RNS Announcement

Baillie Gifford Shin Nippon PLC (BGS)

Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83

Regulated Information Classification: Interim Financial Report

The following is the unaudited Interim Financial Report for the six months to 31 July 2024 which was approved by the Board on 19 September 2024.

Over the six months to 31 July 2024, the Company's net asset value per share† declined by 6.2% compared to a 6.0% increase in the MSCI Japan Small Cap index*. The share price decreased by 6.0%. All figures in total return terms.

-     Since the Covid-19 pandemic, a rotation into value and cyclical stocks has led to weak share prices across Shin Nippon's holdings, despite strong operational performance. Higher interest rates in the US and a weak yen have been persistent headwinds but these appear to be reversing, which is being reflected in the recent positive share price performance of several holdings.

-     Apart from positive macro developments, there are also fundamental factors that make small caps compelling relative to large caps in Japan. Based on current consensus estimates for next year in sterling terms, the MSCI Japan Small Cap Index has a lower valuation, but faster sales growth compared to the TOPIX large cap index. Over five years to 31 July 2024, Shin Nippon has delivered earnings growth of 6.7% p.a. compared to 2.2% p.a. for the comparative index. Based on market estimates for the next three years, it is expected to grow sales and earnings at 11.0% and 12.4% p.a. compared to 4.4% and 8.0% p.a. respectively for the index.

-     During the period, the share prices of our high growth internet and software holdings performed poorly despite strong operational progress. Among these were online real estate company GA Technologies and artificial intelligence software company Appier.

-     A range of companies performed strongly, notably Peptidream, operator of a unique drug discovery platform, leading badminton brand Yonex, and electric wire and cable maker SWCC Showa.

-     Turnover was higher than usual at 18%, with six new holdings bought and nine exited. Two of the holdings exited were acquired by private equity - premium camping equipment maker Snow Peak and staffing company Outsourcing.

-     The Company's share price ended the period at a 14.5% discount to the net asset value per share. During this period, 12.2m shares, equating to 3.9% of total shares in issue at the start of the period, were bought back and are currently held in treasury.

-     The past few years have been particularly challenging for the high growth, dynamic, smaller companies in which Shin Nippon invests. However, there are signs of change. In addition, the portfolio's fundamentals look attractive. Once these factors are recognised, it would not be surprising to see a strong and sustained turnaround in performance.

†        After deducting borrowings at fair value.

*        The Company's comparative index is the MSCI Japan Small Cap Index (total return and in sterling terms). See disclaimer at the end of this announcement.

Source: LSEG/Baillie Gifford and relevant underlying index providers. See disclaimer at end of this announcement.

Shin Nippon aims to achieve long term capital growth through investment principally in small Japanese companies which are believed to have above average prospects for growth. At 31 July 2024 the Company had total assets of £493.4 million (before deduction of bank loans of £83.3million).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with approximately £212 billion under management and advice as at 19 September 2024.

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. The Company has borrowed money to make further investments. This is commonly referred to as gearing. The risk is that, when this money is repaid by the Company, the value of these investments may not be enough to cover the borrowing and interest costs, and the Company makes a loss. If the Company's investments fall in value, gearing will increase the amount of this loss. The more highly geared the Company, the greater this effect will be.

Investment in investment trusts should be regarded as long term. You can find up to date performance information about Shin Nippon at shinnippon.co.uk.

19 September 2024

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: 0131 275 3276

Jonathon Atkins, Four Communications

Tel: 0203 920 0555 or 07872 495396

Interim Financial Report for the six months to 31 July 2024

Comparative index

The index against which performance is compared is the MSCI Japan Small Cap Index (total return and in sterling terms).

Principal risks and uncertainties

The principal risks facing the Company are financial risk, private company (unlisted) investment risk, investment strategy risk, environmental, social and governance risk, discount risk, regulatory risk, custody and depositary risk, small company risk, operational risk, cyber security risk, leverage risk, political and associated financial risk and emerging risks. An explanation of these risks and how they are managed is set out on pages 51 to 55 of the Company's Annual Report and Financial Statements for the year to 31 January 2024 which is available on the Company's website: shinnippon.co.uk.

The principal risks and uncertainties have not changed since the date of that report.

Responsibility statement

We confirm that to the best of our knowledge:

a.       the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b.       the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and

c.       the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board
J Skinner
Chair
19 September 2024

Summary of unaudited results^*

Longer term total return performance at 31 July 2024^*

Source: LSEG/Baillie Gifford and relevant underlying index providers. See disclaimer below.

Notes

^*    Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures below.

^†    The comparative index is the MSCI Japan Small Cap Index (total return and in sterling terms). See disclaimer below.

^#    After deducting borrowings at fair value. See Glossary of Terms and Alternative Performance Measures below.

Past performance is not a guide to future performance.

Interim management report

Japanese high growth small caps have endured a tough time since the end of the COVID-19 pandemic. A rotation into value and cyclical stocks has led to weak share prices across Shin Nippon's holdings despite strong operational performance. In previous reports, we have noted some of the macro headwinds responsible for this weakness and consistently maintained that these headwinds will eventually abate. Whilst these headwinds remain, there are signs that they are moderating.

In the six months to 31 July 2024, Shin Nippon's net asset value per share (total return in sterling terms, after deducting borrowings at fair value) fell by 6.2% compared to a 6.0% rise in the MSCI Japan Small Cap index. The share price (in total return terms) declined by 6.0% and finished the period at a 14.5% discount to the net asset value per share. During this period, 12,166,184 shares, equating to 3.9% of total shares in issue at the start of the period, were bought back and are currently held in treasury.

It might seem odd to express enthusiasm despite continued underperformance. Higher interest rates in the US and a weak yen have been two significant headwinds. In both cases, there are signs of a reversal. In the short term, this is already being reflected in Shin Nippon's absolute net asset value total return which turned positive in the second quarter of the current financial year, having been on a declining trend since the COVID-19 pandemic ended.

Apart from positive macro developments, there are also fundamental factors that make small caps compelling relative to large caps in Japan. Based on current consensus estimates for next year in sterling terms, the MSCI Japan Small Cap Index has a lower valuation, but faster sales growth compared to the TOPIX large cap index. Over five years to 31 July 2024, Shin Nippon has delivered earnings growth of 6.7% p.a. compared to 2.2% p.a. for the comparative index. Based on market estimates for the next three years, it is expected to grow sales and earnings at 11.0% and 12.4% p.a. compared to 4.4% and 8.0% p.a. respectively for the index.

We recently spent five weeks in Japan meeting senior executives at 61 companies. Of these, just over half are portfolio holdings. We noted several positives, and a few negatives, during this trip. Firstly, inbound tourism is absolutely booming despite fewer Chinese tourists than before. As of June this year, Japan had nearly 20 million tourists as against 25 million in 2023, and nearly 32 million in 2019. At the current rate, Japan remains on track to attract a record number of tourists this year. Inbound tourists tend to spend a lot on cosmetics so this should be a strong tailwind for portfolio holdings like MatsukiyoCocokara, a leading drugstore and cosmetics retailer. Secondly, many Japanese companies are raising prices. A combination of market dominance and a desire to improve profitability have emboldened management teams to exercise their pricing power. Portfolio holdings Bengo4.com, Japan's largest legal website, and Infomart, an online food ordering platform, have both raised prices in recent months. And finally, artificial intelligence-based software solutions are being used in various parts of Japan's economy. Portfolio holding Appier is an example of a company whose artificial intelligence-based software products are being adopted across a wide range of end markets, leading to rapid sales and profit growth. These trends are creating numerous growth opportunities for many of Shin Nippon's holdings.

There were also some areas of concern. Labour shortage was highlighted by numerous companies, especially those in labour-intensive sectors like construction and manufacturing, as the most serious headwind. These companies are struggling to replace an ageing workforce as these sectors remain unpopular with graduates and younger workers. However, this is providing growth opportunities for smaller companies like construction software provider and portfolio holding SpiderPlus which offers tools to reduce labour intensity and improve productivity. Another common concern was China. Historically, China has been a massive growth market for many Japanese companies. However, a slowing economy, rising domestic competition, geopolitical tensions, and pricing pressure have all resulted in a souring of the "China dream" for many Japanese companies. Portfolio holdings like sensor maker Nippon Ceramic and EV battery component maker Kohoku Kogyo are reducing their exposure to China. The vast majority of Shin Nippon's portfolio is invested in companies focussing mostly on the domestic Japanese market so the impact on the portfolio from weak Chinese demand should be muted.

At the portfolio level, there were strong performances from a range of companies. Peptidream was among the top positive contributors. Its unique drug discovery platform, which significantly reduces the time and effort needed to discover new drug candidates, is gaining increasing traction with large global pharma companies. This is leading to rapid growth in high margin royalty payments for the company. Leading badminton brand Yonex was another strong performer. Despite a slowing Chinese economy, it is enjoying strong demand for its products in China where badminton as a sport continues to grow in popularity. Rising health-consciousness, broadening of its product range to cater for beginners and intermediate players, and strong performances by Yonex sponsored Chinese players at the recently concluded Paris Olympic and Paralympic Games have all contributed to a bump in sales and profits. Electric wire and cable maker SWCC Showa also performed well. The company is undergoing significant structural reforms. Management has divested low margin and unprofitable businesses and are focussing on growing their profitable segments. There is also strong demand for the company's products from electric power utilities who are in the process of upgrading Japan's ageing power infrastructure. All of this is resulting in strong sales growth and margin expansion for the company.

Many of our high growth internet and software holdings performed poorly despite strong operational progress. Online real estate company GA Technologies grew its sales by 36% and more than doubled its profits in the first half of its current fiscal year. Yet, its shares have remained weak due to market concerns regarding the impact on its business from rising interest rates in Japan. It was a similar story with artificial intelligence software company Appier. It provides tools that help companies improve end user experience, increase customer retention, and generate better returns on investment. In the first half of its current fiscal year, the company grew sales by 32% and profits expanded 5-fold. Management also announced a near 1% share buyback. Despite all this, the shares have remained weak due to the broader high growth small cap sell-off. Another weak performer was Litalico, Japan's leading provider of training and employment services for disabled adults, and day care services for children with developmental disabilities. The business has suffered in the short‑term due to changes in regulation that have resulted in lower sales. But management have repositioned the business to make up for lost revenue and remains confident of a strong recovery.

We have an unusually strong pipeline of new stock ideas for the portfolio which has meant that turnover has been higher than usual at 18%. Active share has remained high at 96%, implying only a 4% overlap with the comparative index. We purchased six new holdings and exited nine. Among the new buys was Inforich, a provider of portable batteries for charging mobile phones. It has managed to scale quickly across Japan and is now the leading provider of portable charging stations. It has secured exclusive contracts at prime locations like major convenience store chains, train stations, and even Tokyo Disneyland, and is growing its sales and profits rapidly. Global Security Experts, a cybersecurity company, was another new purchase.

Japanese companies, in general, have historically under-invested in securing their IT infrastructure, a fact borne out by a series of recent high profile cyber-attacks on small and large companies. As a result, capital investment in cybersecurity solutions is rising and proving to be a strong tailwind for Global Security Experts.

Japan's largest hospice provider Amvis was also among the new purchases. Hospices are a new concept in Japan, a country where patients with terminal illnesses stay far longer at hospitals compared to other developed markets. This has resulted in extremely low turnover of patients at hospitals, which in turn has negatively impacted their sales generating ability. In recent years, hospices have emerged as a solution to this problem and Amvis has taken a leading role in providing the infrastructure to care for terminally ill patients, thereby alleviating a lot of the pressure on hospitals capacity.

Two of our holdings, premium camping equipment maker Snow Peak and staffing company Outsourcing, were acquired by private equity. Snow Peak has been struggling with falling sales and inventory issues in China whereas Outsourcing has had a series of accounting scandals in recent years. Management of both companies felt ill-equipped to resolve these issues and hence sought help from private equity. Also sold was longstanding holding and Japan's leading online drug marketing company M3. It has been owned in the portfolio for almost 20 years and has been a fantastic performer over this period, both in operational and share price terms. However, the business has also become very diversified, complex and growth has slowed markedly. We also sold online cosmetics retailer Kitanotatsujin. It has struggled to acquire new clients as the market has become more competitive. Management is having to significantly increase their advertising spend, squeezing margins in the process.

The past few years have been particularly challenging for Shin Nippon as our holdings have faced a perfect storm of macro headwinds. However, there are signs of change that should work in our favour. What makes us more excited is the fact that we start from a point where Shin Nippon's portfolio, by some measures, trades roughly in line with the benchmark but should achieve much faster growth. As the market and investors start acknowledging these fundamental attractions, it would not be surprising to see a strong and sustained turnaround in performance. Whilst we do not have a crystal ball to gaze into and determine when this will occur, we remain focussed on our fundamental task of identifying and investing in fast growing, dynamic, smaller companies in Japan.

The principal risks and uncertainties facing the Company are set out at the beginning of this report.

Valuing private companies

We aim to hold our private company investments at 'fair value', i.e. the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford, which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team with all voting members being from different operational areas of the firm, and the investment managers only receive final valuation notifications once they have been applied.

We revalue the private holdings on a three‑month rolling cycle, with one-third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued four times in a twelve‑month period. For investment trusts, the prices are also reviewed twice per year by the respective boards and are subject to the scrutiny of external auditors in the annual audit process.

Beyond the regular cycle, the valuations group also monitors the portfolio for certain 'trigger events'. These may include changes in fundamentals, a takeover approach, an intention to carry out an Initial Public Offering ('IPO'), company news which is identified by the valuation team or by the portfolio managers, or meaningful changes to the valuation of comparable public companies. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value ('NAV'). There is no delay.

The valuations group also monitors relevant market benchmarks on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate.

List of investments as at 31 July 2024

^*    Absolute performance is in sterling terms and has been calculated on a total return basis over the period 1 February 2024 to 31 July 2024.

^§    Private company (unlisted) investment.

^†    Figures relate to part period returns where the investment has been purchased in the period.

^#    See Glossary of Terms and Alternative Performance Measures below.

‡   Total assets less current liabilities, before deduction of borrowings. See Glossary of Terms and Alternative Performance Measures below.

Source: Baillie Gifford/Revolution and relevant underlying data providers. See disclaimer below.

Income statement (unaudited)

The accompanying notes below are an integral part of the Financial Statements.

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

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

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

Balance sheet (unaudited)

Statement of changes in equity (unaudited)

For the six months ended 31 July 2024

For the six months ended 31 July 2023

^*    The Capital reserve includes investment holding losses of £30,383,000 (31 July 2023 - losses of £6,551,000).

Condensed cash flow statement (unaudited)

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

Notes to the financial statements (unaudited)

1.       Basis of accounting

The condensed Financial Statements for the six months to 31 July 2024 comprise the statements set out above together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the principles of the AIC's Statement of Recommended Practice issued in November 2014 and updated in July 2022 with consequential amendments and have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 31 July 2024 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 January 2024.

Going concern

The Directors have considered the nature of the Company's principal risks and uncertainties, as set out at the beginning of this report, together with its current position, investment objective and policy, its assets and liabilities and projected income and expenditure. The Board has, in particular, considered the impact of heightened market volatility owing to macroeconomic and geopolitical concerns and reviewed the results of specific leverage and liquidity stress testing, but does not believe the Company's going concern status is affected. The Company's assets, which are primarily investments in quoted securities which are readily realisable (Level 1), exceed its liabilities significantly and could be sold to repay borrowings if required. All borrowings require the prior approval of the Board. Gearing levels and compliance with loan covenants are reviewed by the Board on a regular basis. The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) Regulations 2011. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

2.       Financial information

The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 January 2024 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on these accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006.

3.       Net losses on investments

4.       Investment manager

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee is 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder, calculated and payable quarterly.

5.       Tax

The Company suffers overseas withholding tax on its equity income, currently at the rate of 10%.

6.       Net return per ordinary share

Net return per ordinary share is based on the above totals of revenue and capital and the weighted average number of ordinary shares in issue during the period. There are no dilutive or potentially dilutive shares in issue.

7.       Dividends

No interim dividend has been declared in respect of the current period.

8.       Fair value financial assets

The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit or loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The Company's investments are financial assets held at fair value through profit or loss. In accordance with FRS 102, an analysis of the Company's financial asset investments based on the fair value hierarchy described above is shown below.

There have been no transfers between levels of the fair value hierarchy during the period. The fair value of listed security investments is bid value, or in the case of certain recognised overseas exchanges, last traded prices. Listed investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. Private company (unlisted) investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' private company valuation policy applies methodologies consistent with the International Private Equity and Venture Capital Valuation guidelines 2022 ('IPEV'). The techniques applied are predominantly market-based approaches. The market-based approaches available under IPEV are set out below:

•         Multiples;

•         Industry Valuation Benchmarks; and

•         Available Market Prices.

Further information on the private company (unlisted) valuation process is provided on above.

The Company's holdings in private company (unlisted) investments are categorised as Level 3 as unobservable
data is a significant input to their fair value measurements.

9.       Financial liabilities

The amounts falling due within one year include bank loans of £83,302,000 (¥16.1 billion) outstanding under yen loan facilities repayable on 8 November 2024 and 18 December 2024 and the revolving credit facilities repayable on a three monthly basis (31 January 2024 - bank loans of £86,475,000 (¥16.1 billion)).

10.     Fair value financial liabilities

The fair value of the bank loans at 31 July 2024 was £83,299,000 (31 January 2024 - £86,445,000).

11.     Share capital

The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as well as to buy back shares at a discount to net asset value. During the period under review, no shares were issued (31 July 2023 - nil) and 12,166,184 shares were bought back and held in treasury at a cost of £14,385,000 (31 July 2023 - £1,604,000).

12.     Transaction costs

Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £26,000 (six months to 31 July 2023 - £23,000; year to 31 January 2024 - £39,000) and transaction costs on sales amounted to £24,000 (six months to 31 July 2023 - £14,000; year to 31 January 2024 - £31,000).

13.     Related party transactions

There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Glossary of terms and alternative performance measures ('APM')

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The APMs noted below are commonly used measures within the investment trust industry and serve to improve comparability between investment trusts.

Total assets

This is the Company's definition of Adjusted Total Assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Shareholders' funds and Net Asset Value

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

Net Asset Value (borrowings at book value)

Borrowings are valued at adjusted net issue proceeds. The Company's yen denominated loans are valued at their sterling equivalent and adjusted for their arrangement fees. The value of the borrowings on this basis is set out in note 9 above.

Net Asset Value (borrowings at fair value) (APM)

This is a widely reported measure across the investment trust industry. Borrowings are valued at an estimate of their market worth. The Company's yen denominated loans are fair valued using methodologies consistent with International Private Equity and Venture Capital Valuation ('IPEV') guidelines. The value of the borrowings on this basis is set out in note 10 above.

Net liquid assets

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

Discount/premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Total return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. In periods where no dividend is paid the total return equates to the capital return.

^*    The dividend adjustment factor is calculated on the assumption that the final dividend of 0.80p paid by the Company during the period in respect of the year to 31 January 2024 was reinvested into shares of the Company at the cum income NAV per share/share price, as appropriate, at the ex-dividend date.

Ongoing charges (APM)

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value).

Gearing (APM)

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

Gearing represents borrowings at book less cash and cash equivalents expressed as a percentage of shareholders' funds.

Gross gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

^*    Gearing: ((a) - (b)) ÷ (c), expressed as a percentage.

^†    Gross gearing: (a) ÷ (c), expressed as a percentage.

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers ('AIFM') Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Active share (APM)

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

Private (unlisted) company

A private (unlisted) company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.

Third party data providers disclaimer

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, judgements, 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

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information 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. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction.

The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information collectively, the 'MSCI Parties' expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability or any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (msci.com).