Baillie Gifford Shin Nippon : Annual Financial Report

Baillie Gifford Shin Nippon PLC

Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83

Regulated Information Classification: Annual Financial and Audit Reports

Annual Financial Report

This is the Annual Financial Report of Baillie Gifford Shin Nippon PLC as required to be published under DTR 4 of the UKLA Listing Rules.

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 January 2018 or 31 January 2019 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2018 and 2019; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 31 January 2018 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 January 2019 will be delivered to the Registrar in due course.

The Annual Report and Financial Statements for the year ended 31 January 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection athttp://www.morningstar.co.uk/uk/NSM and is also available on the Shin Nippon page of the Baillie Gifford website at:

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.

Baillie Gifford & Co Limited

Managers and Secretaries

10 April 2019

Chairman's Statement

The year to 31 January 2019 was challenging for investors and the Company's net asset value per share* (NAV) and share price fell by 6.0% and 7.2% respectively, slightly ahead of the return of the comparative index (MSCI Japan Small Cap Index, total return in sterling terms), which fell by 7.8%.

Your Board continues to review performance over a rolling three-year period. Over this period, the Company's NAV rose by 83.8% and its share price by 91.0% versus the comparative index return of 45.4%.

At 31 January 2019 the premium of the share price over the net asset value was 8.0%, slightly lower than the 9.3% of the previous year. The Board continues to monitor this premium carefully and will continue to manage this imbalance between buyers and sellers by issuing shares appropriately as noted below.

Share Split and Share Issuance

The Interim Management Report in July acknowledged the subdivision of the ordinary shares of the Company. This five for one split of five new ordinary shares of 2 pence replacing each ordinary share of 10 pence was approved at last year's AGM.

Also, during the year, the Company issued 36,025,000 shares (15.2% of share capital at 31 January 2018) at a premium to NAV raising net proceeds of £68.7m. The Board believes that both the share split and the continuing issuance of new shares will improve the liquidity of the stock and its appeal to a wider range of shareholders.

Borrowings

The Board continues to support the strategy of using gearing to enhance portfolio performance. Gearing at both the start and end of the year remained fairly constant at 10.5% and 10.6% respectively. Total borrowings throughout the year remained unchanged at ¥7.45bn. During the year the yen strengthened against sterling by 8.4%. Last year it weakened by almost the same amount. The Company continues with its policy of not engaging in currency hedging.

Revenue

During the year the Board announced a reduction in the annual management fee payable to Baillie Gifford & Co Limited, the Company's Managers and Secretaries. With effect from 1 January 2019 the Company's annual management fee will be calculated at 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder (previously the first £50m tier was calculated at 0.95%).

The revenue return per share increased from a deficit of 0.11p to a surplus of 0.04p. Gross portfolio income rose by 45.7% but the management fee rose 34.7% due to the increase in average NAV over the year. Certain other expenses increased by 17.8%. That said, I am delighted that our ongoing charges fell from 0.89% to 0.77%.

AGM

At this year's AGM we are again seeking authority to issue new shares on a non pre-emptive basis of up to 10% on the issued share capital of the Company. Any shares issued would be for cash and only at a premium to net asset value thus enhancing the net asset value to the existing shareholders.

As with issuing shares at a premium, the Board will again be seeking your approval to buy back shares should they start trading at a substantial discount either in absolute terms or in relation to its peers. Similarly, if required this activity would enhance the net asset value attributable to existing shareholders.

This year, your Board proposes an additional resolution to amend the investment policy to permit investment in unlisted companies at a level of up to 10% of the portfolio (at the time of purchase) and to increase the maximum number of holdings from 75 to 80. Although we currently have made only one investment in an unlisted company, the Managers are seeing more unlisted opportunities and the Board is of the view that this is an appropriate moment to provide clarity for shareholders on the maximum level such investments might reach.

Governance

Francis Charig and Iain McLaren both retire from the Board at May's AGM. Both have served the Company with great distinction and have seen the Company grow hugely to its present level. Francis brought great knowledge and wisdom from his experience and Japanese contacts and Iain's control of Audit Committee matters has been exemplary. Both individuals will be sadly missed.

I am delighted to report that Professor Sethu Vijayakumar and Jamie Skinner CA have been appointed to the Board. Sethu is Professor of Robotics at Edinburgh University as well as a visiting professor at both Kyoto and Tokyo Universities. Sethu not only speaks Japanese but also writes it!

Jamie will assume the role of Audit Committee Chairman. Jamie spent most of his recent working career with Martin Currie in Edinburgh and I regard him as an investment trust professional.

I welcome both Sethu and Jamie to the Board and look forward to working with them in the years ahead.

Outlook

As a UK listed company, the Board and Managers have considered the implications of Brexit. Around half of the Company's investments are domestically focussed within Japan and the remaining holdings have minimal exposure to the UK. The Board is therefore not concerned about the impact of Brexit on the portfolio. Although the ¥/£ exchange rate may react according to the market's view on the Brexit outcome reached, which would affect the value of the Company's shares, its borrowings are denominated in yen so any exchange movements impacting the loans would be more than offset by opposite exchange movements affecting the portfolio. Additionally, there is the possibility of turbulence on the London Stock Exchange. Spikes in supply or demand for the Company's shares can however, be managed by share issuance or buy-backs as appropriate.

More broadly, there seems to be greater uncertainty in the world regarding global growth than at any time over the last 10 years. However, the Company's strategy of seeking to identify smaller Japanese companies with strong growth potential means that the performance is more dependent on the ability of those companies to take advantage of their opportunities than on the global economy.

Similar themes to last year are still prevalent. There is still an ongoing labour shortage and access to experienced labour is arguably one of the biggest issues for companies in Japan. Retaining staff and introducing mechanisms and technologies to assess employee satisfaction and reward performance are massive challenges.

There is some cyclical slowdown in certain sectors but corporate Japan's mood is generally positive but cautious. Inbound tourism remains strong and there is strong growth in infrastructure projects supporting the Rugby World Cup in 2019 and the Olympic and Paralympic Games in 2020. Companies are also gradually seeing the need to invest capital expenditure for the future and are taking a less short-term view.

We remain positive. The start up environment for companies on our radar is changing. Government policies are more supportive. There is generally better access to capital and more importantly there is a new attitude to creating wealth and starting exciting, disruptive technology businesses. The Board and the Managers remain encouraged by the outlook.

More detailed information about the Company's portfolio is contained within the Managers' Report below.

M Neil Donaldson

26 March 2019

*After deducting borrowings at fair value. For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance.

See disclaimer at the end of this announcement.

Managers' Report

In last year's half yearly update, we highlighted concerns related to trade protectionism and a cyclical slowdown in key global sectors. Both these headwinds gathered steam through the year and dampened investor sentiment, resulting in a weak stock market. High growth small cap stocks in Japan fell sharply as investors regarded them as being particularly vulnerable to external shocks.

Weak Chinese demand over the past year had a negative impact on some Japanese small caps. In 2017, Japanese suppliers of factory automation equipment saw strong orders from Chinese customers. However, demand weakness last year led to fewer orders being placed as inventory levels rose. Harmonic Drive, a leading global manufacturer of speed reduction gears used in smaller robots, saw a near 50% decline in orders. Although it remains a strong global player with high market shares and best-in-class products, the severe fall in orders led to significant share price weakness. Conditions in the important Chinese and US automobile sectors also remained tough. After nearly three decades of growth, car sales in China fell last year. In the US, sales declined for most major Japanese car companies. As a result, smaller auto parts suppliers like Nippon Ceramic, a leading global manufacturer of ultrasonic sensors for cars, and IRISO Electronics, a manufacturer of connectors for car electronics, suffered operationally. Despite challenging conditions, both companies remain resilient. They have strong balance sheets and are investing in new product development to secure future growth.

In comparison, the domestic environment for small caps remained favourable. Labour shortage, a recurring theme in recent Managers' Reports, is becoming extreme. The jobs-to-applicants ratio remains at an all-time high and the economy now has near full employment. The employment rate of women aged 15 to 64 in Japan is now higher than in the US. Despite the government's attempts at bringing in overseas workers, the labour market remains incredibly tight. Industries such as IT are seeing very high levels of demand for experienced engineers. This is proving to be a boon for TechnoPro, one of Japan's largest IT staffing specialists. Inbound tourism remained strong and Japan welcomed just over 30 million visitors last year. The government has set an official goal to attract 40 million inbound visitors by 2020 and 60 million by 2030. Companies such as infrastructure repair and maintenance specialist Sho-Bond are seeing strong orders from both private and public-sector clients as Japan prepares to host international events like the Rugby World Cup and the Summer Olympic and Paralympic Games.

Many of our rapid growth, online businesses performed well last year. GMO Payment Gateway, a leading online payments provider, continues to generate strong growth as it expands into new areas within financial services. Labour market tightness is resulting in increased job mobility as more people embrace flexible working. Crowdworks, a leading online platform for crowdsourced services, is seeing fast growth both in user numbers and the amount of work being delivered through its platform. Orders at Japan's largest online food delivery company, Yume No Machi, accelerated sharply last year. This nascent industry is growing quickly as Japanese consumers become more comfortable with the concept of ordering food online using smartphone apps. Management are making heavy investments to build scale at the cost of short-term profits.

Performance

For the year ending 31 January 2019, the MSCI Japan Small Cap index (total return in sterling terms) fell by 7.8% while Shin Nippon's net asset value per share (after deducting borrowings at fair value) fell by 6.0%. Given our long-term investment horizon, a fairer way of looking at performance is to focus on the long-term. Over three and five years, the comparative index is up by 45.4% and 82.7% while the Company's net asset value per share is up by 83.8% and 157.4% respectively.

Many of our favourite online disruptors were among the top performers over the past year. Bengo4.com was the largest positive contributor to performance. It operates a website that connects lawyers with individuals and businesses seeking legal advice. Lawyers register as members and pay Bengo4.com a fee to market themselves on its website. This service has grown quite popular and approximately a third of Japan's lawyers are now registered members. Bengo4.com also has a rapidly growing business providing online, cloud-based contracts that can be securely signed. This alternative to traditional paper-based contracts is seeing rapid adoption by companies of all sizes and has become a major growth driver for the company. Longstanding holding MonotaRO maintained its incredible record of delivering very high growth rates over the years despite numerous challenges. It recently started operations at a new, automated warehouse that nearly doubles its sales capacity, thereby giving it significant room for future growth.

Software company Brainpad has developed an artificial intelligence-based software product that helps companies design targeted marketing campaigns by predicting changes in consumer behaviour with a high level of accuracy. Brainpad is seeing rapid adoption of its software by both large and medium sized companies, resulting in rapid sales and profit growth. Specialist medical device manufacturer Asahi Intecc is expanding beyond its traditional cardiovascular related areas, thereby increasing its addressable market. Following the end of a joint venture with its US partner Abbott Labs, Asahi Intecc has now taken full control of marketing and distribution in the US and is already seeing its market share rise.

Among the poorer performers were companies suffering from a slowdown in cyclical sectors. Both Optex, a manufacturer of industrial security and fault detection systems, and Nabtesco, a motion control technologies specialist, saw a significant fall in orders. While both companies remain globally competitive in their respective areas, this short-term weakness was taken negatively by the market. Outsourcing was another weak performer as the market took a dim view of management's decision to issue new shares to strengthen the balance sheet after a series of debt funded acquisitions. Sales at Seria, one of Japan's leading ¥100 store operators, suffered as the company struggled with upgrading its inventory management system. The shares were sold off aggressively as investors questioned management's capability in getting the company back to growing fast again.

Portfolio

We focus on a company's individual attractions and pay little attention to the benchmark. Consequently, Shin Nippon's active share continues to be high at 94%, implying just a 6% overlap with the comparative index. Annualised turnover within the portfolio was 18.7%. We identified many attractive high growth ideas and sold some existing holdings where we no longer had conviction. We participated in the IPO of Raksul, a fast-growing business run by its young and entrepreneurial founder. It has developed an online, cloud-based system that connects service providers with clients in real-time. It is currently focussing on disrupting the domestic printing and logistics sectors, both of which are very inefficient, traditional and quite large.

We took a holding in Akatsuki, a mobile gaming company that is developing a potentially exciting new business in E-sports, an industry that is seeing explosive growth globally. KH Neochem is a specialist chemicals manufacturer that enjoys an oligopoly in its key products. It makes environmentally friendly chemicals used in cosmetics, refrigerants for air conditioners and building materials. Uzabase is a young, financial software company that is trying to disrupt a market dominated by Bloomberg and Thomson Reuters through its own low-cost offering. It has one of the largest databases of private companies in Asia and has already gained meaningful market share in Japan. It also has a fast-growing business in the US where it provides a subscription based financial news service. It is differentiating itself by offering a large selection of original content prepared by a panel of well-known industry experts.

We sold our holding in high-end rice cooker manufacturer Zojirushi as it is failing to cope with intensifying competition and pricing pressure. Shares in condominium builder Takara Leben were also sold as sales and profits continue to shrink due to weak demand and rising land and labour costs. It also has a weak balance sheet that leaves the company with little room for error. We have been disappointed by management's capital allocation at online recipe website Cookpad and web-based rental property aggregator Lifull. Both companies are expanding overseas despite significant growth opportunities in Japan and we have therefore sold our holdings in both companies. Auto parts maker Unipres is struggling to grow its business, mirroring the fortunes of its main customer Honda. Management's efforts at diversifying their client base have yielded very little and we struggled to retain any enthusiasm for owning the shares.

Outlook

Ongoing reforms in Japan are resulting in new business opportunities for smaller companies. Despite the current slowdown, we believe major global trends like automation and electrification of cars remain intact. There is ample scope for growth in these areas for Japanese small caps. Shin Nippon continues to focus on investing in dynamic and innovative smaller businesses and we are encouraged by the numerous investment opportunities emerging in various sectors.

Baillie Gifford & Co

26 March 2019

Past performance is not a guide to future performance. See disclaimer at the end of this announcement.

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

Investment Changes (£'000)

	Valuation at 31.01.18 £'000	Net acquisitions/ (disposals) £'000	Appreciation/ (depreciation) £'000	Valuation at 31.01.19 £'000
Equities:
Consumer Discretionary	101,221	2,601	(15,833)	87,989
Communication Services	22,293	(2,240)	5,864	25,917
Consumer Staples	19,474	5,791	(892)	24,373
Financials	5,683	3,471	(220)	8,934
Healthcare	69,095	(1,438)	456	68,113
Industrials	103,639	45,577	(10,786)	138,430
Information Technology	106,925	9,639	(7,301)	109,263
Materials	-	8,317	(1,752)	6,565
Real Estate	15,587	(3,536)	(1,761)	10,290
Total investments	443,917	68,182	(32,225)	479,874
Net liquid assets*	5,372	778	77	6,227
Total assets	449,289	68,960	(32,148)	486,101
Bank loans	(47,877)	(32)	(4,037)	(51,946)
Shareholders' funds	401,412	68,928	(36,185)	434,155

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

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

- the movement in net asset value per share compared to the comparative index;

- the movement in the share price;

- the discount/premium of the share price to the net asset value per share; and

- the ongoing charges.

An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

These are also compared against the Company's peers. Performance is assessed over periods of one, three and five years, although the Board reviews performance principally over rolling three year periods.

A historical record of the KPIs is shown above and on page 21 of the Annual Report and Financial Statements.

Future Developments of the Company

The outlook for the Company for the next year is set out in the Chairman's Statement and the Managers' Report above.

Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 32 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the years reported no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006. Details of Directors' holdings at 31 January 2019 are detailed in the Directors' Remuneration Report on pages 32 and 33 of the Annual Report and Financial Statements.

The management fee due to Baillie Gifford and Co Limited is set out in note 3 on page 45 of the Annual Report and Financial Statements and the amount accrued at 31 January 2019 is set out in note 10 on page 48 of the Annual Report and Financial Statements. Details of the Investment Management Agreement are set out below.

Management fee arrangements

The Board as a whole fulfils the function of the Management Engagement Committee.

The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Management Agreement is terminable on not less than six months' notice. Compensation fees would only be payable in respect of the notice period if termination were to occur sooner. On 1 January 2019 the annual management fee was reduced to 0.75% on the first £50m of net assets, 0.65% on the next £200m, of net assets and 0.55% on the remainder. Prior to 1 January 2019 the annual management fee was 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder. The fees are calculated and paid on a quarterly basis.

The details of the management fees are as follows:

	2019 £'000		2018 £'000
Investment management fee	2,871		2,131

Principal Risks

As explained on pages 28 and 29 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 risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk- The Company's assets consist mainly of listed securities and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in the Financial Instruments and Risk Management note below. To mitigate this risk the Board considers at each meeting various portfolio metrics including individual stock performance and weightings, the top and bottom contributors to performance and relative sector weightings against the comparative index. The Manager provides rationale for stock selection decisions. A comprehensive strategy meeting is held annually to facilitate challenge of the Company's strategy.

Investment Strategy Risk- pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or an ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their Net Asset Value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to Net Asset Value at which the shares trade; and movements in the share register.

Discount Risk- the discount/premium at which the Company's shares trade relative to its Net Asset Value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the Board to be in the best interests of the Company and its shareholders.

Regulatory Risk- failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances 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.

Custody and Depositary Risk- safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Small Company Risk- the Company has investments in smaller companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller companies may do less well in periods of unfavourable economic conditions. To mitigate this risk, the Board reviews the investment portfolio at each meeting and discusses the investment case and portfolio weightings with the Managers. A spread of risk is achieved by holding a minimum of 40 stocks and the relative industry weightings against the comparative index are considered at each Board meeting.

Operational Risk- failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.

Leverage Risk- the Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in listed securities that are readily realisable. Further information on leverage can be found on page 60 of the Annual Report and Financial Statements and in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Political Risk- political developments are closely monitored and considered by the Board. The Board continues to monitor developments as they occur regarding the Government's intention that the UK should leave the European Union and to assess the potential consequences for the Company's future activities. Whilst there remains considerable uncertainty the Board believes that the Company's portfolio of Japanese equities positions the Company to be suitably insulated from Brexit related risks.

Viability Statement

In accordance with provision C2.2 of the UK Corporate Governance Code the Directors have assessed the prospects of the Company over a period of five years. The Directors continue to believe this period to be appropriate as it reflects the Company's longer term investment strategy and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the effectiveness of the controls employed to mitigate those risks. Furthermore, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a period of five years.

In considering the viability of the Company, the Directors have conducted a robust assessment of each of the principal risks and uncertainties detailed above and in particular the impact of market risk where a significant fall in Japanese small equities markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's leverage and liquidity in the context of the fixed term secured bank loans which are due to expire in 2020 and 2024. Although the Company's revenue account is expected to remain in deficit, its investments are primarily listed equities which are readily realisable and so capable of being sold to provide funding if required. Specific leverage and liquidity stress testing was conducted during the year and no matters of concern were noted. In addition, all of the key operations required by the Company are outsourced to third party service providers and it is reasonably considered that alternative providers could be engaged at relatively short notice.

The Board has considered the uncertainities regarding the UK's continuing negotiations to leave the EU and does not consider that any outcome would affect the going concern status or viability of the Company.

Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Going Concern

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained below. 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 Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

Financial Instruments and Risk Management

As an Investment Trust, the Company invests in small Japanese company securities and makes other investments so as to achieve its investment objective of long term capital growth. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests and could result in a reduction in the Company's net assets.

These risks are categorised as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility.

The Company may enter into derivative transactions as explained in the Objective and Policy on page 7 of the Annual Report and Financial Statements. No such transactions were undertaken in the year under review.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting year.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis. Details of the Company's investment portfolio are shown below.

(i) Currency Risk

The Company's assets, liabilities and income are principally denominated in yen. The Company's functional currency and that in which it reports its results is sterling. Consequently, movements in the yen/sterling exchange rate will affect the sterling value of those items.

The Investment Managers monitor the Company's yen exposure (and any other overseas currency exposure) and report to the Board on a regular basis. The Investment Managers assess the risk to the Company of the overseas currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Yen borrowings are used periodically to limit the Company's exposure to anticipated future changes in the yen/sterling exchange rate which might otherwise adversely affect the value of the portfolio of investments. The Company may also use forward currency contracts, although none have been used in the current or prior year.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

At 31 January 2019	Investments £'000		Cash and deposits £'000		Bank loans £'000		Other debtors and creditors £'000		Net exposure £'000
Yen	479,874		5,102		(51,946)		1,134		434,164
Total exposure to currency risk	479,874		5,102		(51,946)		1,134		434,164
Sterling	-		648		-		(657)		(9)
	479,874		5,750		(51,946)		477		434,155

At 31 January 2018	Investments £'000		Cash and deposits £'000		Bank loans £'000		Other debtors and creditors £'000		Net exposure £'000
Yen	443,917		4,200		(47,877)		(1,461)		398,779
Total exposure to currency risk	443,917		4,200		(47,877)		(1,461)		398,779
Sterling	-		1,468		-		1,165		2,633
	443,917		5,668		(47,877)		(296)		401,412

Currency Risk Sensitivity

At 31 January 2019, if sterling had strengthened by 10% against the yen, with all other variables held constant, total net assets and net return on ordinary activities after taxation would have decreased by £43,416,000 (2018 - £39,878,000). A 10% weakening of sterling against the yen, with all other variables held constant, would have had a similar but opposite effect on the Financial Statement amounts.

(ii) Interest Rate Risk

Interest rate movements may affect directly the level of income receivable on cash deposits. They may also impact upon the market value of the Company's investments as the effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and the income receivable on cash deposits.

The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

The interest rate risk profile of the Company's financial assets and liabilities at 31 January 2019 is shown below. There was no significant change to the interest rate risk profile during the year.

Financial Assets

	2019 Fair value £'000	2019 Weighted average interest rate		2018 Fair value £'000	2018 Weighted average interest rate
Cash:
Yen	5,102	Nil		4,200	Nil
Sterling	648	0.02%		1,468	0.02%
	5,750			5,668

The cash deposits generally comprise overnight call or short term money market deposits and earn interest at floating rates based on prevailing bank base rates.

Financial Liabilities

The interest rate risk profile of the Company's financial liabilities at 31 January was:

	2019			2018
	Book value £'000	Weighted average interest rate	Weighted average period until maturity	Book value £'000	Weighted average interest rate	Weighted average period until maturity
Bank Loans:
Yen denominated - fixed rate	51,946	1.8%	36 months	47,877	1.8%	48 months

An interest rate risk sensitivity analysis has not been performed as the Company does not hold bonds and has borrowed funds at a fixed rate of interest.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 8 of the Annual Report and Financial Statements.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index, investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.

Other Price Risk Sensitivity

A full list of the Company's investments is shown below. In addition, various analyses of the portfolio by industrial sector, exchange listing, holding period and investment theme are shown on pages 17 and 20 of the Annual Report and Financial Statements.

109.8% of the Company's net assets are invested in Japanese quoted equities (2018 - 110.2%). A 10% increase in quoted equity valuations at 31 January 2019 would have increased total net assets and net return on ordinary activities after taxation by £47,662,000 (2018 - £44,253,000). A decrease of 10% would have had an equal but opposite effect. This analysis does not include the effect on the management fee of changes in quoted equity valuations.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant in normal market conditions as the majority of the Company's assets are in investments that are readily realisable.

The Company's investment portfolio is in Japanese small-cap equities which are typically less liquid than larger capitalisation stocks. The Managers monitor the liquidity of the portfolio on an ongoing basis and relevant guidelines are in place.

The Board provides guidance to the Investment Managers as to the maximum exposure to any one holding (see Objective and Policy on page 7 of the Annual Report and Financial Statements).

The maturity profile of the Company's financial liabilities at 31 January was:

	2019 £'000	2018 £'000
In less than one year: - accumulated interest In more than one year, but not more than five years: - repayment of loan - accumulated interest	962 37,371 1,593	887 34,466 2,125
In more than five years: - repayment of loan - accumulated interest	14,669 222	13,529 437
	54,817	51,444

The Company has the power to take out borrowings, which gives it access to additional funding when required.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

- The Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. For the period to 3 April 2018 the Depositary delegated the custody function to The Bank of New York Mellon SA/NV and, following an internal reorganisation, the custody function was performed by The Bank of New York Mellon (International) Limited. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting their findings to the Board;

- Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

- The creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Managers; and

- At 31 January 2019 and 2018, all cash deposits were held with the custodian bank. The credit risk of the custodian is reviewed as detailed above. Cash may also be held at banks that are regularly reviewed by the Managers. If the credit rating of a bank where a cash deposit was held fell significantly, the Managers would endeavour to move the cash to an institution with a superior credit rating.

Credit Risk Exposure

The maximum exposure to credit risk at 31 January was:

	2019 £'000	2018 £'000
Cash and deposits	5,750	5,668
Debtors	2,622	2,810
	8,372	8,478

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Company's investments are stated at fair value and the Directors are of the opinion that the reported values of the Company's other financial assets and liabilities approximate to fair value with the exception of the long term borrowings which are stated at amortised cost. The fair value of the loans is shown below.

			2019				2018
		Book Value £'000	Par Value £'000	Fair* Value £'000	Book Value £'000	Par Value £'000		Fair* Value £'000
Fixed rate yen bank loans		51,946	52,040	52,810	47,877	47,995		48,646

*The fair value of each bank loan is calculated by reference to a Japanese government bond of comparable yield and maturity.

Capital Management

The capital of the Company is its share capital and reserves as set out in note 13 of the Annual Report and Financial Statements together with its borrowings (see note 11 of the Annual Report and Financial Statements). The Company's investment objective and policy is set out on page 7 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out above. The Company has the ability to buy back and issue shares (see pages 25 and 26 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in note 12 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loan which are detailed in note 11 of the Annual Report and Financial Statements.

Fair Value of Financial Instruments

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 valuation techniques used by the Company are explained in the accounting policies on page 44 of the Annual Report and Financial Statements.

During the year investments with a book cost of £3,142,723 (2018 - nil) were transferred from Level 1 to Level 2. Unlisted equities are categorised as Level 3. None of the financial liabilities are designated at fair value through profit or loss in the Financial Statements.

Investments

As at 31 January 2019	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	471,753	4,868	-	476,621
Unlisted equities	-	-	3,253	3,253
Total financial asset investments	471,753	4,868	3,253	479,874

As at 31 January 2018	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	442,526	-	-	442,526
Unlisted equities	-	-	1,391	1,391
Total financial asset investments	442,526	-	1,391	443,917

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM remuneration policy is available at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements) and the most recent numerical remuneration disclosures in respect of the AIFM (year ended 31 March 2018) are available at www.bailliegifford.com.

The Company's maximum and actual leverage levels (see Glossary of Terms and Alternative Performance Measures at the end of this announcement) at 31 January 2019 are as follows:

Leverage

	Gross method	Commitment method
Maximum Limit	2.50:1	2.00:1
Actual	1.12:1	1.12:1

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they are required to prepare the Financial Statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these Financial Statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgements and estimates that are reasonable and prudent;

- state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;

- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

- use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors have delegated responsibilty to the Managers for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm that to the best of our knowledge:

- the 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 profit or loss of the Company; and

- the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Accounts, 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.

On behalf of the Board

M Neil Donaldson

Chairman

26 March 2019

Income statement

	For the year ended 31 January 2019			For the year ended 31 January 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments*	-	(32,225)	(32,225)	-	108,387	108,387
Currency (losses)/gains (note 2)†	-	(3,875)	(3,875)	-	3,591	3,591
Income	5,092	-	5,092	3,496	-	3,496
Investment management fee (note 3)	(2,871)	-	(2,871)	(2,131)	-	(2,131)
Other administrative expenses	(601)	-	(601)	(510)	-	(510)
Net return before finance costs and taxation	1,620	(36,100)	(34,480)	855	111,978	112,833
Finance costs of borrowings (note 4)	(1,005)	-	(1,005)	(732)	-	(732)
Net return on ordinary activities before taxation	615	(36,100)	(35,485)	123	111,978	112,101
Tax on ordinary activities	(509)	-	(509)	(350)	-	(350)
Net return on ordinary activities after taxation	106	(36,100)	(35,994)	(227)	111,978	111,751
Net return per ordinary share# (note 6)	0.04p	(13.98p)	(13.94p)	(0.11p)	52.31p	53.20p

*Gains on investments include gains and losses on disposals and holding gains and losses on the investment portfolio resulting from: i) changes in the local currency fair value of the investments and, ii) movements in the yen/sterling exchange rate.

† Currency gains include: i) currency exchange gains and losses on yen bank loans, ii) exchange differences on the settlement of investment transactions and, iii) other exchange differences arising from the retranslation of cash balances.

^#Prior year figures restated for the five for one share split on 21 May 2018.

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Statement of changes in equity

For the year ended 31 January 2019

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2018	4,749	95,174	21,521	285,451	(5,483)	401,412
Ordinary shares issued	720	68,017	-	-	-	68,737
Net return on ordinary activities after taxation	-	-	-	(36,100)	106	(35,994)
Shareholders' funds at 31 January 2019	5,469	163,191	21,521	249,351	(5,377)	434,155

For the year ended 31 January 2018

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 February 2017	4,040	40,094	21,521	173,473	(5,256)	233,872
Ordinary shares issued	709	55,080	-	-	-	55,789
Net return on ordinary activities after taxation	-	-	-	111,978	(227)	111,751
Shareholders' funds at 31 January 2018	4,749	95,174	21,521	285,451	(5,483)	401,412

*The capital reserve balance at 31 January 2019 includes investment holding gains of £150,046,000 (31 January 2018 - gains of £222,272,000).

Cash flow statement
	For the year ended 31 January 2019			For the year ended 31 January 2018
	£'000	£'000		£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	(35,485)			112,101
Net losses/(gains) on investments	32,225			(108,387)
Currency losses/(gains)	3,875			(3,591)
Finance costs of borrowings	1,005			732
Overseas withholding tax	(453)			(328)
Increase in debtors, accrued income and prepaid expenses	(631)			(227)
Increase in creditors and prepaid income	52			253
Cash inflow from operations		588			553
Interest paid		(963)			(736)
Net cash outflow from operating activities		(375)			(183)
Cash flows from investing activities
Acquisitions of investments	(155,313)			(107,413)
Disposals of investments	85,032			25,850
Net cash outflow from investing activities		(70,281)			(81,563)
Shares issued	70,576			53,950
Bank loans drawn down	-			28,429
Net cash inflow from financing activities		70,576			82,379
(Decrease)/increase in cash and cash equivalents		(80)			633
Exchange movements		162			(485)
Cash and cash equivalents at 1 February		5,668			5,520
Cash and cash equivalents at 31 January *		5,750			5,668

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

List of Investments at 31 January 2019

Name	Business	2019 Value £'000	2019 % of total assets	Absolute# Performance %	2018 Value £'000
Asahi Intecc	Specialist medical equipment	16,047	3.3	21.5	11,983
Bengo4.com	Online legal consultation	15,347	3.2	143.9	5,230
Outsourcing	Employment placement services	13,261	2.7	(33.6)	12,801
Nihon M&A Center	M&A advisory services	12,877	2.6	(9.0)	11,876
Istyle	Beauty product review website	12,691	2.6	(18.8)	12,515
MonotaRO	Online business supplies	12,500	2.6	46.5	10,919
Peptidream	Drug discovery and development platform	11,630	2.4	11.7	10,121
Megachips	Electronic components	11,626	2.4	(25.8)	10,799
GMO Payment Gateway	Online payment processing	11,471	2.4	27.7	10,101
OSG	Manufactures machine tool equipment	11,155	2.3	(11.3)	3,559
Horiba	Manufacturer of measuring instruments	11,098	2.3	(16.0)	8,603
Raksul	Internet based services	10,683	2.2	107.2	-
Infomart	Internet platform for restaurant supplies	10,548	2.2	63.3	6,553
H.I.S.	Discount travel agency and theme Parks	10,391	2.1	13.7	7,100
Katitas	Real estate services	10,154	2.1	7.3	7,311
Sho-Bond	Infrastructure reconstruction	9,432	1.9	(3.1)	7,736
Healios K.K.	Regenerative medicine	9,323	1.9	(13.7)	7,955
Toshiba Plant Systems and Services	Plant engineering company	9,068	1.9	4.8	5,226
Noritsu Koki	Holding company with interests in biotech and agricultural products	8,631	1.8	(30.8)	9,475
Yume No Machi	Online meal delivery service	8,562	1.8	(14.0)	9,917
Top 20		226,495	46.7
Kitz Corp	Industrial valve manufacturer	8,535	1.8	(4.3)	-
Nippon Ceramic	Electric component manufacturer	8,497	1.7	(9.6)	7,870
Nifco	Value-added plastic car parts	8,267	1.7	(23.7)	10,010
Brainpad	Business data analysis	8,062	1.7	185.5	1,958
Cosmos Pharmaceuticals	Drugstore chain	7,810	1.6	17.2	2,196
Technopro Holdings	IT staffing	7,784	1.6	5.3	6,700
Hamakyorex	Third party logistics	7,519	1.6	13.2	4,760
Shoei	Manufactures motor cycle helmets	7,368	1.5	(17.0)	7,924
Harmonic Drive	Robotic components	6,883	1.4	(45.1)	9,105
Jeol	Manufacturer of scientific equipment	6,779	1.4	64.5	4,306
Broadleaf	Online platform for buying car parts	6,684	1.4	10.2	6,830
Sato Holdings	Barcode and RFID technology	6,495	1.3	(19.2)	6,601
Crowdworks	Crowdsourcing services	6,446	1.3	82.1	2,636
Cocokara Fine	Drugstore chain	6,396	1.3	(15.4)	5,543
Locondo	E-commerce services provider	6,384	1.3	31.9	3,216
eGuarantee	Guarantees trade receivables	6,305	1.3	19.1	3,864
Pigeon	Baby care products	6,145	1.3	9.4	6,661
M3	Online medical services	6,040	1.3	(14.7)	7,989
ZOZO	Internet fashion retailer	5,996	1.2	(25.1)	10,165
Nakanishi	Dental equipment	5,802	1.2	3.9	4,584
IRISO Electronics	Specialist auto connectors	5,772	1.2	(29.7)	8,473
WDB Holdings	Human resource services	5,758	1.2	(28.2)	6,774
Optex	Infrared detection devices	5,626	1.2	(39.8)	11,402
Seria	Discount retailer	5,471	1.1	(43.6)	7,500
KH Neochem	Chemical manufacturer	5,319	1.1	(15.9)	-

List of Investments at 31 January 2019 (Ctd)

Name	Business	2019 Value £'000	2019 % of total assets	Absolute# Performance %	2018 Value £'000
Anest Iwata	Manufactures compressors and painting machines	5,232	1.1	(11.7)	-
Torex Semiconductor	Semiconductor company	4,900	1.0	(18.4)	1,337
Sanbio	Stem cell based stroke treatment	4,868	1.0	(33.7)	9,506
Daikyonishikawa	Automobile part manufacturer	4,861	1.0	(30.1)	5,646
Poletowin Pitcrew	Game testing and internet monitoring	4,610	0.9	(17.0)	3,890
Nabtesco	Robotic components	4,121	0.8	(38.2)	6,828
Digital Garage	Internet business investor	4,073	0.8	(21.0)	9,864
JP Holdings	Operates child-care facilities	4,038	0.8	(3.6)	1,744
Calbee	Branded snack foods	4,022	0.8	(0.2)	5,074
Aeon Delight	Shopping mall maintenance	3,960	0.8	11.3	3,117
Moneytree K.K. Class B Preferred u	Al based fintech platform	3,253	0.7	133.9	1,391
SIIX	Outsources overseas production	3,227	0.7	(32.1)	4,589
Yonex	Sporting goods	3,127	0.7	3.8	1,840
CyberAgent	Japanese internet advertising and content	3,049	0.6	(19.4)	10,048
Akatsuki	Mobile games developer	3,008	0.6	14.4	-
Nikkiso	Industrial pumps and medical equipment	2,976	0.6	(14.1)	4,089
Asics	Sports shoes and clothing	2,758	0.6	(3.9)	2,910
Gumi	Mobile games developer	2,733	0.6	(37.3)	2,428
Findex	Healthcare software developer	2,608	0.5	(20.5)	3,081
Nanocarrier	Biotech company	2,040	0.4	(65.4)	5,480
Dream Incubator	Early stage business support	1,818	0.4	(36.2)	1,819
Hoshizaki Electric	Commercial kitchen equipment	1,629	0.3	(19.1)	5,978
Tenpos Holdings	Refurbished kitchen equipment retailer	1,628	0.3	(15.4)	1,677
Freakout Holdings	Digital marketing technology	1,614	0.3	(24.2)	1,639
Weathernews	Weather information services	1,538	0.3	(4.8)	1,660
Takemoto Yohki	Plastic containers for cosmetics	1,246	0.3	2.8	-
Morpho	Image processing technologies	1,186	0.2	(53.1)	2,528
Uzabase	Financial data services	811	0.2	(13.2)	-
DesignOne Japan	Online platform for small local businesses	166	<0.1>	(72.2)	2,947
Mugen Estate	Real estate services	136	<0.1>	(43.4)	5,516
Total Investments		479,874	98.7
Net liquid assets*		6,227	1.3
Total assets		486,101	100.0
Bank loans		(51,946)	(10.7)
Shareholders' funds		434,155	89.3

# Absolute performance (in sterling terms) has been calculated on a total return basis*over the period 1 February 2018 to 31 January 2019.

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

uUnlisted holding.

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

Notes to the condensed Financial Statements

1.	The Financial Statements for the year to 31 January 2019 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
		31 January 2019 £'000		31 January 2018 £'000
2.	Currency (losses)/gains
	Exchange differences on bank loans	(4,037)		4,076
	Other exchange differences	162		(485)
		(3,875)		3,591
		31 January 2019 £'000		31 January 2018 £'000
3.	Investment management fee - all charged to revenue
	Investment management fee	2,871		2,131
	On 1 January 2019 the annual management fee was reduced to 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder. Prior to 1 January 2019 the annual management fee was 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder.
4.	The Company paid interest on bank loans of £992,000 (2018 - £717,000) and £13,000 (2018 - £15,000) in respect of yen deposits held by the Custodian Bank.
5.	No dividend will be declared.
		31 January 2019 £'000		31 January 2018 £'000
6.	Net return per ordinary share
	Revenue return	106		(227)
	Capital return	(36,100)		111,978
	Total return	(35,994)		111,751
	The returns per ordinary share set out below are based on the above returns and on 258,154,060 ordinary shares (2018 - 214,092,280), being the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
	Revenue return	0.04p		(0.11p)
	Capital return	(13.98p)		52.31p
	Total return	(13.94p)		52.20p
7.	The Company has arranged secured fixed rate borrowings, drawn down as follows: At 31 January 2019 ING Bank N.V. - 7 year ¥3,350 million loan at 2.217% maturing 27 November 2020. ING Bank N.V. - 3 year 8 month ¥2,000 million loan at 1.301% maturing 27 November 2020. ING Bank N.V. - 7 year ¥2,100 million loan at 1.693% maturing 18 December 2024.

	At 31 January 2018 ING Bank N.V. - 7 year ¥3,350 million loan at 2.217% maturing 27 November 2020. ING Bank N.V. - 3 year 8 month ¥2,000 million loan at 1.301% maturing 27 November 2020. ING Bank N.V. - 7 year ¥2,100 million loan at 1.693% maturing 18 December 2024. The bank loans are stated after deducting the arrangement fees of £201,000 which are amortised over the terms of the loans. Amortisation of the arrangement fees during the year was £32,000 (2018 - £25,000). The fair value of the bank loans at 31 January 2019 was £52,810,000 (31 January 2018 - £48,646,000). See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
8.	Following a five for one stock split on 21 May 2018, each ordinary share of 10 pence was replaced with five new ordinary shares of 2 pence each.At 31 January 2019 the Company had authority to buy back 36,471,042 shares. No shares were bought back during the year (2018 - nil). Share buy-backs are funded from the capital reserve. During the year the Company issued 36,025,000 shares on a non pre-emptive basis at a premium to net asset value for net proceeds of £68,737,000 (2018 - 7,090,000*shares for net proceeds of £55,789,000).
9.	The Annual Report and Financial Statements will be available on the Company's websitewww.shinnippon.co.uk† on or around 10 April 2019.

† Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

* Prior year figures restated for the five for one share split on 21 May 2018.

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.

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

Net Asset Value

Also described as shareholders' funds, Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Asset Value (Borrowings at Book Value)

Borrowings are valued at adjusted net issue proceeds. The Company's yen denominated loans are valued at their sterling equivalent and adjusted for their arrangement fees. The value of the borrowings on this basis is set out above.

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

Borrowings are valued at an estimate of their market worth. The Company's yen denominated loans are fair valued with reference to Japanese government bonds of comparable yield and maturity. The value of the borrowings on this basis is set out above. A reconciliation from Net Asset Value (with borrowings at book value) to Net Asset Value per ordinary share (with borrowings at fair value) is provided below.

	31 January 2019	31 January 2018
Net Asset Value per ordinary share (borrowings at book value)	158.8p	169.1p
Shareholders' funds (borrowings at book value)	£434,155,000	£401,412,000
Add: book value of borrowings	£51,946,000	£47,877,000
Less: fair value of borrowings	(£52,810,000)	(£48,646,000)
Shareholders' funds (borrowings at fair value)	£433,291,000	£401,643,000
Shares in issue at year end	273,452,485	237,427,485
Net Asset Value per ordinary share (borrowings at fair value)	158.5p	168.7p

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

Borrowings are valued at their nominal par value. The Company's yen denominated loans are valued at their sterling equivalent. The value of the borrowings on this basis is set out above.

	31 January 2019	31 January 2018
Net Asset Value per ordinary share (borrowings at book value)	158.8p	169.1p
Shareholders' funds (borrowings at book value)	£434,155,000	£401,412,000
Add: book value of borrowings	£51,946,000	£47,877,000
Less: par value of borrowings	(£52,040,000)	(£47,995,000)
Shareholders funds' (borrowings at par value)	£434,061,000	£401,294,000
Shares in issue at year end	273,452,485	237,427,485
Net Asset Value per ordinary share (borrowings at par value)	158.7p	169.0p

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.

Ongoing Charges (APM)

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies.

Performance Attribution (APM)

Portfolio Performance Attribution illustrates how the portfolio has performed in absolute terms and relative to the comparative index. Performance is calculated on this basis for the portfolio holdings according to their relevant industrial sector classifications. Contributions to relative performance against the index are attributed to either stock selection (relative performance derived from the selection of stocks within an industrial sector) or asset allocation (relative performance derived from overall allocation to each industrial sector).

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. The Company does not pay a dividend.

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing represents borrowings at book less cash and cash equivalents expressed as a percentage of shareholders' funds. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

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

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.

Net Liquid Assets

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

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the listed equity portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Share Split

A share split (or stock split) is the process by which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases, the total value of the shares remains the same with respect to the pre-split value.

Third party data provider disclaimers

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

MSCI Index data

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This document is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Regulated Information Classification: Additional regulated information required to be disclosed under the laws of a Member State

- ends -