Last checked at 26 Sep 2017 07:00
RNS Announcement |
Baillie Gifford Shin Nippon PLC |
Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83
Regulated Information Classification: Half Yearly Financial Report
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Results for the six months to 31 July 2017 |
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The Company's net asset value per share† rose by 16.0% compared to a 7.5% rise in the MSCI Japan Small Cap Index*. The share price increased by 18.2%.
¾ High growth smaller companies in Japan rebounded strongly in the first half of this year.
¾ Among the top performers were online businesses related to domestic consumption, including Japan's leading online takeaway delivery service, Yume No Machi, and online fashion apparel website, Start Today.
¾ We also saw strong performance from companies exposed to long term structural trends such as factory automation and car electrification.
¾ We remain excited by the increasing number of young and dynamic companies that are using the Internet to disrupt existing industries or create completely new business models.
† 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: Thomson Reuters Datastream/Baillie Gifford and relevant underlying index providers. See disclaimer at 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 July 2017 the Company had total assets of £320.9m (before deduction of bank loans of £36.6m).
The Company is managed by Baillie Gifford, an Edinburgh based fund management group with approximately £172 billion under management and advice as at 25 September 2017.
Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. The Company has borrowed money to make further investments. This is commonly referred to as gearing. The risk is that, when this money is repaid by the Company, the value of these investments may not be enough to cover the borrowing and interest costs, and the Company makes a loss. If the Company's investments fall in value, gearing will increase the amount of this loss. The more highly geared the Company, the greater this effect will be.
Investment in investment trusts should be regarded as long term. You can find up to date performance information about Shin Nippon at www.shinnippon.co.uk.
25 September 2017
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Roland Cross, Director, Four Broadgate
Tel: 0203 697 4200
The following is the unaudited Interim Financial Report for the six months to 31 July 2017.
Responsibility Statement |
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (indication of important events during the first six months, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rules 4.2.8R (disclosure of related party transactions and changes therein).
On behalf of the Board
MN Donaldson
Chairman
25 September 2017
Interim Management Report |
High growth smaller companies in Japan rebounded strongly in the first half of this year having been out of favour last year due to external macro and political factors. Investors were encouraged by a series of positive economic data releases and strong corporate results in Japan, both of which highlighted an improving business environment for smaller companies. Encouragingly, we are seeing broad-based strength across corporate Japan, with companies from a number of sectors continuing to generate impressive rates of growth.
In the six months to 31 July 2017, Shin Nippon's net asset value per share (after deducting borrowings at fair value) rose by 16.0% compared to a 7.5% rise in the MSCI Japan Small Cap index.
The domestic economy in Japan continues to expand; the most recent quarterly GDP growth figure means that Japan has now enjoyed 6 consecutive quarters of positive growth, the longest such streak in over a decade. Both domestic consumption and corporate spending on capex have been key contributors to domestic growth. The labour market continues to remain tight and the jobs-to-applicants ratio has now exceeded levels seen during Japan's economic bubble era. This is also beginning to put considerable upward pressure on wages which is likely to have positive implications for domestic consumption.
Fast growing, disruptive online businesses were among the top performers in the first half of the current year. Within these, there was a noticeable skew towards names related to domestic consumption. Longstanding holding Yume No Machi, Japan's leading online takeaway delivery service, continues to grow at a fast pace as the market for online food delivery evolves rapidly. The company has taken a number of measures to increase its reach and appeal with customers. These include distribution related tie-ups with LINE, Japan's leading messaging service, and Asahi Shimbun, Japan's second largest newspaper. Online fashion apparel website Start Today continues to benefit from the rapid growth of ecommerce in Japan. It has recently introduced a deferred payment option which gives customers up to 2 months to pay for their purchases. This has been very well received by customers and there has been a noticeable acceleration in Start Today's sales as a result. Japan's leading ¥100 store operator Seria is continuing to disrupt and gain share from traditional incumbents through its sophisticated point-of-sale system which allows the company to precisely match supply and demand.
We also witnessed strong performance from companies exposed to long-term structural trends such as factory automation and car electrification. Both Harmonic Drive, a leading global manufacturer of precision gears used in small robots, and IRISO Electronics, a manufacturer of high-end connectors used in cars, are ramping up their capacity as they continue to see robust demand for their products. Staffing companies such as Outsourcing and WDB Holdings also performed well as they continue to benefit from the ongoing labour shortage in Japan. They have successfully been adding more workers to their roster and are also raising prices.
Among the poor performers was Takara Leben, a specialist condominium builder. The company is seeing a seasonal slowdown in demand and is also having to deal with rising construction costs due to labour shortage. We recently had a meeting with management and were encouraged by the measures they have put in place to mitigate the effects of rising costs. Shares in both Yonex, a leading global badminton brand, and iStyle, an online cosmetics website, were hit hard as management of both companies are investing aggressively to secure long term growth at the cost of short term profitability.
Turnover within the portfolio remains relatively low; however a few new holdings were taken over the six months. Morpho is a software company that has an interesting JV with Denso, a top tier global auto parts company. As part of this JV, Morpho is co-developing image and data processing technologies for advanced driver-assist systems (or ADAS) in cars. Gumi is a small games development company that is investing heavily in creating a new set of virtual reality related applications. Torex Semiconductor, another new purchase, is a global player in low voltage power solutions for autos and industrial applications. The Company has taken a small position in an unlisted financial technology company called Moneytree which has exciting growth potential.
We have previously noted that the range of investment opportunities for Shin Nippon continues to broaden. The IPO market remains in good health and so far this year, 46 companies have gone public. The total for the full-year is expected to reach 80 to 90, which would be the highest tally in a decade. We remain excited by the increasing number of young and dynamic companies that are using the Internet to disrupt existing industries or create completely new business models.
Shin Nippon continues to focus on investing in the most dynamic and innovative smaller businesses that are emerging in Japan. We believe that the operating environment for such companies has improved immensely in recent years and are seeing a newfound confidence amongst young entrepreneurs. This augurs well for Shin Nippon in terms of the opportunity to identify and invest in such exciting, high growth businesses.
The principal risks and uncertainties facing the Company are set out at the end of this report.
Baillie Gifford & Co
Past performance is not a guide to future performance
Income statement (unaudited) |
| For the six months ended 31 July 2017 | For the six months ended 31 July 2016 | ||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 |
Net gains on investments (note 3) | - | 36,186 | 36,186 | - | 52,676 | 52,676 |
Currency gains/(losses) | - | 1,211 | 1,211 | - | (4,123) | (4,123) |
Income from investments | 1,575 | - | 1,575 | 1,315 | - | 1,315 |
Investment management fee (note 4) | (935) | - | (935) | (741) | - | (741) |
Other administrative expenses | (221) | - | (221) | (182) | - | (182) |
Net return before finance costs and taxation | 419 | 37,397 | 37,816 | 392 | 48,553 | 48,945 |
Finance costs of borrowings | (342) | - | (342) | (259) | - | (259) |
Net return on ordinary activities before taxation | 77 | 37,397 | 37,474 | 133 | 48,553 | 48,686 |
Tax on ordinary activities (note 5) | (157) | - | (157) | (132) | - | (132) |
Net return on ordinary activities after taxation | (80) | 37,397 | 37,317 | 1 | 48,553 | 48,554 |
Net return per ordinary share (note 7) | (0.19p) | 90.61p | 90.42p | - | 126.84p | 126.84p |
The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital 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 (unaudited) |
| At 31 July 2017 | At 31 January 2017 |
| £'000 | £'000 |
Fixed asset investments |
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Investments held at fair value through profit or loss (note 8) | 318,281 | 251,680 |
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Current assets |
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Debtors | 1,090 | 801 |
Cash and cash equivalents | 2,337 | 5,520 |
| 3,427 | 6,321 |
Creditors |
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Amounts falling due within one year | (842) | (553) |
Net current assets | 2,585 | 5,768 |
Total assets less current liabilities | 320,866 | 257,448 |
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Creditors |
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Amounts falling due after more than one year (note 9) | (36,636) | (23,576) |
Total net assets | 284,230 | 233,872 |
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Capital and reserves |
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Share capital | 4,235 | 4,040 |
Share premium account | 52,940 | 40,094 |
Capital redemption reserve | 21,521 | 21,521 |
Capital reserve | 210,870 | 173,473 |
Revenue reserve | (5,336) | (5,256) |
Shareholders' funds | 284,230 | 233,872 |
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Net asset value per ordinary share (after deducting borrowings at book value) | 671.2p | 579.0p |
Net asset value per ordinary share (after deducting borrowings at fair value) (note 10) | 669.6p | 577.4p |
Net asset value per ordinary share (after deducting borrowings at par value) | 671.1p | 578.8p |
Ordinary shares in issue (note 11) | 42,345,497 | 40,395,497 |
Statement of changes in equity (unaudited) |
For the six months ended 31 July 2017
| Sharecapital £'000 | Sharepremium account £'000 | Capital redemption reserve £'000 | Capital reserve* £'000 | Revenue reserve £'000 | Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2017 | 4,040 | 40,094 | 21,521 | 173,473 | (5,256) | 233,872 |
Ordinary shares issued (note 11) | 195 | 12,846 | - | - | - | 13,041 |
Net return on ordinary activities after taxation | - | - | - | 37,397 | (80) | 37,317 |
Shareholders' funds at 31 July 2017 | 4,235 | 52,940 | 21,521 | 210,870 | (5,336) | 284,230 |
For the six months ended 31 July 2016
| Sharecapital £'000 | Sharepremium account £'000 | Capital redemption reserve £'000 | Capital reserve* £'000 | Revenue reserve £'000 | Shareholders' funds £'000 |
Shareholders' funds at 1 Feb 2016 | 3,778 | 25,733 | 21,521 | 117,715 | (5,357) | 163,390 |
Ordinary shares issued (note 11) | 185 | 9,843 | - | - | - | 10,028 |
Net return on ordinary activities after taxation |
- |
- |
- |
48,553 |
1 |
48,554 |
Shareholders' funds at 31 July 2016 | 3,963 | 35,576 | 21,521 | 166,268 | (5,356) | 221,972 |
* The Capital reserve includes investment holding gains of £159,020,000 (31 July 2016 - gains of £127,336,000).
Condensed Cash Flow Statement (unaudited) |
| Six months to 31 July 2017 | Six months to 31 July 2016 |
| £'000 | £'000 |
Cash flows from operating activities |
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Net return on ordinary activities before taxation | 37,474 | 48,686 |
Net gains on investments | (36,186) | (52,676) |
Currency (gains)/losses | (1,211) | 4,123 |
Finance costs of borrowings | 342 | 259 |
Overseas withholding tax | (181) | (129) |
Changes in debtors and creditors | (203) | 53 |
Cash from operations | 35 | 316 |
Interest paid | (303) | (232) |
Net cash (outflow)/inflow from operating activities | (268) | 84 |
Net cash outflow from investing activities | (30,284) | (6,725) |
Ordinary shares issued | 13,041 | 10,028 |
Bank loans drawn down | 14,403 | - |
Net cash inflow from financing activities | 27,444 | 10,028 |
(Decrease)/increase in cash and cash equivalents | (3,108) | 3,387 |
Exchange movements | (75) | 812 |
Cash and cash equivalents at start of period | 5,520 | 5,106 |
Cash and cash equivalents at end of period * | 2,337 | 9,305 |
* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.
Twenty largest equity holdings at 31 July 2017 (unaudited) |
Name |
Business | Value £'000 | % of total assets |
Start Today | Internet fashion retailer | 9,599 | 3.0 |
MonotaRO | Online business supplies | 9,415 | 2.9 |
Yume No Machi | Online meal delivery service | 8,799 | 2.7 |
Nihon M&A Center | M&A advisory services | 8,256 | 2.6 |
Seria | Discount retailer | 8,186 | 2.6 |
Harmonic Drive | Robotic components | 8,017 | 2.5 |
Cyberagent | Internet advertising and content | 7,739 | 2.4 |
GMO Payment Gateway | Online payment processing | 7,606 | 2.4 |
Infomart Corp | Internet platform for restaurant supplies | 7,346 | 2.3 |
Outsourcing | Employment placement services | 7,342 | 2.3 |
Asahi Intecc | Specialist medical equipment | 7,212 | 2.2 |
Pigeon | Baby care products | 6,814 | 2.1 |
Peptidream | Drug discovery platform | 6,608 | 2.0 |
Nippon Ceramic | Manufacturer of ultrasonic sensors | 6,439 | 2.0 |
Lifull | Real estate information service | 6,365 | 2.0 |
M3 | Online medical services | 6,347 | 2.0 |
iStyle | Cosmetics website | 6,333 | 2.0 |
IRISO Electronics | Specialist auto connectors | 6,215 | 1.9 |
Technopro Holdings | IT staffing | 5,653 | 1.8 |
Horiba | Manufacturer of measuring instruments | 5,518 | 1.7 |
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| 145,809 | 45.4 |
Notes to the condensed financial statements (unaudited) |
1. | The condensed Financial Statements for the six months to 31 July 2017 comprise the statements set out on the previous pages together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of Recommended Practice issued in November 2014 and have not been audited or reviewed by the Auditors pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 31 July 2017 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 January 2017. Going Concern The Directors have considered the nature of the Company's principal risks and uncertainties, as set out below, together with its current position, investment objective and policy, its assets and liabilities and projected income and expenditure. The Company's assets, which are primarily investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with loan covenants are reviewed by the Board on a regular basis. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. | |||
2. | The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 January 2017 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditors' Report on these accounts was not qualified, did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006. | |||
3. |
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| Six months to 31 July 2017 | Six months to 31 July 2016 |
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| £'000 | £'000 |
| Net gains on investments |
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| Gains on sales of investments |
| 6,294 | 8,308 |
| Movement in investment holdings gains |
| 29,892 | 44,368 |
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| 36,186 | 52,676 |
4. | Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder, calculated and payable quarterly. Prior to 1 September 2016 the management fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated and payable quarterly. | |||
5. | The Company suffers overseas withholding tax on its equity income, currently at the rate of 10%. | |||
6. | No interim dividend will be declared. | |||
Notes to the condensed financial statements (unaudited) (ctd) |
7. |
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| Six months to 31 July 2017 | Six months to 31 July 2016 | ||||
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| £'000 | £'000 | ||||
| Net return per ordinary share |
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| Revenue return |
| (80) | 1 | ||||
| Capital return |
| 37,397 | 48,553 | ||||
| Total return |
| 37,317 | 48,554 | ||||
| Net return per ordinary share is based on the above totals of revenue and capital and on 41,273,398 (31 July 2016 - 38,280,167) ordinary shares, being the weighted average number of ordinary shares in issue during the period. There are no dilutive or potentially dilutive shares in issue. | |||||||
8. | Fair Value 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). The Company's investments are financial assets held at fair value through profit or loss. An analysis of the Company's financial asset investments based on the fair value hierarchy described above is shown below: | |||||||
| Investments held at fair value through profit or loss | |||||||
| As at 31 July 2017 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | |||
| Listed equities | 316,702 | - | - | 316,702 | |||
| Unlisted equities | - | - | 1,579 | 1,579 | |||
| Total financial asset investments | 316,702 | - | 1,579 | 318,281 | |||
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| As at 31 January 2017 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | |||
| Listed equities | 251,680 | - | - | 251,680 | |||
| Unlisted equities | - | - | - | - | |||
| Total financial asset investments | 251,680 | - | - | 251,680 | |||
Notes to the condensed financial statements (unaudited) (ctd) |
| There have been no transfers between levels of the fair value hierarchy during the period. The fair value of listed investments is last traded price which is equivalent to the bid price on Japanese markets. Listed investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment valuation policy applies methodologies consistent with the International Private Equity and Venture Capital Valuation guidelines ('IPEV'). These methodologies can be categorised as follows: (a) market approach (price of recent investment, multiples, industry valuation benchmarks and available market prices); (b) income approach (discounted cash flows); and (c) replacement cost approach (net assets). The Company's holdings in unlisted investments are categorised as Level 3 as unobservable data is a significant input to their fair value measurements. |
9. | The amounts falling due after more than one year include bank loans of £36,636,000 (¥5.35 billion) outstanding under yen loan facilities repayable on 27 November 2020 (31 January 2017 - £23,576,000 (¥3.35 billion)). During the period an additional ¥2 billion facility was arranged with ING Bank N.V. and fully drawn down, bringing total borrowings at 31 July 2017 to ¥5.35 billion. |
10. | The fair value of the bank loans at 31 July 2017 was £37,313,000 (31 January 2017 - £24,216,000). |
11. | The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as well as to buy back shares at a discount to net asset value. During the period under review, 1,950,000 shares were issued at a premium to net asset value raising net proceeds of £13,041,000 (31 July 2016 - 1,850,000 shares raising net proceeds of £10,028,000). No shares were bought back during the period under review (31 July 2016 - nil). |
12. | Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £19,000 (31 July 2016 - £14,000) and transaction costs on sales amounted to £7,000 (31 July 2016 - £7,000). |
13. | Related party transactions There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period. |
14. | None of the views expressed in this document should be construed as advice to buy or sell a particular investment. |
Principal Risks and Uncertainties The principal risks facing the Company are financial risk, investment strategy risk, discount risk, regulatory risk, custody and depositary risk, small company risk, operational risk, leverage risk and political risk.
An explanation of these risks and how they are managed is set out on pages 6 and 7 the Company's Annual Report and Financial Statements for the year to 31 January 2017 which is available on the Company's website: www.shinnippon.co.uk‡ The principal risks and uncertainties have not changed since the date of that report.
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The Interim Financial Report will be available on www.shinnippon.co.uk ‡ and will be posted to shareholders on or around 29 September 2017.
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
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MSCI Index Data
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