Annual Financial Report
Pacific Horizon Investment Trust PLC
Legal Entity Identifier: VLGEI9B8R0REWKB0LN95
Regulated Information Classification: Annual Financial and Audit Reports
Annual Financial Report
This is the Annual Financial Report of Pacific Horizon Investment Trust PLC as required to be published under DTR 4 of the UKLA Listing Rules.
The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 July 2017 or 31 July 2018 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2017 and 2018; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under sections 498(2) or (3) of the Companies Act 2006. Statutory accounts for the year ended 31 July 2017 have been filed with the Registrar of Companies and the statutory accounts for the year ended 31 July 2018 will be delivered to the Registrar in due course.
The Annual Report and Financial Statements for the year ended 31 July 2018, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection http://www.morningstar.co.uk/uk/NSM and is also available on Pacific Horizon's page of the Baillie Gifford website at: www.pacifichorizon.co.uk.
Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
Baillie Gifford & Co Limited
Company Secretaries
4 October 2018
Chairman's Statement
Performance
I am pleased to report that in the year to 31 July 2018, the Company's net asset value per share (NAV) total return was 13.6%. During the same period the Company's comparative index, the MSCI All Country Asia ex Japan Index*, total return was 6.0% in sterling terms. The share price total return was 26.9%, and the shares ended the period at a 3.3% premium to NAV.
The relative and absolute performance over the course of the year was largely as a consequence of good stock selection, particularly in Korea, Hong Kong and China where exposure to certain Healthcare and Information Technology names proved beneficial.
Over the five years to 31 July 2018 the Company's NAV and share price have returned 96.5% and 136.4% respectively. Over the same period the Company's comparative index, the MSCI All Country Asia ex Japan Index, has returned 71.9% in sterling terms.
The Managers' Review below provides detail of the Company's performance along with commentary on the areas the Managers are finding of interest.
Tender
I reported in my 2016 statement that, following consultation with a number of shareholders, we agreed that a 25% tender would be triggered if the Company's NAV, calculated at fair value cum
income, total return failed to exceed the total return of the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. If this performance target is not met, it remains the intention that the Directors will propose a 25% tender of the Company's issued share capital at the time of calculation. The tender would be at a 2% discount to NAV less costs. This is subject to shareholders' approval of the tender authority being put to shareholders at this year's AGM. If the authority is obtained and, only if the tender is subsequently triggered, a separate circular and tender form will be sent to shareholders which will set out the full terms and conditions of the tender offer and the procedure for tendering shares.
As at 31 July 2018, the Company's annualised NAV total return since 31 July 2016 was 25.4%, exceeding the annualised total return of 16.8% of the comparative index.
Issuance, Share Buy-Backs and Treasury
As a consequence of the share price moving to a premium to NAV in late April 2018, the Board authorised the issuance of new shares at a premium to allow us to respond when demand exceeds supply in the market. A total of 4,065,000 shares, 7.5% of the issued share capital at the start of the financial year, were issued in this way, resulting in an 18 basis point uplift to the NAV. As in previous years, your Board is seeking shareholder approval at the forthcoming AGM to renew the 10% non pre-emptive issuance authority. Issuance would continue to be undertaken only at a premium to NAV, so avoiding dilution to existing investors. This authority, if utilised, enhances NAV per share, improves liquidity in the Company's shares and reduces the operating expenses as a percentage of the asset base. As at 31 July 2018 the Company's ongoing charges were 1.02% compared to 1.07% in 2017.
At the forthcoming AGM, the Board will also be asking shareholders to renew the authority to repurchase up to 14.99% of the outstanding shares on an ad hoc basis, either for cancellation or to be held in treasury, and also to permit the re-issuance of any shares held in treasury. The Board uses the buy-back authority opportunistically, taking into account not only the level of the discount but also the underlying liquidity and trading volumes in the Company's shares. This approach allows the Board to seek to address any imbalance between the supply and demand for the Company's shares that results in a large discount to NAV whilst being cognisant that current and potential shareholders require continuing liquidity.
The Board also believes that the Company would benefit from the flexibility of holding in treasury any shares that are bought back and the ability to re-issue these shares, which would only be done at a premium to NAV.
Earnings and Dividend
This year's revenue return per share was a deficit of 0.60p (0.38p deficit in 2017), and consequently no final dividend is being proposed. It is the Board's view that, as the objective of the Company is to achieve capital growth, investors should not consider investing in this Company if they require income from their investment.
Gearing
Gearing is achieved through the use of bank borrowings. At present the Company has a one year £30 million (one year £15 million in 2017) multi-currency revolving credit facility with The Royal Bank of Scotland plc, of which £20 million by value was drawn, split between GBP and US$ at 31 July 2018.
The Board sets the gearing parameters within which the portfolio managers are permitted to operate and these are reviewed at each Board meeting. At present, the agreed range of equity gearing is minus 15% (i.e. holding net cash) to plus 10%. At the year end, equity gearing was 7.9%, having started the year at 7.1%.
Unlisted Investments and Investment Policy
The Company's investment policy states that 'Pacific Horizon aims to achieve capital growth principally through investment in companies listed on the stock markets of the Asia-Pacific region (excluding Japan) and the Indian Sub-continent… The portfolio is actively managed and will normally consist entirely of quoted equity securities although unlisted companies, fixed interest holdings or other non equity investments, may be held.'
Our Manager, Baillie Gifford, continues to increase the resources dedicated to both researching and managing unlisted equity investments (including legal and valuation work) and has established a dedicated investment team for this area. This team is responsible for approximately US$2 billion of unlisted investment across 45 companies in different geographic locations. At present, only six of these companies are from the Asia-Pacific region and Indian Sub-continent, with NIO, the Chinese electric vehicle developer and manufacturer, being the one common name within this portfolio. Our portfolio managers anticipate being shown an increasing number of interesting unlisted investment opportunities, particularly Chinese companies, over the coming years and we believe it is in the interest of shareholders for them to consider these opportunities for investment.
The Pacific Horizon portfolio currently has four unlisted investments accounting for 1.6% of total assets: Philtown Properties (0.0%), a holding inherited following its spin-out from RFM Corp of the Philippines in 2009; JHL Biotech (0.3%), a Taiwanese biotech which was taken private with a view to listing in Hong Kong; JHL Biotech Convertible Bond (0.5%) issued as part of the de-listing; and NIO (0.8%).
Given the increasing quantum of potentially attractive unlisted investment opportunities that Baillie Gifford is beginning to see, in particular some very interesting Chinese names, the Board believes that the portfolio managers should have the opportunity to invest up to a maximum of 10% of total assets, at the time of initial investment, in unlisted equity opportunities in the Asia-Pacific region and Indian Sub-continent. The Board is therefore seeking shareholder authority to permit this increase in their investment remit at the AGM.
Changes to the Board
Elisabeth Scott will not be standing for re-election at the coming AGM as a consequence of increased responsibilities and time commitments elsewhere. I should like to thank Elisabeth for her service to the Company and contribution to Board discussions. I am pleased to welcome Angela Lane who will be appointed to the Board on 1 October 2018. Angela is a qualified accountant and has held several non-executive and advisory roles for small and medium capitalised companies across a range of industries. She is the non-executive chairman of Huntswood CTC, a non-executive director of Astbury Marsden, Sherborne School Worldwide and Dunedin Enterprise Investment Trust PLC where she is also chairman of its audit committee. Shareholders will be asked to confirm her appointment at the AGM.
Outlook
We started 2018 in a positive fashion for equities across the Asia-Pacific region and Indian Sub-continent following a combination of a pickup in global growth and China's resurgence, allied with a weak US dollar, which all pointed to a potential uptick in earnings and share prices. More recently, concerns over a possible global trade war have increased, initiated by the policies of the Trump administration, which could result in reduced growth of company earnings across the region, in part due to a strengthening US dollar. Whilst always cognisant of macro developments, including the uncertain outcome of the North Korea situation, the portfolio managers continue to see strong earnings growth from portfolio holdings, allied to significant earnings potential from businesses in a broad range of countries and sectors. The potential opportunities for investment have started to broaden and the Board remains confident that the region offers attractive investments for generating capital growth for the patient investor.
Annual General Meeting
This year's AGM will take place on 6 November 2018 at the offices of Baillie Gifford & Co in Edinburgh at 11.00am. I would encourage shareholders to arrive by 10.50am to allow time to register. The Managers will make a presentation and, along with the Directors, will answer any questions from shareholders. I hope to see as many of you as possible there.
Jean Matterson
Chairman
17 September 2018
* See disclaimer at the end of this announcement.
For a definition of terms see Glossary of Terms, note 9.
Past performance is not a guide to future performance.
Managers' Review
Overview
In this period of unprecedented technological change it behoves us as professional investors to look for those companies whose focus is on long term growth; those companies where the founders have a specific goal, even if it is at the expense of near-term profitability. If we do not accept the risk and uncertainty that arises from investments such as these, we will miss out on great opportunities. Hence our continued willingness to embrace asymmetric returns (unlimited upside returns and a maximum loss of 100% on the downside) and to look for outstanding individual company return opportunities, whilst readily acknowledging that many of our investments will inevitably be less successful. Over our latest financial year, the market rewarded many of the companies we selected. In the short term, however, current fears over trade and financial contagion are focusing investor attention again on potentially negative outcomes. We expect our holdings to outperform in the longer term whilst continuously searching for stocks which could potentially deliver a return significantly greater than the original investment over a multi-year period.
In the year to 31 July 2018 the Company's NAV increased by 13.6% and the share price appreciated by 26.9%. This represents a favourable equivalent comparison to the Company's comparative index, the MSCI All Country Asia ex Japan Index* (in sterling terms), which rose by 6.0% (all total returns).
The year really was one of two halves with the comparative index rallying strongly, up 9.3%, in the first half of the Company's financial year, and then consistently giving back its gains as the year end approached. The end of January was also the point when the US dollar stopped falling and began a consistently strong rally. This is probably attributable to investors seeking safe-havens following rising political risk, driven by the Trump administration. In our view, this apparent focus on geopolitics and capital flows misses the bigger picture, that of a global increase in digital penetration and the disruption that technology is bringing to society, combined with the strength of the US economy, and the relative economic resilience of the Asia-Pacific region.
Philosophy
Our investment philosophy is focused on finding and investing in some of the most attractive growth companies within the Asia- Pacific ex Japan region and the Indian Sub-continent. We believe that investing for the long term in companies that can deliver significantly faster growth than the market as a whole will reward investors over time. When thinking about growth, we look for companies that have the potential to increase their revenue and earnings at around 15% per annum for the next five years or longer, and where we feel this potential has not been fully recognised by the market. Depending upon the outlook for different countries and sectors, this strategy may lead to significant concentration in certain areas of the market. In addition to growth potential, the corporate characteristics we look for include sustainable competitive advantages, attractive financials and sensible management. We also target stocks where a wider range of positive potential outcomes may not be recognised by the market at present and which have, in our opinion, very significant long term opportunities for enhanced future profitability. This means that we are excited by the future. We are growth investors looking for rapidly growing companies. We believe that time and patience is on our side. We are looking for companies whose business models and management team have a high probability of fulfilling their ambitions. We are looking for areas where our ideas give us an edge versus the market over a longer timeframe.
Our investment philosophy has very much worked in our favour over the last twelve months. The growth characteristics of the current portfolio remain strong, with historic earnings growth at 22.3% and one-year forecast earnings growth of 31.1%, both double the respective rates for the comparative index. The portfolio's estimated price to earnings ratio for the current year is 20.1x versus 12.9x for the comparative index. Over the longer term, we believe the higher growth potential of our holdings more than justifies this additional multiple. The portfolio now has a slightly lower proportion of larger capitalised stocks compared to last year with 19.5% of the portfolio invested in companies capitalised below £1 billion and a further 31.9% in companies with a market capitalisation of less than £5 billion, compared with 0.2% and 14.1%, respectively, in the comparative index. Active share is 84% and turnover for the year was 33.2%.
Our starting premise begins with how we think the world, and within it individual countries, may change over the next three, five and ten years plus, in every area of life - economically, socially and politically - and the impact that technology has on these trends. When we look at a company and think about what the potential market size could be for the company's industry in the future, we ask ourselves what the current rate of growth is, how this industry could change, and whether there are adjacent markets that the company could enter. This gives us a rough estimate of the potential total addressable market for a company and its products in the future. We examine the current competitive dynamics of the industry and attempt to understand how these are likely to change in the future. We ask whether the industry is improving and whether the likely position of the company within it is also improving. Lastly, we look for a management team that we believe has the ability, ambition and integrity to deliver on its promise; ideally, a management team with a definite vision of the future and how, in their own small space, they aim to create it.
The background to this construct, however, is one of uncertainty. Both error and chance play a huge role in any eventual outcome; hence the portfolio is diversified by country, sector and industry. More importantly, we understand that not all the companies we choose to invest in will generate the potential value that we believe is possible. We will run and back our winners both from an operational and a stock price view and tend to reduce and sell our losers. Ideally, we will end up with a small group of stocks which, due to compounding growth and profit, generate and will generate significant returns over a longer period of time; counterbalanced by potentially a larger group which have not reached this level of potential. Due to smaller holdings sizes in this latter group and the benefits of enhanced returns from our successful investments, we aim to deliver outperformance over time.
We continue to believe that the rapid development of technology is creating a tectonic shift in society, with digitalisation driving profound changes in economic and political systems, businesses, consumer habits and behaviours. The number of sectors and industries that are becoming digitalised and connected is increasing rapidly; there is a globally growing awareness of these changes. Artificial Intelligence (AI) is now taken for granted and the concept of electric rather than gasoline powered cars is an inevitable commercial development rather than a vision of the future.
Review
Technology companies now account for 48.7% of the portfolio†, down slightly from 48.9% a year ago as we reduced some of our holdings when the market was strong. Over the year, Technology was our largest sector exposure from both an absolute and a relative weight perspective, and the top contributor to returns, with an average return of 24.5% significantly outperforming the broader comparative index return of 6.0% and the sector return of 8.7%. We reduced our holding in Tencent, reflecting our enthusiasm for other holdings. We sold Baidu and Ctrip.com as we believe that the future growth potential may be lower than our prior expectations. We sold Advanced Semiconductor Engineering, Advantech and Hon Hai Precision Instruments in Taiwan and bought Global Wafers, Accton Technology and Kingpak Technology.
The Financial sector is the second largest sector weight in the portfolio at 16.3%, down from 17.2%. We took a new holding in HDBank, a well-run and rapidly growing private bank in Vietnam that is attractively valued.
The Consumer Discretionary sector is our third largest sector exposure at 14.1%, down from 19.8%. As economic growth within the region recovers, the focus on the Asian consumer, and the consequent growth opportunities, should generate increased Investor interest. We established a new position in Li Ning, a domestic footwear brand, which we believe is undergoing a significant restructuring and moving its business online, where it will have new growth opportunities. JD.com and Geely Automobile are our two top holdings in this sector.
In the Technology sector, Kingdee International Software and Sunny Optical Technology were the two best contributing stocks. Koh Young Technology, a small South Korean manufacturer of 3D optical inspection equipment, rose 72% and is now among our top 10 holdings. It is the world leader in 3D solder paste inspection equipment and is currently growing its market share rapidly in the 3D automated optical inspection market. As global automation rises and the size of components shrinks, greater precision is necessary. We believe this will lead to more companies seeking Koh Young's solutions and this company, now capitalised at US$1.3 billion, has the potential for rapid expansion as it takes its key technology from one niche market to another.
We believe that the global transportation market is currently undergoing rapid change, which in ten to twenty years is likely to make it a fundamentally different industry. China is likely to have a scale advantage in the new global electric vehicle industry due to the need to address environmental issues. It currently is the leading producer of electric vehicles (EV) globally. We own two Chinese automotive companies, Geely and NIO, both of which are investing heavily in EVs. If even some of the more pessimistic EV penetration rates are to be reached by the mid 2020s, then the world needs significantly more batteries and their respective components. We therefore own Samsung SDI, currently one of the top five global makers of electric batteries. The stock rose 37% as a result of rising demand and margins from its energy storage solutions business. We also initiated a new holding in PT Vale Indonesia, a nickel producer. Nickel is a key component in electric batteries and, as technology improves, is likely to become increasingly so. The world is not currently producing enough nickel to meet current global demand. In due course, total demand for nickel from EV could equal the whole of the global nickel market today. To this end, it appears that there should be a significant and sustained rise in the price of nickel to meet the additional supply that the market will demand and we believe that Vale Indonesia has the ability to increase production to meet this need.
On the negative side, JD.com, was our biggest detractor, falling 20% over the year. The company's revenue growth slowed and margins disappointed as competition from Alibaba increased and the company focused on investments in its logistics arm. We feel the shares are materially undervalued and will re-rate when the current investment phase starts to produce tangible results. China Rapid Finance (CRF), a peer-to-peer (P2P) credit lender in China, fell 75% hurt by tightening regulatory standards and a dramatic consumer credit crunch orchestrated by the authorities. We think that CRF has a strong history of credit scoring, an innovative management team and a model which has the potential for scale. We continue to hold the company, despite these short term significant losses, as we think it may emerge from this episode significantly stronger with less competition.
Sunny Optical is up almost 800% over the last five years and up another 40% over the last year, making it the best performer and highest contributor to our performance over five years and the second largest contributor over the year. Looking back, Sunny Optical was bought in April 2015 for a number of reasons. First and foremost, we believe that the importance of vision in the way that humans interact with their devices and how computers interact with the world will increase. This is evidenced by the rise of smartphone photography and the need for cameras on cars and other machines. At the time of investment, Sunny was a distant seventh in the smartphone camera lense market. However, we believed that not only would the market grow rapidly, but that Sunny had a distinct competitive advantage, allowing it to take market share. It had acquired significant technological know-how and patents from Konica Minolta, it was the leading domestic player in China, and had the potential to be a cost leader when the company scaled up to meet demand. It also had a 30% share of the auto camera market; at 0.8 cameras per car, we believed this market could reach 10+ cameras per car over a 10-year period. The company was privately founded and the founder had, via a share trust, given a significant portion of the equity to his employees, demonstrating vision, ability and integrity. We hoped to make two to three times our money if our thesis proved to be correct. We still believe that Sunny has significant upside to come and it remains one of our top 10 holdings, despite expectations for future performance being much higher today, with the stock trading on a forward multiple of 24.8x versus 18.5x when we first purchased it.
Geely Automobile is the second best performing stock over the last five years, up 558%, and is also our second highest contributor to performance. Both Japan and South Korea developed a significant and dominant domestic car industry which then became world leading: Toyota, Honda, Nissan and others from Japan, together with Hyundai from Korea are now deeply respected global brands. China five years ago was dominated by foreign brands via joint ventures with thousands of very poor quality local manufacturers. We believed that one or two of these local companies would eventually become the domestic (and then a global) champion in what is the world's largest automotive market. Geely's founder demonstrated the vision to take Geely to being a leading brand within China, and potentially globally when the company acquired Volvo in 2009, giving it the technology to leapfrog its domestic peers. In 2015, its first car based on Volvo's design was released. In the long run, we believe Geely will improve its domestic market share from 5% today towards 20% and eventually sell cars overseas. At year-end, it represented 3.1% of the portfolio.
Although Kingdee International Software has risen 177% over the last five years, the majority of this gain has been very recent, returning 168% over the last year, making it the best performer over the year. We purchased Kingdee in April 2015; it is one of China's leading developers of enterprise resource planning (ERP) software for small and medium-sized businesses (SMEs). As the world digitalises, the competitive nature of many industries change, and there are significant network effects and economies of scale to the online digitalised industry compared to the offline world. Our view was that the market share gained by the online winner in SME Enterprise Resource Planning would be significantly higher than in the offline world. Kingdee was the leader in moving towards a cloud-based solution for its offline customers and at the same time attempting to win larger companies via its new data processing solutions. Management here definitely has a strong vision and ambition to grow. As a result of frequent changes to the company's business model, the stock has fallen more than 50% from its 2015 high. We believe, however, that Kingdee has a good chance of being the leading provider of software for ERP in China and we anticipate significantly improving cash flow and profit generation in the coming years.
In terms of the countries where we invest, our China weighting increased from 35.9% to 39.8%, driven mostly by outperformance from our holdings. It is now the largest country weighting in the portfolio, followed by South Korea at 21.2%.
We removed a tail of smaller holdings where we no longer have confidence in the management, business model or the potential upside. These included: HTC (management concerns); Advantech (growth concerns); and Samsung Fire and Marine (lack of growth).
Our holdings in South Korea performed very well, contributing significantly to performance over the year, rising on average 24.3% versus the country index which was down 0.4%. Our notable country overweight position also helped these returns. Some of our South Korean biotech stocks did very well: Genexine was up 89% - it is a leader in innovative technology for longacting therapeutics; Bioneer rose 107% after it undertook a discounted rights issue to fund research and development; and Theragen Etex rose 106% on expectations of a licensing out deal. Our worst performing stock was Finetex EnE, the maker of nanofiber material for the garment industry. The stock was suspended after the auditor resigned. We subsequently wrote down our holding. The company has seemingly been unable to scale its technology profitably, but we remain confident that it has a unique product which serves a new unmet need.
Our Vietnamese exposure contributed meaningfully to the overall performance of the portfolio. Our Vietnam holdings rose 25% on average during the year. Vingroup, the leading real estate developer in the country, was the standout performer, rising 184% as the company realised significant value by listing its two subsidiaries, property malls and real estate development. We continue to see the Vietnamese economy as a whole as an underappreciated growth story.
We made two unlisted equity investments during the year. NIO is one of China's leading new energy vehicle start-ups, which aims at the upper end EV market in China and claims the world's first in-car AI system and the world's fastest electric car among its products. We expect the stock to list in 2018. Our second unlisted investment was comprised of two components. We helped JHL Biotech to delist from the stock market in Taiwan with the intention of relisting on another exchange which would give the company access to a larger pool of more sophisticated investors. As part of the delisting process, we participated in a convertible bond which gives extra security and return over the pure equity holding. We expect the stock to relist by the end of 2019. The investment trust structure lends itself well to having some unlisted exposure where we believe there to be the potential for significant returns.
Environmental, Social and Governance
As growth investors, we are looking for companies whose products will benefit from strong future demand. These companies not only have to produce better and cheaper products and services than their competitors, but also have to be alert to the changing nature and views of the societies of which they are part. Companies which do not change within and alongside the societies they serve tend to fail, either due to falling demand for their product or as a result of government intervention. When we invest, we take into account the potential positive and negative impact these companies have on the world today, and how their commercial activities will be perceived in the future.
For many of our long term investments to be successful, the companies in which we invest must add value to society. We see this being achieved in a variety of ways: our regenerative biotech companies, whose products may allow many people to gain otherwise unachievable medical benefits; our internet companies which provide goods and services to people at prices and in quantities previously unobtainable; and our technology holdings that are helping to enable the greatest and most rapid increase in human connectivity and information availability on record.
Lastly, the interests of minority shareholders must be upheld; we look for alignment between ourselves as investors and the majority shareholders and owners of the companies in which we invest.
Outlook
It is our view that there is significant potential for positive returns from the region over the coming years. Our focus remains on investment in individual stocks which will benefit from the economic, social and technological changes in evidence across the region. The portfolio is fully invested, with gearing of 7.9%. In the near term, recent market noise over trade wars, slowing global growth and a rising US dollar are eclipsing the underlying reality. When the market returns to looking at fundamentals in Asia, it is our expectation that other investors will see what we already see: very healthy, growing economies, with cheap companies and undervalued currencies, creating significant opportunities for long term financial benefit for our shareholders.
* See disclaimer at the end of this announcement.
†The portfolio figures throughout the report are based on total assets.
For a definition of terms see Glossary of Terms, note 9.
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List of Investments as at 31 July 2018 |
|
|
Name |
Country |
Business |
Value £'000 |
% of total assets ‡ |
|
|||||
|
|
Alibaba Group ADR |
HK/China |
Online and mobile commerce |
14,194 |
6.3 |
|
|||||
|
|
Tencent Holdings |
HK/China |
Online gaming and social networking |
11,833 |
5.2 |
|
|||||
|
|
Sunny Optical Technology |
HK/China |
Small optical lenses manufacturer |
11,679 |
5.2 |
|
|||||
|
|
JD.com ADR |
HK/China |
Online mobile commerce |
7,932 |
3.5 |
|
|||||
|
|
Samsung SDI |
Korea |
Lithium-ion batteries manufacturer |
6,977 |
3.1 |
|
|||||
|
|
Ping An Insurance H Shares |
HK/China |
Life insurance provider |
6,930 |
3.1 |
|
|||||
|
|
Geely Automobile |
HK/China |
Automobile manufacturer |
6,895 |
3.1 |
|
|||||
|
|
SEA Limited ADR |
Singapore |
Internet gaming and e-commerce |
6,891 |
3.1 |
|
|||||
|
|
Koh Young Technology |
Korea |
3D inspection machine manufacturer |
6,759 |
3.0 |
|
|||||
|
|
Macronix |
Taiwan |
NOR/ROM memory semiconductor manufacturer |
6,451 |
2.9 |
|
|||||
|
|
SK Hynix |
Korea |
Electronic component and device manufacturer |
6,422 |
2.8 |
|
|||||
|
|
Dragon Capital Vietnam Enterprise Investments |
Vietnam |
Vietnam investment fund |
5,855 |
2.6 |
|
|||||
|
|
Accton Technology |
Taiwan |
Server network equipment manufacturer |
5,844 |
2.6 |
|
|||||
|
|
Kingdee International Software |
HK/China |
Enterprise management software distributor |
5,790 |
2.6 |
|
|||||
|
|
PT Vale Indonesia |
Indonesia |
Nickel mining |
4,857 |
2.1 |
|
|||||
|
|
IndusInd Bank |
India |
Commercial bank focusing on consumer lending |
4,431 |
2.0 |
|
|||||
|
|
CNOOC Ltd |
HK/China |
Oil and gas producer |
4,307 |
1.9 |
|
|||||
|
|
Pinduoduo Inc ADR |
HK/China |
Chinese e-commerce |
3,930 |
1.7 |
|
|||||
|
|
Li Ning |
HK/China |
Sportswear apparel supplier |
3,752 |
1.7 |
|
|||||
|
|
HDBank |
Vietnam |
Consumer bank |
3,342 |
1.5 |
|
|||||
|
|
Cafe24 |
Korea |
South Korean web service provider |
3,235 |
1.4 |
|
|||||
|
|
GlobalWafers |
Taiwan |
Semiconductor wafers manufacturer |
3,128 |
1.4 |
|
|||||
|
|
ICICI Bank |
India |
Retail and corporate bank |
2,744 |
1.2 |
|
|||||
|
|
AviChina Industry & Technology H Shares |
HK/China |
Aircraft and aircraft parts manufacturer |
2,710 |
1.2 |
|
|||||
|
|
Douzone Bizon |
Korea |
Enterprise resource planning software developer |
2,445 |
1.1 |
|
|||||
|
|
Vincom |
Vietnam |
Property developer |
2,431 |
1.1 |
|
|||||
|
|
Military Commercial Joint Stock Bank |
Vietnam |
Retail and corporate bank |
2,428 |
1.1 |
|
|||||
|
|
Medy-Tox |
Korea |
Global pharmaceutical company |
2,419 |
1.1 |
|
|||||
|
|
Genexine |
Korea |
Therapeutic vaccine researcher and developer |
2,405 |
1.1 |
|
|||||
|
|
Bioneer |
Korea |
Drug researcher and developer |
2,302 |
1.0 |
|
|||||
|
|
Hoa Phat Group |
Vietnam |
Multi-disciplinary manufacturer of steel and related products |
2,287 |
1.0 |
|
|||||
|
|
Ping An Bank A Shares |
HK/China |
Consumer bank |
2,242 |
1.0 |
|
|||||
|
|
Info Edge |
India |
Jobseekers, housing sales and restaurant online review provider |
2,036 |
0.9 |
|
|||||
|
|
Basso Industries |
Taiwan |
Powerdrills manufacturer |
2,011 |
0.9 |
|
|||||
|
|
Enzychem Lifesciences Corp |
Korea |
Manufacturer and distributor of pharmaceuticals |
2,006 |
0.9 |
|
|||||
|
|
Kingpak Technology |
Taiwan |
Semiconductor packaging |
1,976 |
0.9 |
|
|||||
|
|
Saigon Securities |
Vietnam |
Brokerage and securities |
1,954 |
0.9 |
|
|||||
|
List of Investments as at 31 July 2018 (ctd)
|
|||||||||||
|
Name |
Country |
Business |
Value £'000 |
% of total assets ‡ |
|||||||
|
AU Small Finance Bank |
India |
Small consumer finance bank |
1,868 |
0.8 |
|||||||
|
Samsung Electronics |
Korea |
Memory, phones and electronic components manufacturer |
1,865 |
0.8 |
|||||||
|
Haier Electronics Group |
HK/China |
Washing machine and water heater manufacturer |
1,789 |
0.8 |
|||||||
|
NIO Inc Series D Preferred* |
HK/China |
Electric vehicle original equipment manufacturer |
1,749 |
0.8 |
|||||||
|
Mitac Holdings |
Taiwan |
Distributor of GPS and server products |
1,747 |
0.8 |
|||||||
|
Bank Tabungan Negara |
Indonesia |
Mortgage lender |
1,583 |
0.7 |
|||||||
|
Petro Matad |
Mongolia |
Oil exploration and production |
1,546 |
0.7 |
|||||||
|
Eugene Technology |
Korea |
Semiconductor equipment manufacturer |
1,514 |
0.7 |
|||||||
|
NCSOFT |
Korea |
Online games developer |
1,502 |
0.7 |
|||||||
|
Mahindra CIE Automotive |
India |
Truck parts manufacturer |
1,486 |
0.7 |
|||||||
|
Kansai Nerolac Paints |
India |
Paint manufacturer |
1,358 |
0.6 |
|||||||
|
PT Aneka Tambang |
Indonesia |
Nickel mining |
1,270 |
0.6 |
|||||||
|
Cox & Kings India |
India |
Travel agent |
1,247 |
0.5 |
|||||||
|
3SBIO |
HK/China |
Biologics innovator |
1,170 |
0.5 |
|||||||
|
ST Pharm |
Korea |
Manufacturer of specialist pharmaceutical ingredients |
1,155 |
0.5 |
|||||||
|
JHL Biotech Convertible Bond* |
Taiwan |
Biologics manufacturer |
1,143 |
0.5 |
|||||||
|
ICICI Prudential Life Insurance |
India |
Life insurance provider |
1,135 |
0.5 |
|||||||
|
CrystalGenomics |
Korea |
Proteomic drug discovery investigator |
1,083 |
0.5 |
|||||||
|
BitAuto Holdings Ltd ADR |
HK/China |
Automobile pricing website |
1,077 |
0.5 |
|||||||
|
SDI Corporation |
Taiwan |
Manufacturer of stationery and lead frames for semiconductors |
1,070 |
0.5 |
|||||||
|
Netmarble Games |
Korea |
Mobile computer games designer |
1,023 |
0.5 |
|||||||
|
Techtronic Industries |
HK/China |
Power tool manufacturer |
1,007 |
0.4 |
|||||||
|
Intron Biotechnology |
Korea |
Antibiotics drug researcher |
971 |
0.4 |
|||||||
|
Aslan Pharmaceuticals |
Singapore |
Biosimilar drug developer |
961 |
0.4 |
|||||||
|
Aslan Pharmaceuticals ADR |
Singapore |
Biosimilar drug developer |
947 |
0.4 |
|||||||
|
RBL Bank |
India |
Consumer finance |
933 |
0.4 |
|||||||
|
EO Technics |
Korea |
Laser equipment manufacturer and distributor |
882 |
0.4 |
|||||||
|
Max Financial Services |
India |
Life insurance provider |
856 |
0.4 |
|||||||
|
LG Innotek |
Korea |
Mobile phone component manufacturer |
832 |
0.4 |
|||||||
|
Hoa Sen Group |
Vietnam |
Manufacturer of steel and plastic building products |
831 |
0.4 |
|||||||
|
Taiwan Semiconductor Manufacturing |
Taiwan |
Semiconductor foundry |
804 |
0.3 |
|||||||
|
Mecaro |
Korea |
Semiconductor equipment |
793 |
0.3 |
|||||||
|
Finetex EnE |
Korea |
Nano-technology material manufacturer |
787 |
0.3 |
|||||||
|
ZTE H Shares |
HK/China |
Mobile network equipment |
747 |
0.3 |
|||||||
|
Binh Minh Plastics Joint Stock Company |
Vietnam |
Plastic piping manufacturer |
720 |
0.3 |
|||||||
|
JHL Biotech* |
Taiwan |
Biologics manufacturer |
601 |
0.3 |
|||||||
|
Bharat Electronics |
India |
Indian defence |
581 |
0.3 |
|||||||
|
TTY Biopharm |
Taiwan |
Manufacturer of specialist genetics |
576 |
0.2 |
|||||||
|
Theregen Etex |
Korea |
Genetics researcher and developer |
529 |
0.2 |
|||||||
|
Sarine Technologies |
Singapore |
Diamond grading measurement systems medicines |
435 |
0.2 |
|||||||
|
List of Investments as at 31 July 2018 (ctd)
|
|||||||||||
|
Name |
Country |
Business |
Value £'000 |
% of total assets ‡ |
|||||||
|
China Shineway Pharmaceuticals |
HK/China |
Manufacturer and seller of Chinese and Western medicines |
424 |
0.2 |
|||||||
|
China Rapid Finance ADR |
HK/China |
P2P consumer lending platform |
400 |
0.2 |
|||||||
|
Dilip Buildcon |
India |
Indian construction company |
247 |
0.1 |
|||||||
|
Philtown Properties* |
Philippines |
Property developer |
0 |
0.0 |
|||||||
|
Total Investments |
|
|
221,074 |
98.2 |
|||||||
|
Net Current Assets |
|
|
3,989 |
1.8 |
|||||||
|
Total Assets |
|
|
225,063 |
100.0 |
|
||||||
HK/China denotes Hong Kong and China
‡ Total assets less current liabilities, before deduction of borrowings.
* Denotes unlisted investment.
Distribution of Total Assets‡
Geographical Analysis
|
|
|
At 31 July 2018 % |
At 31 July 2017 % |
|
Equities: |
Hong Kong and China |
40.2 |
38.1 |
|
|
Korea |
21.2 |
24.9 |
|
|
Taiwan |
11.3 |
11.6 |
|
|
Vietnam |
8.9 |
7.0 |
|
|
India |
8.4 |
16.3 |
|
|
Singapore |
4.1 |
0.5 |
|
|
Indonesia |
3.4 |
- |
|
|
Mongolia |
0.7 |
- |
|
Total equities |
98.2 |
98.4 |
|
|
Net liquid assets |
1.8 |
1.6 |
|
|
Total assets‡ |
100.0 |
100.0 |
|
Sectoral Analysis
|
|
|
At 31 July 2018 % |
At 31 July 2017 % |
|
|
Equities: |
Consumer Discretionary |
14.1 |
19.8 |
|
|
|
Consumer Staples |
- |
1.2 |
|
|
|
Energy |
2.6 |
- |
|
|
|
Financials |
16.3 |
17.2 |
|
|
|
Health Care |
8.3 |
5.0 |
|
|
|
Industrials |
2.4 |
2.8 |
|
|
|
Information Technology |
48.7 |
48.9 |
|
|
|
Materials |
4.7 |
2.7 |
|
|
|
Real Estate |
1.1 |
0.8 |
|
|
Total equities |
98.2 |
98.4 |
|
|
|
Net liquid assets |
1.8 |
1.6 |
|
|
|
Total assets |
100.0 |
100.0 |
|
|
‡ Total assets less current liabilities, before deduction of borrowings.
Key Performance Indicators
The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:
¾ the movement in net asset value per ordinary share;
¾ the movement in the share price;
¾ the premium/(discount) of the share price to the net asset value per share;
¾ the movement in the comparative index (MSCI All Country Asia ex Japan Index (in sterling terms)); and
¾ the ongoing charges.
An explanation of these measures can be found in the Glossary of Terms in note 9.
The one, five and ten year records for the KPIs can be found on pages 4, 5 and 6 of the Annual Report and Financial Statements respectively.
Future Developments of the Company
The outlook for the Company is set out in the Chairman's Statement and the Managers' Review above.
Transactions with Related Parties and the Managers and Secretaries
The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 28 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.
Details of the management contract are set out in the Directors' Report on page 19 of the Annual Report and Financial Statements. The management fee payable to the Manager by the Company for the year, as disclosed in note 3 in the Annual Report and Financial Statements, was £1,396,000 (2017 - £1,095,000) of which £370,000 (2017 - £310,000) was outstanding at the year end, as disclosed in note 11 in the Annual Report and Financial Statements.
Management Fee Arrangements
Details of the Investment Management Agreement are set out on page 19 of the Annual Report and Financial Statements. With effect from 1 January 2017 the annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly.
|
|
2018 £'000 |
|
2017 £'000 |
|
Investment management fee |
1,396 |
|
1,095 |
Principal Risks
As explained on pages 24 and 25 of the Annual Report and Financial Statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. There have been no significant changes to the principal risks during the year. A description of these risks and how they are being managed or mitigated is set out below:
Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 16 to the Financial Statements on pages 44 to 48 of Annual Report and Financial Statements. As oversight of this risk, the Board considers at each meeting various metrics including regional and industrial sector weightings, top and bottom stock contributors to performance along with sales and purchases of investments. Individual investments are discussed with the portfolio managers together with their general views on the various investment markets and sectors. A strategy meeting is held annually.
Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy, the investment portfolio and its performance, the level of discount/premium to net asset value at which the shares trade and movements in the share register.
Discount Risk - the discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. The Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares, when deemed by the Board to be in the best interests of the Company and its shareholders.
Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.
Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To monitor potential risk, the Audit Committee receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are
reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.
Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board.
Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. All borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The Company can also make use of derivative contracts. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found in note 17 on page 48 of the Annual Report and Financial Statements and the Glossary of Terms at the end of this announcement.
Political and Associated Economic Risk - the Board is of the view that political change in areas in which the Company invests or may invest may have practical consequences for the Company. Political developments are closely monitored and considered by the Board. The Board has noted the UK Government's intention that the UK should leave the European Union on 29 March 2019.
Whilst there is considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.
Viability Statement
Notwithstanding that the continuation of the Company is subject to approval of shareholders every five years, with the next vote at the Annual General Meeting in 2021, the Directors have, in accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, published by the Financial Reporting Council, assessed the prospects of the Company over a three year period. The Directors continue to believe this period to be appropriate as it is reflective of the Company's investment approach. In the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, such a period is one over which they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. The Directors do not envisage any change in the Company's strategy or objectives nor do they foresee any events that would prevent the Company from continuing in existence over that period. As noted in the Chairman's Statement above, it is the intention that the Directors will propose a 25% tender to be triggered if the Company's net asset value (calculated at fair value cum-income) total return fails to exceed the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis.
In making this assessment regarding viability, the Directors have taken into account the Company's current position and have conducted a robust assessment of the Company's principal risks and uncertainties (as detailed above), in particular the impact of market risk where a significant fall in the Asia-Pacific (excluding Japan) and the Indian Sub-continent equity markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's investment objective and policy, the level of demand for the Company's shares, the nature of its assets, its liabilities and its projected income and expenditure. The vast majority of the Company's investments are readily realisable and can be sold to meet its liabilities as they fall due, the main liability currently being the short term bank borrowings. In addition, substantially all of the essential services required by the Company are outsourced to third party service providers; this allows key service providers to be replaced at relatively short notice where necessary.
Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.
Going Concern
In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 16 to the Financial Statements.
The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. The Board approves borrowing and gearing limits and reviews regularly the amounts of any borrowing and the level of gearing as well as compliance with borrowing covenants. In accordance with the Company's Articles of Association, shareholders have the right to vote on the continuation of the Company every five years, the next vote being in 2021. After making enquiries and considering the future prospects of the Company and notwithstanding the above, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matter set out in the Viability Statement above which assess the prospects of the Company over a period of three years, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.
Financial Instruments
As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of maximising capital appreciation from a focused and actively managed portfolio of investments from the Asia-Pacific region including the Indian Sub-continent. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.
These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise short term volatility. Risk provides the potential for both losses and gains. In assessing risk, the Board encourages the Managers to exploit the opportunities that risk affords.
The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.
Market Risk
The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.
Details of the Company's investment portfolios are shown in note 9 in the Annual Report and Financial Statements. The Company may, from time to time, enter into derivative transactions to hedge specific market, currency or interest rate risk. During the years to 31 July 2017 and 31 July 2018 no such transactions were entered into.
The Company's Managers may not enter into derivative transactions without the prior approval of the Board.
Currency Risk
The majority of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.
The Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Managers assess 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 rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.
Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.
Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.
|
At 31 July 2018 |
Investments £'000 |
Cash and deposits £'000 |
Loans £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
Hong Kong dollar |
59,033 |
- |
- |
41 |
59,074 |
|
Korean won |
47,906 |
5 |
- |
11 |
47,922 |
|
US dollar |
38,263 |
3,063 |
(10,183) |
(38) |
31,105 |
|
Taiwan dollar |
25,169 |
5 |
- |
399 |
25,573 |
|
Indian rupee |
18,922 |
29 |
- |
(4) |
18,947 |
|
Vietnam dong |
13,993 |
- |
- |
- |
13,993 |
|
Indonesian rupiah |
7,710 |
- |
- |
- |
7,710 |
|
Chinese yuan |
2,242 |
29 |
- |
19 |
2,290 |
|
Singapore dollar |
435 |
- |
- |
- |
435 |
|
Total exposure to currency risk |
213,673 |
3,131 |
(10,183) |
428 |
207,049 |
|
Sterling |
7,401 |
360 |
(10,000) |
70 |
(2,169) |
|
|
221,074 |
3,491 |
(20,183) |
498 |
204,880 |
* Includes net non-monetary assets of £8,000.
|
At 31 July 2017 |
Investments £'000 |
Cash and deposits £'000 |
Loans £'000 |
Other debtors and creditors* £'000 |
Net exposure £'000 |
|
Hong Kong dollar |
38,372 |
- |
- |
25 |
38,397 |
|
Korean won |
45,443 |
- |
- |
7 |
45,450 |
|
US dollar |
31,123 |
2,852 |
(7,273) |
(23) |
26,679 |
|
Taiwan dollar |
21,332 |
4 |
- |
402 |
21,738 |
|
Indian rupee |
29,672 |
- |
- |
60 |
29,732 |
|
Vietnam dong |
7,712 |
- |
- |
- |
7,712 |
|
Indonesian rupiah |
- |
- |
- |
- |
- |
|
Chinese yuan |
- |
- |
- |
- |
- |
|
Singapore dollar |
748 |
- |
- |
- |
748 |
|
Total exposure to currency risk |
174,402 |
2,856 |
(7,273) |
471 |
170,456 |
|
Sterling |
5,121 |
26 |
(7,500) |
(353) |
(2,706) |
|
|
179,523 |
2,882 |
(14,773) |
(118) |
167,750 |
* Includes net non-monetary assets of £14,000.
Currency Risk Sensitivity
At 31 July 2018, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2017.
|
|
2018 £'000 |
|
2017 £'000 |
|
Hong Kong dollar |
2,954 |
|
1,920 |
|
Korean won |
2,396 |
|
2,272 |
|
US dollar |
1,555 |
|
1,334 |
|
Taiwan dollar |
1,279 |
|
1,087 |
|
Indian rupee |
947 |
|
1,487 |
|
Vietnam dong |
700 |
|
386 |
|
Indonesian rupiah |
386 |
|
- |
|
Chinese yuan |
114 |
|
- |
|
Singapore dollar |
22 |
|
37 |
|
|
10,353 |
|
8,523 |
Interest Rate Risk
Interest rate movements may affect directly:
¾ the fair value of any investments in fixed interest rate securities;
¾ the level of income receivable on cash deposits;
¾ the fair value of any fixed-rate borrowings; and
¾ the interest payable on any variable rate borrowings.
Interest rate movements may also impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements. The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.
The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates).
The interest rate risk profile of the Company's financial assets and liabilities at 31 July is shown below.
Financial Assets
The Company's interest rate risk exposure on its financial assets at 31 July 2018 amounted to £3,491,000 (2017 - £2,882,000), comprising of its cash and short term deposits.
The cash deposits generally comprise call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.
Financial Liabilities
The interest rate risk profile of the Company's financial liabilities and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31 July are shown below.
Interest Rate Risk Profile
|
|
2018 £'000 |
|
2017 £'000 |
|
Floating rate bank loan - sterling denominated - US$ denominated |
10,000 10,183 |
|
7,500 7,273 |
|
|
20,183 |
|
14,773 |
Maturity Profile
|
|
2018 Within 1 year £'000 |
|
2017 Within 1 year £'000 |
|
Repayment of loans |
20,183 |
|
14,773 |
|
Interest on loans |
247 |
|
158 |
|
|
20,430 |
|
14,931 |
Interest Rate Risk Sensitivity
The sensitivity analysis below has been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
An increase of 100 basis points in interest rates, with all other variables being held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 July 2018 by £167,000 (2017 - decrease of £119,000). This is mainly due to the Company's exposure to interest rates on its floating rate bank loan and cash balances. A decrease of 100 basis points would have had an equal but opposite effect.
Other Price Risk
Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index. Investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.
Other Price Risk Sensitivity
A full list of the Company's investments is given above. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector are contained in the Strategic Report.
105.8% (2017 - 107.0%) of the Company's net assets are invested in quoted equities. A 5% (2017 - 5%) increase in quoted equity valuations at 31 July 2018 would have increased total assets and total return on ordinary activities by £10,840,000 (2017 - £8,976,000). A decrease of 5% would have had an equal but opposite effect.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board provides guidance to the Managers as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings.
The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facility is detailed in note 11 of the Annual Report and Financial Statements and the maturity profile of its borrowings are set out above. Under the terms of the borrowing facility, borrowings are repayable on demand at their current carrying value.
Borrowing Facilities
The Company has a one year multi-currency revolving credit facility of up to £30 million with The Royal Bank of Scotland plc (31 July 2017 - one year £15 million multi-currency revolving credit facility with The Royal Bank of Scotland plc). At 31 July 2018 there were outstanding drawings of £10,000,000 and US$13,358,000 at interest rates of 1.08075% and 2.79063% respectively (31 July 2017 - £7,500,000 and US$9,588,750 at interest rates of 0.74318% and 1.69586% respectively). The main covenant relating to the loan is that borrowings should not exceed 20% of the Company's net asset value. There were no breaches in the loan covenants during the year.
Borrowings Falling Due Within One Year
|
|
2018 £'000 |
|
2017 £'000 |
|
Bank loan |
20,183 |
|
14,773 |
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.
This risk is managed as follows:
¾ where the Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;
¾ the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Managers monitor the Company's risk by reviewing the Custodian's internal control reports and reporting its findings to the Board;
¾ investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;
¾ the creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Managers; and
¾ cash is only held at banks that are regularly reviewed by the Managers.
Credit Risk Exposure
The exposure to credit risk at 31 July was:
|
|
2018 £'000 |
2017 £'000 |
|
Cash and short term deposits |
3,491 |
2,882 |
|
Debtors and prepayments |
1,065 |
508 |
|
|
4,556 |
3,390 |
The maximum exposure in cash during the year was £7,720,000 (2017 - £8,814,000) and the minimum £197,000 (2017 - £227,000). None of the Company's financial assets are past due or impaired (2017 - none).
Fair Value of Financial Assets and Financial Liabilities
The Directors are of the opinion that the carrying amount of financial assets and liabilities of the Company in the Balance Sheet approximates their fair value.
Capital Management
The capital of the Company is its share capital and reserves as set out in note 13 of the Annual Report and Financial Statements together with its borrowings (see note 11 of the Annual Report and Financial Statements). The objective of the Company is to invest in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent in order to achieve capital growth. The Company's investment policy is set out on pages 7 and 8 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on page 22, pages 8 and 9 and pages 24 and 25, respectively of the Annual Report and Financial Statements. The Company has the authority to issue and buy back its shares (see pages 20 and 21 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in notes 12 and 13 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loan which are detailed in note 11 of the Annual Report and Financial Statements.
Investments
|
As at 31 July 2018 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
216,794 |
- |
787* |
217,581 |
|
Unlisted equity |
- |
- |
3,493 |
3,493 |
|
Total financial asset investments |
216,794 |
- |
4,280 |
221,074 |
* This relates to a holding in Finetex EnE which was transferred from Level 1 to Level 3 as a result of the stock being suspended from trading.
|
As at 31 July 2017 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed equities |
179,523 |
- |
- |
179,523 |
|
Unlisted equity |
- |
- |
- |
- |
|
Total financial asset investments |
179,523 |
- |
- |
179,523 |
Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly
observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
The valuation techniques used by the Company are explained in the accounting policies on page 39 of the Annual Report and Financial Statements.
Alternative Investment Fund Managers (AIFM) Directive
In accordance with the Alternative Investment Fund Managers Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy is available on the Managers' website at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements). The numerical remuneration disclosures in respect of the AIFM's relevant reporting period (year ended 31 March 2018) are also available at www.bailliegifford.com.
The Company's maximum and actual leverage (see Glossary of Terms at the end of this announcement) levels at 31 July 2018 are shown below:
Leverage Exposure
|
|
Gross Method |
Commitment Method |
|
Maximum limit |
2.50:1 |
2.00:1 |
|
Actual |
1.09:1 |
1.10:1 |
Statement of Directors' Responsibilities in Respect of the Annual Report and the 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 elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) 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 profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and 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 laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.
The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The work carried out by the Auditor does not involve any consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.
Each of the Directors, whose names and functions are listed within the Directors and Managers section of the Annual Report and Financial Statements confirm that, to the best of their knowledge:
- the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' give a true and fair view of the assets, liabilities, financial position and net return of the Company;
- the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
- 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
Jean Matterson
Chairman
17 September 2018
Income Statement
|
|
For the year ended 31 July 2018 |
For the year ended 31 July 2017 |
||||
|
|
Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
Gains on investments |
- |
22,492 |
22,492 |
- |
47,480 |
47,480 |
|
Currency (losses)/gains |
- |
(49) |
(49) |
- |
192 |
192 |
|
Income (note 2) |
2,032 |
- |
2,032 |
1,559 |
- |
1,559 |
|
Investment management fee (note 3) |
(1,396) |
- |
(1,396) |
(1,095) |
- |
(1,095) |
|
Other administrative expenses |
(534) |
- |
(534) |
(425) |
- |
(425) |
|
Net return before finance costs and taxation |
102 |
22,443 |
22,545 |
39 |
47,672 |
47,711 |
|
Finance costs of borrowing |
(275) |
- |
(275) |
(119) |
- |
(119) |
|
Net return on ordinary activities before taxation |
(173) |
22,443 |
22,270 |
(80) |
47,672 |
47,592 |
|
Tax on ordinary activities |
(155) |
- |
(155) |
(131) |
- |
(131) |
|
Net return on ordinary activities after taxation |
(328) |
22,443 |
22,115 |
(211) |
47,672 |
47,461 |
|
Net return per ordinary share (note 4) |
(0.60p) |
40.90p |
40.30p |
(0.38p) |
86.74p |
86.36p |
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.
Balance Sheet
|
|
At 31 July 2018 |
At 31 July 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Fixed assets |
|
|
|
|
|
Investments held at fair value through profit or loss |
|
221,074 |
|
179,523 |
|
Current assets |
|
|
|
|
|
Debtors |
1,065 |
|
508 |
|
|
Cash and cash equivalents |
3,491 |
|
2,882 |
|
|
|
4,556 |
|
3,390 |
|
|
Creditors |
|
|
|
|
|
Amounts falling due within one year (note 6) |
(20,750) |
|
(15,163) |
|
|
Net current liabilities |
|
(16,194) |
|
(11,773) |
|
Net assets |
|
204,880 |
|
167,750 |
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
Share capital |
|
5,833 |
|
5,426 |
|
Share premium account |
|
17,774 |
|
3,166 |
|
Capital redemption reserve |
|
20,367 |
|
20,367 |
|
Capital reserve |
|
157,279 |
|
134,836 |
|
Revenue reserve |
|
3,627 |
|
3,955 |
|
Shareholders' funds |
|
204,880 |
|
167,750 |
|
Net asset value per ordinary share |
|
351.26p |
|
309.15p |
|
Ordinary shares in issue (note 7) |
|
58,327,282 |
|
54,262,282 |
Statement of Changes in Equity
For the year ended 31 July 2018
|
|
Share £'000 |
Share £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
||||
|
Shareholders' funds at 1 August 2017 |
5,426 |
3,166 |
20,367 |
134,836 |
3,955 |
167,750 |
|||||
|
Net return on ordinary activities after taxation |
- |
- |
- |
22,443 |
(328) |
22,115 |
|||||
|
Ordinary shares issued (note 7) |
407 |
14,608 |
- |
- |
- |
15,015 |
|||||
|
Dividends paid during the year (note 5) |
- |
- |
- |
- |
- |
- |
|||||
|
Shareholders' funds at 31 July 2018 |
5,833 |
17,774 |
20,367 |
157,279 |
3,627 |
204,880 |
|||||
For the year ended 31 July 2017
|
|
Share £'000 |
Share £'000 |
Capital redemption reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 August 2016 |
5,712 |
3,166 |
20,081 |
94,377 |
4,366 |
127,702 |
|
Net return on ordinary activities after taxation |
- |
- |
- |
47,672 |
(211) |
47,461 |
|
Shares purchased for cancellation (note 6) |
(286) |
- |
286 |
(7,213) |
- |
(7,213) |
|
Dividends paid during the year (note 5) |
- |
- |
- |
- |
(200) |
(200) |
|
Shareholders' funds at 31 July 2017 |
5,426 |
3,166 |
20,367 |
134,836 |
3,955 |
167,750 |
The Capital Reserve balance at 31 July 2018 includes holding gains on investments of £76,512,000 (2017 - gains of £38,808,000).
Cash Flow Statement
|
|
For the year ended 31 July 2018 |
For the year ended 31 July 2017 |
||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
|
Net return on ordinary activities before taxation |
|
22,270 |
|
47,592 |
|
Net gains on investments |
|
(22,492) |
|
(47,480) |
|
Currency losses/(gains) |
|
49 |
|
(192) |
|
Finance costs of borrowings |
|
275 |
|
119 |
|
Overseas withholding tax |
|
(152) |
|
(114) |
|
Changes in debtors and creditors |
|
111 |
|
(105) |
|
Cash from operations‡ |
|
61 |
|
(180) |
|
Interest paid |
|
(247) |
|
(104) |
|
Net cash outflow from operating activities |
|
(186) |
|
(284) |
|
Cash flows from investing activities |
|
|
|
|
|
Acquisitions of investments |
(85,500) |
|
(43,667) |
|
|
Disposals of investments |
66,468 |
|
42,958 |
|
|
Net cash outflow from investing activities |
|
(19,032) |
|
(709) |
|
Cash flows from financing activities |
|
|
|
|
|
Equity dividends paid (note 5) |
- |
|
(200) |
|
|
Shares issued (note 7) |
14,465 |
|
- |
|
|
Shares purchased for cancellation (note 7) |
- |
|
(7,213) |
|
|
Borrowings drawn down |
70,000 |
|
45,000 |
|
|
Borrowings repaid |
(64,678) |
|
(35,099) |
|
|
Net cash inflow from financing activities |
|
19,787 |
|
2,488 |
|
Increase in cash and cash equivalents |
|
569 |
|
1,495 |
|
Exchange movements |
|
40 |
|
64 |
|
Cash and cash equivalents at 1 August |
|
2,882 |
|
1,323 |
|
Cash and cash equivalents at 31 July |
|
3,491 |
|
2,882 |
‡ Cash from operations includes dividends received of £1,998,000 (2017 - £1,390,000) and interest received of £30,000 (2017 - £3,000).
|
Notes to the Financial Statements |
|
1. |
The Financial Statements for the year to 31 July 2018 have been prepared in accordance with FRS102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' The accounting policies adopted are consistent with those of the previous financial year. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment. |
||||||
|
|
|
31 July 2018 £'000 |
31 July 2017 £'000 |
||||
|
2. |
Income from financial assets designated at fair value through profit or loss |
|
|
||||
|
|
Listed overseas dividends |
2,002 |
1,556 |
||||
|
|
|
2,002 |
1,556 |
||||
|
|
Other income |
|
|
||||
|
|
Deposit interest |
30 |
3 |
||||
|
|
Total income |
2,032 |
1,559 |
||||
|
3. |
The Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager (AIFM) and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. The Managers may terminate the Management Agreement on six months' notice and the Company may terminate on three months' notice. With effect from 1 January 2017 the annual management fee is 0.95% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remaining net assets. Prior to 1 January 2017 the fee was 0.95% on the first £50m of net assets and 0.65% on the remaining net asset. Management fees are calculated and payable quarterly.
|
||||||
|
4. |
|
31 July 2018 £'000 |
31 July 2017 £'000 |
||||
| Net return per ordinary share |
|
|
|||||
| Revenue return on ordinary activities after taxation |
(328) |
(211) |
|||||
| Capital return on ordinary activities after taxation |
22,443 |
47,672 |
|||||
| Total return |
22,115 |
47,461 |
|||||
| Weighted average number of ordinary shares in issue |
54,868,308 |
54,958,654 |
|||||
|
|
The figures for net return per ordinary share are based on the above totals for revenue and capital and the weighted average number of ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue. |
||||||
|
5. |
Ordinary Dividends
|
31 July 2018 |
31 July 2017
|
31 July 2018 £'000 |
31 July 2017 £'000 |
||
| Amounts recognised as distributions in the year: |
|
|
|
|
|||
| Previous year's final (paid 11 November 2016) |
Nil |
0.35p |
Nil |
200 |
|||
|
|
There are no dividends paid and proposed in respect of the financial year. There is no revenue available for distribution by way of dividend for the year (2018 - revenue loss of £328,000; 2017 - revenue loss of £211,000). |
||||||
Notes to the Financial Statements
|
6. |
The Company has a one year multi-currency revolving credit facility of up to £30 million with The Royal Bank of Scotland plc (31 July 2017 - one year £15 million multi-currency revolving credit facility with The Royal Bank of Scotland plc). At 31 July 2018 there were outstanding drawings of £10,000,000 and US$13,358,000 at interest rates of 1.08075% and 2.79063% respectively (31 July 2017 - £7,500,000 and US$9,588,750 at interest rates of 0.74318% and 1.69586% respectively). The main covenant relating to the loan is that borrowings should not exceed 20% of the Company's net asset value. There were no breaches in the loan covenants during the year. |
|
7. |
The Company has authority to buy back up to 14.99% of its shares on an ad hoc basis and previously had authority to implement, at the Board's discretion, bi-annual tender offers for up to 5% of its shares at a 2% discount to net asset value, less costs, in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July in the years 2014, 2015 and 2016. In the year to 31 July 2017 the Company bought back a total of 2,855,909 ordinary shares at a total cost of £7,213,000 through the exercise of a tender offer in October 2016. The nominal value of these shares was £286,000 and represented 5.0% of the issued share capital at 31 July 2016. No shares were bought back in the year to 31 July 2018. At 31 July 2018 the Company had authority to buy back a further 8,133,916 ordinary shares. Following consultation with a number of shareholders, the Board did not seek authority at the Annual General Meeting on 9 November 2016 for the existing bi-annual 5% tenders to be continued for a period of at least the next three years. Instead, the Board proposed a tender that will be triggered if the Company's net asset value, calculated at fair value cum income, total return fails to exceed the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. If this performance target is not met, it is the intention that the Directors will propose a 25% tender of the Company's issued share capital at the time of calculation. The tender would be at a 2% discount to net asset value less costs. This would be subject to shareholders' approval of the tender authority being put to shareholders at the forthcoming Annual General Meeting. The Company also has authority to allot shares under section 551 of the Companies Act 2006. The Board has authorised use of this authority to issue new shares at a premium to net asset value in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares. In the year to 31 July 2018 the Company issued a total of 4,065,000 shares on a non pre-emptive basis (nominal value £407,000, representing 7.5% of the issued share capital at 31 July 2017) at a premium to net asset value (on the basis of debt valued at par value) raising net proceeds of £15,015,000 (2017 - Nil). |
|
8. |
The Company incurred transaction costs on purchases of £110,000 (2017 - £69,000) and on sales of £336,000 (2017 - £102,000), being £446,000 (2017 - £171,000) in total. |
|
9. |
Glossary of Terms Total Assets Total assets less current liabilities, before deduction of all borrowings. Net Asset Value and Shareholders' Funds Also described as shareholders' funds, Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue. Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings. Discount/Premium As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.
|
|
|
|
|
|
Total Return The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.
Ongoing Charges The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value).
Gearing At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing represents borrowings at par less cash and cash equivalents expressed as a percentage of shareholders' funds. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. Equity gearing is the Company's borrowings adjusted for cash and bonds expressed as a percentage of shareholders' funds. Leverage For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
Active Share Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.
Compound Annual Return The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year.
Unlisted Company An unlisted company means a company whose shares are not available to the general public for trading and not listed on a stock exchange. |
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MSCI Index Data
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