells residential buildings	1,656	2.6	1,070
H.I.S.	Discount travel agency	1,621	2.5	1,197
Nakanishi	Dental equipment	1,558	2.4	1,375
Cocokara Fine	Drugstore chain	1,409	2.2	1,148
Digital Garage	Internet business incubator	1,383	2.1	714
M3	Online medical database	1,372	2.1	851
Nippon Thompson	Needle roller bearings	1,336	2.1	878
Dainippon Screen   Manufacturing	Manufacturer of graphic arts equipment	1,241	1.9	-
Osaka Securities	Stock exchange operator	1,183	1.8	1,279
Iriso Electronics	Specialist connectors	1,171	1.8	872
Asics	Sports shoes and clothing	1,140	1.8	566
Pronexus	Financial printing services	1,127	1.7	1,308
FP Corp	Manufactures and recycles food packaging	1,072	1.7	-
		33,883	52.5	22,269

 

 

 

 

 

 

BAILLIE GIFFORD SHIN NIPPON PLC

NOTES

(unaudited)

1.	The financial statements for the year to 31 January 2011 have been prepared on the basis of the same accounting policies used for the year to 31 January 2010. In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk issued in 2009, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets, the majority of which are 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. After making enquiries, the financial statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.
		31 January 2011		31 January 2010
		£'000		£'000
2.	Currency (losses)/gains
	Exchange differences on bank loans	(846)		1,103
	Other exchange differences	34		(552)
		(812)		551
		31 January 2011		31 January  2010
		£'000		£'000
3.	Investment management fee - all charged to revenue
	Investment management fee	503		397
	Baillie Gifford & Co are employed by the Company as Managers and Secretaries under a management agreement which is terminable on not less then six months' notice or on shorter notice in certain circumstances. The fee in respect of each quarter is 0.25% of the total net assets of the Company attributable to its shareholders on the last day of that quarter. Miss SJM Whitley, a Director of the Company until she retired on 17 June 2010, is a partner of Baillie Gifford & Co.
4.	The Company paid interest on bank loans of £179,000 (2010 - £152,000). During the year to 31 January 2010 the company incurred costs of £37,000 relating to the early repayment of bank loans which were charged to capital.
5.	No dividend will be declared.

BAILLIE GIFFORD SHIN NIPPON PLC NOTES (Ctd) (unaudited)
		31 January 2011		31 January  2010
		£'000		£'000
6.	Net return per ordinary share
	Revenue return	114		24
	Capital return	11,983		5,285
	Total return	12,097		5,309
	The returns per ordinary share set out below are based on the above returns and on 31,100,497 ordinary shares (2010 - 31,100,497), 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	0.37p		0.08p
	Capital return	38.53p		16.99p
	Total return	38.90p		17.07p
7.	A bank loan of £8.7 million (¥1.15 billion) has been drawn down under a yen loan facility which is repayable on 10 August 2011 (2010 - bank loans of £7.9 million (¥1.15 billion) repayable on 10 August 2011).
8.	At 31 January 2011 the Company had authority to buy back 4,661,964 shares. No shares were bought back during the year. Share buy-backs are funded from the capital reserve.
		31 January 2011		31 January 2010
		£'000		£'000
9.	Reconciliation of Net Return before Finance Costs and Taxation to Net Cash Inflow from Operating Activities
	Net return before finance costs and taxation	12,354		5,557
	Gains on investments	(12,795)		(4,771)
	Currency losses/(gains)	812		(551)
	Decrease/(increase) in accrued income	68		(35)
	(Increase)/decrease in other debtors	(17)		1
	Increase in creditors	18		6
	Net cash inflow from operating activities	440		207
10	The Report and Accounts will be available on the Company's website www.shinnippon.co.uk on or around 24 March 2011.
	BAILLIE GIFFORD SHIN NIPPON PLC NOTES (Ctd) (unaudited)
11	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 January 2011.  The financial information for 2010 is derived from the statutory accounts for 2010, which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2010 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 2010 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  28 April 2011. 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.
	- ends -

 

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