Baillie Gifford Shin Nippon PLC Regulatory News (BGS)

 RNS Announcement

Baillie Gifford Shin Nippon PLC (BGS)

Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83

Results for the year to 31 January 2023

Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws and regulations.

The following is the results announcement for the year to 31 January 2023 which was approved by the Board on 21 March 2023.

Over the year to 31 January 2023, the Company's net asset value per share declined by 1.2%† and its share price by 8.9%. The comparative index* appreciated by 5.7%.

In sterling terms over three years, the net asset value was up by 0.5%† and the share price was down 6.8%, while the Company's comparative index* was up 6.6%. Over the five years to 31 January 2023, the Company's net asset value per share appreciated by 2.9%† and its share price declined by 13.9%. Shin Nippon's comparative index* return appreciated by 7.6% over this period.

¾  The Managers' unwavering focus on high-growth smaller companies is currently out of sync with investor sentiment, so the recent performance in absolute and relative terms is not unexpected. The Board recognises that the valuation downgrade of growth companies does not always correlate with their operational performance.

¾  Macro headwinds and the lingering effects of Covid-19 have led to poor share price performance at many of the portfolio's internet companies such as Infomart, Japan's leading online food ordering platform despite growing its sales over the past year and generating a decent level of profits as well as investing heavily for future growth, and online legal website Bengo4.com, despite maintaining a high growth rate in sales and a very significant increase in profitability.

¾  Among the positive contributors to performance over the year were insurance company Lifenet, the leading online life insurer in Japan, drugstore chain MatsukiyoCocokara and Kamakura Shinsho, an online platform for funerals and end-of-life related services.

¾  Nine positions were sold and seven new positions were initiated in the financial year, including one private company; plastic recycling company JEPLAN which utilises a novel chemical method to recycle PET and polyester. There are currently four private companies in the portfolio accounting for 3.0% of total assets.

¾  Growth stocks are now priced at levels that assume barely any future increase in revenues or profits, which is in stark contrast to their underlying fundamentals. The Board and Managers continue to believe that being patient and seeing through market noise increases the chances of picking exceptional companies that will deliver attractive long-term returns.

† After deducting borrowings at fair value.

* The Company's comparative index is the MSCI Japan Small Cap Index (total return and in sterling terms). See disclaimer at the end of this announcement.

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

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 2023 the Company had total assets of £633.5 million (before deduction of bank loans of £88.0 million).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with approximately £227 billion under management and advice as at 17 March 2023.

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 shinnippon.co.uk.

See disclaimer at the end of this announcement.

21 March 2023

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: 0131 275 2000

Jonathan Atkins, Director, Four Communications

Tel: 0203 920 0555 or 07872 495396

Chairman's Statement

Performance

Over the year to 31 January 2023, Shin Nippon's net asset value ('NAV') per share* declined by 1.2% and its share price by 8.9%. The comparative index (MSCI Japan Small Cap Index, total return in sterling terms) appreciated by 5.7%. As highlighted in my prior reports, your Board has historically reviewed performance principally over rolling three-year periods and it is disappointing to report relative underperformance over this period. Over the three years to 31 January 2023, the Company's net asset value per share appreciated by 0.5% during this period and its share price declined by 6.8%. Shin Nippon's comparative index return appreciated by 6.6%.

Following a review and assessment of the Managers' time horizon for investment, the Board has concluded that, going forward, performance should be measured principally over rolling five-year periods. Over the five years to 31 January 2023, the Company's net asset value per share appreciated by 2.9% and its share price declined by 13.9%. Shin Nippon's comparative index return appreciated by 7.6% over this period. As you will note later in my report, at this year's Annual General Meeting ('AGM') shareholders are being asked to approve proposed changes to the Company's Objective and Policy, one of which is to construct the portfolio through the identification of individual companies which offer long term growth potential typically over a five rather than three-to-five year period. Reviewing performance principally over five-year periods aligns with this. As illustrated on page 6 of the Annual Report and Financial Statements the Company outperformed the peer group over a five-year period.

In the Managers' Report below, you will find a more detailed explanation of the recent performance and commentary on some of the holdings, as well as performance numbers over five and ten years. The Board maintains close oversight of the performance of the Company. Although three year performance has been disappointing and performance over the last two years has damaged longer-term returns, we remain satisfied with the ten-year performance of the Company. The Board recognises that the valuation downgrade of growth companies does not always correlate with their operational performance. We remain committed to the Managers' unwavering focus on high-growth smaller companies and are confident that the Company is well placed to benefit from the long term prospects of the companies held in the portfolio.

Growth investing is currently out of sync with investor sentiment and, as the Managers' fundamental bottom-up investment approach does not consider the make-up of the comparative index when constructing the portfolio, the recent performance in absolute and relative terms is not unexpected and shareholders should expect periods of underperformance. The Company also dropped back out of the FTSE 250 index in March 2022, having been promoted in November 2020.

Outlook

The war in Ukraine is continuing to undermine sentiment in many ways. High inflation is now a real threat to global growth and the inevitable increases in interest rates will continue to provide headwinds in many economies. Shin Nippon will not be immune to these issues.

That said, your Board was very encouraged to meet twenty-four different companies on its recent trip to Japan. We met companies already owned in the portfolio as well as some potential new holdings both in the listed and the unlisted space. It was apparent that the negative effects of Covid-19 over the last couple of years have largely dissipated, leading to a more positive outlook with no visible evidence of any doom and gloom. However, there is no getting away from the issue of the ageing population in Japan where people are living longer and, where the economy is trying to grow, this inevitably puts pressure on the ability to recruit suitable skilled labour. I have mentioned this structural issue in previous statements. The companies we met were all aware of these issues and your Board was left confident that they were being addressed. The number of foreign workers in Japan continues to grow and this trend will inevitably continue in the years ahead. There is no doubt that the companies we met were engaging and confident about their future growth prospects. We met some highly skilled individuals who are still trying to disrupt norms and we were left feeling that the small cap sector in which the Company invests is in good shape.

The Managers have for many years adopted a stock picking approach when shaping the portfolio. As the Directors discovered on the trip, opportunities will continue to present themselves and we are wholly supportive of the Managers in seeking those out and continuing to strengthen the portfolio. The start-up environment for companies is changing and Government policies are more supportive. There is a positive attitude to creating wealth and starting exciting, disruptive businesses. The Board and the Managers remain encouraged by the outlook.

Borrowings

The Company's invested gearing increased over the course of the year from 11% to 15%† whilst potential gearing was unchanged at 16%. Subsequent to the year end, a new secured ¥2,000 million three-year revolving credit facility was drawn down from ING Bank N.V. The Board agreed to increase gearing to allow the Managers to invest in the strong pipeline of current opportunities, bolstering the high growth nature of the portfolio at the right time and at attractive valuations.

As at 31 January 2023, the Company had total borrowings of ¥14.1 billion (£88.0 million) at an average interest rate of 1.4%. During the year the yen weakened against sterling by 3.4%. The Company undertook no currency hedging during the year and has no plans to do so.

Revenue Return and Ongoing Charges

Revenue return per share was 1.11p compared to 0.29p the prior year. The revenue reserve remains in deficit therefore the Board is recommending that no dividend be paid. The Company's ongoing charges were 0.74%† compared to 0.66% a year earlier. Although expenses decreased during the year the average daily NAV fell from £719.1 million in 2022 to £521.3 million in 2023 causing the increase in the overall ongoing charge percentage. A reconciliation of this can be found at the end of this announcement.

Share Issuance and Buybacks

Having ranged between a 1.5% premium and 11.6% discount, averaging a 6.1%† discount, the Company's shares ended the period at an 8.6% discount to the NAV per share, having been at a 0.8% discount a year earlier.

During the course of the year, 100,000 shares were bought back at a cost of £154,000 and are currently held in treasury. As part of this year's AGM business, approval is again being sought to renew the authority to buy back shares. This would enable the Company to buy back shares if the discount to NAV was substantial in absolute terms or in relation to its peers, should that be deemed desirable. Any such activity would enhance the NAV attributable to existing shareholders.

Although no shares were issued during the year, there will also be an AGM resolution to authorise the approval of share issuance, on a non pre-emptive basis, of up to 10% of the Company's issued share capital. As done in the past, any share issuance would be undertaken at a premium to NAV per share and therefore be NAV accretive for existing shareholders. The Board is of the view that being able to increase the size of the Company, when conditions permit, helps to improve liquidity, reduces costs per share and potentially increases the appeal of the Company to a wider range of shareholders.

Board Composition and Governance

I have thoroughly enjoyed my time as a Director and Chair of Baillie Gifford Shin Nippon PLC but, as highlighted to the market back in December, I will not be seeking re-election at the AGM in May. It has been a pleasure for me to work with such an impressive Board and also such a talented team at Baillie Gifford. I have thoroughly enjoyed my time on the Board and am proud of our achievements over the last nine years.

On my retirement, I am pleased to report that Mr Jamie Skinner will take on the chairship of the Board and Mr Kevin Troup will become Chair of the Audit Committee. Ms Abigail Rotheroe has been appointed as the Chair of the Nomination Committee, effective from 1 February 2023.

The composition of the ongoing Board is appropriate for the foreseeable future and will be compliant with the pending diversity rules coming into effect for accounting periods beginning on or after 1 April 2022.

Environmental, Social and Governance (ESG)

The consideration of ESG factors is part of the long term, active, patient and growth focused approach to investment by our Managers. Your Board is pleased with the focus the Managers place on ESG and the resources applied to it. ESG in its widest sense is a broad and complex subject and it features as part of every Board meeting. Some examples of engagement with companies undertaken by the Managers can be found below.

Annual General Meeting - Objective & Policy and Articles of Association

In addition to the usual, and also aforementioned, AGM business, a resolution is being put before shareholders to make a number of, principally, stylistic changes to the Company's Objective and Policy, which will also help to clarify some potential unintended ambiguities in the current wording and to align investment horizons with the Managers'. A comparison of the proposed and current wording can be found on pages 7 and 8 of the Annual Report and Financial Statements. The Board is taking a prudent approach to these changes and is treating them, in aggregate, as a material change. Therefore, in accordance with the Listing Rules, the Company is required to seek shareholder approval for the proposed amendments.

Furthermore, shareholders are being asked to approve changes to the Company's Articles of Association, details of which can be found on pages 33 and 34 of the Annual Report and Financial Statements. One of the amendments would, if passed, permit the Company to hold virtual AGMs in the future. This authority is being sought not as a replacement to in-person AGMs, but as an alternative in extremis should it be required due to prevailing circumstances meaning that an in-person meeting was not possible, as was the case at points during recent years because of restrictions due to Covid-19.

This year's AGM will take place in person at Baillie Gifford's offices in Edinburgh at 9:15am on Wednesday 17 May 2023. The Managers will be presenting and the Board and I look forward to seeing as many of you there as possible.

M Neil Donaldson

21 March 2023

Past performance is not a guide to future performance.

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

*  After deducting borrowings at fair value

† Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement

Managers' Report

2022 was another difficult year for growth investing. A number of external events weighed on investor sentiment. Global supply chains, especially autos and semiconductors, are recovering gradually but continue to suffer from the after-effects of the pandemic. The war in Ukraine had global repercussions as Europe started weaning itself off Russian gas, driving up global energy prices in the process. This has been a major cause of the high rates of inflation being witnessed globally. Central banks across the world have been raising interest rates in a bid to control inflation. This has resulted in significant weakness in the share price of high growth stocks as investors worry that higher interest rates would lead to weak demand for their goods and services in the future.

Against this challenging backdrop, there have been encouraging signs. An uptick in inflation is leading to wage growth in real terms. This is particularly noteworthy as wages have been generally flat in Japan for the past thirty years due to deflation. Increases in wages should lead to higher consumer confidence and thus a more positive outlook for the domestic economy. Japan has now fully reopened its borders to tourists, having eliminated all Covid-related entry requirements. More recently, these green shoots of a return to normality have been reflected in market sentiment. We are returning to an environment where share prices are driven more by fundamentals than pure macro developments. Despite disappointing share price performance, we note that the vast majority of our holdings have actually exhibited good operational progress.

Performance

Shin Nippon's focus is, and remains, to invest in fast-growing smaller companies in Japan which are often run by dynamic founders. We continue to believe that they are driving much-needed change, especially in light of an ageing and shrinking workforce. We remain certain that investing in these companies will enable us to generate attractive shareholder returns in the long run, despite short-term turbulence. Companies in more traditional sectors of the economy continue to face long-term challenges and we, therefore, prefer to back companies that are disrupting the status quo.

For the year ending 31 January 2023, Shin Nippon's net asset value ('NAV') decreased by 1.2% compared to an increase of 5.7% in the MSCI Japan Small Cap Index (all figures total return and in sterling terms, NAV with borrowings at fair value). Growth stocks have remained out of favour, reflecting the market's preference for short-term certainty over long-term opportunity. Encouragingly, the outlook seems to be getting less myopic. Following continued share price weakness in the first half of the year, we witnessed a more encouraging level of performance in the second half. We remain optimistic regarding the long-term growth prospects of the high-growth businesses held in Shin Nippon but note that the Company's weak performance over the past two years has impacted the long-term numbers, which we consider a fairer way of looking at performance. Over five years, Shin Nippon's NAV has increased by 2.9% versus an increase of 7.6% in the comparative index. Over ten years, Shin Nippon's NAV has increased by 310.4% compared to an increase of 150.1% in the MSCI Japan Small Cap Index.

Numerous macro headwinds and the lingering effects of Covid-19 have led to poor share price performance at many of our internet companies. Infomart, Japan's leading online food ordering platform, was one such poor performer. The significant decline in eating out naturally hit a company that is connecting suppliers with restaurants. Despite this extraordinarily tough environment, Infomart has grown its sales over the past year and is returning to higher profitability. Its recently started electronic invoicing business is gaining traction as well. We remain attracted by the opportunities in both segments and are hopeful that the market will re-evaluate Infomart on the back of its improving fundamentals.

Online legal website Bengo4.com similarly remains out of fashion despite maintaining a high growth rate in sales and a very significant increase in profitability. Its electronic signature segment 'CloudSign' has established itself as the industry standard in Japan to the extent that management is now focusing on improving margins rather than just growing sales.

Another detractor to performance was biotech company Healios. Unfortunately, its main drug failed to show improved patient outcomes in a clinical trial, so we decided to sell the holding.

Among the positive contributors was insurance company Lifenet. It is the leading online life insurer in Japan albeit with a still very small share of the overall market. Lifenet's sales growth recently accelerated, and the company is edging closer to profitability. It continues to partner with major enterprises in Japan, like mobile provider KDDI and credit card company Sumitomo Mitsui Card. The opportunity remains significant, and we continue to believe that Lifenet is much nimbler than incumbent insurance companies and will therefore be able to take market share for a long period of time. Drugstore chain MatsukiyoCocokara was another strong performer. As referenced in the interim report, the company recently acquired a smaller competitor and is benefitting from the resultant synergies, leading to increased profitability for the group as a whole. A large proportion of its sales come from cosmetics which means that it should benefit from a recovery in inbound tourism. Japanese cosmetics are highly appreciated, especially by Chinese consumers, and MatsukiyoCocokara is well placed to satisfy any future increases in demand.

Another beneficiary of Japan's reopening is Kamakura Shinsho, an online platform for funerals and end-of-life related services. In-person funerals have resumed in earnest in Japan following the removal of all Covid-era restrictions. This has allowed the company to re-accelerate its sales growth and boost its profitability which took a significant hit during Covid-19. The funeral industry in Japan remains deeply conservative and is characterised by very high prices. Kamakura Shinsho continues to disrupt this unhappy status-quo to give consumers better choices. Its growth runway remains significant.

Portfolio

Reflecting our bottom-up stock-picking approach, Shin Nippon's active share remains high at 94%. This implies only a 6% overlap with the comparative index. The portfolio turnover for the financial year was 13.8% which is in line with our long investment horizon of five to ten years.

We purchased seven new holdings in the financial year, including one private company. They represent an eclectic range of industries which illustrates our non-dogmatic approach to investing. Among the new holdings was Avex, one of Japan's leading music entertainment businesses. Led by the founder, who remains in the role of chair, management used the pandemic disruption to aggressively streamline the business and bolster the balance sheet. With a return to normality, Avex should benefit from a recovery in the live music industry and its strong net cash position will allow it to strengthen its competitive position.

Within cosmetics we discovered and invested in the Osaka-based company I-ne. The company name stands for "Innovation never ends". This relatively young business specialises in female haircare products. Despite entering a competitive market, it has consistently boasted mid-teen percentage revenue growth. New products have grown even faster. True to its name, the company is utilising new and innovative techniques like artificial intelligence to analyse product-market fit and customer feedback. This in turn is driving product development and the company has a good track record of developing hit products. We are attracted by the growth prospects and believe that margins can significantly improve in the future. Furthermore, the founder retains a 70% stake in the company which should provide good alignment.

We also invested in two niche manufacturing businesses: Nittoku and Kohoku Kogyo. Both have significant global market share in their respective business areas. Nittoku produces cutting-edge coil winding machinery. Coils are found in virtually every electronic product, but the real attraction is a continuous endeavour to reduce their size and improve performance. The former is particularly important for mobile handsets, where the number of coils jumped from eight in a 4G handset to 40 in 5G. The latter is of significance for electric vehicles as better coils lead to increased performance. Kohoku Kogyo is similarly exposed to electric vehicles. The company produces lead terminals for aluminium electrolytic capacitors. Compared to an internal combustion engine car, an electric vehicle requires two to four times as many capacitors. Given the high-performance requirements and high value-add, Kohoku's products are priced at a premium and this should allow the company to improve its margins over time. It also produces optical isolators for undersea internet data cables, an area in which we have seen increased activity by both nation states and private companies such as Alphabet and Meta.

In the private company space, we invested in plastic recycling company JEPLAN. In contrast to conventional mechanical recycling methods, JEPLAN utilises a novel chemical method to recycle PET and polyester. JEPLAN's approach is environmentally friendly, scalable and highly energy efficient. It is working with companies like Coca-Cola Japan and Nestlé Japan in the food and drink sector as well as apparel brands like Uniqlo and Snow Peak. Despite being quite small and private, the company is already generating a decent level of sales and is close to profitability.

Software company SpiderPlus was another addition to the portfolio. It offers software as a service ('SaaS') solutions for the management of construction sites. The construction industry in Japan is very large and has barely been digitised. Even more importantly, it is plagued by an ageing and shrinking workforce and a large number of unfilled positions. Tools to make workers more efficient are therefore very valuable and Spiderplus' product enables significant time and cost savings. The company is led by a dynamic founder with a background in construction subcontracting and we admire the ambition he has for his company.

We exited nine holdings over the financial year. Among them was CyberAgent, a media company offering online advertisement, mobile games and online television. Having been held since 2013, the share price has increased markedly, and its advertising and gaming end markets are mature and becoming more competitive. As such, we struggled to see the company growing its sales and profits significantly from here. A somewhat idiosyncratic case was specialist financial software company Uzabase. A private equity company announced its intention to acquire Uzabase at a 72% premium which we felt was attractive and therefore decided to tender our shares. While still somewhat unusual in Japan, we have noted an increase in private equity activity over the past few years.

We also sold Aeon Delight, a building security and maintenance company. Contrary to our original investment hypothesis, the company has been unable to diversify its client base meaningfully beyond its parent company Aeon. We also had high hopes for the company in the Chinese market which remains large and fragmented but even here, management have not shown the drive and dynamism to seize the opportunity, opting to adopt a more piecemeal approach instead.

Outlook

Given the scale and speed of the downturn in high growth stocks post-Covid, we remain very conscious that this has negatively affected Shin Nippon's short and longer-term performance. However, this has also meant that growth stocks are now priced at levels that assume barely any future increase in revenues or profits, which is in stark contrast to their underlying fundamentals. Despite the discomfort from volatility, we believe it is important to stay true to our stated investment philosophy and process which has served shareholders well over longer periods of time. Being patient and seeing through market noise increases our chances of picking exceptional companies that will deliver attractive long-term returns.

As Japan slowly moves out of Covid-19, the focus will return to long-term challenges. A shrinking labour force calls for increased digitalisation and more efficient ways of working. Global warming and high energy prices provide motivation to decarbonise the Japanese and global economy. The inexorable shift to electric vehicles requires a recalibration of the auto industry. Geopolitics is leading to a reshaping of the semiconductor industry. All these challenges call for dynamic and nimble enterprises, run by bold entrepreneurs willing to seize the myriad of opportunities that these changes are creating. We believe Japanese smaller companies are at the forefront of enabling many of these industry shifts, thereby providing an exciting array of investment opportunities.

Baillie Gifford & Co

21 March 2023

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

Past performance is not a guide to future performance.

For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Valuing Private Companies

We hold our private company investments at an estimation of 'fair value', i.e. the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations committee at Baillie Gifford, which takes advice from an independent third party (S&P Global). The valuations committee is independent from the portfolio managers, as well as Baillie Gifford's Private Companies Specialist team, with all voting members being from different operational areas of the firm, and the portfolio managers only receive final valuation notifications once they have been applied.

We revalue the private holdings on a three-month rolling cycle, with one-third of the holdings reassessed each month. For Baillie Gifford Shin Nippon, and our other investment trusts, the prices are also reviewed twice per year by the respective boards and are subject to the scrutiny of external auditors in the annual audit process.

Recent market volatility has meant that recent pricing has moved much more frequently than would have been the case with the quarterly valuations cycle.

Beyond the regular cycle, the valuations committee also monitors the portfolio for certain 'trigger events'. These may include changes in fundamentals, a takeover approach, an intention to carry out an Initial Public Offering ('IPO'), company news which is identified by the valuation team or by the portfolio managers or changes to the valuation of comparable public companies.

The valuations committee also monitors relevant market indices on a weekly basis and update valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate. When market volatility is particularly pronounced the team does these checks daily. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value. There is no delay.

Review of Investments

A review of some of the Company's new acquisitions together with a list of the ten largest investments is given below.

Top Ten

Litalico

2.7% of total assets

Litalico provides training and employment assistance for disabled people and educational services for children with developmental difficulties. It targets the roughly five million adults and children in Japan who suffer from cognitive and mental disabilities. The Japanese government has put in place policies to improve access and employment opportunities for disabled people. This should benefit the likes of Litalico that is one of the few players with nationwide coverage. The company is also developing new businesses to support its core operation of providing training and employment. These include computer programming for kids, financial planning for families with disabled members, and after school and day-care services. We think the growth opportunity for the company could be quite attractive given these tailwinds. It is run by a young and dynamic President who owns a large stake in the business.

Nakanishi

2.5% of total assets

Nakanishi manufactures dental equipment, specialising in rotary cutting tools (handpieces), where it is one among the few leading players globally. Whilst developed economies are fairly mature in terms of trends in dental health care, there is significant growth in emerging economies as standards of living rise and hygiene regulations are tightened. Nakanishi looks particularly well placed to exploit growth in the Chinese market where it has a leading market share at the higher end of the market. The company is very profitable and has had a good record of growth since listing in 2000. It is also run by the founding Nakanishi family who own a significant stake in the business, thereby ensuring strong alignment with minority shareholders.

Shoei

2.5% of total assets

Shoei is the leading manufacturer of premium motorcycle helmets globally. The market is expanding thanks to growth in emerging markets and barriers to entry are high given the strict safety requirements. Shoei has been operating in this niche market for over four decades and has established a strong and globally recognised brand. It operates exclusively at the premium end of the market and therefore, is able to make very high margins and returns. The company is run by a dynamic and sensible management team that have sought to maintain the high-end nature of its products and continue to engage in innovative product development.

Descente

2.5% of total assets

Descente is a sportswear manufacturer. It has a portfolio of owned and licensed brands which include names like Descente, Le Coq Sportif, Umbro and Srixon. Its portfolio of brands varies by price and category. For example, Descente is predominantly a high-end skiing and active-wear brand whereas Umbro is more of a mid-market brand best known for football. It has a heritage in performance sportswear, backed by research and development, which feeds into its product range, particularly at the higher end. Roughly 50% of its revenue comes from South Korea and 40% from Japan. China is a big opportunity for Descente where it has a joint venture with Anta Sports, China's largest sportswear brand by revenue. It appointed a new President in June 2019 signalling less of a reliance on the founding family. This followed on from trading house Itochu upping its stake in Descente to around 40%. This rejig should give Descente fresh impetus and it has set out plans to be more aggressive in China and refocus on profitability in Japan. It also seems confident that a downturn in its South Korea business is temporary in nature. On top of this, Olympic sporting years are ahead in both Japan and China. This along with health and well-being increasingly becoming a policy lever should be helpful. Overall, an improving demand backdrop along with a more focused strategy should mean sales and profit can grow meaningfully from here.

TechnoPro

2.5% of total assets

TechnoPro is a technology-focused staffing company. It supplies engineers to the machinery, electrical, electronics, information systems, software, biotechnology, construction and energy sectors. It is well placed to benefit from structural growth drivers such as the labour shortage in Japan. The IT industry is witnessing severe shortages of labour and as the leading provider of engineers to this sector, TechnoPro is well positioned to enjoy strong growth for many years.

Snow Peak

2.4% of total assets

Snow Peak is Japan's leading brand of high-end camping items with a line-up of roughly 800 products. It has a strong reputation within Japan's camping community and has a dedicated and growing user-base. Camping as a recreational activity is seeing strong growth in Japan as an increasing number of 'second' baby boomers (those born in the early 1970s) and young families embrace this form of recreation. In the US, where the company is expanding aggressively, roughly 1 in 3 households now undertake camping, representing a large market for Snow Peak. The company is run by a father (founder) and daughter duo who between them own nearly 30% of the company, thereby ensuring strong alignment. The daughter is the chief designer of Snow Peak's products and has a background in fashion and design. We think the long-term growth prospects for the company could be quite exciting given the favourable industry background and its strong brand.

MatsukiyoCocokara

2.3% of total assets

MatsukiyoCocokara is a leading drugstore in Japan. It was formed through the merger of Matsumotokiyoshi, a high end cosmetics retailer, and Cocokara Fine, a drugstore. The combined entity now holds among the largest market share by number of stores in Japan. The integration of both businesses has been progressing well and there are considerable synergies to be had from joint procurement and operational rationalisation. The combined entity has been realising these merger benefits, leading to rising margins. In addition, the cosmetics business should be a big beneficiary of inbound tourism whereas the drugstore part should have long-term structural growth opportunities due to Japan's demographics.

Toyo Tanso

2.2% of total assets

Toyo Tanso makes speciality carbon products and has a leading global share in isotropic graphite used in renewable energy equipment and semiconductor manufacturing. It also has a leading global share in silicon carbide coated graphite materials that are used in the manufacture of compound semiconductors. Due to its excellent heat resistance and durability, Toyo Tanso's isotropic graphite is a key consumable part of the heaters and crucibles used in the manufacturing process of monocrystal silicon which is the raw material for solar-cell devices and semiconductors. Both markets are expected to see strong growth in the coming years, thanks to the proliferation of devices that are using an increasing number of chips in them as well as the emphasis on increasing the use of renewable energy. Toyo Tanso's isotropic graphite and silicon carbide coated devices are high margin products and given the favourable industry backdrop, we believe this has the potential of transforming the company's margin and returns profile. This is a family run business with nearly 30% of the company being held by the family and related investment vehicles. We think this ensures strong long-term alignment with minorities.

Lifenet Insurance

2.2% of total assets

Lifenet Insurance is a fast-growing online life insurance business. It offers plain-vanilla life insurance products and sells predominantly through its own online platform. Its direct-to-consumer model allows it to price competitively, potentially an enduring competitive advantage. Incumbent peers tend to operate people-heavy distribution channels and are burdened with an ill-fitting cost base. Lifenet's customer centricity is backed by skills and expertise in systems development. It is a mix between an insurer and an internet-services business. We think this combination is attractive. Indeed, third-party businesses in Japan are increasingly keen to team up with Lifenet. The regulatory environment in Japan makes it difficult for new entrants to write business on their own books, this is further help for Lifenet. We think Lifenet is an ambitious and nimble business attacking a huge, rather stale, industry.

Optex

2.1% of total assets

Optex is a global leader in infrared and laser sensors used in areas such as surveillance systems, intrusion detection and factory automation. More recently, the company has been successful in expanding the areas of application for its sensors, a couple of examples being in remote monitoring of customer facilities and acceleration sensors that measure how safely people drive cars (which is then used for calculating insurance premiums for customers). The number of growing areas of applications for its sensors means that Optex is well placed to enjoy high growth rates for many years.

New Buys

GMO Financial Gate

1.6% of total assets

GMO Financial Gate ('GMOFG') is a leading offline digital payments provider. Unlike online digital payments that happen exclusively over the internet, offline digital payments take place either at a physical store or at IoT enabled terminals like vending machines, ticketing machines, self-checkout terminals and automated parking meters. Offline transactions also typically involve the use of a terminal (card reader, QR code scanner etc.) that supports a wide range of payment methods like credit/debit cards, points cards and QR codes. While most payments companies in Japan operate in the online payments space and continue to focus all their energies in this area, the offline market has basically been left uncontested. GMOFG has filled this gap and is looking to automate what remains a very large addressable market, many magnitudes larger than the market for online payments. Along with offering automated offline payments solutions like transaction processing and terminal sales, GMOFG has also partnered with VISA and Sumitomo Mitsui Financial Group (one of Japan's largest credit card issuers) to build an alternate offline payments network that is low cost and much faster compared to traditional networks operated by other card companies. It has also developed a terminal called 'Stera' that operates exclusively on this new network and supports an extensive range of payment methods. Stera also comes with an 'App Store' style option for merchants from where they can download and install seamlessly a range of applications that help them with things like inventory management and electronic invoicing. As part of the GMO group, GMOFG has a very strong edge in terms of being part of the GMO ecosystem and can offer end-to-end solutions to the considerable client base of the GMO Group. The company has been growing rapidly and given all the attractions mentioned above, growth here could be sustained for many years to come.

Avex

1.4% of total assets

Avex is one of the largest music entertainment businesses in Japan. The company has a proven record in discovering domestic artists and managing and developing their careers. It has successfully promoted several million-record selling artists in Japan. Avex is now expanding in other related areas such as visual software and targeting overseas markets. The pandemic has severely disrupted the business as no live events or shows have been held for at least a couple of years. Management have sold some assets to strengthen their balance sheet and have also managed to sell some of their treasury shares to longstanding shareholder and business partner CyberAgent. This has resulted in a significant net cash position on Avex's balance sheet. As the pandemic-era restrictions are removed, we should see a strong snap back in sales and profit growth for Avex, and along with its rock-solid balance sheet, we feel the company could be in prime position to invest aggressively to further strengthen its competitive position. The founder is still involved in the business as the Chair owns about 7% of the company, and the rest of the management team are longstanding Avex employees, so overall there appears to be strong alignment.

Nittoku

1.0% of total assets

Nittoku is a leading global manufacturer of coil winding systems. Its coil winding machines enjoy a high global market share percentage and the overall industry is characterised by a rational oligopoly. Coils are used in a number of attractive end markets, the most prominent of which are the automotive industry and mobile handsets. In automotive, there is a long standing trend of motorising parts like windows and doors all of which require an increasing number of coils. However, the most important development is the move to electric vehicles. EVs rely on large, complex coils in the car engine itself. Given Nittoku's expertise in high quality coil winding the company should see increased demand from automobile OEMs. In mobile handsets, we can observe a similar trend: a 5G handset uses far more advanced coils than a 4G handset. With consumers slowly switching over to better mobile phones we see a very long growth runway for Nittoku.

JEPLAN

0.9% of total assets

JEPLAN is a private company that has developed a proprietary chemical recycling technology for polyethylene terephthalate ('PET') plastics. This technology can also be extended to recycling apparels. JEPLAN's technology is the only production-proven chemical recycling method that has been certified by the USFDA. Chemical recycling is superior to existing and conventional mechanical recycling. It removes significant amounts of impurities from recycled materials thereby generating high grade virgin PET that is far superior to that generated by conventional mechanical recycling. Chemical recycling is also more energy efficient, environmentally friendly and scalable than existing mechanical recycling methods. Following an independent external audit, JEPLAN claim that their novel chemical recycling process contributes to as much as a 45% reduction in greenhouse gases relative to mechanical recycling. While the price of chemically recycled virgin PET is not yet competitive versus mechanical recycled PET, JEPLAN aims to achieve parity in 3-5 years through additional capacity additions and further process improvements. JEPLAN already boasts of an impressive client list that includes the likes of Coca-Cola Japan, Uniqlo, Snow Peak, Nestlé Japan, Kirin, Suntory and Kao, to name a few. The global market for recycled PET is sizeable and JEPLAN currently only has a tiny share, so there should be many years of growth ahead for the company. It is a founder run company and the two co-founders own roughly a third of the shares between them.

SpiderPlus

0.8% of total assets

SpiderPlus is aiming to digitise Japan's construction industry. The company provides architectural drawing and construction site management software. Foremen on construction sites can use SpiderPlus' SaaS offering to save significant time previously spent on administrative duties. SpiderPlus is led by a founder with a background in the construction industry and the company is characterised by a closeness to their customers and a keen desire to solve their problems. The overall construction market in Japan is massive but IT spend is a tiny fraction of this, meaning that SpiderPlus potentially has a very long growth runway. Given this opportunity set, management are unsurprisingly pursuing sales growth and are willing to incur temporary losses.

Kohoku Kogyo

0.7% of total assets

Kohoku Kogyo is a leading global manufacturer of lead terminals for aluminium electrolytic capacitors and optical isolators for undersea cables. The company enjoys a high market share in both aluminium electrolytic capacitators and optical isolators. Lead terminals are used in a variety of end products, from home appliances to electric vehicles. The main growth driver is in battery electric vehicles, which require 2-4x as many capacitors as internal combustion engine vehicles. Given the higher requirements and premium nature of the product, these lead terminals are 5-7x as profitable as more commoditised terminals. The optical isolator segment is buoyed by significant investment in undersea cables to improve global internet connectivity. This is pursued by both national governments as well as private players such as Alphabet and Meta.

I-ne

0.5% of total assets

I-ne is a small Osaka-based cosmetics company founded by a young entrepreneur who owns nearly 70% of the business. The company's main area of focus is female hair care and for a young company, it already boasts a very high market share and brand recognition. Despite being introduced over five years ago and in a market that is very competitive and saturated with similar products, I-ne's hair care range has continued to grow at a high rate since launch. Interestingly, some of the newer products they have launched are growing at an even faster pace. The company makes extensive use of AI-driven data analytics, all of which have been developed in-house, to gather market intelligence and user feedback which they then feed into their product development process. We believe the company has good growth prospects given its unique product development model and a proven track record of developing hit products on a reasonably consistent basis.

Baillie Gifford Statement on Stewardship

Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.

Our Stewardship Principles

Prioritisation of long-term value creation

We encourage our holdings to be ambitious and focus their investments on long-term value creation. We understand that it is easy to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long- term outcomes. We regard it as our responsibility to steer holdings away from destructive financial engineering towards activities that create genuine economic and stakeholder value over the long run. We are happy that our value will often be in supporting management when others don't.

A constructive and purposeful board

We believe that boards play a key role in supporting corporate success and representing the interests of all capital providers. There is no fixed formula, but it is our expectation that boards have the resources, information, cognitive and experiential diversity they need to fulfil these responsibilities. We believe that good governance works best when there are diverse skillsets and perspectives, paired with an inclusive culture and strong independent representation able to assist, advise and constructively challenge the thinking of management.

Long-term focused remuneration with stretching targets

We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create genuine long-term alignment with external capital providers. We are accepting of significant payouts to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.

Fair treatment of stakeholders

We believe it is in the long-term interests of all enterprises to maintain strong relationships with all stakeholders - employees, customers, suppliers, regulators and the communities they exist within. We do not believe in one-size-fits-all policies and recognise that operating policies, governance and ownership structures may need to vary according to circumstance. Nonetheless, we believe the principles of fairness, transparency and respect should be prioritised at all times.

Sustainable business practices

We believe an entity's long-term success is dependent on maintaining its social licence to operate and look for holdings to work within the spirit and not just the letter of the laws and regulations that govern them. We expect all holdings to consider how their actions impact society, both directly and indirectly and encourage the development of thoughtful environmental practices. Climate change, environmental impact, social inclusion, tax and fair treatment of employees should be addressed at board level, with appropriately stretching policies and targets focused on the relevant material dimensions. Boards and senior management should understand, regularly review and disclose information relevant to such targets publicly, alongside plans for ongoing improvement.

Corporate Governance and Sustainability Engagement

By engaging with companies, we seek to build constructive relationships with them, to better inform our investment activities and, where necessary, effect change within our holdings, ultimately with the goal of achieving better returns for our shareholders. The two examples below demonstrate our stewardship approach through constructive, ongoing engagement.

Outsourcing

Outsourcing is a staffing company focused on the manufacturing and IT sectors. Outsourcing came under scrutiny in 2021 after accounting irregularities were revealed at a major consolidated subsidiary. We have had a number of engagements with the company since that time to better understand the context for the internal failures in controls and to encourage management and the board to improve not just processes but also the cultural elements that created the conditions for the fraudulent behaviour. We have been encouraged by their progress, and this year was notable for two reasons. The first is their decision to change their governance to an internationally recognised board-with-three committees structure. This places them within a select cohort of approximately 2.5% of quoted companies in Japan (as of 2022). The second is their observation that as a result of an externally facilitated board evaluation, they discovered that there were differences in the information available to internal and external directors. This led to a rethink about how they increase the external directors' understanding of the business and facilitate their involvement in important internal meetings. These are both helpful indications that not only is the company pursuing proactive changes to address the specifics of the 2021 controversy, the second and third-order effects are improving governance overall, in line with a company whose governance must mature as its business does.

Istyle

Istyle operates in a range of cosmetic beauty segments. They run a beauty portal, a marketing business, e-commerce sites and a staffing business for salons. Ahead of their 2022 AGM we engaged with the company to discuss board independence, their deal with Amazon and emissions reporting. Board independence has been a recurring topic of conversation and we were encouraged that they intended to appoint a new non-Japanese, female outside director in 2022. They were particularly interested in someone who can bring expertise in diversity and support women's progression within the company. This recruitment was delayed due to the Amazon deal, but they expected it to proceed in 2023. On the recent convertible bond deal with Amazon, board positions and independence were also discussed, as granting Amazon a seat on the board would have impacted the independence. Lastly, the discussion covered Istyle's approach to emissions reporting. They are currently exploring the ways in which they impact the environment and are undertaking various sustainability initiatives. The meeting provides an illustrative example of how our engagements build year on year and evolve and develop in line with a company's development and market context.

List of Investments as at 31 January 2023

† Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 February 2022 to 31 January 2023.

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

# Figures relate to part period returns where the investment has been purchased in the period.

u Unlisted holding (private company).

* See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance.

Income Statement

For the year ended 31 January

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

As at 31 January

Statement of Changes in Equity

For the year ended 31 January 2023

For the year ended 31 January 2022

* The capital reserve balance as at 31 January 2023 includes investment holding gains of £60,696,000 (2022 - gains of £55,061,000).

Cash Flow Statement

For the year ended 31 January

* Cash and cash equivalents represent cash at bank and deposits repayable on demand.

Notes to the Financial Statements

1. The Financial Statements for the year to 31 January 2023 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 for the year ended 31 January 2023.

2. Currency gains

3. Investment Management Fee

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting have been further sub-delegated to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.

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 for the year to 31 January 2023 was 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder. The fees are calculated and paid on a quarterly basis.

4. The Company paid interest of £37,000 (2022 - £48,000) in respect of yen deposits held by the custodian bank.

5. No dividend will be declared.

6. Net Return Per Ordinary Share

The returns per ordinary share set out above are based on the net revenue gain of £3,490,000 (2022 - gain of £896,000) and net capital loss of £10,535,000 (2022 - net capital loss of £177,676,000) and on 314,222,074 ordinary shares (2022 - 311,992,773), being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.

7.  Fixed Assets - Investments

Investments in securities are financial assets designated at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair Value Hierarchy

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).

8. The bank loans are stated after deducting the arrangement fees of £174,000 which are amortised over the terms of the loans. Amortisation of the arrangement fees during the year was £49,000 (2022 - £36,000).

Borrowing facilities

At 31 January 2023

ING Bank N.V. - 3 year ¥7,000 million loan at 1.400% maturing 27 November 2023.

ING Bank N.V. - 3 year ¥5,000 million loan at 1.400% maturing 8 November 2024.

ING Bank N.V. - 7 year ¥2,100 million loan at 1.693% maturing 18 December 2024.

At 31 January 2022

ING Bank N.V. - 3 year ¥7,000 million loan at 1.400% maturing 27 November 2023.

ING Bank N.V. - 3 year ¥5,000 million loan at 1.400% maturing 8 November 2024.

ING Bank N.V. - 7 year ¥2,100 million loan at 1.693% maturing 18 December 2024.

Subsequent to the year end, on 3 March 2023, the Company drew down a new secured ¥2,000 million 3 year revolving credit facility from ING Bank N.V.

The fair value of the bank loans at 31 January 2023 was £87,725,000 (31 January 2022 - £91,174,000). See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

9. At 31 January 2023 the Company had authority to buy back 47,006,447 shares. 100,000 shares were bought back during the year (2022 - nil). Share buy-backs are funded from the capital reserve.

During the year the Company issued no shares on a non pre-emptive basis (2022 - 12,960,000 shares for net proceeds of £31,380,000).

Between 1 February and 17 March 2023 the Company did not buy back or issue any shares.

10. Analysis of Change in Net Debt

11. The Annual Report and Financial Statements will be available on the Company's website shinnippon.co.uk† on or around 11 April 2023.

12. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 January 2023 or 2022 but is derived from those accounts. Statutory accounts for 2022 have been delivered to the Registrar of Companies, and those for 2023 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

† 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 and Alternative Performance Measures ('APM')

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The APMs noted below are commonly used measures within the investment trust industry and serve to improve comparability between investment trusts.

Total Assets

This is the Company's definition of Adjusted Total Assets, being the total value of all assets held less all liabilities (other than liabilities in the form of 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 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 value of the borrowings on this basis is set out in notes 10 and 11 on page 59 of the Annual Report and Financial Statements.

Net Asset Value (Borrowings at Fair Value) (APM)

This is a widely reported measure across the investment trust industry. Borrowings are valued at an estimate of their market worth. The Company's yen denominated loans are fair valued using methodologies consistent with International Private Equity and Venture Capital Valuation ('IPEV') guidelines. The value of the borrowings on this basis is set out above. A reconciliation from Net Asset Value (with borrowings at book value) to Net Asset Value per ordinary share (with borrowings at fair value) is provided below.

Premium/Discount (APM)

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.

The average discount/premium (APM) is calculated by taking an average of the daily discount/premium percentage using NAV (fair) for the year to 31 January 2023.

Ongoing Charges (APM)

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.

A reconciliation from the expenses detailed in the Income Statement above is provided below:

Total Return (APM)

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, therefore, the one year total returns for the share price and NAV per share at book and fair value are the same as the percentage movements in the share price and NAV per share at book and fair value as detailed above.

Gearing (APM)

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 borrowings at book 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.

Equity gearing is the Company's borrowings adjusted for cash, expressed as a percentage of shareholders' funds.

† Gearing: ((a) - (b)) ÷ (c), expressed as a percentage.

# Potential gearing: (a) ÷ (c), expressed as a percentage.

Leverage

For the purposes of the Alternative Investment Fund Managers (AIFM) Regulations, 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.

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the quoted equity 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.

Net Liquid Assets

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

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.

Unlisted (Private) Company

An unlisted (private) company means a company whose shares are not available to the general public for trading and not quoted on a stock exchange.

Third Party Data Provider Disclaimer

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, judgements, 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

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information 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. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction.

The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the 'MSCI Parties') expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (msci.com).

Sustainable Finance Disclosure Regulation ('SFDR')

The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As Baillie Gifford Shin Nippon PLC is marketed in the EU by the AIFM, BG & Co Limited, via the National Private Placement Regime ('NPPR') the following disclosures have been provided to comply with the high-level requirements of SFDR. The AIFM has adopted Baillie Gifford & Co's Governance and Sustainable Principles and Guidelines as its policy on integration of sustainability risks in investment decisions. Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/or governance matters) which it believes will positively or negatively influence the financial returns of an investment. More detail on the Managers' approach to sustainability can be found in the Governance and Sustainability Principles and Guidelines document, available publicly on the Baillie Gifford website bailliegifford.com.

Taxonomy Regulation

The Taxonomy Regulation establishes an EU-wide framework or criteria for environmentally sustainable economic activities in respect of six environmental objectives. It builds on the disclosure requirements under SFDR by introducing additional disclosure obligations in respect of alternative investment funds that invest in an economic activity that contributes to an environmental objective. The Company does not commit to make sustainable investments as defined under SFDR. As such, the underlying investments do not take into account the EU criteria for environmentally sustainable economic activities.

Regulated Information Classification: Additional regulated information required to be disclosed under the applicable laws

- ends -