Interim Results
Baillie Gifford Shin Nippon PLC
09 September 2005
BAILLIE GIFFORD SHIN NIPPON PLC
Results for the six months to 31 July 2005
For the six months to 31 July 2005, Baillie Gifford Shin Nippon's net asset
value rose by 9.5% compared with a 9.6% rise in the comparative index+. In view
of the pace of private sector reform and the continuing attractive market
valuations, the Managers continue to find investment opportunities in
under-researched small capitalisation stocks.
• The Japanese economy has re-accelerated this year and appears to be generating a fair degree of
internal momentum. Corporate earnings growth continues to exceed consensus expectations.
• Recently, the Company increased its weighting in high growth companies where long term earnings
prospects justify their valuation.
• The Company has increased its gearing over the six months. As at 31 July 2005, net gearing stood at
15% of shareholders' funds.
• The portfolio's best returns came from the Retail, Real estate and construction and Manufacturing and
machinery sectors.
+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.
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.
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 2005 the Company had total assets of
£69.0 million (before deduction of bank loans of £9.6m).
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with around £37 billion funds under management and advice.
8 September 2005
- 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
Shin Nippon's net asset value per share has risen by 9.5% over the last six
months, in comparison to a 9.6% rise in the weighted index of the TOPIX Small,
JASDAQ and Tokyo Stock Exchange Second Section. Again, small capitalisation
stocks have done better than their larger peers over this period, as
demonstrated by a sterling rise of just 3.9% in the broad market TOPIX index.
The Japanese market overall was sluggish compared to other global equity indices
during the period under review. This may have reflected disappointment over the
enthusiasm of Japanese companies to adopt poison pill provisions to protect
against hostile takeover bids, and some nervousness over the unstable political
situation. Certainly more fundamental influences on equity value, such as the
economic cycle and corporate earnings, have been encouraging. Despite a
slowdown in exports to China and continuing inventory correction in global
technology markets, the Japanese economy has re-accelerated this year and
appears to be generating a fair degree of internal momentum. Private capital
expenditure is rising sharply, a reflection of an ageing and fully utilised
capital stock coupled with buoyant corporate cashflows. Meanwhile, the labour
market is looking much healthier, with full time employment recovering and some
shortages appearing in certain sectors, which is helping consumer confidence.
Our Retail sector holdings have performed well, with like-for-like sales
performance accelerating at companies as diverse as fashion retailer Point,
pharmacy chain Sugi and kimono supplier Kyoto Kimono Yuzen.
Corporate earnings growth continues to exceed consensus expectations. Even
though we are several years into this economic upswing, there is little sign of
companies lessening their focus on cost control, so margins remain on a steadily
rising path. Similarly, the extra capital expenditure is being channelled into
companies' core businesses or synergistic acquisitions - there is no evidence of
the wasteful diversification which has blighted Japanese capital allocation in
the past. Although the rising oil price is undoubtedly a negative for growth and
margins, Japan's high level of energy efficiency means that the impact is
relatively low compared to other economies.
We have been enthused by the continuing good relative performance of small
companies, although their valuations in aggregate are no longer at a discount
to the total market. Nevertheless, the dynamism of the sector, as evidenced in
the buoyant initial public offering market which is introducing well over one
hundred new companies to the market every year, and the greater exposure it
gives to growth areas of the Japanese economy continue to attract investors.
Small cap indices have also been supported by a very strong run in value stocks,
as the market has focused on the scope for realising value for shareholders at
sleepily managed cash rich companies. Unfortunately this has not helped Shin
Nippon much, apart from our holding in the shareholder activist fund MAC Japan.
Over the last six months the portfolio has enjoyed its best returns in the
Retail, Real estate and construction and Manufacturing and Machinery sectors.
The recovery in Japanese real estate continues, with vacancy rates falling and
rents rising in central Tokyo and signs this may be spreading to regional cities
such as Nagoya. Improved real estate market liquidity and investment interest
have been of great help to asset management and revitalisation companies such as
Kenedix and Suruga, which have been our best performers over this period. The
Manufacturing and Machinery sector continues to represent one of our largest
overweights, and after disappointing performance last year our patience has been
rewarded with good returns so far this year. Small cap machinery stocks such as
Sodick, CKD and Juki had become excessively cheap, perhaps due to market fears
over the sustainability of the Japanese economic cycle, but this year have done
much better as it became clear that domestic machinery orders are accelerating
rather than peaking out.
Recently we have increased the portfolio's weighting in high growth companies,
finding stocks where long term earnings prospects are sufficient to justify
rather intimidating valuations. So-net M3 develops internet portals enabling
more efficient communication between pharmaceutical companies and doctors about
new drugs, and has huge growth potential in America. Sammy Networks, which
makes simulations of pachinko games for cellphones sees expansion possibilities
in Chinese cellphone content and an online pachinko parlour for PC users.
Recently, following the rejection of his postal privatisation bill, prime
minister Koizumi has dissolved the Lower House and called an election. Despite
uncertainties over the direction of public sector reform, we remain confident in
the pace of private sector reform, view market valuations as attractive and
continue to find plenty of interesting and under-researched small capitalisation
stocks in which to invest.
The following is the interim statement for the six months ended 31 July 2005
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 20 September 2005. 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
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
for the six months ended for the six months ended for the year ended
31 July 2005 31 July 2004 31 January 2005
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Realised
gains on investments - 1,061 1,061 - 5,783 5,783 - 7,845 7,845
Unrealised gains on - 4,151 4,151 - 1,482 1,482 - 2,425 2,425
investments
Currency (losses)/gains
(note 2) - (46) (46) - 471 471 - 253 253
Income (note 3) 479 - 479 328 - 328 598 - 598
Investment management
fee (281) - (281) (271) - (271) (531) - (531)
Other administrative
expenses (97) - (97) (80) - (80) (199) - (199)
Net return before finance
costs and taxation 101 5,166 5,267 (23) 7,736 7,713 (132) 10,523 10,391
Finance costs of
borrowings (109) - (109) (86) - (86) (226) - (226)
Return on ordinary
activities before
taxation (8) 5,166 5,158 (109) 7,736 7,627 (358) 10,523 10,165
Tax on ordinary
activities (30) - (30) (19) - (19) (34) - (34)
Return on ordinary
activities after
taxation (38) 5,166 5,128 (128) 7,736 7,608 (392) 10,523 10,131
Return per ordinary
share
(note 5) (0.13p) 16.88p 16.75p (0.42p) 25.28p 24.86p (1.28p) 34.39p 33.11p
* 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.
BAILLIE GIFFORD SHIN NIPPON PLC
SUMMARISED BALANCE SHEET
at 31 July 2005
(unaudited)
31 July 2005 31 July 2004 31 January 2005
£'000 £'000 £'000
FIXED ASSET INVESTMENTS
Listed equities 65,109 51,483 58,459
Unlisted equities - traded on the OTC/ Hercules Japan markets 1,979 6,335 -
(note 6)
- other unlisted 1,222 928 1,035
68,310 58,746 59,494
Net liquid assets 681 2,341 9,092
Total assets (before deduction of bank loans) 68,991 61,087 68,586
Bank loans (note 7) (9,627) (9,374) (14,350)
59,364 51,713 54,236
CAPITAL AND RESERVES
Called-up share capital 3,060 3,060 3,060
Capital reserves 60,872 52,919 55,706
Revenue reserve (4,568) (4,266) (4,530)
EQUITY SHAREHOLDERS' FUNDS 59,364 51,713 54,236
NET ASSET VALUE PER ORDINARY SHARE (note 8) 194.0p 169.0p 177.2p
Ordinary shares in issue (note 9) 30,600,497 30,600,497 30,600,497
BAILLIE GIFFORD SHIN NIPPON PLC
SUMMARISED CASH FLOW STATEMENT
(unaudited)
Six months Six months to Year to
to 31 July 2005 31 July 2004 31 January 2005
£'000 £'000 £'000
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES (note 94 (158) (226)
10)
NET CASH OUTFLOW FROM SERVICING OF FINANCE (153) (81) (174)
TOTAL TAX PAID (30) (20) (35)
FINANCIAL INVESTMENT
Acquisitions of investments (12,167) (14,432) (20,940)
Disposals of investments 8,455 10,551 21,275
Realised currency (loss)/profit (230) 43 367
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT (3,942) (3,838) 702
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (4,031) (4,097) 267
FINANCING
Net (outflow)/inflow from bank loans (4,538) 2,536 6,970
(DECREASE)/INCREASE IN CASH (8,569) (1,561) 7,237
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
(Decrease)/increase in cash in the period (8,569) (1,561) 7,237
Net outflow/(inflow) from bank loans 4,538 (2,536) (6,970)
Exchange movement on bank loans 185 428 (114)
MOVEMENT IN NET DEBT IN THE PERIOD (3,846) (3,669) 153
NET DEBT AT START OF THE PERIOD (5,069) (5,222) (5,222)
NET DEBT AT END OF THE PERIOD (8,915) (8,891) (5,069)
BAILLIE GIFFORD SHIN NIPPON PLC
TWENTY LARGEST EQUITY HOLDINGS
at 31 July 2005
Name Business Market % of total
value assets
£'000
* Kenedix Real estate broker 1,979 2.9
Suruga Corp Real estate broker 1,867 2.7
Arrk Design consulting 1,796 2.6
Sodick Manufacturer of electric machinery 1,731 2.5
Sanyo Shinpan Finance Consumer loans and credit cards 1,727 2.5
Goldcrest Condominium developer 1,580 2.3
CKD Pneumatic machinery 1,564 2.3
Tokyu Livable Real estate broker 1,543 2.2
Sumisho Lease Specialist leasing operator 1,453 2.1
Park 24 Car park operator 1,440 2.1
Sankyo Pachinko machine manufacturer 1,402 2.0
Japan Asia Investment Venture capital company 1,362 2.0
Nakanishi Dental equipment 1,338 1.9
USS Second-hand car auctioneer 1,334 1.9
OMC Card Credit card company 1,311 1.9
Nabtesco Manufacturer of precision equipment and tools 1,292 1.9
Ryobi Manufacturer of auto parts 1,290 1.9
Fullcast Blue collar staffing services 1,286 1.9
Point Clothing stores 1,284 1.9
Sammy Networks Mobile phone content provider 1,271 1.8
29,850 43.3
* Denotes unlisted holding traded on the Hercules Japan market.
BAILLIE GIFFORD SHIN NIPPON PLC
NOTES
1. The financial statements for the six months to 31 July 2005 have been prepared on the basis of the
same accounting policies used for the year to 31 January 2005 except for the valuation of
investments. In accordance with FRS 26 'Financial Instruments: Measurement', listed investments
are now valued at fair value through profit and loss. Previously, listed investments were valued
on a mid-market basis, as represented by last traded prices (official mid-market prices are not
available in Japanese markets). As last traded prices are also the best measure of fair values of
listed investments, there has been no impact on the valuation of the Company's listed
investments.
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.
The Interim Report was approved by the Board on 1 September 2005. None of the views expressed in
this document should be construed as advice to buy or sell a particular investment.
Six months to Six months to Year to
31 July 2005 31 July 2004 31 January 2005
£'000 £'000 £'000
2. Currency gains/(losses)
Realised exchange differences 336 43 603
Movement in unrealised exchange differences (382) 428 (350)
(46) 471 253
3. Income includes stock lending fee income of £54,000 (31 July 2004 - £52,000; 31 January 2005 -
£107,000).
4. No interim dividend will be declared.
5. Return per ordinary share
Revenue return (38) (128) (392)
Capital return 5,166 7,736 10,523
Return per ordinary share is based on the above totals of revenue and capital and on 30,600,497
(31 July 2004 - 30,600,494; 31 January 2005 - 30,600,496) ordinary shares, being the weighted
average number of ordinary shares in issue during the period.
6. The JASDAQ market, which was previously an Over-The-Counter market, became a recognised stock
exchange on 13 December 2004, at which point its stocks were no longer treated as unlisted.
7. Bank loans of £9.6 million (Y1.9 billion) have been drawn down under yen loan facilities which are
repayable between March 2007 and August 2011 (31 July 2004 - £9.4 million (Y1.9 billion); 31
January 2005 - £14.4 million (Y2.8 billion)).
8. There was no dilution to net asset value per share at any date. No warrants were exercised during
the period to the final exercise date on 30 April 2005; the remaining warrants therefore lapsed
and were subsequently cancelled.
9. At 31 July 2005 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 2005. No shares were bought back
during the period under review.
10. Reconciliation of operating revenue to net cash
inflow/(outflow) from operating activities
Net return before finance costs and taxation 101 (23) (132)
Decrease/(increase) in accrued income 10 10 (3)
Increase in other debtors (10) (36) (23)
Decrease in creditors (7) (109) (68)
Net cash inflow/(outflow) from operating 94 (158) (226)
activities
11. 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 2005 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.
This information is provided by RNS
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Tuesday, 16th July 2024
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