Baillie Gifford Shin - Baillie Gifford Shin Nippon PLC Half Year Results
20/09/2024 07:00
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RNS Number : 9339E Baillie Gifford Shin Nippon PLC 20 September 2024
RNS Announcement
Baillie Gifford Shin Nippon PLC (BGS)
Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83
Regulated Information Classification: Interim Financial Report
The following is the unaudited Interim Financial Report for the six months to
31 July 2024 which was approved by the Board on 19 September 2024.
Over the six months to 31 July 2024, the Company's net asset value per
share† declined by 6.2% compared to a 6.0% increase in the MSCI Japan Small
Cap index*. The share price decreased by 6.0%. All figures in total return
terms.
- Since the Covid-19 pandemic, a rotation into value and cyclical
stocks has led to weak share prices across Shin Nippon's holdings, despite
strong operational performance. Higher interest rates in the US and a weak yen
have been persistent headwinds but these appear to be reversing, which is
being reflected in the recent positive share price performance of several
holdings.
- Apart from positive macro developments, there are also fundamental
factors that make small caps compelling relative to large caps in Japan. Based
on current consensus estimates for next year in sterling terms, the MSCI Japan
Small Cap Index has a lower valuation, but faster sales growth compared to the
TOPIX large cap index. Over five years to 31 July 2024, Shin Nippon has
delivered earnings growth of 6.7% p.a. compared to 2.2% p.a. for the
comparative index. Based on market estimates for the next three years, it is
expected to grow sales and earnings at 11.0% and 12.4% p.a. compared to 4.4%
and 8.0% p.a. respectively for the index.
- During the period, the share prices of our high growth internet and
software holdings performed poorly despite strong operational progress. Among
these were online real estate company GA Technologies and artificial
intelligence software company Appier.
- A range of companies performed strongly, notably Peptidream,
operator of a unique drug discovery platform, leading badminton brand Yonex,
and electric wire and cable maker SWCC Showa.
- Turnover was higher than usual at 18%, with six new holdings bought
and nine exited. Two of the holdings exited were acquired by private equity -
premium camping equipment maker Snow Peak and staffing company Outsourcing.
- The Company's share price ended the period at a 14.5% discount to
the net asset value per share. During this period, 12.2m shares, equating to
3.9% of total shares in issue at the start of the period, were bought back and
are currently held in treasury.
- The past few years have been particularly challenging for the high
growth, dynamic, smaller companies in which Shin Nippon invests. However,
there are signs of change. In addition, the portfolio's fundamentals look
attractive. Once these factors are recognised, it would not be surprising to
see a strong and sustained turnaround in performance.
† 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: LSEG/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 2024 the Company had total assets of
£493.4 million (before deduction of bank loans of £83.3million).
The Company is managed by Baillie Gifford, an Edinburgh based fund management
group with approximately £212 billion under management and advice as at 19
September 2024.
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.
19 September 2024
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 3276
Jonathon Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
Interim Financial Report for the six months to 31 July 2024
Comparative index
The index against which performance is compared is the MSCI Japan Small Cap
Index (total return and in sterling terms).
Principal risks and uncertainties
The principal risks facing the Company are financial risk, private company
(unlisted) investment risk, investment strategy risk, environmental, social
and governance risk, discount risk, regulatory risk, custody and depositary
risk, small company risk, operational risk, cyber security risk, leverage
risk, political and associated financial risk and emerging risks. An
explanation of these risks and how they are managed is set out on pages 51 to
55 of the Company's Annual Report and Financial Statements for the year to 31
January 2024 which is available on the Company's website: shinnippon.co.uk.
The principal risks and uncertainties have not changed since the date of that
report.
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 Rule 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 Rule 4.2.8R (disclosure of
related party transactions and changes therein).
On behalf of the Board
J Skinner
Chair
19 September 2024
Summary of unaudited results(*)
31 January 2024
31 July 2024 (audited) % change
Shareholders' funds £410.1m £457.8m
Net asset value per ordinary share (after deducting borrowings at fair 137.8p 147.8p (6.8)
value)(*)
Net asset value per ordinary share (after deducting borrowings at book value) 137.8p 147.8p (6.8)
Share price 117.8p 126.2p (6.7)
Comparative index(†) 6.0
Discount (borrowings at fair value)(*) 14.5% 14.6%
Discount (borrowings at book value)(*) 14.5% 14.6%
Active share(*) 96% 95%
Six months to 31 July 2024 Year to 31 January 2024
Period's high and low High Low High Low
Net asset value per ordinary share (after deducting borrowings at fair 150.4p 122.7p 177.7p 133.1p
value)(*)
Share price 126.8p 105.0p 163.8p 116.0p
Discount (borrowings at fair value)(*) 11.5% 18.6% 6.4% 14.6%
Total returns (%)(*) Six months to Year to
31 July 2024 31 January 2024
Net asset value per ordinary share (borrowings at fair value) (6.2) (14.9)
Share price (6.0) (20.5)
Comparative index (in sterling terms)(†) 6.0 6.3
Longer term total return performance at 31 July 2024(*)
3 years 5 years 10 years
Net asset value per ordinary share(#) (39.3%) (24.2%) 122.4%
Share price (49.3%) (35.9%) 82.7%
Comparative index(†) 12.1% 19.8% 130.3%
Source: LSEG/Baillie Gifford and relevant underlying index providers. See
disclaimer below.
Notes
(*) Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures below.
(†) The comparative index is the MSCI Japan Small Cap Index (total
return and in sterling terms). See disclaimer below.
(#) After deducting borrowings at fair value. See Glossary of Terms and
Alternative Performance Measures below.
Past performance is not a guide to future performance.
Interim management report
Japanese high growth small caps have endured a tough time since the end of the
COVID-19 pandemic. A rotation into value and cyclical stocks has led to weak
share prices across Shin Nippon's holdings despite strong operational
performance. In previous reports, we have noted some of the macro headwinds
responsible for this weakness and consistently maintained that these headwinds
will eventually abate. Whilst these headwinds remain, there are signs that
they are moderating.
In the six months to 31 July 2024, Shin Nippon's net asset value per share
(total return in sterling terms, after deducting borrowings at fair value)
fell by 6.2% compared to a 6.0% rise in the MSCI Japan Small Cap index. The
share price (in total return terms) declined by 6.0% and finished the period
at a 14.5% discount to the net asset value per share. During this period,
12,166,184 shares, equating to 3.9% of total shares in issue at the start of
the period, were bought back and are currently held in treasury.
It might seem odd to express enthusiasm despite continued underperformance.
Higher interest rates in the US and a weak yen have been two significant
headwinds. In both cases, there are signs of a reversal. In the short term,
this is already being reflected in Shin Nippon's absolute net asset value
total return which turned positive in the second quarter of the current
financial year, having been on a declining trend since the COVID-19 pandemic
ended.
Apart from positive macro developments, there are also fundamental factors
that make small caps compelling relative to large caps in Japan. Based on
current consensus estimates for next year in sterling terms, the MSCI Japan
Small Cap Index has a lower valuation, but faster sales growth compared to the
TOPIX large cap index. Over five years to 31 July 2024, Shin Nippon has
delivered earnings growth of 6.7% p.a. compared to 2.2% p.a. for the
comparative index. Based on market estimates for the next three years, it is
expected to grow sales and earnings at 11.0% and 12.4% p.a. compared to 4.4%
and 8.0% p.a. respectively for the index.
We recently spent five weeks in Japan meeting senior executives at 61
companies. Of these, just over half are portfolio holdings. We noted several
positives, and a few negatives, during this trip. Firstly, inbound tourism is
absolutely booming despite fewer Chinese tourists than before. As of June this
year, Japan had nearly 20 million tourists as against 25 million in 2023, and
nearly 32 million in 2019. At the current rate, Japan remains on track to
attract a record number of tourists this year. Inbound tourists tend to spend
a lot on cosmetics so this should be a strong tailwind for portfolio holdings
like MatsukiyoCocokara, a leading drugstore and cosmetics retailer. Secondly,
many Japanese companies are raising prices. A combination of market dominance
and a desire to improve profitability have emboldened management teams to
exercise their pricing power. Portfolio holdings Bengo4.com, Japan's largest
legal website, and Infomart, an online food ordering platform, have both
raised prices in recent months. And finally, artificial intelligence-based
software solutions are being used in various parts of Japan's economy.
Portfolio holding Appier is an example of a company whose artificial
intelligence-based software products are being adopted across a wide range of
end markets, leading to rapid sales and profit growth. These trends are
creating numerous growth opportunities for many of Shin Nippon's holdings.
There were also some areas of concern. Labour shortage was highlighted by
numerous companies, especially those in labour-intensive sectors like
construction and manufacturing, as the most serious headwind. These companies
are struggling to replace an ageing workforce as these sectors remain
unpopular with graduates and younger workers. However, this is providing
growth opportunities for smaller companies like construction software provider
and portfolio holding SpiderPlus which offers tools to reduce labour intensity
and improve productivity. Another common concern was China.
Historically, China has been a massive growth market for many Japanese
companies. However, a slowing economy, rising domestic competition,
geopolitical tensions, and pricing pressure have all resulted in a souring of
the "China dream" for many Japanese companies. Portfolio holdings like sensor
maker Nippon Ceramic and EV battery component maker Kohoku Kogyo are reducing
their exposure to China. The vast majority of Shin Nippon's portfolio is
invested in companies focussing mostly on the domestic Japanese market so the
impact on the portfolio from weak Chinese demand should be muted.
At the portfolio level, there were strong performances from a range of
companies. Peptidream was among the top positive contributors. Its unique drug
discovery platform, which significantly reduces the time and effort needed to
discover new drug candidates, is gaining increasing traction with large global
pharma companies. This is leading to rapid growth in high margin royalty
payments for the company. Leading badminton brand Yonex was another strong
performer. Despite a slowing Chinese economy, it is enjoying strong demand for
its products in China where badminton as a sport continues to grow in
popularity. Rising health-consciousness, broadening of its product range to
cater for beginners and intermediate players, and strong performances by Yonex
sponsored Chinese players at the recently concluded Paris Olympic and
Paralympic Games have all contributed to a bump in sales and profits. Electric
wire and cable maker SWCC Showa also performed well. The company is undergoing
significant structural reforms. Management has divested low margin and
unprofitable businesses and are focussing on growing their profitable
segments. There is also strong demand for the company's products from electric
power utilities who are in the process of upgrading Japan's ageing power
infrastructure. All of this is resulting in strong sales growth and margin
expansion for the company.
Many of our high growth internet and software holdings performed poorly
despite strong operational progress. Online real estate company GA
Technologies grew its sales by 36% and more than doubled its profits in the
first half of its current fiscal year. Yet, its shares have remained weak due
to market concerns regarding the impact on its business from rising interest
rates in Japan. It was a similar story with artificial intelligence software
company Appier. It provides tools that help companies improve end user
experience, increase customer retention, and generate better returns on
investment. In the first half of its current fiscal year, the company grew
sales by 32% and profits expanded 5-fold. Management also announced a near 1%
share buyback. Despite all this, the shares have remained weak due to the
broader high growth small cap sell-off. Another weak performer was Litalico,
Japan's leading provider of training and employment services for disabled
adults, and day care services for children with developmental disabilities.
The business has suffered in the short‑term due to changes in regulation
that have resulted in lower sales. But management have repositioned the
business to make up for lost revenue and remains confident of a strong
recovery.
We have an unusually strong pipeline of new stock ideas for the portfolio
which has meant that turnover has been higher than usual at 18%. Active share
has remained high at 96%, implying only a 4% overlap with the comparative
index. We purchased six new holdings and exited nine. Among the new buys was
Inforich, a provider of portable batteries for charging mobile phones. It has
managed to scale quickly across Japan and is now the leading provider of
portable charging stations. It has secured exclusive contracts at prime
locations like major convenience store chains, train stations, and even Tokyo
Disneyland, and is growing its sales and profits rapidly. Global Security
Experts, a cybersecurity company, was another new purchase.
Japanese companies, in general, have historically under-invested in securing
their IT infrastructure, a fact borne out by a series of recent high profile
cyber-attacks on small and large companies. As a result, capital investment in
cybersecurity solutions is rising and proving to be a strong tailwind for
Global Security Experts.
Japan's largest hospice provider Amvis was also among the new purchases.
Hospices are a new concept in Japan, a country where patients with terminal
illnesses stay far longer at hospitals compared to other developed markets.
This has resulted in extremely low turnover of patients at hospitals, which in
turn has negatively impacted their sales generating ability. In recent years,
hospices have emerged as a solution to this problem and Amvis has taken a
leading role in providing the infrastructure to care for terminally ill
patients, thereby alleviating a lot of the pressure on hospitals capacity.
Two of our holdings, premium camping equipment maker Snow Peak and staffing
company Outsourcing, were acquired by private equity. Snow Peak has been
struggling with falling sales and inventory issues in China whereas
Outsourcing has had a series of accounting scandals in recent years.
Management of both companies felt ill-equipped to resolve these issues and
hence sought help from private equity. Also sold was longstanding holding and
Japan's leading online drug marketing company M3. It has been owned in the
portfolio for almost 20 years and has been a fantastic performer over this
period, both in operational and share price terms. However, the business has
also become very diversified, complex and growth has slowed markedly. We also
sold online cosmetics retailer Kitanotatsujin. It has struggled to acquire new
clients as the market has become more competitive. Management is having to
significantly increase their advertising spend, squeezing margins in the
process.
The past few years have been particularly challenging for Shin Nippon as our
holdings have faced a perfect storm of macro headwinds. However, there are
signs of change that should work in our favour. What makes us more excited is
the fact that we start from a point where Shin Nippon's portfolio, by some
measures, trades roughly in line with the benchmark but should achieve much
faster growth. As the market and investors start acknowledging these
fundamental attractions, it would not be surprising to see a strong and
sustained turnaround in performance. Whilst we do not have a crystal ball to
gaze into and determine when this will occur, we remain focussed on our
fundamental task of identifying and investing in fast growing, dynamic,
smaller companies in Japan.
The principal risks and uncertainties facing the Company are set out at the
beginning of this report.
Valuing private companies
We aim to hold our private company investments at '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 group at Baillie Gifford,
which takes advice from an independent third party (S&P Global). The
valuations group is independent from the investment team with all voting
members being from different operational areas of the firm, and the investment
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. During stable market
conditions, and assuming all else is equal, each investment would be valued
four times in a twelve‑month period. For 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.
Beyond the regular cycle, the valuations group 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 meaningful changes to the valuation of comparable
public companies. Any ad hoc change to the fair valuation of any holding is
implemented swiftly and reflected in the next published net asset value
('NAV'). There is no delay.
The valuations group also monitors relevant market benchmarks on a weekly
basis and updates valuations in a manner consistent with our external valuer's
(S&P Global) most recent valuation report where appropriate.
List of investments as at 31 July 2024
Name Business Value % of total Absolute
£'000 assets performance (*)
%
Lifenet Insurance Online life insurance 15,969 3.2 29.8
Toyo Tanso Electronics company 13,047 2.7 18.5
Anest Iwata Manufactures compressors and painting machines 12,521 2.5 11.1
Nifco Value-added plastic car parts 12,483 2.5 (2.8)
Peptidream Drug discovery and development platform 11,984 2.4 105.3
JEOL Manufacturer of scientific equipment 11,577 2.4 (13.1)
Yonex Sporting goods 11,369 2.3 77.1
Katitas Real estate services 10,560 2.1 (0.7)
Descente Manufactures athletic clothing 10,409 2.1 12.9
Avex Group Entertainment management and distribution 10,378 2.1 4.1
Nakanishi Dental equipment 9,905 2.0 4.3
GA Technologies Interactive media and services 9,881 2.0 (19.2)
Horiba Manufacturer of measuring instruments 9,788 2.0 (2.8)
Megachips Electronic components 9,535 1.9 (13.3)
Raksul Internet based services 9,396 1.9 (5.3)
Wealthnavi Digital robo wealth-management 9,050 1.9 (22.2)
Noritsu Koki Holding company with interests in biotech and agricultural products 8,870 1.8 21.4
SWCC Electric wire and cable manufacturer 8,784 1.8 44.9
Bengo4.com Online legal consultation 8,747 1.8 (13.0)
Kohoku Kogyo Manufacturer of under sea cable lead terminals 8,708 1.8 49.8
Top 20 212,961 43.2
Sho-Bond Infrastructure reconstruction 8,485 1.7 (14.4)
Tsugami Manufacturer of automated machine tools 8,096 1.7 36.1
Nikkiso Industrial pumps and medical equipment 7,960 1.6 7.2
Shoei Manufactures motor cycle helmets 7,637 1.5 (2.7)
OSG Manufactures machine tool equipment 7,552 1.5 0.3
Cosmos Pharmaceuticals Drugstore chain 7,476 1.5 (18.2)
GMO Financial Gate Face-to-face payment terminals and processing services 7,470 1.5 (37.6)
Litalico Provides employment support and learning support services for people with 7,354 1.5 (45.2)
disabilities
Optex Infrared detection devices 7,307 1.5 (8.8)
Nittoku Coil winding machine manufacturer 7,154 1.4 (3.7)
Infomart Internet platform for restaurant supplies 7,141 1.4 (22.6)
Gojo & Company Inc Class D Preferred (§) Diversified financial services 6,999 1.4 2.8
MatsukiyoCocokara Retail company 6,988 1.4 (11.7)
Technopro IT staffing 6,865 1.4 (17.6)
Kitz Industrial valve manufacturer 6,532 1.3 (10.1)
Seria Discount retailer 6,512 1.3 22.5
Vector PR company 6,438 1.3 (18.8)
Torex Semiconductor Semiconductor company 6,426 1.3 9.3
Appier Group Software as a service company providing AI platforms 6,376 1.3 (32.4)
Cybozu Develops and markets internet and intranet application software for businesses 6,202 1.3 (22.4)
SIIX Out-sources overseas production 6,157 1.2 (21.2)
Anicom Pet insurance provider 6,093 1.2 12.2(†)
I-Ne Hair care range 6,008 1.2 (31.4)
Spiber (§) Textiles 5,945 1.2 (3.7)
Asahi Intecc Specialist medical equipment 5,878 1.2 (18.5)
Oisix Organic food website 5,866 1.2 (6.3)
Inforich Software company 5,431 1.1 (9.9)(†)
Harmonic Drive Systems Robotic components 5,392 1.1 10.7
SpiderPlus Construction project management platform 5,330 1.1 (32.1)
Inter Action Semiconductor equipment 4,878 1.0 19.7
Kumiai Chemical Specialised agrochemicals manufacturer 4,861 1.0 (9.1)
JEPLAN (§) Chemical PET recycling 4,704 1.0 (12.4)
eGuarantee Guarantees trade receivables 4,495 0.9 (25.7)
Gift Food industry operator and distributor 4,129 0.8 (10.5)(†)
KH Neochem Chemical manufacturer 4,037 0.8 (4.6)
oRo Develops and provides enterprise planning software 3,919 0.8 (16.1)
Iriso Electronics Specialist auto connectors 3,841 0.8 (13.5)
Kamakura Shinso Information processing company 3,735 0.8 (31.9)
GMO Payment Gateway Online payment processing 3,519 0.7 (9.5)
Global Security Experts Cyber security company 3,398 0.7 13.9(†)
Nippon Ceramic Electronic component manufacturer 3,386 0.7 (10.9)
Jade Group Ecommerce services provider 3,286 0.7 (2.5)
MonotaRO Online business supplies 3,045 0.6 46.0
Shima Seiki Machine industry company 3,004 0.6 9.4
Cellsource Company engaged in regenerative medicine 2,960 0.6 20.3
Istyle Beauty product review website 2,932 0.6 2.1
Amvis Health care services 2,913 0.6 26.0(†)
Crowdworks Crowd sourcing services 2,808 0.6 (24.4)
Weathernews Weather information services 2,664 0.5 4.4
Soracom Networking software provider 2,384 0.5 47.0(†)
Moneytree K.K. Class B Preferred (§) AI based fintech platform 1,252 0.3 (10.6)
Demae-Can Online meal delivery service 1,234 0.3 (42.0)
Daikyonishikawa Automobile part manufacturer 917 0.2 (8.1)
Total investments 486,332 98.6
Net liquid assets(#) 7,096 1.4
Total assets(‡) 493,428 100.0
Bank loans (83,302) (16.9)
Shareholders' funds 410,126 83.1
(*) Absolute performance is in sterling terms and has been calculated on
a total return basis over the period 1 February 2024 to 31 July 2024.
(§) Private company (unlisted) investment.
(†) Figures relate to part period returns where the investment has
been purchased in the period.
(#) See Glossary of Terms and Alternative Performance Measures below.
‡ Total assets less current liabilities, before deduction of borrowings.
See Glossary of Terms and Alternative Performance Measures below.
Source: Baillie Gifford/Revolution and relevant underlying data providers. See
disclaimer below.
Income statement (unaudited)
For the six months to 31 July 2024 For the six months ended 31 July 2023 For the year ended 31 January 2024 (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Net losses on investments 3 - (34,665) (34,665) - (65,599) (65,599) - (97,913) (97,913)
Currency gains - 2,891 2,891 - 11,510 11,510 - 13,058 13,058
Income from investments 3,557 - 3,557 4,225 - 4,225 8,870 - 8,870
Investment management fee 4 (1,269) - (1,269) (1,521) - (1,521) (2,878) - (2,878)
Other administrative expenses (308) - (308) (310) - (310) (628) - (628)
Net return before finance costs and taxation 1,980 (31,774) (29,794) 2,394 (54,089) (51,695) 5,364 (84,855) (79,491)
Finance cost of borrowings (709) - (709) (713) - (713) (1,533) - (1,533)
Net return on ordinary activities before taxation 1,271 (31,774) (30,503) 1,681 (54,089) (52,408) 3,831 (84,855) (81,024)
Tax on ordinary activities 5 (356) - (356) (422) - (422) (887) - (887)
Net return on ordinary activities after taxation 915 (31,774) (30,859) 1,259 (54,089) (52,830) 2,944 (84,855) (81,911)
Net return per ordinary share 6 0.30p (10.51p) (10.21p) 0.40p (17.24p) (16.84p) 0.94p (27.13p) (26.19p)
Note: 7 - - 0.80p
Dividends paid and payable per share
The accompanying notes below are an integral part of the Financial Statements.
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)
Notes At 31 July At 31 January
2024 2024
£'000 (audited)
£'000
Fixed assets
Investments held at fair value through profit or loss 8 486,332 539,701
Current assets
Debtors 5,682 3,521
Cash and cash equivalents 5,484 2,965
11,166 6,486
Creditors
Amounts falling due within one year 9 (87,372) (88,395)
Net current liabilities (76,206) (81,909)
Total assets less current liabilities 410,126 457,792
Creditors
Amounts falling due after more one year 9 - -
Net assets 410,126 457,792
Capital and reserves
Share capital 6,285 6,285
Share premium account 260,270 260,270
Capital redemption reserve 21,521 21,521
Capital reserve 120,955 167,114
Revenue reserve 1,095 2,602
Shareholders' funds 410,126 457,792
Net asset value per ordinary share (after deducting borrowings at book value) 137.8p 147.8p
Ordinary shares in issue 11 297,591,301 309,757,485
Statement of changes in equity (unaudited)
For the six months ended 31 July 2024
Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve (*) reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 February 2024 6,285 260,270 21,521 167,114 2,602 457,792
Ordinary shares bought back into treasury - - - (14,385) - (14,385)
Net return on ordinary activities after taxation - - - (31,774) 915 (30,859)
Equity dividends paid in the year - - - - (2,422) (2,422)
Shareholders' funds at 31 July 2024 6,285 260,270 21,521 120,955 1,095 410,126
For the six months ended 31 July 2023
Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve (*) reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 February 2023 6,285 260,270 21,521 257,719 (342) 545,453
Ordinary shares bought back into treasury - - - (1,604) - (1,604)
Net return on ordinary activities after taxation - - - (54,089) 1,259 (52,830)
Shareholders' funds at 31 July 2023 6,285 260,270 21,521 202,026 917 491,019
(*) The Capital reserve includes investment holding losses of
£30,383,000 (31 July 2023 - losses of £6,551,000).
Condensed cash flow statement (unaudited)
Six months to Six months to
31 July 31 July
2024 2023
£'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation (30,503) (52,408)
Net losses on investments 34,665 65,599
Currency gains (2,891) (11,510)
Finance costs of borrowings 709 713
Overseas withholding tax (472) (557)
Changes in debtors and creditors 830 1,182
Cash from operations 2,338 3,019
Interest paid (711) (687)
Net cash inflow from operating activities 1,627 2,332
Net cash inflow/(outflow) from investing activities 17,992 (15,530)
Ordinary shares bought back into treasury and stamp duty thereon (14,385) (1,604)
Bank loans drawn down - 12,313
Equity dividends paid (2,422) -
Net cash (outflow)/inflow from financing activities (16,807) 10,709
Increase/(decrease) in cash and cash equivalents 2,812 (2,489)
Exchange movements (293) (802)
Cash and cash equivalents at start of period 2,965 6,946
Cash and cash equivalents at end of period(*) 5,484 3,655
(*) Cash and cash equivalents represent cash at bank and deposits
repayable on demand.
Notes to the financial statements (unaudited)
1. Basis of accounting
The condensed Financial Statements for the six months to 31 July 2024 comprise
the statements set out above together with the related notes below. They have
been prepared in accordance with FRS 104 'Interim Financial Reporting' and the
principles of the AIC's Statement of Recommended Practice issued in November
2014 and updated in July 2022 with consequential amendments and have not been
audited or reviewed by the Auditor pursuant to the Auditing Practices Board
Guidance on 'Review of Interim Financial Information'. The Financial
Statements for the six months to 31 July 2024 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 2024.
Going concern
The Directors have considered the nature of the Company's principal risks and
uncertainties, as set out at the beginning of this report, together with its
current position, investment objective and policy, its assets and liabilities
and projected income and expenditure. The Board has, in particular, considered
the impact of heightened market volatility owing to macroeconomic and
geopolitical concerns and reviewed the results of specific leverage and
liquidity stress testing, but does not believe the Company's going concern
status is affected. The Company's assets, which are primarily investments in
quoted securities which are readily realisable (Level 1), exceed its
liabilities significantly and could be sold to repay borrowings if required.
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.
The Company has continued to comply with the investment trust status
requirements of section 1158 of the Corporation Tax Act 2010 and the
Investment Trust (Approved Company) Regulations 2011. 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. Financial information
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
2024 has been extracted from the statutory accounts which have been filed with
the Registrar of Companies. The Auditor's Report on these accounts was not
qualified, did not include a reference to any matters to which the Auditor
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. Net losses on investments
Six months Six months Year to
to 31 July to 31 July 31 January
2024 2023 2024
£'000 £'000 £'000
(Losses)/gains on sales of investments (28,129) 1,648 (13,370)
Changes in investment holding losses/gains (6,536) (67,247) (84,543)
(34,665) (65,599) (97,913)
4. Investment manager
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 0.75% 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.
5. Tax
The Company suffers overseas withholding tax on its equity income, currently
at the rate of 10%.
6. Net return per ordinary share
Six months to Six months to Year to 31 January
31 July 2024 31 July 2023 2024 (audited)
£'000 £'000 £'000
Revenue return 915 1,259 2,944
Capital return (31,774) (54,089) (84,855)
Total return (30,859) (52,830) (81,911)
Weighted average number of ordinary shares in issue 302,470,410 313,792,816 312,785,827
Net return per ordinary share is based on the above totals of revenue and
capital and the weighted average number of ordinary shares in issue during the
period. There are no dilutive or potentially dilutive shares in issue.
7. Dividends
Six months to Six months to Year to 31 January
31 July 2024 31 July 2023 2024 (audited)
£'000 £'000 £'000
Amounts recognised as distributions in the period:
Previous year's final dividend of 0.80p (31 January 2023 - nil), paid 18 April 2,422 - -
2024
Amounts paid and payable in respect of the period:
Final dividend (31 January 2024 - 0.80p) - - 2,422
No interim dividend has been declared in respect of the current period.
8. Fair value financial assets
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. In accordance with FRS 102, an analysis of the Company's
financial asset investments based on the fair value hierarchy described above
is shown below.
As at 31 July 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 467,432 - - 467,432
Private company (unlisted) securities - - 18,900 18,900
Total financial asset investments 467,432 - 18,900 486,332
As at 31 January 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 519,949 - - 519,949
Private company (unlisted) securities - - 19,752 19,752
Total financial asset investments 519,949 - 19,752 539,701
There have been no transfers between levels of the fair value hierarchy during
the period. The fair value of listed security investments is bid value, or in
the case of certain recognised overseas exchanges, last traded prices. 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. Private company (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' private company valuation
policy applies methodologies consistent with the International Private Equity
and Venture Capital Valuation guidelines 2022 ('IPEV'). The techniques applied
are predominantly market-based approaches. The market-based approaches
available under IPEV are set out below:
• Multiples;
• Industry Valuation Benchmarks; and
• Available Market Prices.
Further information on the private company (unlisted) valuation process is
provided on above.
The Company's holdings in private company (unlisted) investments are
categorised as Level 3 as unobservable
data is a significant input to their fair value measurements.
9. Financial liabilities
The amounts falling due within one year include bank loans of £83,302,000
(¥16.1 billion) outstanding under yen loan facilities repayable on 8 November
2024 and 18 December 2024 and the revolving credit facilities repayable on a
three monthly basis (31 January 2024 - bank loans of £86,475,000 (¥16.1
billion)).
10. Fair value financial liabilities
The fair value of the bank loans at 31 July 2024 was £83,299,000 (31 January
2024 - £86,445,000).
11. Share capital
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, no shares were issued (31 July
2023 - nil) and 12,166,184 shares were bought back and held in treasury at a
cost of £14,385,000 (31 July 2023 - £1,604,000).
12. Transaction costs
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 £26,000
(six months to 31 July 2023 - £23,000; year to 31 January 2024 - £39,000)
and transaction costs on sales amounted to £24,000 (six months to 31 July
2023 - £14,000; year to 31 January 2024 - £31,000).
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.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
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).
Shareholders' funds and 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 note 9 above.
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 in note 10
above.
31 July 2024 31 January 2024
Net Asset Value per ordinary share (borrowings at book value) 137.8p 147.8p
Shareholders' funds (borrowings at book value) £410,126,000 £457,792,000
Add: book value of borrowings £83,302,000 £86,475,000
Less: fair value of borrowings (£83,299,000) (£86,445,000)
NAV (borrowings at fair value) £410,129,000 £457,822,000
Shares in issue at period end 297,591,301 309,757,485
NAV per ordinary share (borrowings at fair value) 137.8p 147.8p
Net liquid assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/premium (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.
31 July 2024 31 July 2024 31 January 2024 31 January 2024
NAV (book) NAV (fair) NAV (book) NAV (fair)
Closing NAV per share 137.8p 137.8p 147.8p 147.8p
Closing share price 117.8p 117.8p 126.2p 126.2p
Discount 14.5% 14.5% 14.6% 14.6%
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. In periods where
no dividend is paid the total return equates to the capital return.
As at As at As at As at
31 July 31 July 31 January 31 January
2024 2024 2024 2024
NAV (fair) Share price NAV (fair) Share price
Closing NAV per share/share price (a) 137.8p 117.8p 147.8p 126.2p
Dividend adjustment factor(*) (b) 1.0059 1.0070 - -
Adjusted closing NAV per share/share price (c) = (a) x (b) 138.6p 118.6p 147.8p 126.2p
Opening NAV per share/share price (d) 147.8p 126.2p 173.7p 158.8p
Total return for the six months/year (c) ÷ (d) -1 (6.2%) (6.0%) (14.9%) (20.5%)
(*) The dividend adjustment factor is calculated on the assumption that
the final dividend of 0.80p paid by the Company during the period in respect
of the year to 31 January 2024 was reinvested into shares of the Company at
the cum income NAV per share/share price, as appropriate, at the ex-dividend
date.
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).
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.
Gross gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
31 July 2024 31 January 2024
Gearing (*) Gross Gearing (†) Gearing (*) Gross Gearing (†)
£'000 £'000 £'000 £'000
Borrowings (a) 83,302 83,302 86,475 86,475
Cash and cash equivalents (b) 5,484 - 3,596 -
Shareholders' funds (c) 410,126 410,126 457,792 457,792
19.0% 20.3% 18.1% 18.9%
(*) Gearing: ((a) - (b)) ÷ (c), expressed as a percentage.
(†) Gross gearing: (a) ÷ (c), expressed as a percentage.
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers ('AIFM')
Directive, 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 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.
Private (unlisted) company
A private (unlisted) company means a company whose shares are not available to
the general public for trading and not listed on a stock exchange.
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