Annual Financial Report

RNS Number : 4731D

Witan Pacific Investment Trust PLC

27 April 2017

 

WITAN PACIFIC INVESTMENT TRUST PLC

(the "Company")

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2017

Witan Pacific Investment Trust plc announces that its 2017 Annual Report and Accounts has been published. The full report can be accessed via the Company's website at www.witanpacific.com and will be circulated to shareholders shortly.

The Annual General Meeting of the Company will be held on 14 June 2017 at 3.00pm at the City of London Club, 19 Old Broad Street, London EC2N 1DS.

The Directors have proposed the payment of a final dividend of 2.55p per Ordinary share which, if approved by shareholders at the forthcoming Annual General Meeting, will be payable on 19 June 2017 to shareholders whose names appear on the register at the close of business on 19 May 2017 (ex-dividend 18 May 2017).

This announcement includes certain extracts from the 2017 Annual Report and Accounts. Any references to page numbers or sections in the following text are references to pages and sections in that report.

STRATEGIC REPORT

FINANCIAL SUMMARY

for the year ended 31 January 2017

Key data

	2017	2016	% change
NAV per share	333.87p	259.27p	+28.8%
Share price	286.00p	231.00p	+23.8%
Discount	14.3%	10.9%

Total returns

	2017	2016
NAV per share1	30.7%	-5.6%
Share price1	26.1%	-3.5%
Benchmark2	35.3%	-5.9%

Income

	2017	2016	% change
Revenue per share	4.41p	4.31p	+2.3%
Dividend per share	4.75p	4.65p	+2.2%

Ongoing charges³

	2017	2016
Excluding performance fees	1.03%	1.05%
Including performance fees	1.03%	1.05%

¹        Source: Morningstar/Witan Investment Services. The movement in the NAV per share adjusted to include the reinvestment of each dividend paid by the Company during the respective period's calculation.

²        Source: Morningstar. The benchmark for Witan Pacific Investment Trust plc is the MSCI AC Asia Pacific Index.

³        Recurring operating and management costs expressed as a percentage of average net assets.

LONG-TERM PERFORMANCE ANALYSIS

for the year ended 31 January 2017

Total returns since inception of multi-manager structure       

	Cumulative return since inception of the multi-manager structure 31/05/2005	Annualised return since the inception of the multi-manager structure 31/05/2005
NAV per share1	195.8%	9.7%
Share price2	189.0%	9.5%
Benchmark2	183.1%	9.3%

Total returns over each of the past five financial years (twelve months to 31 January)

	Cumulative
	5 year return	2017	2016	2015	2014	2013
NAV per share1	55.3%	30.7%	-5.6%	17.6%	-6.5%	14.7%
Share price2	64.4%	26.1%	-3.5%	16.6%	-5.2%	22.1%
Benchmark2	66.1%	35.3%	-5.9%	17.1%	0.2%	11.1%

¹          Source: Morningstar/Witan Investment Services. Total returns include dividends reinvested.

²          Source: Morningstar.

CHAIR'S STATEMENT

SUMMARY

·      NAV total return of 30.7% for the year, compared with benchmark 35.3%

·      Share price total return of 26.1%

·      Final dividend of 2.55p, making 4.75p for the year (+2.2%)

·      NAV total return of 195.8% since 2005, compared with benchmark 183.1%

·      Net assets £217 million (2016: £170 million)

Introduction and market background

This has been a particularly startling year for investors, even in the context of the long-term history of Witan Pacific. According to the physicist Niels Bohr, prediction is very difficult, especially about the future. The odds available for successfully predicting the combination of the result of the Brexit referendum, Leicester City Football Club winning the Premiership and Trump winning the US election were very long. Even if such a prediction had been successful, translating those results reliably into market moves would have presented a further challenge.

The unexpected happened, and the absolute returns to shareholders in Witan Pacific were spectacular, at least in the short term. The NAV total return was approximately 30.7%, and the share price total return was 26.1%. The NAV per share at the end of the year was 333.87p, an all-time high.

A significant part of that return was determined by the weakness of sterling. The Japanese yen, Australian dollar, Indonesian rupiah, Korean won and Taiwanese dollar all rose by around 20% against sterling. Thus the assets of your Company denominated in those currencies rose by roughly those amounts. The combination of those currency returns with considerable strength in local markets resulted in some spectacular returns around the region. Chinese shares recovered sharply from the turbulence at the beginning of the year, as did shares in Taiwan and Hong Kong. Japanese shares provided a return of around 30% in sterling terms, whereas Australian shares rose by a notable 40% translated back to the UK. Singapore rose a relatively sedate 18% in contrast.

So in absolute terms, the assets of your Company have risen significantly.

Performance

The Company's NAV did less well than the benchmark over the year under review, which is disappointing, particularly as the managers were doing much better than the benchmark until the end of the first half. Since the inception of the multi-manager structure, the NAV has outperformed that benchmark. Both Aberdeen and Matthews have outperformed since they were appointed. The last six months of the year have been very turbulent, however, with major sentiment driven "top down" themes seemingly overwhelming some less exuberant management styles following the election of Donald Trump. In a brief period in the last few months of the year, there were some very dramatic moves in basic materials, oil and gas stocks and in financials, which do seem now to be calming down. In the period since the year end, the Company's assets have outperformed the benchmark.  Healthcare stocks, which were the only group to rise in absolute terms in the previous year, fell in 2016/17, again probably as a result of the US President's comments. It would be unwise to panic in the middle of such uncertainty but we do keep a very close eye on the ways in which our managers are reacting to the circumstances in which they find themselves.

Over the year, it was pleasing to see Aberdeen do better than the market as a whole, after some years of underperformance. We are pleased to see their reactions to the last few years and believe there are useful changes underway, but we do note the recent announcement of the expected merger between Aberdeen and Standard Life and are monitoring this development closely. Matthews had a more difficult year after several strong years, largely as individual consumer-based stocks in China/Hong Kong suffered from fears of a trade war (and the share prices of those companies are, it seems, recovering). Gavekal found the market turbulence difficult to navigate and their growth oriented stocks seem to have been particularly affected by Trump-related fears.

Further details of the portfolio managers' activity and performance are set out in the Investment Review, which forms a part of this overall Strategic Report.

Dividend

Following the interim dividend of 2.20p per share paid in October 2016, the Board is proposing a final dividend of 2.55p per share for this half-year period, making a total dividend of 4.75p per share, a rise of 2.2% on last year, which meets the Company's aim to grow the dividend in real terms over the long term.

Subject to shareholder approval, the final dividend will be paid on 19 June 2017 to shareholders on the register at the close of business on 19 May 2017 (ex-dividend 18 May 2017).

The impact of currency moves on our income account is slightly more complicated than for the assets. Dividends received by the Company are translated when received, so what matters most is the rate of exchange at that point. Our income account was less supported by currency moves and indeed, the weakness of the yen in the latter part of 2016 adversely affected the income we received in the second part of the year.

Nevertheless, revenue earnings per share improved by 2% over the year, and we do believe that the region will continue to provide good dividend growth. Our managers' expectations for the next few years provide us with the confidence to increase our final dividend.

Discount

We do watch our discount very carefully. As indicated at the last year end, it had narrowed a little during the 2015/16 period. For most of the year, it traded more or less in line with many of the other Asian and Japanese investment trusts but slipped just at the end of the period. We have increased the rate of our buybacks. We are also continuing to focus our marketing efforts on private individuals, financial advisers who are interested in investment trusts and wealth managers. The feedback from these shareholders has been positive during the year but we keep working to improve our communications. A new website has recently been launched.

We also consider the value we add to our shareholders at each Board meeting and formally at our annual strategy meeting. We believe we can offer shareholders a wide and interesting exposure to the region through our multi-manager structure and the opportunity we have to continue to find interesting managers and investment approaches for shareholders.

Outlook

As I said at the beginning of this statement, prediction is difficult. There are certainly a number of geopolitical concerns which might affect the region, either directly or indirectly. Towards the end of the last financial year, markets seemed to be driven even more than usual by flows of money seeking to follow the latest Twitter pronouncement.

What is perhaps most important for the longer term is the way that portfolio managers appointed by the Company are able to access the opportunities provided by the region particularly when adverse sentiment provides a good entry point. Over the last year, the set back in the China A Share market has provided an opportunity to access that market and we have begun to invest there, albeit in a rather limited way at the moment. Likewise, the setback in Samsung shares has allowed your portfolio managers to increase holdings. The Board's recent trip to the region and meetings with your managers and other investors supported our view of the long-term trends and more recent changes which provide attractive opportunities. Examples of some of the areas which featured in discussions were the growth of the middle classes across Asia, changes in Japanese corporate behaviour (and the strength of Japanese companies' positions in the US), the radical actions taken by the Indian Government to take large notes out of circulation and the opening up of Vietnamese investment opportunities.

In the Board's view, the breadth of access which Witan Pacific offers continues to provide a range of exciting investment opportunities. No doubt there will be turbulence along the way, but the strengths of the region persist.

As this is the last statement I shall be writing for Witan Pacific, I would like to thank my fellow Board members for their continued commitment, challenge and support. I hand over with great confidence to Susan Platts-Martin and look forward to following the future of the Company.

Sarah Bates

Chair

26 April 2017

Company Secretary contact details:

Capita Company Secretarial Services Limited

1st Floor, 40 Dukes Place, London EC2A 7NH

email: [e-mail]

 

INVESTMENT REVIEW

for the year ended 31 January 2017

Performance summary 

The period under review began in inauspicious circumstances with investors fearing a global economic slowdown, collapsing commodity prices and uncertainty surrounding Chinese economic policy. The negative sentiment abated as these concerns evaporated without incident, allowing equity investors to enjoy a prolonged period of significant gains. All major equity markets recorded positive returns which were, for UK based investors, flattered by the contribution made by a weaker pound following the Brexit vote. Markets rose further following the election of President Trump as his promise of stimulative economic policy was seen as outweighing the potential negative impact of any protectionist rhetoric.

Economic growth was weaker than expected early in 2016 and central banks (particularly in Europe and Japan) reacted by pushing rates into negative territory. Global bond markets reacted to this stimulus and reached extraordinary valuations by the summer of 2016, as negative official rates and uncertainty surrounding Brexit caused over a quarter of the world's government bonds to offer negative yields at one point. This abnormality began to recede as the year progressed and accelerated following the US presidential election. This coincided with an improvement in growth expectations partly because of, and partly leading to, a stabilisation in commodity prices. This, in turn, allowed for a recovery in corporate earnings expectations and hence an improved environment for equity markets. Another notable factor last year was a significant shift in the relative fortunes of equity sectors with the more cyclical, value style (financials, commodities and energy) stocks outperforming those more dependable, steady earners such as consumer staples, which had been some of the best performing stocks over previous years due to their relatively predictable characteristics.

There were a number of bright spots appearing across Asian markets by the end of the year. Japanese economic indicators point to a tightening of the labour market and a pick-up in manufacturing activity, with the export market showing particular strength. Domestic consumption, however, remains stubbornly subdued. Economic activity in India appears to be recovering from the negative impact of Prime Minister Modi's anti-corruption drive and shock caused by the associated withdrawal of higher value bank notes. China, meanwhile, continues to evolve at a steady pace, with the high-quality service economy now contributing to over 50% of GDP. The economy continues to grow at a solid 6% p.a. rate, with investment and retail sales growth rates far outstripping developed markets and regional peers. There may, of course, be political bumps along the road as President Trump flexes his policy muscles and the 19th National Congress of the Communist Party of China approaches in late 2017. This, our managers believe, may present opportunities to buy high-quality companies at attractive prices. Elsewhere in Asia, investors continue to benefit from a relatively stable political environment, favourable demographics, sound monetary policies and high savings rates. The rise of the middle classes and increasing domestic consumption continue to lend weight to the argument that Asia is an attractive long-term investment proposition whose prospects are becoming more domestically driven and regionally interdependent.

Portfolio manager performance for the year ended 31 January 2017 and from appointment to 31 January 2017

Details of the portfolio manager structure in place at the end of January 2017 are set out in the following table, showing the proportion of Witan Pacific's assets each managed and the performance they achieved:

		Managed assets1		Performance		Annualised performance2
	Appointment date	£m	%	Manager %	Benchmark %	Manager %	Benchmark %
Aberdeen	31 May 2005	94.0	43.4	+39.2	+35.3	+11.4	+9.3
Matthews	30 April 2012	100.5	46.4	+28.4	+35.3	+13.3	+11.3
GaveKal3	24 April 2012	22.2	10.2	+22.3	+35.3	+10.1	+11.5

Source: BNP Paribas. All performance figures are disclosed on a pre-fee basis.

Notes:

¹        Excluding cash balances held centrally by the Company.

²        Since appointment.

³        Sourced from BNP Paribas and adjusted for 1.5% management fee, of which 0.75% is rebated to the Company directly, outside the fund.

Investors will be aware that many equity markets are at, or close to, all-time highs. Despite a sell-off in the second half of 2016, government bonds remain exceedingly expensive and equities exhibit comparatively attractive properties. Companies in Asia are reporting positive earnings and dividend growth and an improvement in the corporate governance landscape appears to be taking hold. The fears of deflation in the developed markets (including Japan) are receding to a point where mild inflation is starting to lead to talk of a return to less accommodative monetary policy. This removal of monetary stimulus, far from being perceived as a negative, may be viewed as a return to a more normal environment. Obviously, there are known risks in the form of political uncertainty in Europe (including the commencement of Brexit negotiations) and any lack of progress by the new White House administration, presenting potential clouds on the horizon.

We consider the second half of 2016 to be an extremely unusual period for investors and for active investors in particular. We are at a crossroads in economic policy, with an increasing number of countries around the world questioning the use of near-zero or even negative interest rates and some adopting, or considering, a range of fiscal options. Whether these take the form of tax breaks or infrastructure spending (or a combination) investors are clearly seeing 2016 as the year when deflationary fears peaked.

Our appointed managers, who tend to focus on the specific attributes of individual companies rather than on macroeconomic and political developments, found life increasingly difficult as last year wore on even though the absolute level of return was exceptionally good. There were a number of factors at play here, including being underweight Japan and Australia (two of the strongest markets following the Brexit vote), underweight cyclical stocks, which performed particularly well following the US election, and a small number of stock specific headwinds (such as Japan Tobacco, LG Chemical and BGF Retail) which the managers see as temporary setbacks. Indeed, BGF Retail has already recovered much of the ground lost, whilst the others remain at depressed levels. Evidence suggests that Witan Pacific's managers were not alone in suffering relative underperformance in 2016. A survey of UK active managers shows that just 20% outperformed their benchmarks last year and further evidence would suggest that global managers fared little better. This is certainly food for thought but, true or not, it is likelier that a roster of good active managers will produce good returns over the long run than that the experience of 2016 will be repeated in years to come. Our managers all construct portfolios on the basis of relative merits of their selected companies rather than the weight that those companies have in the benchmark. As such, performance may well vary quite considerably from that of the index over the short term but it is expected, as has been the case since inception, that their combined stock picking skills will prevail and that the multi-manager structure will deliver this outperformance with less volatility than a single manager might suffer. We consider such a 'bottom-up' strategy to be increasingly valuable in a world where uncertainty is high and the increased prevalence of index products (such as ETFs) means that fewer people are taking active investment decisions and opportunities for patient investors, such as our managers, should therefore be increasing.

The appointed managers remained unchanged over the year, although the percentage managed by each of the three has altered due to variations in relative performance. Matthews and Aberdeen manage 46.4% and 43.4% respectively, while Gavekal is responsible for 10.2% of the portfolio.

In the year to 31 January 2016, Matthews and Gavekal outperformed the benchmark while Aberdeen underperformed. In the year to 31 January 2017, Matthews and Gavekal underperformed the benchmark while Aberdeen outperformed. Further details are shown on page 7. The lion's share of this underperformance, particularly for Matthews, occurred in the second half of the year. This is a sharp turnaround in fortunes from the interim stage when the combined portfolio was ahead of its benchmark. There were several factors which contributed to this disappointing short-term performance.

First, it should be remembered that Matthews has generated significant outperformance since appointment in 2012. Their portfolio is heavily populated by Chinese and Hong Kong domiciled consumer stocks at the expense of Australian financials and commodity plays. This was a short-term headwind as some positions were impacted by a fear of US protectionism and others (which were not owned) enjoyed some stellar returns last year. We remain confident that their portfolio is of the highest quality and should continue to produce good relative returns as the headwinds subside. Since appointment, Matthews has produced returns of 13.3% per annum, which is significantly ahead of the 11.3% achieved by the benchmark.

Gavekal suffered a particularly difficult year as their geographic positioning and growth-oriented portfolio both detracted from relative performance. In addition, they tend to run with a significant fixed interest or cash position to help dampen volatility and this hindered relative performance in a strong year for equity markets.

Aberdeen, in contrast, enjoyed a return to a more productive environment following a number of fallow years. It appears that they have 'sharpened up' their process (without changing their research based investment style) and we are encouraged by the progress they have made this year. Returns were particularly good in the first half and, whilst performance lagged the benchmark in the second half, the net result was a positive one in both absolute and relative terms. Aberdeen has been one of our appointed managers since the adoption of the multi-manager strategy in 2005 and, over that period, they have outperformed the benchmark with an annualised total return of 11.4% compared with 9.3% for the index.

Combined portfolio composition

As previously explained, the Company's managers make no attempt to replicate (or track) the benchmark when constructing their portfolios. 'Active share' is a commonly used measure of how different from the benchmark any particular portfolio is, with 0% being identical to the benchmark and 100% implying that a portfolio contains none of the stocks in the benchmark. Active managers seek to have a high active share as this should facilitate, though by no means guarantee, outperformance of the benchmark. Our managers' portfolios have individual active share of between 82% and 87% and the Company's overall active share, whilst a little lower than last year, remains relatively high at 73%.

As Executive Manager, Witan Investment Services ("WIS") monitors the performance of the individual manager portfolios and the Company's combined portfolio. This analysis provides a wealth of information on portfolio characteristics, asset allocation (both geographic and sectoral) and risk data. The reports serve as the basis for discussion concerning the ongoing manager roster and resulting asset allocation (both absolute and relative to the benchmark) at regular Board meetings as well as on an ad-hoc basis.

The characteristics of the portfolio have, as we would expect, changed little over the year. Exposure to South Korea and Singapore has increased by approximately 2% each as the managers perceive there to be better prospects for some companies domiciled in these markets. Australia and Japan remain the most significant underweight positions in geographic terms. Financial stocks (particularly banks) dominate these two markets and our managers are only attracted to a limited number of these companies. That said, the changing nature of the global economic environment and the outlook for some of these sectors and markets has led our managers to increase exposure over the last few months.

The portfolio as a whole continues to have a bias away from many of the region's very largest companies. The benchmark is made up of over 1,000 companies, with the 20 largest representing 22.8% of the total market capitalisation. The portfolio, by contrast has a 13.4% weight in these 'mega-cap' stocks. Indeed, of those 20 stocks, the aggregate of the manager portfolios is only at or above benchmark weight in six companies, whilst none of the managers owned shares in five of the top 20 stocks. The aggregated portfolio had a weighting of 16.7% to the smallest companies by market capitalisation (which only account for 10% of the benchmark weight). The most overweight positions were HSBC, Minth Group (neither stock is in the benchmark), Seven & I, Japan Tobacco and Shenzhou International. The largest underweight positions include Tencent, Toyota, Alibaba, Commonwealth Bank of Australia and Softbank. The most significant portfolio development during the year under review was a notable increase in exposure to Samsung Electronics (from 1.5% to 3.4%). Samsung is a global company with a leading position in many product segments. It has experienced a number of well publicised issues in recent months which our managers consider to be disappointing but not significant. All three managers now own shares in Samsung, with two having taken advantage of share price weakness to initiate a holding in this well-resourced and globally dominant business, at an attractive valuation.

In last year's Strategic Report, we highlighted that the Company did not hold domestic Chinese A shares but would continue to keep this policy under review. During the year, the Board reconsidered this position and, after weighing up the relative risks and potential benefits of such investment, resolved to allow both Aberdeen and Matthews to invest in this market as and when they found attractive opportunities. Aberdeen have made a small investment via their China A Share Fund whilst Matthews will use the HK Shanghai Connect system. Both managers consider this market to offer a small number of attractive companies so exposure is likely to grow, but not rapidly.

Continued appointment of portfolio managers

As at the date of this Report, the Directors are of the opinion that the continuing appointment of the three portfolio managers, on the terms agreed, is in the interests of shareholders as a whole. The Board, in conjunction with WIS and consultants, as appropriate, considers the performance of, the allocations to and the appointments of each of the portfolio managers on a regular basis and may alter either allocations or appointments if considered to be in the Company's interests.

In addition, periodically, the Board travels to the region to visit the managers in their offices to carry out due diligence. The Board also takes the opportunity to meet with other managers while it is in Asia. As noted above, Aberdeen appears to have reacted to a period of underperformance and has implemented some minor changes to their process without changing their investment management style. Whilst we are encouraged by these signs of progress, the Board notes the proposed merger of Aberdeen with Standard Life. It will monitor developments closely, and in particular any impact on the management teams and processes in the Asia Pacific region. The Board remains confident in Matthews, in spite of some short-term performance issues and was reassured by their strong process, focus on quality companies which produce solid dividend growth, as well as their robust operational structure. Shareholders will note from comments above, that Gavekal has not enjoyed a successful year. The Board discussed this underperformance with Gavekal during its visit to the region in February 2017 and its, and the other managers', ongoing performance will continue to be monitored regularly as part of the Company's objective to outperform the regional equity index over the long term.

PORTFOLIO MANAGER INFORMATION

Aberdeen Asset Managers Limited ("Aberdeen")

Aberdeen, which has delegated management of the Company's assets to Aberdeen Asset Management Asia Limited, a wholly-owned subsidiary of Aberdeen Asset Management PLC, was established in Asia in 1992 and at 31 December 2016 was managing £57bn of assets in Asia. The 46 fund managers in the equity team follow a fundamental investment style emphasising the identification of good quality companies on low valuations relative to their growth potential.

Strategy

Aberdeen follows a stock-picking approach of investing in good quality, well-managed and soundly financed companies trading at attractive valuations, with the expectation of holding them for extended periods in order to benefit from the compounding of those companies' growth. Corporate governance and the alignment of management with shareholders' interests are additional important factors.

Performance

Aberdeen is one of the original portfolio managers appointed when the Company's multi-manager approach was adopted in 2005 and manages 43.4% of the Company's assets. During the year under review, it achieved a total portfolio return (before fees) of 39.2%, compared with 35.3% for the benchmark. Since appointment in 2005, it has achieved a total portfolio return of 11.4% p.a. compared with 9.3% p.a. for the benchmark, representing outperformance of 2.1% p.a. before fees.

Gavekal Capital Limited ("Gavekal")

Gavekal acts as advisor to several investment clients with combined assets of US$1.78bn (£1.44bn) as at 31 December 2016. The Gavekal Asian Opportunities UCITS is the largest and oldest single fund under management.

Strategy

The Gavekal Asian Opportunities UCITS in which the Company has invested, employs no leverage, except on a short-term basis, and does not "short" stocks. The portfolio is managed by Louis-Vincent Gave, a co-founder of Gavekal, and Alfred Ho, ex CIO of Invesco Asia. They are supported by two analysts. They vary the asset allocation between equities, bonds and cash according to their top-down view of economic prospects. The equity portfolio is invested in growth-oriented companies, focusing on earnings growth and valuation. Within the equity portfolio, weightings are driven by company-specific attractions not index weightings.

Performance

Gavekal was appointed as one of the Company's portfolio managers in April 2012 and manages 10.2% of the Company's assets. During the year under review, the Gavekal Asian Opportunities UCITS achieved a total portfolio return (before fees) of 20.8%, compared with 35.3% for the benchmark. Since inception, the fund has returned 8.6%, compared to 11.5% for the benchmark, representing an underperformance of 2.9% p.a. before fees.

Matthews International Capital Management LLC ("Matthews Asia")

Based in San Francisco, Matthews Asia is an independent, privately owned firm, and the largest dedicated Asia investment specialist in the United States. As at 31 December 2016, Matthews Asia had US$24.6bn (£19.9bn) in assets under management.

Strategy

The Company is invested in a segregated portfolio that is managed according to the Matthews Asia Dividend Strategy; the Lead Portfolio Managers are Yu Zhang, CFA, and Robert Horrocks, PhD. The Asia Dividend Strategy employs a fundamental, bottom-up investment process to select dividend paying companies with sustainable long-term growth prospects, strong business models, quality management teams, and reasonable valuations. The Asia Dividend Strategy is a total-return strategy focused on a balance between stable dividend yielding companies and companies with attractive dividend growth prospects, in order to provide both capital growth and a sustainable dividend yield. The strategy invests in companies of all sizes and has significant exposure to small and mid-cap stocks.

Performance

Matthews Asia was appointed as one of the Company's portfolio managers in April 2012 and manages 46.4% of the Company's assets. During the year under review, it achieved a total portfolio return (before fees) of 28.4%, compared with 35.3% for the benchmark. Since appointment in 2012, it has achieved a total portfolio return of 13.3% p.a. compared with 11.3% p.a. for the benchmark, representing outperformance of 2.0% p.a. before fees.

TOP TWENTY INVESTMENTS
as at 31 January 2017

This period	Last period1	Company	Country	% of total investments	Value £'000
1	(1)	Gavekal Asian Opportunities UCITS A UCITS fund investing in a growth-oriented Asian equity portfolio, Asian bonds and cash. The manager will vary the asset allocation in response to market conditions.	Asia Pacific	10.5	22,221
2	(2)	Aberdeen Global Indian Equity UCITS A UCITS fund, whose objective is to invest in the equity of companies which are incorporated in India or which derive significant revenue or profit from India. This is a cost effective way of investing in India and does not affect Aberdeen's overall remuneration.	India	3.5	7,315
3	(14)	Samsung Electronics A South Korean consumer, domestic and industrial electronics company. Samsung is a market leader in semiconductor manufacturing, mobile phones, televisions and OLED panels for monitors and mobile devices. It is also a major player in the home appliances market.	South Korea	3.4	7,158
4	(5)	Taiwan Semiconductor Manufacturing The world's largest dedicated semiconductor foundry, TSMC provides wafer manufacturing, wafer probing, assembly and testing, mask production and design services.	Taiwan	2.5	5,269
5	(-)	HSBC As one of the world's largest banks, HSBC provides a wide variety of international banking and financial services with the majority of its revenues originating in Asia and Europe but with operations worldwide.	China/ Hong Kong	2.5	5,179
6	(19)	Seven & I Holdings With headquarters in Japan, Seven & I's 56,000 store network extends worldwide to include the 7-Eleven brand in Japan, China and North America. The group also includes superstores, supermarkets, department stores, restaurants and other operations.	Japan	2.1	4,412
7	(3)	Japan Tobacco A global tobacco company with operations in 120 countries producing a wide range of tobacco products. It was originally formed from the non-US operations of R.J. Reynolds in 1999 and has since grown through acquisition.	Japan	2.0	4,306
8	(4)	AIA Group The leading life insurance provider in the Asia Pacific region. It provides insurance and wealth management services to individuals and businesses.	China/ Hong Kong	2.0	4,284
9	(-)	Minth Group Chinese auto-parts business supplying many of the world's leading carmakers from factories in China, USA, Thailand and Mexico. Minth has over 130 clients for its structural body, trim and decorative auto-parts, including Toyota, GM, Honda and BMW. With 30 production facilities in China alone, Minth is an integral part of the burgeoning Chinese automobile industry.	China/ Hong Kong	1.9	3,921
10	(6)	China Mobile China's largest mobile telephone operator. It operates the world's largest mobile network and, with 806 million customers, it has the largest mobile customer base. The company is developing a fast growing 4G telecoms network and has added over 100 million 4G customers in the past year.	China/ Hong Kong	1.8	3,803
11	(-)	United Overseas Bank Singaporean multinational banking organisation with over 500 offices across 19 countries. Core markets include Singapore, Thailand and Indonesia with a strong presence in 12 other Asian countries and branches in all major world financial centres.	Singapore	1.7	3,575
12	(-)	Itochu Corp A Japanese trading firm with core strength in textiles as well as interests in aerospace, machinery, metals/mining, food distribution, building products and real estate. Itochu's strategic alliances with CITIC (China) and Charoen Pokhand Group (Thailand) give it a Pan-Asian dimension.	Japan	1.7	3,480
13	(9)	Shenzhou International One of China's largest textile companies, Shenzhou principally produces and finishes knitwear for the global branded sports and casualwear market. Customers include Nike, Adidas, Puma and Uniqlo.	China/ Hong Kong	1.6	3,293
14	(-)	Mitsubishi Ufj Financial Group Japan's largest financial services company with operations in retail & business banking, corporate & investment banking as well as asset management, investor services and real estate.	Japan	1.5	3,250
15	(15)	Singapore Technologies Engineering Global integrated engineering group spanning aerospace, electronics, marine and land systems sectors. It is the world's largest commercial aircraft maintenance operator.	Singapore	1.5	3,219
16	(-)	Sumitomo Mitsui Financial Group SMFG is the holding company for Sumitomo Mitsui Banking which, with over 400 Japanese and 40 global branches, is one of the market leaders in the Japanese banking industry. SMFG also has interests in consumer finance, leasing, securities trading and asset management.	Japan	1.5	3,184
17	(18)	Shin-Etsu Chemical A leading manufacturer of polyvinyl chloride, silicon and silicon wafers for semiconductors.	Japan	1.4	2,884
18	(-)	Aberdeen Global China A Equity UCITS A UCITS fund, whose objective is to invest in the equity of companies which are incorporated in China and traded on the Chinese Stock Exchanges. This is a cost effective way of investing in China and does not affect Aberdeen's overall remuneration.	China/ Hong Kong	1.3	2,771
19	(12)	LG Chemical LG Chem Ltd produces petrochemicals, plastic resins and engineering plastics. LG Chem is also one of the world's largest producers of materials used in TV screens, computer monitors, smartphone and tablet displays. It is also at the cutting-edge of lithium-ion mobile battery technology.	South Korea	1.3	2,768
20	(-)	Rio Tinto An Anglo-Australian metals and mining corporation with global operations in copper, aluminium, energy, diamonds, iron ore and other metals.	Australia	1.3	2,754
Totals				47.0	99,045

The value of the twenty largest holdings represents 47.0% (31 January 2016: 46.5%) of the Company's total investments. The full portfolio listing is published monthly (with a three-month lag) on the Company's website.

¹ The figures in brackets denote their position within the top 20 at the previous year end. The country shown is the country of incorporation.

CORPORATE REVIEW

Witan Pacific is an investment trust, which was founded in 1907 and has been listed on the London Stock Exchange since its foundation. It operates an outsourced business model, under the direction and supervision of the Board of Directors.

Strategic Report

The Strategic Report on pages 2 to 25 of the Annual Report and Accounts has been prepared in accordance with the requirements of Section 414 of the Companies Act 2006 and best practice. Its purpose is to provide information to the shareholders of the Company and help them to assess how the Directors have performed their duty to promote the success of the Company, in accordance with Section 172 of the Companies Act 2006.

Strategy and investment policy

Investment policy

The Company's investment objective is to provide shareholders with capital and income growth from a diversified portfolio of investments in the Asia Pacific region designed to outperform the MSCI AC Asia Pacific Index in sterling terms.

Since 2005, the Company has followed a multi-manager approach, using a blend of active portfolio managers with the aim of outperforming the benchmark. The investment policy includes investments in a wide range of regional markets, including the main Southeast Asian and North Asian markets as well as Japan, India and Australia. The range of investment opportunities for the portfolio managers is not limited to the constituents of the benchmark or benchmark weightings. This means that Witan Pacific's portfolio is likely to differ from the benchmark. Witan Pacific invests primarily in equities: in normal circumstances the Board expects the portfolio's equity exposure to be a minimum of 90% of net assets. Therefore, the overall performance of regional equity and currency markets and the operating performance of specific companies selected by the managers is likely to have the most significant impact on the performance of the Company's net asset value.

The Board actively investigates alternative assets and new investment techniques and will use them if, in the Board's view, they provide the potential to enhance shareholder returns.

Investment risk is managed through:

■ the selection of at least two portfolio managers. Details of the proportion of assets managed by them and the portfolios managed by them are set out on pages 12 and 13;

■ the portfolio managers are required to spread their investments over a number of securities within the region;

■ monitoring of portfolio manager performance and portfolios. Portfolio manager performance against the benchmark is set out on page 7; and

■ monitoring of sector and country allocation, currency exposures and gearing levels.

Implementation of the investment policy in the year

During the year, the Company invested its assets with a view to spreading investment risk and, in accordance with the investment objective set out above, maintained a diversified portfolio, the analysis of which is shown on pages 8, 12 and 13.

The Directors receive regular reports on investment activity and portfolio construction at meetings of the Board, as well as periodically outside of these meetings.

The Board holds an annual strategy meeting. The Directors use the strategy day to consider, amongst other things, the relevance of the investment mandate, the multi-manager approach, the marketing of the Company and the discount. The Board continues to believe that the Company's offering of a broad Asia Pacific mandate, implemented through a carefully selected group of managers, is an attractive and distinct proposition for shareholders. It further believes that, if superior returns are achieved over the long term, the discount should narrow. In the meantime, the Company will maintain its marketing programme and buy-back policy.

The Company sponsors an ongoing marketing programme provided by WIS. This programme communicates with private investors and their financial advisers, as well as professional investors, to help them make informed decisions about whether investing in the Company's shares can help them to meet their investment objectives.

The unbundling of investment management from the Company's other necessary services has provided transparency of the Company's cost base as well as flexibility in case it becomes desirable to change the service provider in a particular area. The Board takes care to ensure strict monitoring and control of costs and expenses.

Please also see the Chair's Statement and the Investment Reivew for further commentaries on the year.

Business model

The Company is an investment trust and aims to provide shareholders with capital and income growth from a diversified portfolio of investments in the Asia Pacific region. The Board achieves this through:

■ the selection of suitable portfolio managers;

■ the choice of investment benchmark;

■ investment guidelines and limits;

■ the appointment of providers for other services required by the Company; and

■ the maintenance of an effective system of oversight, risk management and corporate governance.

The Board's role in investment management

Although the Board retains overall risk and portfolio management responsibility, it appointed the portfolio managers after a disciplined selection process focused on their scope to add value and their fit with the overall balance of the portfolio. The selection of individual investments is delegated to these external portfolio managers, subject to investment limits and guidelines which reflect the particular mandate and the specific investment approach which the Company has selected (e.g. quality, growth in dividend).

Approximately 90% of the portfolio is managed in two segregated accounts, held at the Company's custodian. The balance of the portfolio is held in a Dublin UCITS open-ended investment company, for which holdings information is regularly available. This enables the Company to view the portfolio as a whole and to analyse its risks and opportunities as well as those at the level of each portfolio manager's portfolio.

Information regarding the proportion of Witan Pacific's assets managed by each and of their performance during the year is set out on page 7.

Our selected benchmark

The Company's benchmark is a reference point for a comparison of results from an investment in Witan Pacific. The benchmark is the MSCI AC Asia Pacific Index in sterling terms, with gross dividends reinvested ("MSCI Index" or "benchmark").

The benchmark is a widely diversified regional index which includes the principal countries in the Asia Pacific region.

The portfolio managers select stocks which they consider attractive, wherever they are located in the region. As a result, the geographical location of the holdings differs from the benchmark. The geographical distribution of the portfolio and of the benchmark are set out in the map and table on page 11.

Priorities for the year ahead

For the year ending 31 January 2018, the key priorities for Witan Pacific include:

■ Investment. Monitor and manage the portfolio managers with the objective of delivering good returns to shareholders whilst assessing the risk approach of each portfolio manager.

■ Marketing and Communications. Communicate Witan Pacific's active multi-manager approach, highlight the distinct pan-Asian investment remit to existing and potential shareholders and raise the profile for retail investors. The marketing programme, in combination with the buy-back policy, aims to reduce the Company's discount over time.

■ Governance. Ensure effective oversight of all service providers and compliance with all applicable rules and guidelines, and monitor supplier risk including cyber-risk.

■ Costs. Monitor and manage costs carefully, with a view to achieving an ongoing charges ratio in line with the Company's target of less than 1% per annum.

Dividend Policy

As indicated in the Chair's Statement, the Company aims to grow its dividend in real terms over the long term. The Company has substantial levels of revenue reserves available to smooth the effect of temporary fluctuations in dividends from investments, where this is viewed as prudent and beneficial for shareholders. Shareholders agreed at the 2013 AGM to amend the Articles of Association ("Articles") to permit the distribution of Capital Reserves as dividends. The Company has stated that this is to confer flexibility in pursuing its investment objectives and that it would be the norm for dividend payments to be funded from revenue over the cycle.

The Company paid a final dividend for the previous year of 2.50p in June 2016 and an interim dividend of 2.20p in October 2016 for the year under review. The latter payment compared to a 2.15p interim dividend the year before. The Company has proposed a final dividend for 2016/17 of 2.55p, making a total payment for the year of 4.75p per share. This is an increase of 2.2% on the previous year, which compares with a 1.8% rise in the Consumer Price Index ("CPI") during the year.

Revenue earnings per share during the year amounted to 4.41p per share. This is an increase of 2.1% on the previous year.

Key performance indicators

The Board monitors success in implementing the Company's strategy against a range of Key Performance Indicators ("KPIs") which are viewed as significant measures of success over the longer term. Although performance relative to the KPIs is also monitored over shorter periods, it is success over the long term that is viewed as more important, given the inherent volatility of short-term investment returns. The principal KPIs are set out below, with a record (in italics) of the Company's performance against them during the year.

NAV total return and total shareholder return.

Long-term outperformance of the combined portfolios compared with the benchmark is a key objective.

The NAV total return was 30.7%, underperforming the benchmark total return of 35.3%, while the shareholder total return was 26.1%. Since the adoption of the multi-manager strategy in 2005, the NAV total return was 195.8%, outperforming the benchmark return of 183.1%. The shareholder total return was 189.0%.

Investment performance by the individual portfolio managers.

Long-term outperformance relative to the benchmark is sought.

Over the year, Aberdeen outperformed the benchmark, whilst Matthews and Gavekal underperformed. Aberdeen and Matthews have outperformed the benchmark since appointment, whilst Gavekal has underperformed. Details are shown in the table on page 7.

Annual growth in the dividend.

The Company's aim is to deliver increases in real terms, ahead of UK inflation.

The dividend for the year ended 31 January 2017 rose (subject to shareholder approval) by 2.2%, compared with an inflation rate of 1.8% during the year. Since the adoption of the multi-manager strategy, dividends have grown at an annualised rate of 14.3% compared with an annualised inflation rate of 2.3%.

Discount to NAV.

The objective is to avoid excessive fluctuations in the discount and avoid a discount which is anomalously wide compared with other trusts investing in the region by the use of share buy-backs, subject to market conditions.

The discount ended the financial year at 14.3% compared with 10.9% a year earlier. The average discount of the Company over the year was 14.4% (2016: 12.5%).

The level of ongoing charges.

Costs are managed with the objective of delivering an ongoing charges figure of less than 1% (excluding performance fees). Where higher charges arise, these are carefully evaluated to ensure there is a net benefit for shareholders.

The ongoing charges figure was 1.03% (2016: 1.05%).

Gearing and the use of derivatives

Borrowings and gearing

The Company has the power under its Articles to borrow up to 100% of the adjusted total of capital and reserves. However, in accordance with the Alternative Investment Fund Managers' Directive ("AIFMD"), the Company was registered by the FCA as a Small Registered UK Alternative Investment Fund Manager ("AIFM") with effect from 1 April 2014. To retain its Small Registered UK AIFM status, the Company is unable to employ gearing. It is therefore the Company's approach not to employ gearing, subject to periodic review of the costs and benefits of full AIFM authorisation. This was a matter of discussion at the Board Strategy day in January 2017.

The Company's segregated portfolio managers are not permitted to borrow within their portfolios, but may hold cash if deemed appropriate.

Use of derivatives

Aberdeen and Matthews are not permitted to use derivatives or to gear their portfolios, nor does the Company use derivatives itself.

The Company has a 10.2% investment in a Dublin-domiciled open-ended investment company (Gavekal Asian Opportunities UCITS) whose articles of association allow the use of currency and equity derivatives. The fund is regulated under UCITS rules and does not employ leverage, other than within the terms of its prospectus.

Market liquidity and discount

The Board believes that it is in shareholders' interests to buy-back the Company's shares when they are standing at a substantial and anomalous discount to the Company's NAV. The objective is to avoid excessive fluctuations in the discount and avoid a discount which is anomalously wide compared with other trusts investing in the region by the use of buy-backs, subject to market conditions. The purchase of shares priced at a discount to NAV per share will, all other things being equal, increase the Company's NAV per share and benefit the Company's share price. During the year, the Company bought back 713,979 shares into treasury, at times when supply and demand in the market were out of balance and the discount was particularly wide. This added 0.47p to NAV per Ordinary share.

Since the year end, the Company has repurchased a further 1,517,571 Ordinary shares, which have been placed into treasury. Treasury shares may only be reissued at a premium to the prevailing NAV.

Witan Pacific is an investment trust, so the purpose of "marketing" is to provide effective communication of developments at the Company to existing and potential shareholders to help sustain a liquid market in the Company's shares. Clear communication of the Company's investment objective and its success in executing its strategy make it easier for investors to decide how Witan Pacific fits in with their own investment objectives. Other things being equal, this should help the shares to trade at a narrower discount, from which all shareholders would clearly benefit.

In view of these potential benefits, the Company has felt for many years that it is beneficial to incur the limited costs of operating a marketing programme (through WIS) in order to disseminate information about our investment strategy and performance more widely. This programme communicates with private and professional investors, financial advisers and intermediaries using a range of media (including direct meetings, press interviews and advertising through traditional media and the internet). The Company also provides an informative and easy to use website (www.witanpacific.com) to enable investors to make informed decisions about including Witan Pacific shares in their investment portfolios.

Corporate and operational structure

Investment management arrangements

Each of the portfolio managers, Aberdeen, Gavekal and Matthews, is entitled to a base management fee, levied on the assets under management. In addition, one portfolio manager (Aberdeen) is entitled to a performance fee, calculated according to investment performance relative to the benchmark. The agreements with Aberdeen and Matthews can be terminated on one month's notice. Units in Gavekal's UCITS Fund can be sold at any time. Further details on fee arrangements are set out on pages 28 and 29.

The Company's external portfolio managers may use certain services which are paid for, or provided by, various brokers. In return, they may place business, including transactions relating to the Company, with those brokers.

Operational management arrangements

In addition to the appointment of external managers, Witan Pacific contracts with third parties for the supporting services it requires, including:

■ WIS for Executive Management services; WIS has experience of the issues arising in operating a multi-manager structure, and manages and monitors the outsourced structure and relationships, provides commentary on investment issues and provides marketing services including the management and administration of a share savings plan. The Executive Manager reports to the Board on key aspects at all Board meetings as well as drawing attention as required to matters requiring non-routine review by the Board.

■ BNP Paribas Securities Services for investment accounting and administration;

■ JP Morgan Chase Bank, N.A. for investment custody services;

■ Capita Registrars Limited for company secretarial services (through Capita Company Secretarial Services Limited); and

■ the Company also takes specialist advice on regulatory and compliance issues and, as required, procures legal, investment consulting, financial and tax advice.

As with investment management, the contracts governing the provision of these services are formulated with legal advice and stipulate clear objectives and guidelines for the level of service required.

Premises and staffing

Witan Pacific has no premises nor employees.

Environmental, human rights, employee, social and community issues

The Company has no employees and its core activities are undertaken by WIS, Aberdeen, Gavekal and Matthews, which consider policies relating to environmental and social matters as part of their investment process. The Company has therefore not reported on these, or community or human rights issues. However, it reviews its portfolio managers' reports on their policies relating to environmental, social and corporate governance issues and discusses the managers' approaches with them. The portfolio managers are also prepared to use their votes in these areas as part of the proper management of the investments made on the Company's behalf and the Board periodically reviews their approaches with them.

The Board of Directors consists of three female and two male non-executive Directors. It is the Directors' policy to appoint individuals on merit whilst taking into account the balance of skills and experience required by the Board.

Cost analysis

The Company exercises strict scrutiny and control over costs. Any negotiated savings in investment management or other fees will directly reduce the costs for shareholders. The information on costs is collated in a single table below. This indicates the main cost headings in money terms and as a percentage of net assets.

Category of costs1	Year ended 31 January 2017		Year ended 31 January 2016
	£m	% of average net assets	£m	% of average net assets
Management fees2	1.30	0.65	1.12	0.62
Other expenses	0.76	0.39	0.81	0.45
Non-recurring expenses	(0.01)	(0.01)	(0.03)	(0.02)
Ongoing charges excluding performance fees	2.05	1.03	1.90	1.05
Ongoing charges including performance fees	2.05	1.03	1.90	1.05
Portfolio transaction costs	0.20	0.10	0.16	0.09

¹ For a full breakdown of costs, see notes 3 and 4 on pages 61 and 62.

² Figures inclusive of fees paid to WIS and fees paid to Gavekal of which £0.31m (2016: £0.29m) is charged to capital and therefore not included in the amounts charged to revenue in note 3 on page 61.

Principal risks and uncertainties

The Audit Committee regularly (at least annually) reviews the risks facing the Company by maintaining a detailed record of the identified risks in the form of a Risk Matrix which assesses the likelihood of such risks occurring and the severity of the potential impact of such risks. This enables the Board to take action and develop strategies in order to mitigate the effect of such risks to the extent possible. An analysis of financial risks can be found in note 16 to the financial statements on pages 67 to 73.

A robust assessment of the principal risks has been carried out, including a review of those risks which would threaten the Company's business model, future performance, solvency or liquidity.

Information about the Company's internal control and risk management procedures can be found in the Audit Committee Report on page 42.

The Board has identified the following as being the principal risks and uncertainties facing the Company:

Risk	Mitigation
Inappropriate business strategy and/or changes in the financial services market leads to lack of demand for the Company's shares and to an increase in the discount of the share price to the NAV.	The Board reviews its strategy at an annual strategy meeting. It considers investor feedback, consults with its broker and reviews its marketing strategy. It regularly reviews its discount control policy. The strategy is considered in the context of developments in the wider financial services industry.
Adverse market conditions, particularly in equities and currencies, lead to a fall in NAV.	The Company's exposure to equity market risk and foreign currency risk is an integral part of its investment strategy. Adverse markets may be caused by a range of factors including economic conditions and political change. Volatility in markets from such factors can be higher in less developed markets. Market risk is mitigated to a degree by careful selection of portfolio managers and appropriate portfolio diversification.
Poor investment performance, including through inappropriate asset allocation, leads to value loss for shareholders in comparison to the benchmark or the peer group.	The performance of the portfolio managers is reviewed at each Board meeting, and compared against the benchmark, and similar investment opportunities. Exposures against companies and countries are reviewed against benchmark exposure to identify the highest risk exposures. In a multi-manager structure, different portfolio construction styles can mitigate under performance. The Board reviews the investment strategies of the managers at least annually.
A reduction in income received from the companies in which it invests, from adverse currency movements, or from portfolio reallocation could lead either to lower dividends being paid by the Company or to dividends being paid out of reserves.	The Board reviews forecast income at each Board meeting, and also receives longer term views on income from the portfolio managers. The Company has substantial revenue reserves which can be utilised without requiring the use of other reserves.
Operational failure leads to reputational damage and potential shareholder loss. Operational issues could include: errors, control failures, cyber-attack or business discontinuity at service providers.	The Audit Committee reviews the controls at the service providers and requires appropriate reports. Separate records of investments are maintained by the portfolio managers, custodian and fund accountants, and are reconciled. The Executive Manager also monitors the performance and controls of third party providers.
Tax and regulatory change or breach leads to the loss of investment trust status and, as a consequence, the loss of the exemption from taxation of capital gains. Change in tax, regulation or laws could make the activities of the Company more complicated, more costly or even not possible. Other regulatory breaches (including breaching the listing rules, market abuse regulations and AIFMD) could result in reputational damage and costs. Regulatory change can also increase the costs of operating the Company.	Compliance with investment trust status regulations is reviewed at each Board meeting. The Board reviews compliance with other regulatory, tax and legal requirements and is kept informed of forthcoming regulatory changes.

Leaving the EU. The Board has also considered the potential implications for the Company (to the extent identifiable) of the UK no longer being a member of the EU. Given the Company is invested in the Asia Pacific region, the greatest impact has been, and may continue to be, the movement of sterling against international currencies. Because the value of the Company's investments, and income received, is denominated substantially in overseas currencies, any further fall in sterling will increase the value of those investments, and income received, in sterling terms. Conversely, any rise in sterling will decrease the value of those investments, and income received, in sterling terms.

Viability

In accordance with the provisions of the UK Corporate Governance Code, the Board has assessed the viability of the Company, and selected a period of five years for the assessment.

The Board considers five years to be a reasonable period for its assessment. The Board views the Company as a long-term investment vehicle, with strong financials and good liquidity in its portfolio. In selecting a five year period, the Board has balanced that view against the inherent uncertainties in equity markets.

In conducting the assessment, the Board has taken account of the following:

■ The Company is an investment trust founded in 1907, whose investment portfolio is invested in readily realisable listed securities. The portfolio is well diversified in terms of both sector and geography within its Asia Pacific remit.

■ The Company currently has no borrowings.

■ The expenses of the Company are reasonably predictable, modest in comparison to the assets and adequately covered by investment income.

The Board has also taken account of its strategy and investment policy set out on page 17, and the principal risks and uncertainties set out on pages 24 and 25. The Company operates a robust risk control framework to manage those risks and uncertainties.

The Board's assessment assumes that there is continuing demand amongst shareholders for the investment trust structure and the mandates which the Board gives its managers.

Based on the above, the Board confirms that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of this assessment.

Approval

This Strategic Report has been approved by the Board and signed on its behalf by

Sarah Bates

Chair

26 April 2017

BOARD OF DIRECTORS

Sarah Bates - Chair

Dermot McMeekin - Senior Independent Director, Nomination and Remuneration Committee Chairman

Susan Platts-Martin

Andrew Robson - Audit Committee Chairman

Diane Seymour-Williams

All the Directors are members of the Audit Committee and of the Nomination and Remuneration Committee.

EXTRACTS FROM THE DIRECTORS' REPORT

Share capital 

At 31 January 2017, there were 65,944,000 Ordinary shares of 25p each in issue (2016: 65,944,000 Ordinary shares), of which 938,957 were held in treasury. At the 2016 AGM, the Directors were granted authority to buy back up to a maximum of 9,817,593 Ordinary shares; such authority will expire at the conclusion of the 2017 AGM when the Directors will seek a renewal of the authority.

During the year to 31 January 2017, the Company repurchased a total of 713,979 Ordinary shares to hold in treasury. At 31 January 2017, the unused authority to buy back Ordinary shares as granted by shareholders at the Company's 2016 AGM, was 9,459,952 Ordinary shares. The nominal value of Ordinary shares repurchased during the period was £178,495. The total consideration for these repurchases was £1,820,000.

Following the year end, the Company has repurchased a further 1,517,571 Ordinary shares to hold in treasury (as at 26 April 2017), with a nominal value of £379,393. The total consideration for these repurchases was £4,544,675.

At 26 April 2017, there were 65,944,000 Ordinary shares of 25p each in issue. 2,456,528 Ordinary shares were held in treasury, representing 3.7% of the issued Ordinary share capital as at 31 January 2017. Each Ordinary share carries one vote, therefore, the total votes in issue were 63,487,472.

The share purchases described here were performed in accordance with the Company's stated policy of buying back shares when the Company's shares are standing at a substantial and anomalous discount to their NAV.

The impact to the NAV as a result of the buy-back activity for the year ended 31 January 2017 was an enhancement of £305,099 or 0.47p per Ordinary share.

Results and dividend

Revenue return after taxation	£'000
Net revenue return after taxation	2,880
Dividends paid/payable:
Interim dividend of 2.20p per share	(1,433)
Final dividend of 2.55p per share	(1,619)
Residual revenue return after dividends	(172)
At 31 January 2017
Revenue reserve1	10,697

¹ Revenue reserve excludes the final proposed dividend for the year ended 31 January 2017 of £1,619,000, payable on 19 June 2017.

Going concern

The activities of the Company, together with the factors likely to affect its future development, performance, financial position, its cash flows and liquidity position are described in the Strategic Report.

In addition, the Company's policies and processes for managing its key financial risks are described in note 16 on pages 67 to 73.

The assets of the Company consist mainly of securities which are readily realisable, and, as at 31 January 2017, the Company's total assets less current liabilities were in excess of £217 million. As a consequence, the Directors believe that the Company continues to be well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the next year. Accordingly, they continue to adopt the going concern basis in preparing this Annual Report and Accounts.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

in respect of the Annual Report and financial statements

The Directors are responsible for preparing the Annual Report and the 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, the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), 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 the net return or loss of the Company for that year. In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and accounting 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; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of 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 comply with that law and those regulations, and for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.

The financial statements are published on www.witanpacific.com, which is a website maintained by the Company's Executive Manager, Witan Investment Services Limited. The Directors are responsible for the maintenance and integrity of the Company's website. The work carried out by the Independent Auditors does not involve consideration of the maintenance and integrity of the website and accordingly, the Independent Auditors accept no responsibility for any changes that have occurred to the Annual Report and Accounts since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.  

The Directors consider that the Annual Report and Accounts as a whole, are fair, balanced and understandable and provide the necessary information for shareholders to assess the Company's position and performance, business model and strategy.

Declaration

Each of the Directors, whose names and functions are listed on pages 26 and 27, confirm that, to the best of their knowledge:

·      the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

·      the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

Sarah Bates

Chair

26 April 2017

 

INCOME STATEMENT

for the year ended 31 January 2017

		Year ended 31 January 2017				Year ended 31 January 2016
			Revenue	Capital		Revenue	Capital
	Revenue	Capital	return	return	Total	return	return	Total
	note	note	£'000	£'000	£'000	£'000	£'000	£'000
Gains/(losses) on investments held at fair value through profit or loss		8	-	48,841	48,841	-	(13,038)	(13,038)
Exchange losses		14	-	(142)	(142)	-	(123)	(123)
Investment income	2		5,004	-	5,004	4,782	-	4,782
Management fees	3		(994)	-	(994)	(834)	-	(834)
Other expenses	4	14	(754)	(43)	(797)	(807)	(35)	(842)
Net return/(loss) on ordinary activities before taxation			3,256	(48,656)	(51,912)	3,141	(13,196)	(10,055)
Taxation on ordinary activities	5	5	(376)	-	(376)	(305)	-	(305)
Net return/(loss) on ordinary activities after taxation			2,880	48,656	51,536	2,836	(13,196)	(10,360)
Basic and diluted return per ordinary share - pence	6	6	4.41	74.50	78.91	4.31	(20.03)	(15.72)

All revenue and capital items in the above statement derive from continuing operations. The total columns of this statement represent the Income Statement of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The Company had no other comprehensive income, recognised gains or losses other than those disclosed in this statement.

There is no material difference between the net return/(loss) on ordinary activities before taxation and the net return/(loss) for the financial year stated above and their historical costs equivalents.

The notes on pages 58 to 73 form an integral part of these financial statements.

 

STATEMENT OF CHANGES IN EQUITY

for the year ended 31 January 2017

	Note	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Shareholders' funds £'000
Year ended 31 January 2017
At 1 February 2016		16,486	5	41,085	101,926	10,886	170,388
Net return on ordinary activities after taxation and total comprehensive income		-	-	-	48,656	2,880	51,536
Purchase of own shares	12	-	-	-	(1,820)	-	(1,820)
Dividends paid	7	-	-	-	-	(3,069)	(3,069)
At 31 January 2017		16,486	5	41,085	148,762	10,697	217,035
Year ended 31 January 2016
At 1 February 2015		16,486	5	41,085	115,636	11,068	184,280
Net return on ordinary activities after taxation and total comprehensive income		-	-	-	(13,196)	2,836	(10,360)
Purchase of own shares	12	-	-	-	(514)	-	(514)
Dividends paid	7	-	-	-	-	(3,018)	(3,018)
At 31 January 2016		16,486	5	41,085	101,926	10,886	170,388

The notes on pages 58 to 73 form an integral part of these financial statements.

 

BALANCE SHEET

as at 31 January 2017 

	Note	2017 £'000	2016 £'000
Fixed assets
Investments held at fair value through profit or loss	8	210,745	166,251
Current assets
Debtors	9	1,813	737
Cash at bank and in hand		5,983	5,412
		7,796	6,149
Creditors
Amounts falling due within one year	10	(1,506)	(2,012)
		(1,506)	(2,012)
Net current assets		6,290	4,137
Net assets		217,035	170,388
Capital and reserves
Called up share capital	12	16,486	16,486
Share premium account		5	5
Capital redemption reserve	13	41,085	41,085
Capital reserves	14	148,762	101,926
Revenue reserve	14	10,697	10,886
Total shareholders' funds		217,035	170,388
Net asset value per Ordinary share - pence (basic and diluted)	15	333.87	259.27

The financial statements on pages 55 to 73 were authorised and approved by the Board of Directors on 26 April 2017 and signed on its behalf by:

Sarah Bates, Chair

The notes on pages 58 to 73 form an integral part of these financial statements.

Company Registration Number 91798

 

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 January 2017

1 Significant accounting policies

(a) Basis of accounting

The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in the UK (UK GAAP), including the Companies Act 2006, Financial Reporting Standard 102 ("FRS 102") and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted. The accounting policies have been applied consistently throughout the year.

The financial statements have been prepared under the historical cost basis except for the measurement of fair value of investments. In applying FRS 102, financial instruments have been accounted for in accordance with Sections 11 and 12 of the standard. All of the Company's operations are of a continuing nature.

As an investment fund, the Company has the option, which it has taken, not to present a cash flow statement. A cash flow statement is not required when an investment fund meets all the following conditions: substantially all of the entity's investments are highly liquid and are carried at market value; and where a Statement of Changes in Equity is provided.

(b) Valuation of investments

All investments have been designated upon initial recognition as fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Company's documented investment strategy, and information about the grouping is provided internally on that basis.

Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are measured initially at fair value. Subsequent to initial recognition, investments are valued at fair value through profit or loss.

Listed investments have been designated by the Board as held at fair value through profit or loss and accordingly are valued at fair value, deemed to be bid market prices for quoted investments. Investments included in Level 2 under the Fair Value Hierarchy disclosures in note 16(g) consist of unlisted reportable funds within the portfolio, these being Gavekal Asian Opportunities UCITS, Aberdeen Global Indian Equity UCITS and Aberdeen Global China A Equity UCITS. These are priced daily using their net asset value, which is the fair value.

Changes in the fair value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Income Statement as "Gains or losses on investments held at fair value through profit or loss". Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase. All purchases and sales are accounted for on a trade date basis.

(c) Foreign currency

The results and financial position of the Company are expressed in pounds sterling, which is the functional and presentation currency of the Company and rounded to the nearest £'000.

The Directors, having regard to the currency of the Company's share capital and the predominant currency in which the Company operates, have determined the functional currency to be pounds sterling. The results and financial position of the Company are therefore expressed in pounds sterling.

Transactions recorded in foreign currencies during the year are translated into sterling at the appropriate daily exchange rates. Monetary assets and liabilities denominated in overseas currencies (including equity investments) at the year end date are translated into sterling at the exchange rates ruling at that date.

Any gains or losses on the translation of foreign currency balances, whether realised or unrealised, are taken to the capital or revenue return of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature.

(d) Income

Income from equity shares is brought into the revenue return of the Income Statement (except where, in the opinion of the Directors, its nature indicates it should be recognised as capital return) on the ex-dividend date, or where no ex-dividend date is quoted, when the Company's right to receive payment is established.

Dividends receivable are accounted for on the basis of gross income actually receivable, without adjustment for the tax credit attaching to the dividends.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital reserve.

Any bank interest or underwriting commission is accounted for on an accruals basis.

(e) Expenses including finance costs

Finance costs are accounted for on an accruals basis. Finance costs are fully allocated to revenue.

Management fee rebates of the fee on Gavekal Asian Opportunities UCITS are credited against management fees paid.

All expenses are charged to the revenue return of the Income Statement, with the exception of the following which are charged to the capital return of the Income Statement:

·    performance fees/repayments insofar as they relate to capital performance;

·    expenses incurred buying back the Company's own shares; and

·    expenses incidental to the acquisition or disposal of investments.

All expenses are accounted for on an accruals basis.

(f)  Taxation

The tax effect of different items of expenditure is allocated between capital and revenue on the marginal basis using the Company's effective rate of corporation taxation for the accounting period.

Deferred taxation is provided on all timing differences that have originated but not been reversed by the year end date other than those differences regarded as permanent. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the reversal of timing differences can be deducted. Any liability to deferred tax is provided at the average rate of tax expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money.

(g) Bank borrowings

During 2015, the Company became authorised as a Small Registered UK AIFM which requires there to be no gearing as long as it remains subject to this part of the regulatory regime.

(h) Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

(i)  Repurchase of Ordinary shares

The cost of repurchasing Ordinary shares including related stamp duty and transaction costs is taken directly to equity and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis.

(j)  Capital reserves

Capital reserve arising on investments sold

The following transactions are accounted for in this reserve:

·    gains and losses on the realisation of fixed asset investments;

·    realised exchange differences of a capital nature;

·    costs of professional advice, including irrecoverable VAT, relating to the capital structure of the Company;

·    other capital charges and credits charged or credited to this account in accordance with the above policies; and

·    cost of purchasing Ordinary share capital.

Capital reserve arising on investments held

The following transactions are accounted for in this reserve:

·    increase and decrease in the valuation of investments held at year end; and

·    unrealised exchange differences of a capital nature.

(k) Dividends payable

In accordance with FRS 102, final dividends are not accrued in the financial statements unless they have been approved by shareholders before the year end date. Interim dividends are recorded in the financial statements when they are paid. Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they have been approved by shareholders in the case of a final dividend, or paid in the case of an interim dividend and become a liability of the Company.

(l)  Critical accounting estimates

The preparation of financial statements requires the Directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

The critical estimates and assumptions relate, in particular, to the calculation of performance fees, as summarised in note 3. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

2 Investment income

	2017 £'000	2016 £'000
Income from investments held at fair value through profit and loss:
Overseas dividends	4,564	4,076
UK dividends	209	363
Scrip dividends	230	334
Total dividend income	5,003	4,773
Other income:
Bank interest	1	6
Underwriting commission	-	3
Total other income	1	9
Total income	5,004	4,782

3 Management and performance fees

	2017	2016
	£'000	£'000
Charged to the revenue return:
Management fees1	1,150	980
Management fee rebates2	(156)	(146)
Total management fees	994	834
Charged to the capital return:
Performance fees	-	-

¹ The management fees stated above include fees paid to Witan Investment Services Limited of £250,000 (2016: £224,000).

² This figure relates to a rebate of management fees associated with the Gavekal Asian Opportunities UCITS.

Further details of management fees can be found in note 17.

4 Other expenses

	2017	2016
	£'000	£'000
Auditors' remuneration:
- for audit services	32	31
- for non-audit services - tax1	14	5
Custody fees	81	65
Directors' emoluments: fees for services to the Company	136	143
Directors' expenses and travel2	1	67
Marketing3	174	202
Printing and postage	38	50
Secretarial and Administration fees4	138	131
Directors' and Officers' liability insurance	7	7
Registrars' fees	26	25
Sundry expenses	107	81
	754	807

¹ Charges for other services provided by the Independent Auditors in the year ended 31 January 2017 relate to a review of the 2015 tax computation and withholding taxes suffered on overseas dividend income between 1 February 2010 and 31 January 2017.

² Costs in 2016 relate primarily to the costs of a Board visit to the Asia-Pacific region, which is conducted every two to three years to meet our portfolio managers and other industry participants.

³ The marketing expense stated above includes fees paid to Witan Investment Services Limited of £75,000 (2016: £75,000).

⁴ Secretarial fees includes iXBRL filing by Capita.

Additional information concerning transactions with Directors and Directors' fees can be found in the Directors' Remuneration Report on pages 45 to 48.

5 Taxation on ordinary activities

a) Analysis of tax charge for the year

	2017	2017	2017	2016	2016	2016
	Revenue	Capital	Total	Revenue	Capital	Total
	return	return		return	return
	£'000	£'000	£'000	£'000	£'000	£'000
Overseas taxation	376	-	376	305	-	305
Taxation on ordinary activities	376	-	376	305	-	305

(b) Factors affecting the current tax charge for the year

The UK corporation tax rate is 20% (2016 - effective rate of 20.167%). The tax charge for the year is lower than the corporation tax rate. The differences are explained below:

	2017	2017	2017	2016	2016	2016
	Revenue	Capital	Total	Revenue	Capital	Total
	return	return		return	return
	£'000	£'000	£'000	£'000	£'000	£'000
Return/(loss) on ordinary activities before tax	3,256	48,656	51,912	3,141	(13,196)	(10,055)
Corporation tax at 20.00% (2016: 20.17%)	651	9,731	10,382	634	(2,662)	(2,028)
Effects of:
Non-taxable overseas dividends	(895)	-	(895)	(862)	-	(862)
Non-taxable UK dividends	(56)	-	(56)	(73)	-	(73)
Overseas taxation	376	-	376	305	-	305
Disallowed expenses	14	-	14	7	7	14
Income taxable in different years	(16)	-	(16)	-	-	-
Tax effect of expenses double taxation relief	(3)	-	(3)	-	-	-
Excess management expenses and finance costs	305	-	305	294	25	319
Net capital returns not subject to tax1	-	(9,731)	(9,731)	-	2,630	2,630
Current tax charge for the year	376	-	376	305	-	305

¹ These items are not subject to corporation tax within an investment trust company provided the Company obtains approval from HM Revenue & Customs ("HMRC") that the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 have been met.

(c) Deferred taxation

The Company has not recognised a deferred tax asset of £2,244,000 (2016: £2,330,000) arising as a result of excess management expenses and interest paid. These expenses will only be utilised if the Company has profits chargeable to corporation tax in the future. It is unlikely that the Company will generate sufficient taxable profits in the future to utilise these expenses and deficits and therefore no deferred tax asset has been recognised

(d) Protective claim

Witan Pacific has filed protective claims with HMRC and the UK High Court in order to seek recovery of potentially overpaid taxes from HMRC in relation to the UK's pre-2009 dividend tax rules. The claims cover historic periods in which Witan Pacific paid UK tax under Schedule D Case V. In such periods, Witan Pacific is seeking recovery of the tax paid together with interest on a compound basis. No tax or related interest recovery has been accrued or recognised as a contingent asset, as the outcome of lead cases in this area is expected to remain uncertain for some time.

6 Return/(loss) per Ordinary share

The total return per Ordinary share is based on the net gain attributable to the Ordinary shares of £51,531,000 (2016: loss of £10,360,000) and on 65,308,210 Ordinary shares (2016: 65,891,245) being the weighted average number of shares in issue during the year.

The total return can be further analysed as follows:

	2017	2016
	£'000	£'000
Revenue return	2,880	2,836
Capital return	48,656	(13,196)
Total return	51,536	(10,360)
Weighted average number of Ordinary shares	65,308,210	65,891,245
Revenue return per Ordinary share - pence	4.41	4.31
Capital return per Ordinary share - pence	74.50	(20.03)
Total return per Ordinary share - pence	78.91	(15.72)

The Company does not have any dilutive securities.

7 Dividends

			2017	2016
Dividends on Ordinary shares	Record date	Payment date	£'000	£'000
Final dividend (2.45p) for the year ended 31 January 2015	22 May 2015	19 June 2015	-	1,615
Interim dividend (2.15p) for the year ended 31 January 2016	9 October 2015	19 October 2015	-	1,416
Final dividend (2.50p) for the year ended 31 January 2016	20 May 2016	17 June 2016	1,636	-
Interim dividend (2.20p) for the year ended 31 January 2017	14 October 2016	24 October 2016	1,433	-
Refund of unclaimed dividends			-	(13)
			3,069	3,018

The proposed final dividend for the year ended 31 January 2017 is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

The total dividend payable in respect of the financial year which meets the requirements of Section 1158 of the Corporation Tax Act 2010 is set out below.

	2017	2016
	£'000	£'000
Revenue available for distribution by way of dividend for the year	2,880	2,836
Interim dividend 2.20p (2016: 2.15p) for the year ended 31 January 2017	(1,433)	(1,416)
Proposed final dividend of 2.55p (2016: 2.50p) for the year ended 31 January 2017
(based on 63,487,472 Ordinary shares in issue at 26 April 2017)	(1,619)	(1,637)
Refund of unclaimed dividends	-	13
Shortfall for the year	(172)	(204)

All current year income has been distributed, the shortfall of £172,000 has been transferred from the revenue reserve.

8 Investments held at fair value through profit or loss

	2017	2016
	£'000	£'000
Cost at 31 January 2016	137,263	132,637
Investment holding gains at 31 January 2016	28,988	45,983
Valuation at 31 January 2016	166,251	178,620
Movements in the year:
Purchases at cost	52,336	37,285
Sales - proceeds	(56,683)	(36,616)
- gains on sales	11,451	3,957
Increase/(decrease) in investment holding gains	37,390	(16,995)
Valuation at 31 January 2017	210,745	166,251
Cost at 31 January 2017	144,367	137,263
Investment holding gains at 31 January 2017	66,378	28,988
	210,745	166,251

Purchase transaction costs for the year ended 31 January 2017 were £75,000 (2016: £64,000). Sale transaction costs for the year ended 31 January 2017 were £82,000 (2016: £56,000). These comprise mainly stamp duties and commission.

Gains on investments

	2017	2016
	£'000	£'000
Gains on investments sold based on historical cost	11,451	3,957
Less: amounts recognised as unrealised in previous years	(3,465)	(6,434)
Gains/(losses) based on carrying value at previous balance sheet date	7,986	(2,477)
Net movement in investment holding gains in the year	40,855	(10,561)
Gains/(losses) on investments held at fair value through profit or loss	48,841	(13,038)

Substantial interests

At 31 January 2017, the Company held more than 3% of one class of the share capital of one of the undertakings held as investments (2016: one).

This consisted of the holding in the Gavekal Asian Opportunities UCITS and was 7.50% at 31 January 2017 (31 January 2016: 4.97%).

All investments are quoted on recognised stock exchanges or are UCITS Funds with published net asset values.

9 Debtors

	2017	2016
	£'000	£'000
Sales for future settlement	1,303	352
Other debtors	73	27
Prepayments and accrued income	437	358
	1,813	737

10 Creditors: amounts falling due within one year

	2017	2016
Other	£'000	£'000
Purchases for future settlement	1,006	1,517
Accruals	500	495
	1,506	2,012

11 Provisions for liabilities and charges

At the year end, a provision of £nil (2016: £nil) has been made for performance fees payable to Aberdeen Asset Managers Limited ("Aberdeen").

The above represent the estimated performance fees payable for the three-year performance fee periods ending 31 May 2017, 31 May 2018 and 31 May 2019. Any accrual is based on actual performance to 31 January 2017 and the assumption that Aberdeen performs in line with the benchmark from 31 January 2017 to the end of each fee period. Changes in the level of accrual for future performance periods could arise for one of the three principal reasons: a change in the degree of relative performance, the time elapsed (since this would increase the proportion of the rolling three-year performance period to which the performance calculation would be applied) or the termination of Aberdeen's contract.

12 Called up share capital

	2017	2017	2016	2016
Equity share capital	Number	£'000	Number	£'000
Ordinary shares of 25p each:
Issued and fully paid	65,005,043	16,251	65,719,022	16,430
Held in treasury	938,957	235	224,978	56
	65,944,000	16,486	65,944,000	16,486

In the year ended 31 January 2017, 713,979 Ordinary shares were purchased to be held in treasury at a cost of £1,820,000. In the year ended 31 January 2016, there were 224,978 shares purchased to be held in treasury at a total cost of £514,000.

13 Capital redemption reserve

	2017	2016
	£'000	£'000
Balance brought forward	41,085	41,085
Balance carried forward	41,085	41,085

14 Reserves

	Capital reserve arising on investments sold* £'000	Capital reserve arising on investments held £'000		Capital reserve total £'000	Revenue reserve* total £'000
Balance brought forward	72,934		28,992	101,926	10,886
Movement during the year:
Gains on investments sold	7,986		-	7,986	-
Transfer on disposal of investments	3,465		(3,465)	-	-
Increase in investment holding gains	-		40,855	40,855	-
Exchange losses	(142)		-	(142)	-
Other capital charges	(43)		-	(43)	-
Purchase of own shares	(1,820)		-	(1,820)	-
Revenue return for the year	-		-	-	2,880
Dividends paid	-		-	-	(3,069)
Balance carried forward	82,380		66,382	148,762	10,697

* Distributable reserve.

Under the terms of the Company's Articles of Association, sums standing to the credit of Capital Reserves are available for distribution only by way of redemption, purchase of any of the Company's own shares or by way of dividend. The Company may only distribute accumulated "realised" profits.

15 Net asset value per Ordinary share

Net asset values are based on net assets of £217,035,000 (2016: £170,388,000) and on 65,005,043 (2016: 65,719,022) Ordinary shares in issue at the year end excluding shares held in treasury.

16 Risk management policies and procedures

As an investment trust, the Company invests in equities and other investments for the long term so as to achieve its objective as stated on page 1. In pursuing its investment objective, the Company is exposed to a variety of financial risks that could result in either a reduction in the Company's net assets or a reduction in the revenue available for distribution by way of dividends.

These financial risks: market risk (comprising market price risk, currency risk and interest rate risk), liquidity risk and credit risk, and the Directors' approach to the management of these risks, are set out below. The Board of Directors and the Executive Manager coordinate the Company's risk management. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.

The Board determines the objectives, policies and processes for managing the risk that are set out below, under the relevant risk category. The policies for the management of each risk have not changed from the previous accounting period.

(a) Market Risk

The fair value of an instrument held by the Company may fluctuate due to changes in market prices. Market risk comprises - market price risk (see note 16(b)), currency risk (see note 16(c)) and interest rate risk (see note 16(d)). The portfolio managers assess the exposure to market risk when making each investment decision, and monitor the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(b) Market price risk

Market price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.

Management of the risk

The Board of Directors manages the risks inherent in the investment portfolios by ensuring full and timely access to relevant information from the portfolio managers and through diversification at the stock level and of management style. The Board meets regularly and at each meeting reviews investment performance. The Board monitors the portfolio managers' compliance with the Company's objectives, and is directly responsible for oversight of the investment strategy and asset allocation.

The market value of quoted investments at 31 January 2017 was £210,745,000 (2016: £166,251,000).

Concentration of exposure to market price risk

A geographical analysis of the Company's investment portfolio is shown on page 11. This shows the significant amounts invested in China/Hong Kong, Japan, South Korea and Singapore. Accordingly, there is a concentration of exposure to those countries, though it is recognised that an investment's country of domicile or of listing does not necessarily equate to its exposure to the economic conditions in that country.

Market price risk sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and the equity to an increase or decrease of 25% (2016: 25%) in the fair value of the Company's investments. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company's investments at each year end date and the investment management fees for the year ended 31 January 2017, with all other variables held constant.

	2017 Increase in fair value £'000	2017 Decrease in fair value £'000	2016 Increase in fair value £'000	2016 Decrease in fair value £'000
Income Statement - return after tax
Revenue return	(255)	255	(206)	206
Capital return	52,686	(52,686)	41,563	(41,563)
Impact on total return after tax for the year and net assets	52,431	(52,431)	41,357	(41,357)

(c) Currency risk

Most of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency, and in which it reports its results). As a result, movements in exchange rates may affect the sterling value of those items.

Management of the risk

The portfolio managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Executive Manager monitors the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the exchange rates to which the Company's assets, liabilities, income and expenses are exposed.

Foreign currency exposure

The table below shows, by currency, the split of the Company's non-sterling monetary assets and investments that are denominated in currencies other than sterling. The exposure is shown on a direct basis and not on a look-through basis.

	AUS$	HK$	Yen	SG$	Other
2017	£'000	£'000	£'000	£'000	£'000
Debtors (due from brokers, dividends and other income receivable)	-	117	311	959	322
Cash at bank and in hand	-	-	-	-	52
Creditors (due to brokers, accruals and other creditors)	-	(704)	(98)	-	(204)
Total foreign currency exposure on net monetary items	-	(587)	213	959	170
Investments at fair value through profit or loss	3,023	44,921	57,912	19,200	59,121
Total net foreign currency exposure	3,023	44,334	58,125	20,159	59,291
	AUS$	HK$	Yen	SG$	Other
2016	£'000	£'000	£'000	£'000	£'000
Debtors (due from brokers, dividends and other income receivable)	-	43	232	-	406
Cash at bank and in hand	-	-	-	-	5
Creditors (due to brokers, accruals and other creditors)	-	(14)	(1,503)	-	-
Total foreign currency exposure on net monetary items	-	29	(1,271)	-	411
Investments at fair value through profit or loss	4,252	34,350	46,090	14,493	46,101
Total net foreign currency exposure	4,252	34,379	44,819	14,493	46,512

Foreign currency sensitivity

The sensitivity of the total return after tax for the year and the net assets in regard to the movements in the Company's foreign currency financial assets and financial liabilities and the exchange rates for the top four risk currencies are set out in the table below:

It assumes the following changes in exchange rates:

£/US$ +/- 15% (2016: 15%)

£/HK$ +/- 15% (2016: 15%)

£/Yen +/- 15% (2016: 15%)

£/SG$ +/- 15% (2016: 15%)

£/Other +/- 15% (2016: 15%)

These percentages have been determined based on the average market volatility in exchange rates in the previous five years and using the Company's foreign currency financial assets and financial liabilities held at each year end date.

If sterling had strengthened against the currencies shown, this would have had the following effect:

			2017
	US$	HK$	Yen	SG$	Other
	£'000	£'000	£'000	£'000	£'000
Income Statement - return after tax
Revenue return	(58)	(116)	(100)	(65)	(130)
Capital return	(2,304)	(5,859)	(7,554)	(2,504)	(5,802)
Impact on total return after tax for the year and net assets	(2,362)	(5,975)	(7,654)	(2,569)	(5,932)

			2016
	US$	HK$	Yen	SG$	Other
	£'000	£'000	£'000	£'000	£'000
Income Statement - return after tax
Revenue return	(83)	(104)	(84)	(70)	(130)
Capital return	(2,147)	(4,480)	(6,012)	(1,890)	(4,421)
Impact on total return after tax for the year and net assets	(2,230)	(4,584)	(6,096)	(1,960)	(4,551)

If sterling had weakened against the currencies shown, this would have had the following effect:

			2017
	US$	HK$	Yen	SG$	Other
	£'000	£'000	£'000	£'000	£'000
Income Statement - return after tax
Revenue return	79	156	135	89	175
Capital return	3,118	7,927	10,220	3,388	7,849
Impact on total return after tax for the year and net assets	3,197	8,083	10,355	3,477	8,024

			2016
	US$	HK$	Yen	SG$	Other
	£'000	£'000	£'000	£'000	£'000
Income Statement - return after tax
Revenue return	112	141	114	95	175
Capital return	2,905	6,062	8,134	2,558	5,980
Impact on total return after tax for the year and net assets	3,017	6,203	8,248	2,653	6,155

In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently.

(d) Interest rate risk

Interest rate movements may affect the interest payable on the Company's variable rate borrowings where applicable.

Management of the risk

The majority of the Company's financial assets are non-interest bearing. As a result, the Company's financial assets are not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.

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.

Interest rate exposure

The exposure at 31 January of financial assets and financial liabilities to interest rate risk is shown by reference to floating interest rates - when the interest rate is due to be reset.

	2017		2016
	Within	2017	Within	2016
	one year	Total	one year	Total
	£'000	£'000	£'000	£'000
Exposure to floating interest rates:
Cash at bank and in hand	5,983	5,983	5,412	5,412
Total net exposure to interest rates	5,983	5,983	5,412	5,412

The Company does not have any fixed interest rate exposure at 31 January 2017 (2016: nil). Interest receivable, and finance costs are at the following rates:

·    Interest received on cash balances, or paid on bank overdrafts, is at a margin under LIBOR or its foreign currency equivalent (2016: same).

Interest rate sensitivity

The Company is not materially, directly exposed to changes in interest rates as the majority of financial assets are equity shares which do not pay interest. Therefore, the Company's total return and net assets are not materially affected by changes in interest rates.

(e) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Management of the risk

Liquidity risk is not significant as the majority of the Company's assets are investments in quoted equities that are readily realisable.

The Board gives guidance to the portfolio managers as to the maximum amount of the Company's resources that should be invested in one company.

Liquidity risk exposure

The remaining contractual maturities of the financial liabilities at 31 January 2017, based on the earliest date on which payment can be required are as follows:

	3 months or less
		More than 3 months, not more than one year	More than one year	2017 Total	3 months or less	More than 3 months, not more than one year	More than one year	2016 Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Creditors: amounts falling due within one year
Amounts due to brokers and accruals	1,511	-	-	1,511	2,012	-	-	2,012
	1,511	-	-	1,511	2,012	-	-	2,012

(f)  Credit risk

The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

Management of the risk

The risk is not significant, and is managed as follows:

·    investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the portfolio managers;

·    Cash at bank and in hand are held only with the Company's custodian, JP Morgan. None of the Company's financial assets have been pledged as collateral.

(g) Fair values of financial assets and financial liabilities

Investments are held at fair value through profit or loss. All liabilities are held in the Balance Sheet at a reasonable approximation of fair value.

Financial assets and financial liabilities are either carried in the Balance Sheet at their fair value (investments) or the Balance Sheet amount is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, and cash at bank).

Fair value hierarchy disclosures

FRS 104 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by the Financial Reporting Council in March 2016. The fair value hierarchy shall have the following classifications:

·      Level 1: The unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.

·      Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset.

·      Level 3: Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at the reporting date as follows:

Financial assets and financial liabilities at fair value through profit or loss	Level 1 £'000	Level 2 £'000	Level 3 £'000		Total £'000
At 31 January 2017
Equity investments	178,438	32,307	-		210,745
Total	178,438	32,307	-		210,745
Financial assets and financial liabilities at fair value through profit or loss	Level 1 £'000	Level 2 £'000	Level 3 £'000		Total £'000
At 31 January 2016
Equity investments	141,375	24,876	-		166,251
Total	141,375	24,876	-		166,251

The valuation techniques used by the Company are explained in the accounting policies in note 1(b).

There were no transfers during the year between Level 1 and Level 2.

Investments classified as Level 2 are Gavekal Asian Opportunities UCITS, Aberdeen Global Indian Equity UCITS and Aberdeen Global China A Equity UCITS (2016: Gavekal Asian Opportunities UCITS and Aberdeen Global Indian Equity UCITS).

(h) Capital management policies and procedures

The Company's capital management objectives are:

·    to ensure that it will be able to continue as a going concern; and

·    to maximise the income and capital return to its equity shareholders.

The Company's capital at 31 January 2017 comprises its equity share capital and reserves that are shown in the Balance Sheet at a total of £217,035,000 (2016: £170,388,000).

The Board with assistance of the Executive Manager monitors and reviews the broad structure of the Company's capital on an ongoing basis.

This review includes:

·    the need to buy back equity shares, either for cancellation or to hold in treasury, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium);

·    the need for new issues of equity shares, including issues from treasury; and

·    the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. The Company is subject to several externally imposed capital requirements:

·    as a public company, the Company has a minimum share capital of £50,000; and

·    in order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law. These requirements are unchanged since last year, and the Company has complied with them.

17 Transactions with the managers

On 27 May 2005, the Company appointed Witan Investment Services Limited as Executive Manager and Aberdeen Asset Managers Limited and Nomura Asset Management U.K. Limited as portfolio managers. In April 2012, the Company appointed Matthews International Capital Management LLC and Gavekal Capital Limited to replace Nomura. Each Management Agreement can be terminated at one month's notice in writing. Each portfolio manager is entitled to a base management fee, at rates between 0.20% and 0.75% per annum, calculated according to the value of the assets under their management.

During the year ended 31 January 2017, portfolio management fees paid, net of management fee rebates of £156,000 (2016: £146,000), amounted to £994,000 (2016: £834,000). At the year end, £253,000 (2016: £239,000) was due to the portfolio managers, net of management fee rebates of £14,000 (2016: £12,000).

Aberdeen is also entitled to a performance fee based on relative outperformance against the MSCI AC Asia Pacific Index (sterling adjusted total return). The performance fee is calculated according to investment performance over a three year rolling period and is payable at a rate of 15% of the calculated outperformance relative to the benchmark (subject to a cap).

Any provisions included in the Income Statement at 31 January 2017, are calculated on the actual performance of Aberdeen relative to the benchmark index. The provision assumes that both the benchmark index remains unchanged and that Aberdeen's assets under management perform in line with the benchmark index to 31 May 2017, being the date the next performance period ends. In addition, provisions have been made for the performance periods ending 31 May 2018 and 31 May 2019, on the assumption that Aberdeen performs in line with the benchmark to each period end. The total of these provisions amounts to £nil (2016: £nil).

18 Subsequent events

Since the year end the Company has bought back 1,517,571 Ordinary shares at a cost of £4,544,675.

NON-STATUTORY ACCOUNTS

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 January 2017 but is derived from those accounts. Statutory accounts for the year ended 31 January 2017 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts on the Company's website at www.witanpacific.com.

The audited annual financial report will be available to shareholders shortly. Copies may be obtained during normal business hours from the Company's registered office via the Company Secretary, Capita Company Secretarial Services Limited, 1^st Floor, 40 Dukes Place, London EC3A 7NH and are available on the Company's website at www.witanpacific.com.

NATIONAL STORAGE MECHANISM

A copy of the Annual Report and Accounts will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/nsm 

The content of the Company's web pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web pages or this announcement is neither incorporated into nor forms part of the above announcement.

 

END

 

 

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