REG - Baillie Gifford Shin - Annual Financial Report
12/04/2024 14:45
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RNS Number : 4953K Baillie Gifford Shin Nippon PLC 12 April 2024
Baillie Gifford Shin Nippon PLC (BGS)
Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the statement of audited annual results announced to the Stock
Exchange on 25 March 2024, Baillie Gifford Shin Nippon PLC ("the Company")
announces that the Company's Annual Report and Financial Statements for the
year ended 31 January 2024, including the Notice of Annual General Meeting,
has today been posted to shareholders and submitted electronically to the
National Storage Mechanism where it will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
It is also available on the Company page of the Baillie Gifford website at:
shinnippon.co.uk (http://www.shinnippon.co.uk) (as is the statement of audited
annual results announced by the Company on 25 March 2024).
Responsibility Statement of the Directors in respect of the Annual Financial
Report
The Directors confirm that, to the best of their knowledge:
¾ the Financial Statements set out in the Annual Report and Financial
Statements, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities, financial
position and net return of the Company;
¾ the Strategic report/Directors' report set out in the Annual Report and
Financial Statements includes a fair review of the development and performance
of the business and the position of the Company, together with a description
of the principal risks and uncertainties that the Company and business faces
(as also set out below); and
¾ the Annual Report and Financial Statements taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Principal and emerging risks relating to the Company
As explained on pages 75 and 76 of the Annual Report and Financial Statements
there is a process for identifying, evaluating and managing the risks faced by
the Company on a regular basis. The Directors have carried out a robust
assessment of the principal and emerging risks facing the Company, including
those that would threaten its business model, future performance, regulatory
compliance, solvency or liquidity. There have been no material changes to the
principal risks during the year. A description of these risks and how they are
being managed or mitigated is set out below.
The Board considers the heightened macroeconomic and geopolitical concerns to
be factors which exacerbate existing risks, rather than discrete risks, within
the context of an investment trust. Their impact is considered within the
relevant risks.
What is the risk? How is it managed? Current assessment of risk
Financial risk: The Company's assets consist mainly of listed securities The Board has, in particular, considered the impact of heightened market Market risk is increasing due to increased volatility as a result of
(96.3% of the investment portfolio) and its principal financial risks are volatility during recent months due to macroeconomic factors such as higher heightened macroeconomic and geopolitical concerns.
therefore market related and include market risk (comprising currency risk, inflation, interest rates and geopolitical concerns. To mitigate this risk the
interest rate risk and other price risk), liquidity risk and credit risk. An Board considers at each meeting various portfolio metrics including individual
explanation of those risks and how they are managed is contained in note 19 to stock performance and weightings, the top and bottom contributors to
the Financial Statements on pages 109 to 115 of the Annual Report and performance and relative sector weightings against the comparative index. The
Financial Statements. portfolio manager provides rationale for stock selection decisions. A
comprehensive strategy meeting is held annually to facilitate challenge of the
Company's strategy. The Board has considered the potential impact on the
yen/sterling exchange rate of various geopolitical events. The value of the
Company's investment portfolio would be affected by any impact, positively or
negatively, on sterling but would be partially offset by the effect of
exchange movements on the Company's yen denominated borrowings.
What is the risk? How is it managed? Current assessment of risk
Private company (unlisted) investment risk: The Company's liquidity risk could To mitigate this risk, the Board considers the private company securities in There has been no change to the number of private company investments during
be increased by its investment in private company securities. These assets may the context of the overall investment strategy and provides guidance to the the period.
be more difficult to buy or sell, so changes in their prices may be greater Managers on the maximum exposure to private company securities. The investment
than for quoted investments. policy limits the amount which may be invested in private company securities
to 10% of the total assets of the Company in aggregate, measured at the time
of investment.
What is the risk? How is it managed? Current assessment of risk
Investment strategy risk: Pursuit of an investment strategy to fulfil the To mitigate this risk, the Board regularly reviews and monitors the Company's This risk is increasing as the market's appetite for growth stocks, typically
Company's objective which the market perceives to be unattractive or objective and investment policy and strategy, the investment portfolio and its held by the Company, has decreased during the recent period of heightened
inappropriate, or the ineffective implementation of an attractive or performance, the level of discount/premium to net asset value at which the macroeconomic and geopolitical concern.
appropriate strategy, may lead to reduced returns for shareholders and, as a shares trade and movements in the share register and raises any matters of
result, a decreased demand for the Company's shares. This may lead to the concern with the Managers.
Company's shares trading at a widening discount to their net asset value.
What is the risk? How is it managed? Current assessment of risk
Environmental, social and governance risk: Perceived problems on This is mitigated by the Managers' strong ESG stewardship and engagement The Manager continues to employ strong ESG stewardship and engagement
environmental, social and governance ('ESG') matters in an investee company policies which are available to view on the Managers' website, policies.
could lead to that company's shares being less attractive to investors, bailliegifford.com
adversely affecting its share price, in addition to potential valuation issues (https://www.bailliegifford.com/en/uk/individual-investors/insights/ic-video/2023-q3-us-growth-trust-manager-insights-10035543/)
arising from any direct impact of the failure to address the ESG weakness on , and which have been reviewed and endorsed by the Company, and which have
the operations or management of the investee company (for example in the event been fully integrated into the investment process as well as the extensive
of an industrial accident or spillage). Repeated failure by the Managers to up-front and ongoing due diligence which the Manager undertakes on each
identify ESG weaknesses in investee companies could lead to the Company's own investee company. Due diligence includes assessment of the risks inherent in
shares being less attractive to investors, adversely affecting its own share climate change (see page 77 of the Annual Report and Financial Statements).
price.
What is the risk? How is it managed? Current assessment of risk
Discount risk: The discount/premium at which the Company's shares trade To manage this risk, the Board monitors the level of discount/premium at The Company's discount widened during the year. Over the year to 31 January
relative to its net asset value can change. The risk of a widening discount is which the shares trade and the Company has authority to buy back its existing 2024 and the Company bought back 4,395,000 shares to be held in treasury. The
that it may undermine investor confidence in the Company and shareholders shares, when deemed by the Board to be in the best interests of the Company Board continue to closely monitor the discount and the impact of the current
selling their shares will get less than the net asset value of those shares. and its shareholders. buyback programme being deployed.
What is the risk? How is it managed? Current assessment of risk
Regulatory risk: Failure to comply with applicable legal and regulatory To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and All control procedures are working effectively. There have been no material
requirements such as the tax rules for investment trust companies, the FCA Compliance departments provide regular reports to the Audit Committee on regulatory changes that have impacted the Company during the year.
Listing Rules and the Companies Act could lead to suspension of the Company's Baillie Gifford's monitoring programmes. Major regulatory change could impose
Stock Exchange listing, financial penalties, a qualified audit report or the disproportionate compliance burdens on the Company. In such circumstances
Company being subject to tax on capital gains. representation is made to ensure that the special circumstances of investment
trusts are recognised. Shareholder documents and announcements, including the
Company's published Interim and Annual Report and Financial Statements, are
subject to stringent review processes and procedures are in place to ensure
adherence to the Transparency Directive and the Market Abuse Directive with
reference to inside information.
What is the risk? How is it managed? Current assessment of risk
Custody and depositary risk: Safe custody of the Company's assets may be To mitigate this risk, the Audit Committee receives six-monthly reports from All control procedures are working effectively.
compromised through control failures by the Depositary, including breaches of the Depositary confirming safe custody of the Company's assets held by the
cyber security. Custodian. Cash and portfolio holdings are independently reconciled to the
Custodian's records by the Managers who also agree uncertificated private
portfolio holdings to confirmations from investee companies. The Custodian's
audited internal controls reports are reviewed by Baillie Gifford's Business
Risk department and a summary of the key points is reported to the Audit
Committee and any concerns investigated.
What is the risk? How is it managed? Current assessment of risk
Small company risk: The Company has investments in smaller companies which are To mitigate this risk, the Board reviews the investment portfolio at each No change in small company risk.
generally considered higher risk as changes in their share prices may be meeting and discusses the investment case and portfolio weightings with the
greater and the shares may be harder to sell. Smaller companies may do less Managers. A spread of risk is achieved by holding a minimum of 40 companies
well in periods of unfavourable economic conditions. and the relative industry weightings against the comparative index are
considered at each Board meeting.
What is the risk? How is it managed? Current assessment of risk
Operational risk: Failure of Baillie Gifford's systems or those of other third To mitigate this risk, Baillie Gifford has a comprehensive business continuity All control procedures are working effectively.
party service providers could lead to an inability to provide accurate plan which facilitates continued operation of the business in the event of a
reporting and monitoring or a misappropriation of assets. service disruption. The Audit Committee reviews Baillie Gifford's Report on
Internal Controls and reports by other key third party providers are reviewed
by Baillie Gifford on behalf of the Board and a summary of the key points is
reported to the Audit Committee and any concerns investigated. The other key
third party service providers have not experienced significant operational
difficulties affecting their respective services to the Company.
What is the risk? How is it managed? Current assessment of risk
Cyber security risk: A cyber attack on Baillie Gifford's network or that of a To mitigate this risk, the Audit Committee reviews Reports on Internal All control procedures are working effectively.
third party service provider could impact the confidentiality, integrity or Controls published by Baillie Gifford and other third party service providers.
availability of data and systems. Baillie Gifford's Business Risk Department report to the Audit Committee on
the effectiveness of information security controls in place at Baillie Gifford
and its business continuity framework. Cyber security due diligence is
performed by Baillie Gifford on third party service providers which includes a
review of crisis management and business continuity frameworks.
What is the risk? How is it managed? Current assessment of risk
Leverage risk: The Company may borrow money for investment purposes. If the To mitigate this risk, all borrowings require the prior approval of the Board The ¥5,000 million and ¥2,100 million fixed
investments fall in value, any borrowings will magnify the impact of this and leverage levels are discussed by the Board and Managers at every meeting.
loss. If borrowing facilities are not renewed, the Company may have to sell Covenant levels are monitored regularly. The majority of the Company's rate facilities mature on 8 November 2024 and
investments to repay borrowings. The Company can also make use of derivative investments are in quoted securities that are readily realisable. Further
contracts. information 18 December 2024. The Company's revolving credit facilities can be repaid with
no penalties, should the decision be taken to reduce gearing. Gearing has
on leverage can be found on page 124 and the Glossary of terms and Alternative increased during
Performance Measures on pages 129 to 132 of the Annual Report and Financial
Statements. the year due to the draw down of the ¥2,000 million revolving credit facility
on 3 March 2023.
What is the risk? How is it managed? Current assessment of risk
Political and associated economic risk: The Board is of the view that Political developments are closely monitored and considered by the Board. The This risk is increasing as governments and
political change in areas in which the Company invests or may invest may have Board has particular regard to macroeconomic and geopolitical tensions, and
financial consequences for the Company. monitors portfolio diversification by revenue stream where appropriate to consumers around the world continue to assess the impact of geopolitical and
mitigate against the negative impact of military action or trade barriers. macroeconomic tensions.
Emerging risks: As explained on pages 75 and 76 of the Annual Report and
Financial Statements, the Board has regular discussions on principal risks and
uncertainties, including any risks which are not an immediate threat but could
arise in the longer term. The Board considers that the key emerging risks
arise from the interconnectedness of global economies and the related exposure
of the investment portfolio to external and emerging threats such as the
societal and financial implications of escalating geopolitical tensions, cyber
security risks including developing AI and quantum computing capabilities, and
new coronavirus variants or similar public health threats. This is mitigated
by the Managers' close links to the investee companies and their ability to
ask questions on contingency plans. The Managers believe the impact of such
events may be to slow growth rather than to invalidate the investment
rationale over the long term.
Baillie Gifford & Co Limited
Company Secretaries
12 April 2024
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