REG - Baillie Gifford Shin - Annual Financial Report
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RNS Number : 2343A Baillie Gifford Shin Nippon PLC 13 April 2026
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 31 March 2026, Baillie Gifford Shin Nippon PLC ("the Company")
announces that the Company's Annual Report and Financial Statements for the
year ended 31 January 2026, 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 31 March 2026).
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 72 and 73 of the Annual Report and Financial Statements,
there is an ongoing process for identifying, evaluating and managing the risks
faced by the Company. 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.
In light of the forthcoming requirements of Provision 29 of the revised UK
Corporate Governance Code (and Provision 34 of the AIC Code), the Board has
undertaken a review of the Company's risk framework during the year. This
review has focused on identifying the Company's material risks, being those
risks which could have the most significant impact on the Company's ability to
achieve its investment objective and continue in operation.
As a result, the Board has rationalised and consolidated its risk disclosures
into a smaller number of clearly defined material risks. This consolidation
reflects the interrelated nature of a number of previously disclosed risks,
particularly where macroeconomic and geopolitical factors act as amplifiers of
underlying investment risks, rather than representing standalone risks.
The Board considers that the following represent the Company's material risks.
These will form the basis for the Board's future assessment of the
effectiveness of the Company's material controls.
What is the risk? How is it managed? Current assessment of risk
Financial Risk: The Company's assets consist mainly of listed securities (98% The Board considers at each meeting various portfolio metrics including ─ Risk level: High
of the investment portfolio) and its principal financial risks are therefore individual stock performance and weightings, the top and bottom contributors
market related. These include market risk (comprising currency risk, interest to performance and relative sector weightings against the comparative index. This risk remains high given continued market volatility, ongoing
rate risk and other price risk), liquidity risk and credit risk. The portfolio managers provide rationale for stock selection decisions and macroeconomic and geopolitical uncertainty and the sensitivity of smaller
portfolio positioning. companies to these conditions.
The Company's investment strategy, including its focus on smaller companies,
may result in increased volatility and periods of underperformance relative to The Board undertook a comprehensive review of the Company's investment
the comparative index. Smaller companies are typically more sensitive to strategy in November 2024, following which a number of changes were
market sentiment and macroeconomic shocks. Macroeconomic and geopolitical implemented, including the appointment of a new lead portfolio manager and
developments, including heightened global instability, as well as deputy portfolio manager and refinements to portfolio construction. The Board
climate-related factors such as the physical impacts of climate change and the continues to monitor the effectiveness of these changes closely.
transition to a lower-carbon economy, may exacerbate these risks.
The Board has also taken steps to address shareholder concerns and
The Company also has exposure to private company investments, which may be performance-related outcomes, including the introduction of a tender offer in
more difficult to value and realise. During the year, Moneytree was taken over 2026, a continuation vote in 2028 and a performance-triggered tender offer in
and Spiber was written down to zero, reducing the Company's ongoing exposure 2030.
to private company investments.
The Board considers the impact of currency movements, particularly in relation
to yen/sterling exchange rates, and the interaction between portfolio assets
and yen-denominated borrowings.
Private company investment risk is mitigated through limits on exposure,
frequent independent valuation processes and detailed Board review. The
Company's investment policy limits exposure to private companies to 10% of
total assets at the time of investment.
What is the risk? How is it managed? Current assessment of risk
Discount risk: The discount at which the Company's shares trade relative to To manage this risk, the Board monitors the level of discount/premium at which ↓ Risk level: Moderate
its net asset value can change. A widening discount may undermine investor the shares trade, movements in the share register and investor sentiment
confidence and result in shareholders receiving less than the underlying net towards the Company and the wider investment trust sector. This risk is considered to be reducing. The Company's discount decreased from
asset value when selling their shares.
14.6% to 7.5% over the year to 31 January 2026, reflecting improved market
The Board has authority to buy back shares where considered to be in the best conditions and the positive impact of share buybacks and other measures
There is also an increased risk of activist shareholder activity within the interests of shareholders. Over the year to 31 January 2026, the Company implemented by the Board. While the risk of discount volatility remains, the
investment trust sector, which may seek to influence strategy, capital bought back approximately 34.2 million shares (2025 - 30.3 million), which are actions taken during the year have strengthened the Company's position in
allocation or corporate structure. Such activity may increase share price held in treasury. managing this risk.
volatility, create uncertainty for shareholders and divert the Board's time
and focus away from the oversight of the Company's long-term investment The Board has also implemented measures to provide shareholder liquidity and
strategy and performance. address discount-related concerns, including the 15% tender offer completed in
March 2026. The Board continues to engage actively with shareholders and to
consider appropriate measures to address any sustained discount.
What is the risk? How is it managed? Current assessment of risk
Regulatory risk: Failure to comply with applicable legal and regulatory Baillie Gifford's Business Risk, Internal Audit and Compliance departments ─ Risk level: Low
requirements such as the tax rules for investment trust companies, the FCA provide regular reports to the Audit Committee on monitoring programmes and
Listing Rules and the Companies Act could lead to suspension of the Company's regulatory compliance. This risk is considered to be unchanged. All control procedures continue to
Stock Exchange listing, financial penalties or loss of investment trust
operate effectively.
status. Shareholder documents and announcements, including the Annual and Interim
Reports, are subject to robust internal review processes to ensure compliance
with relevant regulations. Procedures are also in place to ensure adherence to
the Market Abuse Regulation and Disclosure Guidance and Transparency Rules.
Where appropriate, representations are made in respect of regulatory
developments to ensure that the interests of investment trusts are recognised.
What is the risk? How is it managed? Current assessment of risk
Third party service provider risk: The Company relies on third party service The Board has delegated the design, implementation and operation of internal ─ Risk level: Low
providers, including the Managers, depositary, custodian and registrar, for controls to the Managers and Secretaries but retains overall responsibility
the provision of key operational, administrative and safeguarding functions. for oversight. This risk is considered to be unchanged, and all control procedures are
Failure of these providers' systems or controls could lead to an inability to
operating effectively.
provide accurate reporting and monitoring or result in loss or Baillie Gifford & Co conducts an annual review of its system of internal
misappropriation of assets. controls, documented in an ISAE 3402 report which is independently reviewed by
its auditor. This report is reviewed by Baillie Gifford's Business Risk
Custody of the Company's assets may be compromised through control failures at Department, with a summary of key findings reported to the Audit Committee.
the depositary, custodian or registrar. The Audit Committee also has access to the full report and the opportunity to
review and challenge its contents.
The custodian, depositary and registrar provide regular reports on their
control environments, including the safekeeping of assets and maintenance of
shareholder records, and independently audited internal controls reports.
These are reviewed by Baillie Gifford's Business Risk Department and reported
to the Audit Committee, with any issues investigated.
The Company's assets are subject to independent reconciliation and
verification procedures, including confirmation of holdings with the custodian
and investee companies, and are also subject to annual external audit.
The Board considers the resilience and performance of all key service
providers on an ongoing basis and believes that alternative providers could be
engaged if required.
What is the risk? How is it managed? Current assessment of risk
Cyber security risk: A cyber attack on the systems of Baillie Gifford or the The Audit Committee receives regular reporting from Baillie Gifford's Business ↑ Risk level: Moderate
Company's third party service providers could compromise the confidentiality, Risk Department on the effectiveness of information security controls and the
integrity or availability of data and systems, potentially resulting in broader cyber security framework.
operational disruption, financial loss or reputational damage.
Cyber security due diligence is performed on key third party service This risk is considered to be increasing due to the evolving threat landscape,
The evolving nature of cyber threats, including increased sophistication of providers, including assessment of their information security controls, crisis heightened geopolitical tensions and the increasing sophistication of cyber
attacks and the emergence of new technologies such as artificial intelligence, management procedures and business continuity arrangements. threats.
may increase the likelihood and potential impact of cyber incidents. In
addition, the continued use of hybrid working arrangements may increase Baillie Gifford maintains comprehensive business continuity and disaster
exposure to cyber risks. recovery plans which are designed to ensure the continued operation of systems
and processes in the event of a disruption or cyber incident.
What is the risk? How is it managed? Current assessment of risk
Leverage risk: The Company may borrow money for investment purposes. If the All borrowings require prior approval of the Board and gearing levels are ─ Risk level: Moderate
value of investments falls, any borrowings will magnify the impact of these discussed at each Board meeting. Compliance with loan covenants is monitored
losses. There is also a risk that borrowing facilities may not be renewed or regularly. This risk is considered to be stable.
that covenant requirements may not be met, requiring the Company to sell
investments to repay borrowings. Details of the Company's borrowing facilities are set out in note 11 to the
Financial Statements. The Company's revolving credit facility with Bank of
America matures in November 2027 and provides flexibility in managing gearing
levels.
The majority of the Company's investments are in quoted securities which are
readily realisable and could be sold to repay borrowings if required.
Gearing levels reduced during the year from 16% to 15%, reflecting a reduction
in borrowings and active management of the balance sheet.
Further information on leverage is provided on page 120 and in the Glossary of
terms and Alternative Performance Measures on pages 125 to 128 of the Annual
Report and Financial Statements.
Emerging risk: The Board also considers emerging risks, being those that may
not have an immediate impact but could arise over 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 capabilities, and potential future public health threats.
The Board monitors these risks on an ongoing basis and considers their
potential impact within the context of the material risks outlined above.
↑ Increasing Risk ↓ Decreasing Risk ─ Stable Risk Baillie Gifford & Co Limited
Company Secretaries
13 April 2026
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