Interim Results

Baillie Gifford Shin Nippon PLC 01 September 2006 BAILLIE GIFFORD SHIN NIPPON PLC Results for the six months to 31 July 2006 For the six months to 31 July 2006, the Company's net asset value per share declined 24.8% compared with a 22.6% decline in the comparative index*. With a number of Japanese small cap shares having halved from their recent peaks, current valuations are much more palatable and the Managers are finding good investment opportunities in high growth stocks • The market overall has proved sensitive to global cyclical concerns and Japanese small cap stocks have suffered falling investor confidence. • During the period, stock selection made a positive contribution to the Company's relative performance. • Net gearing made a negative contribution to performance. However, the Managers continue to perceive potential for gearing to enhance portfolio returns over the long term owing to the low level of yen borrowing costs. • Although export growth has tapered in recent months, the Managers note that there is no sign of a slowdown in the key domestic drivers of private capital expenditure and consumption, and view another year of 3%+ GDP growth as probable. • Despite recent market weakness, the Board and Managers are of the opinion that the fundamental prospects for Japanese small cap companies remain positive. * The Company's comparative index is a composite index of the Tokyo Second Section Index, the TOPIX Small Index and the JASDAQ Index, weighted by market capitalisation, in sterling terms. Shin Nippon aims to achieve long-term capital growth principally through investment in small Japanese companies which are believed to have above average prospects for capital growth. At 31 July 2006 the Company had total assets of £79.1 million (before deduction of bank loans of £13.6 million). The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £45 billion funds under management and advice as at 31 August 2006. Past performance is no guarantee of 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. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares. Investment in investment trusts should be regarded as medium to long-term. You can find up to date performance information about Shin Nippon on the Baillie Gifford website at www.bailliegifford.com. - ends - For further information please contact: Alistair Way Baillie Gifford & Co 0131 275 2000 Mike Lord, Director Broadgate Marketing 020 7726 6111 BAILLIE GIFFORD SHIN NIPPON PLC Interim Report Following very strong gains in the year to January 2006, when Shin Nippon's net asset value surged by 60.6% and its share price hit an all time high, the most recent six months have proved much more difficult for small capitalisation equity investment in Japan. The market overall has proved sensitive to global cyclical concerns, and investor confidence in small companies has been harmed by a number of stock-specific problems. Net asset value declined by 24.8% over the period, in comparison to a 22.6% fall in the weighted index of the TOPIX Small, JASDAQ and Tokyo Stock Exchange Second Section. Larger stocks proved more resilient, reflected in a sterling decline of just 10.5% in the broad market TOPIX index. Throughout the 1990s the Japanese equity market was very sensitive to the global economic cycle, reflecting the economy's gearing to the buoyancy of exports given its lack of domestic vitality. The weakness of the market this year, seemingly at least partially in response to monetary tightening in the US and China, suggests that perceptions of global investors have not changed. However, our belief is that the fundamental strength of the Japanese economy has been greatly enhanced by corporate restructuring and financial sector normalisation over the last few years, and the strength of domestic demand should make the economy much less sensitive to global volatility. Although export growth has tapered in recent months, we see no sign of a slowdown in the key domestic drivers of private capital expenditure and consumption and view another year of 3%+ GDP growth as probable. After a period of extremely buoyant performance since early 2003, small capitalisation shares have been notably weak compared to the overall market. Several events have impacted sentiment. The collapse of the internet company Livedoor in mid-January was followed by earnings shortfalls at a few other high profile internet operators such as E*Trade, Usen and Index. Meanwhile the real estate sector witnessed accounting and management concerns about some of its lower quality constituents. The investigation of Murakami-san of the shareholder activist fund MAC Japan for insider dealing was a further upset. The fund is currently being wound up, although we are confident that we will realise a profit on our investment. The effect of these underlying concerns on small company share prices was exacerbated by margin calls and short selling among the highly active component of retail investors who account for the bulk of trading volumes in indices such as JASDAQ. However, we do not view these issues as representative of operational trends at Japanese small companies overall, the majority of which continue to report strong profits growth. A simpler explanation of this year's trends may be that small cap valuations had reached extreme levels by the end of the previous period. Our stock selection made a positive contribution to the Company's relative performance against its benchmark index over the period, particularly in the Commerce and services and Real estate and construction sectors. We had increased weightings in several of our Commerce and services stocks which offered stable growth at acceptable valuations, and were rewarded by an increased market focus on the defensive appeal of these domestic names. Examples include USS, which dominates the thriving second hand car auction market, and H.I.S., which has grown to become Japan's largest travel agency. Meanwhile, trends in the real estate market remain extremely favourable, with asset prices reflating and the real estate investment funds market ballooning to almost Y10tr, and better quality plays such as our property broker Tokyu Livable and refurbishment specialist Suruga Corporation have continued to grow earnings rapidly. Owing to concerns about the valuations of certain small cap sectors we reduced net gearing sharply early in the period, but then, seeing a number of attractively valued ideas, reinvested most of our borrowings in the market rather too early, with July proving a particularly difficult month. We continue to perceive significant potential for gearing to enhance portfolio returns over the long term given the low level of yen borrowing costs. We are enthused about fundamental prospects in Japan and feel that there are good opportunities in particular among higher growth stocks. Many small company share prices have roughly halved from their peaks, despite their earnings continuing to grow in line with projections, and this has brought valuations down to much more palatable levels. New holdings acquired in recent months include Message, a fast growing operator of low cost nursing homes, Harakosan, a supplier of environmentally-friendly condominiums and developer of alternative power generation, and Funai Zaisan Consultants, which provides tax planning services for wealthy retirees. We have also bought several stocks which have fallen from grace owing to weak profitability but where we anticipate a significant recovery not discounted by the market; examples include the leading pachislo supplier Aruze and lingerie designer Maruko. The last six months has clearly been a very disappointing period for investing in smaller Japanese companies. It is hard to judge precisely when investor sentiment on Japanese equities might recover. However, we have seen no evidence to alter our positive view on economic growth and corporate earnings in Japan, and view current valuations as significantly more attractive. The following is the interim statement for the six months ended 31 July 2006 which has been neither reviewed nor audited by the auditors. This statement is being printed and will be sent to all shareholders on 14 September 2006. Copies will be available for inspection at the Registered Office of the Company or may be obtained on request from the Managers and Secretaries after that date. BAILLIE GIFFORD SHIN NIPPON PLC INCOME STATEMENT (unaudited) For the six months ended For the six months ended For the year ended 31 July 2006 31 July 2005 31 January 2006 Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Realised gains on investments - 4,649 4,649 - 1,061 1,061 - 12,619 12,619 Unrealised (losses)/ gains on investments - (26,537) (26,537) - 4,151 4,151 - 20,049 20,049 Currency gains/(losses) - 409 409 - (46) (46) - 538 538 (note 2) Income (note 3) 526 - 526 479 - 479 780 - 780 Investment management (373) - (373) (281) - (281) (675) - (675) fee Other administrative (109) - (109) (97) - (97) (207) - (207) expenses Net return before finance costs and taxation 44 (21,479) (21,435) 101 5,166 5,267 (102) 33,206 33,104 Finance costs of (120) - (120) (109) - (109) (216) - (216) borrowings Return on ordinary activities before taxation (76) (21,479) (21,555) (8) 5,166 5,158 (318) 33,206 32,888 Tax on ordinary (33) - (33) (30) - (30) (47) - (47) activities Return on ordinary activities after taxation (109) (21,479) (21,588) (38) 5,166 5,128 (365) 33,206 32,841 Return per ordinary share (0.36p) (70.19p) (70.55p) (0.13p) 16.88p 16.75p (1.20p) 108.52p 107.32p (note 5) The total column of the Income Statement is the profit and loss account of the Company. All revenue and capital items in this statement derive from continuing operations. 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 SUMMARISED BALANCE SHEET at 31 July 2006 (unaudited) 31 July 31 July 31 January 2006 2005 2006 £'000 £'000 £'000 NET ASSETS Listed equities 77,727 65,109 90,696 Unlisted equities 1,208 3,201 3,024 78,935 68,310 93,720 Net liquid assets 127 681 7,295 Total assets (before deduction of bank loans) 79,062 68,991 101,015 Bank loans (note 6) (13,573) (9,627) (13,938) 65,489 59,364 87,077 CAPITAL AND RESERVES Called-up share capital 3,060 3,060 3,060 Capital reserves 67,433 60,872 88,912 Revenue reserve (5,004) (4,568) (4,895) EQUITY SHAREHOLDERS' FUNDS 65,489 59,364 87,077 NET ASSET VALUE PER ORDINARY SHARE 214.0p 194.0p 284.6p Ordinary shares in issue (note 7) 30,600,497 30,600,497 30,600,497 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited) For the six For the six For the year months months ended ended ended 31 31 July 2005 31 January 2006 July 2006 £'000 £'000 £'000 Shareholders' funds at 1 February 87,077 54,236 54,236 Total recognised gains and losses for the period (21,588) 5,128 32,841 Shareholders' funds at 31 July/31 January 65,489 59,364 87,077 BAILLIE GIFFORD SHIN NIPPON PLC SUMMARISED CASH FLOW STATEMENT (unaudited) Six months Six months Year to to 31 July to 31 July 31 January 2006 2005 2006 £'000 £'000 £'000 NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (note (82) 94 (35) 9) NET CASH OUTFLOW FROM SERVICING OF FINANCE (124) (153) (235) TOTAL TAX PAID (31) (30) (46) FINANCIAL INVESTMENT Acquisitions of investments (19,149) (12,167) (36,327) Disposals of investments 14,063 8,455 33,014 Realised currency profit/(loss) 44 (230) (324) NET CASH OUTFLOW FROM FINANCIAL INVESTMENT (5,042) (3,942) (3,637) NET CASH OUTFLOW BEFORE FINANCING (5,279) (4,031) (3,953) FINANCING Net (outflow)/inflow from bank loans - (4,538) 450 DECREASE IN CASH (5,279) (8,569) (3,503) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Decrease in cash in the period (5,279) (8,569) (3,503) Net outflow/(inflow) from bank loans - 4,538 (450) Exchange movement on bank loans 365 185 862 MOVEMENT IN NET DEBT IN THE PERIOD 4,914 (3,846) (3,091) NET DEBT AT START OF THE PERIOD (8,160) (5,069) (5,069) NET DEBT AT END OF THE PERIOD (13,074) (8,915) (8,160) BAILLIE GIFFORD SHIN NIPPON PLC TWENTY LARGEST EQUITY HOLDINGS at 31 July 2006 Name Sector Value % of total £'000 assets USS Company Commerce and services 2,818 3.6 Suruga Corp Real estate and construction 2,080 2.6 Sumisho Lease Financials 1,991 2.5 Nabtesco Manufacturing and machinery 1,910 2.4 Asia Securities Printing Manufacturing and machinery 1,899 2.4 Plenus Retail 1,856 2.3 Moshi Moshi Hotline Commerce and services 1,846 2.3 Ryobi Chemicals and other materials 1,812 2.3 Funai Zaisan Consultants Financials 1,806 2.3 Tokyu Livable Real estate and construction 1,676 2.1 Aruze Manufacturing and machinery 1,673 2.1 H.I.S. Commerce and services 1,670 2.1 Juki Manufacturing and machinery 1,623 2.1 Horiba Manufacturing and machinery 1,587 2.0 Sankyo Manufacturing and machinery 1,560 2.0 CKD Manufacturing and machinery 1,560 2.0 Hamakyorex Commerce and services 1,555 2.0 Park24 Real estate and construction 1,547 2.0 Nishimatsuya Chain Retail 1,536 1.9 Nakanishi Manufacturing and machinery 1,483 1.9 35,488 44.9 BAILLIE GIFFORD SHIN NIPPON PLC NOTES 1. The financial statements for the six months to 31 July 2006 have been prepared on the basis of the same accounting policies set out in the Company's Annual Financial Statements at 31 January 2006. Six months to Six months to Year to 31 July 2006 31 July 2005 31 January 2006 £'000 £'000 £'000 2. Currency gains/(losses) Realised exchange differences 44 336 243 Movement in unrealised exchange differences 365 (382) 295 409 (46) 538 3. Income includes stock lending fee income of £56,000 (31 July 2005 - £54,000; 31 January 2006 - £106,000). 4. No interim dividend will be declared. 5. Return per ordinary share Revenue return (109) (38) (365) Capital return (21,479) 5,166 33,206 Return per ordinary share is based on the above totals of revenue and capital and on 30,600,497 (31 July 2005 and 31 January 2006 - 30,600,497) ordinary shares, being the weighted average number of ordinary shares in issue during the period. 6. Bank loans of £13.6 million (Y2.9 billion) have been drawn down under yen loan facilities which are repayable between March 2007 and October 2012 (31 July 2005 - £9.6 million (Y1.9 billion); 31 January 2006 - £13.9 million (Y2.9 billion)). 7. At 31 July 2006 the Company had authority to buy back 4,587,014 of its own shares for cancellation in accordance with the authority granted at the AGM in April 2006. No shares were bought back during the period under review. 8. Transaction costs incurred on the purchase and sale of investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £36,000 (31 July 2005 - £25,000; 31 January 2006 - £70,000) and transaction costs on sales amounted to £23,000 (31 July 2005 - £18,000; 31 January 2006 - £61,000). Year to Six months to 31 Six months to 31 January July 2006 31 July 2005 2006 £'000 £'000 £'000 9. Reconciliation of net return before finance costs and taxation to net cash (outflow)/inflow from operating activities Net return before finance costs and taxation (21,435) 5,267 33,104 Losses/(gains) on investments 21,888 (5,212) (32,668) Currency (gains)/losses (409) 46 (538) (Increase)/decrease in accrued income (22) 10 (9) Increase in other debtors (21) (10) (7) (Decrease)/increase in creditors (83) (7) 83 Net cash (outflow)/inflow from operating (82) 94 (35) activities BAILLIE GIFFORD SHIN NIPPON PLC NOTES (Ctd) 10. The financial information contained within this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the year ended 31 January 2006 has been extracted from the statutory accounts which have been filed with the Registrar of Companies and which contain an unqualified Auditors' Report and do not contain a statement under the sections 237(2) or (3) of the Companies Act 1985. 11. The Interim Report was approved by the Board on 31 August 2006. None of the views expressed in this document should be construed as advice to buy or sell a particular investment. This information is provided by RNS The company news service from the London Stock Exchange

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