Annual Financial Report Replacement

RNS Number : 8803B
Gulf Investment Fund PLC
25 September 2018
 

The following amendment has been made to the 'Annual Financial Report' announcement released on 25 September 2018 at 7.00 under RNS No 7690B.

 

The payment date for the proposed dividend within the 'Proposed dividend' paragraph of the Chairman's Statement has been changed from 21 December 2019 to 21 December 2018.

 

All other details remain unchanged.

 

The full amended text is shown below.

 

 

Gulf Investment Fund plc

Annual Report for the year ended 30 June 2018

·     Gulf Investment Fund's (GIF) net asset value (NAV) +7.8%, MSCI Emerging Markets Index +5.8%

·     GIF share price +13%

·     Recommended dividend of 3.0 cents per share

·     GCC markets have outperformed other global markets

 

Nicholas Wilson, Chairman of Gulf Investment Fund plc, commented:

"This year has been one of improving fortune and significant development for the Gulf Investment Fund; in December the fund's investment strategy and name changed. The widening of our investment universe and the benefit of strong economic growth across the Gulf region has led to improved performance for the fund's net asset value and share price.

"We're confident that this growth will continue to provide opportunities for us in the region.  We are well positioned to take advantage of them. At the year-end we held positions in the financial services, energy and utilities across Saudi Arabia, Qatar, Kuwait and the United Arab Emirates.  Our investment adviser believes that medium to-long term growth prospects should remain healthy across the region, driven by a strong infrastructure development pipeline, supportive demographics as populations increase and as stockmarkets in the region are upgraded to emerging market status."

For further information:

Qatar Investment Fund Plc +44 (0) 1624 622 851

Nicholas Wilson

Panmure Gordon +44 (0) 20 7886 2500

Andrew Potts

Maitland +44 (0) 20 7379 5151

William Clutterbuck / Finlay Donaldson

 

Chairman's Statement

On behalf of the Board, I am pleased to present your Company's eleventh Annual Report and Financial Statements for the year to 30 June 2018.

 

During the 12 months, your Company's Net Asset Value per Share ("NAV") rose by 7.8% to US$1.1982 which compares with a gain of 8.6% in the S&P GCC composite index and 5.8% in the MSCI Emerging Markets Index. Following a narrowing of the discount at which the shares trade to NAV, the shares rose by from US$0.8990 to US$1.0150 for a gain of 13.0%. Shareholders received a dividend of 3.0 cents per share which was paid on 9 February 2018 to ordinary shareholders on the register as at 5 January 2018.

 

Results

 

Results for the period under review showed a profit US$9.68m generated from fair value adjustments, realised losses and dividend income. This is equivalent to a basic profit per share of 9.95 cents.

 

Following the actions taken on 5 June 2017 against Qatar by Saudi Arabia, UAE, Bahrain and Egypt, Qatar acted swiftly to implement alternative international trading arrangements. Although there was an initial negative impact on the Qatar economy and the stock market, by December it became apparent that the economy was recovering aided by a stronger oil price. Accordingly, since the change in Investment Policy referred to below, the Company remained overweight Qatar relative to the informal benchmark, the S&P GCC composite index.

 

At the end of the period, we had a total of 43 holdings: 24 in Saudi Arabia, 9 in Qatar, 5 in the UAE and 5 in Kuwait. The geographical split based on valuation, was Saudi Arabia 39.2%, Qatar 36.7%, Kuwait 10%, and UAE 9.6%. We also had 4.5% in cash.

 

The Company's Ongoing Charges (formerly Total Expense Ratio) rose to 1.95% from 1.70% in the previous year. The charges were calculated in accordance with the methodology recommended by the Association of Investment Companies.

 

Proposed dividend

 

The Board is pleased to recommend to shareholders a dividend of 3 cents a share. Subject to shareholder approval at the forthcoming Annual General Meeting, the dividend will be paid on 21 December 2018 with a record date of 16 November and an associated ex-date of 15 November 2018, the last day for currency elections will be 30 November 2018.

 

Change in investment policy

 

On 16 October 2017, the Board announced its intention to change the investment policy of the Company from a largely Qatar-focused investment strategy to a broader Gulf Cooperation Council ("GCC") investment strategy.

 

Previously, the investment policy enabled the Company to invest up to 15% of the Company in GCC countries (namely Saudi Arabia, Kuwait, UAE, Oman and Bahrain) other than Qatar.

 

The proposed change in investment policy removed the 15% limit and enabled the Company to increase its investment allocation to other GCC countries and provide the Investment Adviser with a wider investment universe and more flexibility to identify attractive opportunities in the GCC region.

 

Alongside the Amended Investment Policy the Board resolved to put forward a number of proposals including:  

(i)             making a tender offer for up to 10% of the issued Share Capital of the Company

(ii)            cancelling the discontinuation vote currently scheduled for the 2018 annual general meeting and replacing it with a continuation vote for the 2021 annual general meeting and every three years thereafter;

(iii)           making a tender offer to shareholders for up to 100% of the Company's share capital in 2020 subject to Shareholder approval to be sought in 2020; and

(iv)           proposing to change the name of the Company to Gulf Investment Fund PLC.

 

All of these changes were approved by shareholders at an Extraordinary General Meeting (EGM) on 7 December 2017, other than the tender offer in 2020 which will be subject to shareholder approval in 2020.

 

Tender offer

 

Following the passing of the resolutions at the EGM on 7 December 2017 to give effect to the 10% Tender Offer, 10,273,471 Shares were tendered under the Tender Offer at the tender offer price of USD0.9933 per share. These shares were cancelled leaving the Company with 92,461,242 Shares in issue (excluding treasury shares).

 

Related Party Transactions

 

Details of any related party transactions are contained in note 10 of this report.

 

Post balance sheet events

 

Details of these can be found in note 14 following the accompanying financial statements.

 

Outlook, risks and uncertainties

 

Fluctuations in oil and gas prices will continue to impact GCC economies, as countries deal with budget challenges. The geopolitics of the region and, in particular, the dispute between Qatar and other members of the GCC brings continuing economic uncertainty.

 

The Board believes that the principal risks and uncertainties faced by the Company continue to fall in the following categories; geopolitical events, market risks, investment and strategy risks, accounting, legal and regulatory risks, operational risks and financial risks. Information on each of these is given in the Business Review section of our Annual Report each year.

 

The Board continues to view the future of the Company with confidence expecting healthy if slower growth in the region as a whole, as growth in the non-hydrocarbon sector in a number of GCC members helps to balance their economies.

 

Annual General Meeting

 

I look forward to welcoming shareholders to out eleventh Annual General Meeting on 7 November 2018, which will be held at 11.00 am at the Company's registered office at Millennium House, 46 Athol Street, Douglas, Isle of Man.

 

 

Nicholas Wilson

Chairman

21 September 2018

 

Business Review

The following review is designed to provide information primarily about the Company's business and results for the year ended 30 June 2018. It should be read in conjunction with the Report of the Investment Manager and the Investment Adviser on pages 7 to 14 which gives a detailed review of the investment activities for the year and an outlook for the future.

 

Investment Objective and Strategy

The Company's investment objective is to capture the opportunities for growth offered by the expanding GCC economies by investing in listed companies on one of the GCC exchanges or companies soon to be listed on one of the GCC exchanges. The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries.

 

The Company applies a top-down screening process to identify those sectors which should most benefit from sector growth trends. Fundamental industry and company analysis, rather than benchmarking, forms the basis for both stock selection and portfolio construction.

 

The Company's investment policy is on pages 15 to 16.

 

Performance Measurement and Key Performance Indicators

In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the Directors take into account the following key performance indicators:

 

Returns and Net Asset Value

At each quarterly Board meeting the Board reviews the performance of the portfolio versus the Qatar Exchange (QE) Index (local benchmark) as well as the net asset value, income, share price and expense ratio for the Company.

 

Discount/Premium to Net Asset Value

On a weekly basis, the Board monitors the discount/premium to net asset value. The Directors renew their authority at the annual general meeting in order to be able to make purchases through the market where they believe they can assist in narrowing the discount to net asset value and where it is accretive to net asset value per share.

 

On 22 February 2017, the Company announced the details of its annual share buy-back programme. Pursuant to, and during the term of this share buy-back programme, the Company may purchase ordinary shares provided that:

1)   the maximum price payable for an ordinary share on the London Stock Exchange is an amount equal to the higher of:

a.   105 per cent. of the average market value of the Company's ordinary shares as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased; and

b.   In order to benefit from the exemption laid down in Article 5(1) of Regulation (EU) No 596/2014, the Company will not purchase shares at a price higher than the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out; and

2)   the aggregate number of ordinary shares which may be acquired on behalf of the Company in connection with this share buy-back programme shall not exceed 17,548,355 ordinary shares.

 

Due to the limited liquidity in the ordinary shares, a buy-back of ordinary shares pursuant to the share buy-back programme on any trading day is likely to represent a significant proportion of the daily trading volume in the ordinary shares on the London Stock Exchange (and is likely to exceed the 25% limits of the average daily trading volume as laid down in Article 5(1) of Regulation (EU) No 596/2014 and as such the Company will not benefit from this exemption). The share buy authority resolution is for up to 14.99% of the Company's issued share capital. The Board has no present intention to exercise the authority in full but will keep the matter under review, taking into account the overall financial position of the Company and the discount to net asset value at which the Company's shares trade.

 

Whilst the Company has the requisite shareholder authority to conduct share buy-backs, the Company has not announced a share buy-back programme since the above programme which expired on 17 November 2017, however this is under regular review by the Board.

 

A Board member is responsible for close monitoring of our share price, and working with our broker to buy back shares when we believe appropriate so as to manage any discount to net asset value. 

 

Yield

The Board monitors the dividend income of the portfolio and the amount available for distribution and considers the impact on the Company's annual dividend policy of future progressive dividend payments, subject to the absence of exceptional market events.

 

Principal Risks and Uncertainties

The Board confirms that there is an on-going process for identifying, evaluating and managing or monitoring the key risks to the Company. These key risks have been collated in a risk matrix document which is reviewed and updated on a quarterly basis by the Directors. The risks are identified and graded in this process, together with the policies and procedures for the mitigation of the risks.

 

The key risks which have been identified and the steps taken by the Board to mitigate these are as follows:

 

Market

The Company's investments consist of listed companies. There are no investments in companies soon to be listed. Market risk arises from uncertainty about the future prices of the investments. This is commented on in Note 1(a) and 2 on pages 47 to 51.

 

Investment and Strategy

The achievement of the Company's investment objective relative to the market involves risk. An inappropriate asset allocation may result in underperformance against the local index. Monitoring of these risks is carried out by the Board which, at each quarterly Board meeting, considers the asset allocation of the portfolio, the ratio of the larger investments within the portfolio and the management information provided by the Investment Manager and Investment Adviser, who are responsible for actively managing the portfolio in accordance with the Company's investment policy. The net asset value of the Company is published weekly. 

 

Accounting, legal and regulatory

The Company must comply with the provisions of the Isle of Man Companies Acts 1931 to 2004 and since its shares are listed on the London Stock Exchange, the UK Listing Authority's Listing Rules and Disclosure Guidance and Transparency Rules ("UKLA Rules")' A breach of company law could result in the Company and/or the Directors being fined or the subject of criminal proceedings. A breach of the UKLA Rules could result in the suspension of the Company's shares. The Board relies on its Company Secretary and advisers to ensure adherence to company law and UKLA Rules. The Board takes legal, accounting or compliance advice, as appropriate, to monitor changes in the regulatory environment affecting the Company.

 

From 3 July 2016 the Company must also comply with the Market Abuse Regulation (MAR) which contains prohibitions for insider dealing and market manipulation, and provisions to prevent and detect these.

 

Operational

Disruption to, or the failure of, the Investment Manager, the Investment Adviser, the Custodian or Administrator's accounting, payment systems or custody records could prevent the accurate reporting or monitoring of the Company's financial position. Details of how the Board monitors the services provided by the Investment Manager and its other suppliers, and the key elements designed to provide effective internal control, are explained further in the internal control section of the Corporate Governance Report on pages 19 to 25.

 

Financial

The financial risks faced by the Company include market price risk, foreign exchange risk, credit risk, liquidity risk and interest rate risk. Further details are disclosed in Notes 1(a), 2, 6 and 8.

 

Report of the Investment Manager and Investment Adviser

Regional Market Overview

In FY 2018, GCC Markets outperformed its global peers, led by increase in oil prices and index upgradation to EM status by FTSE and MSCI. Diverging global growth and looming trade war concerns have shaken investor confidence, triggering flow to safe heavens, with china suffering the most, as a result, global markets remained almost flat in 1H18.

 

 

29-Jun-17

31-Dec-17

2H17

29-Jun-18

1H18

LTM

Qatar (QE)

       9,030.4

       8,523.4

-5.6%

       9,024.0

5.9%

-0.1%

Saudi Arabia (TASI)

       7,425.7

       7,226.3

-2.7%

       8,314.2

15.1%

12.0%

Dubai (DFMGI)

       3,392.0

       3,370.1

-0.6%

       2,821.0

-16.3%

-16.8%

Abu Dhabi (ADI)

       4,425.4

       4,398.4

-0.6%

       4,560.0

3.7%

3.0%

Kuwait (KWSE)

 NA

 NA

NA

       4,890.4

NA

NA

Oman (MSI)

       5,118.3

       5,099.3

-0.4%

       4,571.8

-10.3%

-10.7%

Bahrain (BAX)

       1,310.0

       1,331.7

1.7%

       1,311.0

-1.6%

0.1%

S&P GCC Composite

          100.1

            99.0

-1.1%

          108.7

9.8%

8.6%

MSCI World

       1,916.4

       2,103.5

9.8%

       2,089.3

-0.7%

9.0%

MSCI EM

       1,008.8

       1,158.5

14.8%

       1,069.5

-7.7%

6.0%

Brent

            47.4

            66.9

41.1%

            77.9

16.4%

64.3%

Source: Bloomberg

GCC diversification and recovering oil prices

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for a chart depicting GCC Fiscal Balances.

 

 

MSCI EM Inclusion

 

Embedded image removed - please refer to the Company's website www.gulfinvestmentfundplc.com for a chart depicting Future Potential of GCC on the MSCI EM Index.

 

Other Recent Developments

Saudi Arabia to be included in FTSE Secondary Emerging Market Index

 

Rising interest rates to benefit GCC banks

 

Kuwait segmented its market to attract investors and increase listings

FTSE to upgrade Kuwait to emerging market in two tranches

Saudi Arabia launched privatization programme

 

Bahrain makes largest oil discovery in its history

 

UAE economy to grow at 3.9 per cent in 2018

 

British Petroleum (BP) to develop second phase of Oman's giant Khazzan gas field

 

Kuwait set to spend US$113 billion in 5 years

Kuwait added to MSCI EM watchlist

 

UAE 7th most competitive in the world

 

Moody's changed Qatar's Outlook from Negative to Stable

 

Saudi Arabia economy expanded by 1.2 per cent in 1Q18

 

Qatar reported 1.4 per cent GDP growth in 1Q18 led by non-hydrocarbon

 

Portfolio Structure

Country Allocation and Portfolio Rebalancing

 

Sector Allocation

 

 

Top 5 Holdings

Company Name

Country

Sector

% share of NAV

Commercial Bank of Qatar

Qatar

Financials

9.7%

Qatar Gas Transport

Qatar

Energy

8.4%

Qatar Electricity & Water Co

Qatar

Utilities

7.8%

Al Rajhi Bank

Saudi Arabia

Financials

5.1%

National Bank of Kuwait

Kuwait

Financials

4.1%

Source: QIC; as of 30th June 2018

 

Profile of Top Five Holdings

Commercial Bank of Qatar (9.7% of NAV)

Commercial Bank of Qatar (CBQ) is the second largest commercial bank in Qatar established in 1975 offering banking solutions worldwide, with primary focus on corporate and retail banking. The Bank's nationwide network includes 31 full service branches and 174 ATMs. Under its diversification strategy, CBQ has expanded its GCC footprint through strategic partnerships with associated banks - the National Bank of Oman (NBO) in Oman, United Arab Bank (UAB) in the UAE and subsidiary Alternatifbank in Turkey. Under the 5-year turnaround strategy, the Bank is strengthening its balance sheet by prudently managing the risks. Bottom line is expected to improve substantially once the high provision cycle comes to an end, moreover, ongoing cost optimisation will also add to the bottom-line. For 1H18, CBQ reported net profit of US$235 million (vs. US$49 million in 1H17) reflecting effective execution of the strategy. As of 30th June 2018, the Bank has total assets of US$38.4 billion.

 

Qatar Gas Transport (8.4% of NAV)

 

Qatar Electricity & Water Co. (7.8% of NAV)

Al Rajhi Bank (5.1% of NAV)

National Bank of Kuwait (4.1% of NAV)

 

GIF Performance

GCC Outlook

Valuations

Market

Market Cap.

PE (x)

PB (x)

Dividend Yield (%)

US$ billion

2018E

2019E

2018E

2019E

2018E

2019E

Qatar

110.1

13.20

11.46

1.49

1.41

4.49

4.72

Saudi Arabia

532.4

15.67

13.99

1.82

1.73

3.33

3.57

Dubai

79.0

7.89

7.09

1.01

0.94

5.51

5.74

Abu Dhabi

129.1

11.44

10.39

1.56

1.48

5.36

5.73

Kuwait

97.6

12.57

10.77

1.51

1.42

NA

NA

S&P GCC

885.6

13.89

12.37

1.61

1.52

3.85

4.14

MSCI EM

13,519.6

12.04

10.79

1.57

1.44

2.83

3.18

MSCI World

59,907.8

15.61

14.23

2.20

2.05

2.49

2.69

Source: Bloomberg, as of 12th July 2018

 

Epicure Managers Qatar Limited                                                           Qatar Insurance Company S.A.Q.

21 September 2018                                                                                       21 September 2018

 

Investment Policy

Investment Objective

The Company's investment objective is to capture the opportunities for growth offered by the expanding GCC economies by investing in listed companies on one of the GCC exchanges or companies soon to be listed on one of the GCC exchanges. The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries.

The Company applies a top-down screening process to identify those sectors which should most benefit from sector growth trends. Fundamental industry and company analysis, rather than benchmarking, forms the basis of both stock selection and portfolio construction.

 

Assets or companies in which the Company can invest

The Company invests in listed companies on any GCC Exchanges in addition to companies soon to be listed. The Company may also invest in listed companies, or pre-IPO companies, in other GCC countries. The Company will also be permitted to invest in companies listed on stock markets not located in the GCC which will have a significant economic exposure to and/or derive a significant amount of their revenues from GCC countries.

Whether investments will be active or passive investments

In the ordinary course of events, the Company is not an activist investor, although the Investment Adviser will seek to engage with investee company management where appropriate.

 

Holding period for investments

In the normal course of events, the Company expects to be fully-invested, although the Company may hold cash reserves pending new IPOs or when it is deemed financially prudent. Although the Company is a long term financial investor, it will actively manage its portfolio.

 

Spread of investments and maximum exposure limits

The Company will invest in a portfolio of investee companies. The following investment restrictions are in place to ensure a spread of investments and to ensure that there are maximum exposure limits in place (see investment guidelines under Investing Restrictions).

 

 

Policy in relation to gearing and derivatives

Borrowings will be limited, as at the date on which the borrowings are incurred, to 5% of NAV. Borrowings will include any financing element of a swap. The Company will not make use of hedging mechanisms.

 

The Company may utilise derivative instruments in pursuit of its investment policy subject to:

 

·      such derivative instruments being designed to offer the holder a return linked to the performance of a particular underlying listed equity security;

·      a maximum underlying equity exposure limit of 15 per cent of NAV (calculated at the time of investment); and

·      a policy of entering into derivative instruments with more than one counterparty in relation to an investment, where possible, to minimise counterparty risk.

 

Policy in relation to cross-holdings

Cross-holdings in other listed or unlisted investment funds or ETFs that invest in Qatar or other countries in the GCC region will be limited to 10 per cent. of Net Asset Value at any time (calculated at the time of investment).

 

Investing Restrictions

The investing restrictions for the Company are as follows:

 

(i) Foreign ownership restrictions

 

Investments in most GCC listed companies by persons other than citizens of that specific GCC country have an ownership restriction wherein the law precludes persons other than citizens of that specific GCC country from acquiring a certain proportion of a company's issued share capital. It is possible that the Company may have problems acquiring stock if the foreign ownership interest in one or more stocks reaches the allocated upper limit. This may adversely impact the ability of the Company to invest in certain companies listed on the GCC exchanges.

 

(ii) Investment guidelines

 

The Company has established certain investment guidelines. These are as follows (all of which calculated at the time of investment):

·              No single investment position in the S&P GCC Composite constituent may exceed the greater of: (i) 15 per cent. of the Net Asset Value of the Company; or (ii) 125 per cent. of the constituent company's index capitalisation divided by the index capitalisation of the S&P GCC Composite Index, as calculated by Bloomberg (or such other source as the Directors and Investment Manager may agree):

·              No single investment position in a company which is not a S&P GCC Composite Index constituent may at the time of investment exceed 15 per cent. of the NAV of the Company; and

·              No holding may exceed 5 per cent. of the outstanding shares in any one company (including investment in Saudi Arabian listed companies by way of derivative investment in P-Note or Swap structured financial products); and

 

(iii) Conflicts management

 

The Investment Manager, the Investment Adviser, their officers and other personnel are involved in other financial, investment or professional activities, which may on occasion give rise to conflicts of interest with the Company. The Investment Manager will have regard to its obligations under the Investment Management Agreement to act in the best interests of the Company, and the Investment Adviser will have regard to its obligations under the Investment Adviser Agreement to act in the best interests of the Company, so far as is practicable having regard to their obligations to other clients, where potential conflicts of interest arise. The Investment Manager and the Investment Adviser will use all reasonable efforts to ensure that the Company has the opportunity to participate in potential investments that each identifies that fall within the investment objective and strategies of the Company. Other than these restrictions set out above, and the requirement to invest in accordance with its investing policy, there are no other investing restrictions.

 

Returns and distribution policy

 

The Company's primary investment objective is to achieve capital growth. However, the Company has instituted an annual dividend policy to return to Shareholders distributions at least equal to reported income for each reporting period. Shareholders should note that this cannot be guaranteed and the level of distributions for any period remains a matter to be determined at the discretion of the Board.

 

Life of the Company

 

The Company currently does not have a fixed life but the Board considers it desirable that Shareholders should have the opportunity to review the future of the Company at appropriate intervals. Accordingly, at the annual general meeting of the Company in 2021, a resolution will be proposed that the Company continues in existence. More than 50 per cent. of Shareholders voting must vote in favour for this resolution to be passed. If the resolution is passed, a similar resolution will be proposed at every third annual general meeting thereafter. If the resolution is not passed, the Directors will be required to formulate proposals to be put to Shareholders to reorganise, unitise or reconstruct the Company or for the Company to be wound up.

 

 

Report of the Directors

The Directors hereby submit their annual report together with the audited consolidated and Company financial statements of Gulf Investment Fund plc (the "Company") for the year ended 30 June 2018.

 

The Company

The Company is incorporated in the Isle of Man and has been established to invest primarily in quoted equities of Qatar and other Gulf Co-operation Council countries. The Company's investment policy is detailed on pages 15 to 16.

 

Results and Dividends

The results of the Company for the year and its financial position at the year- end are set out on pages 36 to 46 of the financial statements.

 

The Directors manage the Company's affairs to achieve capital growth and the Company has instituted an annual dividend policy. The quantum of the dividend is calculated based on a proportion of the dividends received during the year, net of the Company's attributable costs. Any undistributed income will be set aside in a revenue reserve in order to facilitate the Company's policy of future progressive dividend payments. This policy will be subject to the absence of exceptional market events.

 

For the year ended 30 June 2017, the Directors declared a dividend of US$2,773,837 (3.0c per share) which was approved by Shareholders and paid by the Company in February 2018. The Directors recommend a dividend of 3 cents per share in respect of the year ended 30 June 2018.

 

Directors

Details of Board members at the date of this report, together with their biographical details, are set out on page 26.

 

Director independence and Directors' and other interests have been detailed in the Directors' Remuneration Report on pages 30 and 31.

 

Creditor Payment Policy

It is the Company's policy to adhere to the payment terms agreed with individual suppliers and to pay in accordance with its contractual and other legal obligations.

 

Gearing Policy

Borrowings will be limited, as at the date on which the borrowings are incurred, to 5% of NAV (or such other limit as may be approved by the Shareholders in general meeting). The Company will not make use of any hedging mechanisms.

There were no borrowings during the year (2017: US$ nil).

 

Donations

The Company has not made any political or charitable donations during the year (2017: US$ nil).

 

Adequacy of the Information Supplied to the Auditors

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as each is aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

Statement of Going Concern

The Directors are satisfied that the Company and the Group have adequate resources to continue to operate as a going concern for the foreseeable future and have prepared the financial statements on that basis, however Shareholders will be given the opportunity to vote for a 100% tender in 2020 and to vote for the continued existence of the Company at the annual general meeting (AGM) in 2021 and every third AGM thereafter.

 

Independent Auditors

KPMG Audit LLC has expressed its willingness to continue in office in accordance with Section 12 (2) of the Companies Act 1982.

 

Annual General Meeting

The Annual General Meeting of the Company will be held on 7 November 2018 at the Company's registered office.

 

A copy of the notice of Annual General Meeting is contained within this Annual Report. As well as the business normally conducted at such a meeting, Shareholders will be asked to renew the authority to allow the Company to continue with share buy-backs.

 

The notice of the Annual General Meeting and the Annual Report are also available at www.gulfinvestmentfundplc.com.

 

Corporate Governance

Full details are given in the Corporate Governance Report on pages 19 to 25, which forms part of the Report of the Directors.

 

Substantial Shareholdings

As at the date of publication of this annual report, the Company had been notified, or the Company is aware of the following significant holdings in its Share Capital.

 

 

Ordinary Shares

Name

%

City of London Investment Management Company

28.80

Qatar Insurance Company S.A.Q.

18.73

1607 Capital Partners LLC

15.12

Qatar Investment Authority

11.66

Lazard Asset Management

6.10

BCV Asset Management

3.01

 

The above percentages are calculated by applying the Shareholdings as notified to the Company or the Company's awareness to the issued Ordinary Share Capital as at 31 August 2018.

 

On behalf of the Board

 

 

 

 

Nicholas Wilson

Chairman

21 September 2018

Millennium House

46 Athol Street

Douglas

Isle of Man

IM1 1JB

 

Corporate Governance Report

Compliance with Companies Acts

As an Isle of Man incorporated company, the Company's primary obligation is to comply with the Isle of Man Companies Acts 1931 to 2004. The Board confirms that the Company is in compliance with the relevant provisions of the Companies Acts.

 

Compliance with the Association of Investment Companies (AIC) Code of Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and this statement describes how the Company applies the principles identified in the UK Corporate Governance Code which is available on the Financial Reporting Council's website: www.frc.org.uk. The Board confirms that the Company has complied throughout the accounting period with the relevant provisions contained within the UK Code.

 

The Board of the Company has considered the principles and recommendations of the AIC 2014 Code of Corporate Governance (AIC Code) by reference to the AIC Corporate Governance Guide for investment Companies (AIC Guide). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to QIF plc.

 

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below.

 

The UK Corporate Governance Code includes provisions relating to:

• the role of the chief executive

• executive directors' remuneration

• the need for an internal audit function

 

For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions, with the exception of portfolio management, risk management and service provider performance management, are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.

 

Directors

The Directors are responsible for the determination of the Company's investment policy and strategy and have overall responsibility for the Company's activities including the review of the investment activity and performance.

 

All of the Directors are non-executive. The Board considers each of the Directors to be independent of, and free of any material relationship with, the Investment Manager and Investment Adviser.

 

The Board of Directors delegates to the Investment Manager through the Investment Management Agreement the responsibility for the management of the Company's assets in GCC securities in accordance with the Company's investment policy and for retaining the services of the Investment Adviser. The Company has no executives or employees.

 

The Articles of Association require that all Directors submit themselves for election by Shareholders at the first opportunity following their appointment and shall not remain in office longer than three years since their last election or re-election without submitting themselves for re-election.

 

The Board meets formally at least 4 times a year and between these meetings there is regular contact with the Investment Manager. Other meetings are arranged as necessary. The Board considers that it meets regularly enough to discharge its duties effectively. The Board ensures that at all times it conducts its business with the interests of all Shareholders in mind and in accord with Directors' duties. Directors receive the relevant briefing papers in advance of Board and Board Committee meetings, so that should they be unable to attend a meeting they are able to provide their comments to the Chairman of the Board or Committee as appropriate. The Board meeting papers are the key source of regular information for the Board, the contents of which are determined by the Board and contain sufficient information on the financial condition of the Company. Key representatives of the Investment Manager attend each Board meeting. All Board and Board Committee meetings are formally minuted.

 

Board Composition and Succession Plan

 

Objectives of Plan

 

·      To ensure that the Board is composed of persons who collectively are fit and proper to direct the Company's business with prudence, integrity and professional skills

 

·      To define the Board Composition and Succession Policy,  which guides the size, shape and constitution of the Board and the identification of suitable candidates for appointment to the Board.

 

Methodology

The Board is conscious of the need to ensure that proper processes are in place to deal with succession issues and the Nomination Committee assists the Board in the Board selection process, which involves the use of a Board skills matrix.

 

The matrix incorporates the following elements: finance, accounting and operations; familiarity with the regions into which the Company invests; diversity (gender, residency, cultural background); Shareholder perspectives; investment management; multijurisdictional compliance and risk management. In adopting the matrix, the Nomination Committee acknowledges that it is an iterative document and will be reviewed and revised periodically to meet the Company's on-going needs.

 

The Nomination Committee monitors the composition of the Board and makes recommendations to the Board about appointments to the Board and its Committees.

 

Directors may be appointed by the Board, in which case they are required to seek election at the first AGM following their appointment and triennially thereafter. Directors who are not regarded as independent are required to seek re-election annually. In making an appointment the Board shall have regard to the Board skills matrix.

 

A Director's formal letter of appointment sets out, amongst other things, the following requirements:

 

·      bringing independent judgment to bear on issues of strategy, performance, resources, key appointments and standards of conduct and the importance of remaining free from any business or other relationship that could materially interfere with independent judgement;

 

·      having an understanding of the Company's affairs and its position in the industry in which it operates;

 

·      keeping abreast of and complying with the legislative and broader responsibilities of a Director of a company whose shares are traded on the London Stock Exchange;

 

·      allocating sufficient time to meet the requirements of the role, including preparation for Board meetings; and

 

·      disclosing to the Board as soon as possible any potential conflicts of interest.

 

The Board authorises the Nomination Committee to:

 

·      recommend to the Board, from time to time, changes that the Committee believes to be desirable to the size and composition of the Board;

 

·      recommend individuals for nomination as members of the Board;

 

·      review and recommend the process for the election of the Chairman of the Board, when appropriate; and

 

·      review on an on-going basis succession planning for the Chairman of the Board and make recommendations to the Board as appropriate.

 

The Plan will be reviewed by the Board annually and at such other times as circumstances may require (e.g. a major corporate development or an unexpected resignation from the Board). The Plan may be amended or varied in relation to individual circumstances at the Board's discretion.

 

Board Committees

The Board has established the following committees to oversee important issues of policy and maintain oversight outside the main Board meetings:

 

·      Audit Committee

·      Remuneration Committee

·      Nomination Committee

·      Management Engagement Committee

 

Throughout the year the Chairman of each committee provided the Board with a summary of the key issues considered at the meeting of the committees and the minutes of the meetings were circulated to the Board.

 

The committees operate within defined terms of reference. They are authorised to engage the services of external advisers as they deem necessary in the furtherance of their duties, at the Company's expense.

 

Audit Committee

The Board has established an Audit Committee made up of at least two members and comprises Paul Macdonald, Nicholas Wilson, Neil Benedict and David Humbles. The Audit Committee is responsible for, inter alia, ensuring that the financial performance of the Company is properly reported on and monitored. The Audit Committee is chaired by Paul Macdonald. The Audit Committee normally meets at least twice a year when the Company's interim and final reports to Shareholders are to be considered by the Board but meetings can be held more frequently if the Audit Committee members deem it necessary or if requested by the Company's auditors. The Audit Committee will, amongst other things, review the annual and interim accounts, results announcements, internal control systems and procedures, preparing a note in respect of related party transactions and reviewing any declarations of interest notified to the Committee by the Board each on six monthly basis, review and make recommendations on the appointment, resignation or dismissal of the Company's auditors and accounting policies of the Company. The Company's auditors are advised of the timing of the meetings to consider the annual and interim accounts and the auditors shall be asked to attend the Audit Committee meeting where the annual audited accounts are to be considered. The Audit Committee chairman shall report formally to the Board on its proceedings after each meeting and compile a report to Shareholders on its activities to be included in the Company's annual report. At least once a year, the Audit Committee will review its performance, constitution and terms of reference to ensure that it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

 

The terms of reference for the Audit Committee are available on the Company's website www.gulfinvestmentfundplc.com.

 

Significant Issues

During its review of the Company's financial statements for the year ended 30 June 2018, the Audit Committee considered the following significant issues, in particular those communicated by the auditor during their reporting:

 

Carrying value of quoted equity investments

The valuation of investments is undertaken in accordance with the accounting policies, disclosed in note 1(a) to the financial statements. The audit includes independent confirmation of the existence of all investments from the Company's custodian. All investments are considered liquid and quoted in active markets and have been categorised as Level 1 within the IFRS 13 fair value hierarchy and can be verified against daily market prices. The portfolio is reviewed and verified by the Manager on a regular basis and management accounts including a full portfolio listing are prepared each month and circulated to the Board. The Company uses the services of an independent Custodian HSBC Bank Middle East Limited to hold the assets of the Company. The investment portfolio is reconciled regularly by the Manager and a reconciliation is also reviewed by the Auditor.

 

Carrying value of Parent Company's loan to and investment in subsidiary

The carrying value of the Parent Company's loan to and investment in subsidiary represents 98.9% (2017: 99.1%) of the Parent Company's total assets. The assessment of carrying value is not at a high risk of significant misstatement or subject to significant judgement as the carrying value is equal to the audited net asset value of the subsidiary. However, due to its materiality in the context of the Parent Company financial statements, this is considered to be the area that had the greatest effect on the Parent Company balance sheet.

 

Remuneration Committee

The Company has established a Remuneration Committee. The Remuneration Committee is made up of at least two non-executive Directors who are identified by the Board as being independent. Its members are Neil Benedict (Chairman), Nicholas Wilson, Paul Macdonald and David Humbles. The Remuneration Committee normally meets at least once a year and at such other times as the chairman of the Remuneration Committee shall require. The Remuneration Committee reviews the performance of the Directors and sets the scale and structure of their remuneration and the basis of their letters of appointment with due regard to the interests of Shareholders. In determining the remuneration of Directors, the Remuneration Committee seeks to enable the Company to attract and retain Directors of the highest calibre. No Director is permitted to participate in any discussion of decisions concerning their own remuneration. The Remuneration Committee reviews at least once a year its own performance, constitutions and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

 

The terms of reference for the Remuneration Committee are available on the Company's website www.gulfinvestmentfundplc.com

 

Nomination Committee

The Company has established a Nomination Committee which shall be made up of at least two members and which shall comprise all independent non-executive Directors. The Nomination Committee comprises Nicholas Wilson (Chairman), Neil Benedict, Paul Macdonald and David Humbles. The Nomination Committee meets at least once a year prior to the first quarterly Board meeting and at such other times as the Chairman of the committee shall require. The Nomination Committee is responsible for ensuring that the Board members have the range of skills and qualities to meet its principal responsibilities in a way which ensures that the interests of Shareholders are protected and promoted and regularly review the structure, size and composition of the Board. The Nomination Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure that it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

 

The Nomination Committee will assess potential candidates on merit against a range of criteria including experience, knowledge, professional skills and personal qualities as well as independence, if this is required for the role. Candidates' ability to commit sufficient time to the business of the Company is also key, particularly in respect of the appointment of the Chairman. The Chairman of the Nomination Committee is primarily responsible for interviewing suitable candidates and a recommendation will be made to the Board for final approval.

 

Management Engagement Committee

The Company has established a Management Engagement Committee which is made up of at least two members who are independent non-executive Directors. The Management Engagement Committee members are Neil Benedict (Chairman), Paul Macdonald, Nicholas Wilson and David Humbles. The Management Engagement Committee will meet at least quarterly and is responsible for reviewing the performance of the Investment Manager and other service providers, to ensure that the Company's management contract is competitive and reasonable for the Shareholders and to review and make recommendations to the Board on any proposed amendment to or material breach of the management contract and contracts with other service providers.

 

Board Attendance

The number of formal meetings during the year of the Board, and its Committees, and the attendance of the individual Directors at those meetings, is shown in the following table:

 

 

Board

Audit Committee

Remuneration Committee

Nomination Committee

Management Engagement Committee

Total number of meetings in year

8(8)

6(6)

1(1)

2(2)

4(4)

 

 

 

Meetings Attended (entitled to attend)

Nicholas Wilson

(Chairman and Chairman of Nomination Committee)

7 (8)

6 (6)

1 (1)

2 (2)

4 (4)

Neil Benedict

 (Chairman of Remuneration Committee and Chairman of Management Engagement Committee)

 

8 (8)

6 (6)

                    1 (1)

2 (2)

4 (4)

David Humbles

8 (8)

6 (6)

1 (1)

2 (2)

4 (4)

Paul Macdonald (Chairman of Audit Committee)

 

8 (8)

6 (6)

1 (1)

2 (2)

4 (4)

 

The Annual General Meeting was held on 16 November 2017.

 

Internal Control

The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. Its review takes place at least once a year. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material mis-statement or loss. The Board also determines the nature and extent of any risks it is willing to take in order to achieve its strategic objectives.

 

The Board has contractually delegated to external agencies, including the Investment Manager and the Investment Adviser, the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the day-to-day accounting and Company Secretarial requirements. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered including the control systems in operation in so far as they relate to the affairs of the Company.

 

Internal Control continued

The Board, assisted by the Investment Manager and Investment Adviser, has undertaken regular risk and controls assessments. The business risks have been analysed and recorded in a risk and internal controls report which is regularly reviewed. The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Investment Manager and Investment Adviser, including its internal audit function provide sufficient assurance that a sound system of internal control, which safeguards Shareholders' investments and the Company's assets, is maintained. An internal audit function, specific to the Company, is therefore considered unnecessary.

 

The Board confirms that there is an on-going process for identifying, evaluating and managing the Company's principal business and operational risks that have been in place for the year ended 30 June 2018 and up to the date of approval of the annual report and financial statements.

 

Accountability and Relationship with the Investment Manager, the Custodian and the Administrator

The Statement of Directors' Responsibilities is set out on page 27.

 

The Board has delegated contractually to external third parties, including the Investment Manager, the Investment Adviser, the Custodian and the Administrator, the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the day to day accounting, company secretarial and administration requirements. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of the services provided, including the control systems in operation in so far as they relate to the affairs of the Company.

 

The Investment Manager, the Investment Adviser and the Administrator ensure that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the Investment Manager and the Administrator attend each Board meeting enabling the Directors to probe further on matters of concern.

 

Continued Appointment of the Investment Manager

The Board considers the arrangements for the provision of investment management and other services to the Company on an on-going basis. The Board reviews investment performance at each Board meeting and a formal review of the Investment Manager (and Investment Adviser) is conducted annually. As a result of their annual review, NAV performance has been found to be satisfactory and it is the opinion of the Directors that the continued appointment of the current Investment Manager (and Investment Adviser) on the terms agreed is in the interests of the Company's Shareholders as a whole.

 

Relations with Shareholders

The Chairman is responsible for ensuring that all Directors are made aware of Shareholders' concerns. The Shareholder profile of the Company is regularly monitored and the Board liaises with the Investment Manager to canvass Shareholder opinion and communicate views to Shareholders. The Company is concerned to provide the maximum opportunity for dialogue between the Company and Shareholders. It is believed that Shareholders have proper access to the Investment Manager at any time and to the Board if they so wish. All Shareholders are encouraged to attend annual general meetings. Together with the Investment Manager and Investment Adviser, regular investor presentations are held to promote a wider following for the Company.

 

Viability statement

The Board makes an assessment of the longer term prospects of the Company beyond the timeframe envisaged under the going concern basis of accounting having regard to the Company's current position and the principal risks it faces.


The Company is a long term investment vehicle and the Directors, therefore, believe that it is appropriate to assess its viability over a long term horizon. The Board considers that assessing the Company's prospects over a period of five years is appropriate given the nature of the Company and the inherent uncertainties of looking out
over a longer time period. The Directors believe that a five year period appropriately reflects the long term strategy of the Company and over which, in the absence of any adverse change to the regulatory environment, 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.

 

Notwithstanding the above the Company's Shareholders will have the opportunity to vote for the cessation of the Company at the annual general meeting in 2021 which will be proposed as an ordinary resolution. In the event that the continuation vote is not passed the Directors will be required to put forward proposals to Shareholders to the effect that the Company be wound up, liquidated, reorganised or unitised. If the continuation vote is passed, a further continuation vote will be proposed at every third annual general meeting thereafter.. 

 

 

 

On behalf of the Board

 

 

Nicholas Wilson

Chairman

21 September 2018

 

Board of Directors

Nicholas Wilson (Non-Executive Chairman)

Nicholas Wilson has over 40 years of experience in hedge funds, derivatives and global asset management. He has run offshore branch operations for Mees Pierson Derivatives Limited, ADM Investor Services International Limited and several other London based financial services companies. He is a director of EPE Special Opportunities PLC and until recently was chairman of Alternative Investment Strategies Limited.  He is a resident of the Isle of Man.

 

Paul Macdonald (Non-Executive Director)

Paul Macdonald qualified as a chartered accountant in 1979. He worked for Pilkington plc for sixteen years, the last seven of these in Germany. In Germany he was Managing Director for Pilkington Deutschland GmbH (holding company) and Managing Director of both Flachglas AG (glass manufacturer) and Dahlbusch AG (property and holding company). For the last fourteen years Paul has been active in the private equity market and has been successful in developing a number of companies covering a number of industries including Sirona Beteiligungs GmbH (Germany), a leveraged buy-out from Siemens. He is currently the Geschäftsführer for Optas GbmH. Paul is a Non-Executive Director of PME African Infrastructure Opportunities plc.

 

Neil Benedict (Non-Executive Director)

Neil Benedict is based in the USA with over thirty years' experience of financial markets. He was formerly a Managing Director at Salomon Brothers, where he was Head of International Capital Markets, and, prior to that, the founder and head of the worldwide Currency Swaps group. Neil was also a Managing Director at Dillon Read and helped establish their Tokyo office. He is currently a Senior Managing Director at Sonenshine Partners a New York private investment bank. Neil is a fellow member of the Institute of Chartered Accountants in England and Wales.

 

David Humbles (Non-Executive Director)

David Humbles was born in 1960 and is British. He has 3 children and two grandchildren and has recently been widowed. He worked in the downstream oil industry for 25 years and relocated to the Isle of Man in 1998 as Director of Total. In 2003, David purchased Abbey Properties Ltd and St Paul's Property Services Ltd.  These companies own & manage a property complex in the north of the island incorporating residential apartments, retail units & office accommodation. Also in 2003 David formed Westminster Properties Ltd to manage a large portfolio of residential and commercial properties on the island. David has been Managing Director of Oakmayne since 2006.  This company is a residential developer in the London market. See www.oakmayneproperties.com. David was Chairman of Epicure Berlin Property Company until February 2017, a large private property fund which owns residential property in Berlin. He has served on the board of two AIM listed companies.

 

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 Group and Parent Company financial statements for each financial year.  Under the law they have elected to prepare the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs).

 

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 Group and parent Company and of their profit or loss for that period.  In preparing each of the Group and parent Company financial statements, the directors are required to: 

 

·      select suitable accounting policies and then apply them consistently; 

·      make judgements and estimates that are reasonable, relevant and reliable; 

·      state whether they have been prepared in accordance with IFRSs; 

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

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

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Acts 1931 to 2004.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 

 

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

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.  Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another. 

 

Disclosure Guidance and Transparency Rules responsibility statement

We confirm that to the best of our knowledge:

 

·      the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

·      that in the opinion of the Directors, the Annual Report and Accounts taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position, performance, business model and strategy; and

·      the Business Review, Report of the Investment Manager and Investment Adviser and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

On behalf of the Board

Nicholas Wilson

Chairman

21 September 2018

 

Audit Committee Report

An Audit Committee has been established in compliance with the FCA's Disclosure Guidance and Transparency Rule 7.1 and the UK Corporate Governance Code consisting of independent Directors. Its authority and duties are clearly defined within its written terms of reference. Paul Macdonald is Chairman of the Audit Committee, which also comprises Mr Nicholas Wilson, Mr Neil Benedict and Mr David Humbles.

 

The Committee meets at least two times a year.

.

The Committee's responsibilities, which were discharged during the year, include:

 

•       monitoring and reviewing the integrity of the interim and annual financial statements and the internal financial controls;

•       reviewing the appropriateness of the Company's accounting policies;

•       making recommendations to the Board in relation to the appointment of the external auditors and approving their remuneration and terms of their engagement;

•       reviewing the external Auditor's plan for the audit of the Company's financial statements;

•       developing and implementing policy on the engagement of the external auditors to supply non-audit services;

•       reviewing and monitoring the independence, objectivity and effectiveness of the external auditors;

•       reviewing the arrangements in place within the Administrator and Investment Manager/Adviser whereby their staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company;

•       performing the annual review of the effectiveness of the internal control systems of the Company;

•       reviewing the terms of the Investment Management Agreement;

•       considering annually whether there is a need for the Company to have its own internal audit function; and

•       review the relationship with and the performance of the Custodian, the Administrator and the Registrar.

 

The Audit Committee does not award any non-audit work. The full Board has to approve any non-audit work and this includes confirmation that in all such work auditor objectivity and independence is safeguarded.

 

Owing to the nature of the fund's business, with all major functions being outsourced and the absence of employees, the Audit Committee do not feel it is necessary for the Company to have its own internal audit function. This situation is re-evaluated annually.

 

KPMG Audit LLC was re-appointed as auditor at the last AGM on 16 November 2017. The Audit Committee considered the experience and tenure of the audit partner and staff and the nature and level of services provided. The Audit Committee receives confirmation from the auditor that they have complied with the relevant UK professional and regulatory requirements on independence. The Company's Audit Committee meets representatives of the Administrator, who report as to the proper conduct of the business in accordance with the regulatory environment in which the Company, the Administrator, and the Investment Manager/Adviser operate. The Company's external auditor also attends this Audit Committee meeting at its request and reports if the Company has not kept proper accounting records, or if it has not received all the information and explanations required for its audit.

 

The Audit Committee also monitors the risks to which the Company is exposed and makes recommendations as to the mitigation of these risks. This task is facilitated by using an extensive risk matrix that enables the Committee to make a quantitative analysis of the individual risks and to highlight those areas where risk is high or increasing. 

 

This report was reviewed and approved by the Board on x September 2018.

 

Paul Macdonald

Chairman of the Audit Committee

21 September 2018

Management Engagement Committee Report

A Management Engagement Committee has been established in accordance with good corporate governance. Neil Benedict is chairman of the Committee, which also comprises Paul Macdonald, Nicholas Wilson and David Humbles.

 

The function of the Management Engagement Committee is to monitor the performance of all the Company's service providers and in the particular the performance of the Investment Manager/Investment Adviser.

 

The performance of the Investment Manager/Investment Adviser is formally reviewed annually at the end of the Company's financial year. The Management Engagement Committee meets quarterly prior to the quarterly Board meetings and the chairman of the Management Engagement Committee monitors the performance periodically during the intervening periods.

 

As regards the Investment Manager/Investment Adviser, the Committee:

 

·      monitors and evaluates the investment performance both in absolute terms and also by reference to peer group analysis prepared by the Investment Manager/Adviser and by the Company's  broker;

·      reviews the performance fee structure to ensure that it does not encourage excessive risk and that it rewards demonstrable superior performance; 

·      investigates any breaches of agreed investment limits and any deviation from the agreed investment policy and strategy; 

·      reviews the standard of any other services provided by the Investment Manager;

·      evaluates the level and effectiveness of any marketing support provided by the Investment Manager, including but not limited to, their input into quarterly reports, handling investor relations and website monitoring and development;

·      assesses the level of fees charged by the Investment Manager and how these fees compare with those charged to peer group companies; 

·      compares the notice period on the Investment Management Agreement with industry norms; 

·      considers any other issues on the appointment of the Investment Manager. 

 

As regards the other service providers to the Company, the Committee:

 

·      monitors the terms on which they are retained and compares them to market rates;

·      examines the effectiveness of the services provided;

·      makes recommendations to the Board where changes are warranted.

 

At its most recent meeting, the Management Engagement Committee concluded that the performance of the Investment Manager/Investment Adviser had been satisfactory. The Investment Manager had adhered to the investment policy and policy limits.

 

The Committee was satisfied with the current performance of the Company's other service providers.

 

 

 

Neil Benedict

Chairman of the Management Engagement Committee

21 September 2018

Directors' Remuneration Report

This report meets the relevant rules of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles relating to Directors' remuneration. An ordinary resolution to receive and approve this report will be put to the Shareholders at the forthcoming Annual General Meeting.

 

Role of the Remuneration Committee

The role and make-up of the Remuneration Committee is more fully discussed on page 22.

 

The committee held two formal meetings during the year, during which it addressed all the matters under its remit.

 

Consideration by the Directors of Matters relating to the Directors' remuneration

As the Board is comprised entirely of non-executive Directors the Board as a whole consider the Directors' remuneration but it has appointed its Remuneration Committee to consider matters relating thereto.

 

Remuneration Policy

The Company's Articles of Association limit the basic fees payable to the Directors to £200,000 per annum in aggregate. Subject to this overall limit it is the Company's policy that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors and should be sufficient to enable candidates of high calibre to be recruited. The Directors are also entitled to receive reimbursement of any expenses incurred in relation to their appointment.

 

The policy is for the Chairman of the Board and Chairman of the Audit Committee to be paid a higher fee than the other Directors in recognition of their more onerous roles and more time spent.

 

In the year under review the Directors' fees were paid at the following annual rates: the Chairman £52,500 plus £10,000 with respect to the work involved in the share buy-back programme, the Chairman of the Audit Committee £37,500, the other Directors £35,000.

 

Directors' and officers' liability insurance cover is in place in respect of the Directors.

 

Reappointment

It is the Board's policy that non-independent Directors stand for re-election every year and independent Directors stand for re-election every three years.

 

Directors' fees

The fees expensed (including additional payments) by the Company in respect of each of the Directors who served during the year, and in the previous year, were as follows:

 

30 June 2018

30 June 2017

 

£

£

Nicholas Wilson (Chairman)

58,750

57,500

Paul Macdonald (Chairman of Audit Committee)

33,750

32,500

Neil Benedict (Chairman of Remuneration Committee and Management Engagement Committee)

31,250

30,000

David Humbles

31,250

3,874

Len O'Brien

-

30,000

 

155,000

153,874

US$ charge reflected in the financial statements

204,645

201,621

Expenses totalling US$103,684 (2017: US$95,424) were incurred by the Directors and reimbursed during the year.

 

No other remuneration or compensation was paid or payable by the Company during the period to any of the Directors.

 

Director independence

Mr Nicholas Wilson and Mr Paul Macdonald have each served as independent Non-executive Directors of the Company for more than nine years, and Mr Wilson has served as non-executive Chairman since 13 November 2012.  Notwithstanding the length of their service, Mr Wilson and Mr Macdonald   continue to demonstrate their commitment to fulfilling their role as non-executive Chairman and Non-executive Director respectively, and satisfy the independence factors set out in Code Provision B.1.1 of the Code except for the length of their service.

 

They are not involved in the daily management of  the Company nor in any relationships or circumstances which might possibly interfere with their exercise of independent judgment. In addition, they continue to demonstrate the attributes of independent Non-executive Directors and there is no evidence that their tenure has had any adverse impact on their independence.

 

The Board considers each of the Directors to be independent of, and free of any material relationship with, the Investment Manager and Investment Adviser.

 

Directors' and Other Interests

 

None of the Directors had any interest during the year in any material contract for the provision of services which was significant to the business of the Company.

 

Director holdings in Company:

 

 

30 June 2018

30 June 2017

Director

Shares

Shares

Nicholas Wilson

39,600

44,000

 

For and on behalf of the Board

 

 

 

 

 

 

 

 

 

Neil Benedict

Chairman of the Remuneration Committee

21 September 2018

 

 

Report of the Independent Auditors, KPMG Audit LLC, to the members of Gulf Investment Fund plc

Opinions and conclusions arising from our audit

 

1.     Our opinion is unmodified

 

We have audited the financial statements of Gulf Investment Fund plc ("the Company") and its subsidiary (together "the Group") for the year ended 30 June 2018 which comprise the Consolidated and Parent Company Income Statements, Statements of Comprehensive Income, Balance Sheets, Statements of Changes in Equity and Statements of Cash Flows, and the related notes and accounting policies. 

 

In our opinion the financial statements: 

·      give a true and fair view of the state of the Group's and Parent Company's affairs as at 30 June 2018 and of the Group's and Parent Company's profit for the year then ended;

·      have been properly prepared in accordance with International Financial Reporting Standards; and

·      have been properly prepared in accordance with the provisions of the Companies Acts 1931 to 2004.

 

Basis for opinion 

 

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law.  Our responsibilities are described below.  We have fulfilled our ethical responsibilities under, and we remain independent of the Company and Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.   

 

 

2.             Key audit matters: our assessment of risks of material misstatement 

 

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.  We summarise below the key audit matters , in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

 

2.             Key audit matters: our assessment of risks of material misstatement continued

 

The risk

Our response

Carrying amount of quoted equity investments (US$104.6m; 2017: US$102.1m)

 

Refer to page 24 (Significant Issues identified by the Audit Committee), notes 1(a), 2 and 8 (accounting policy for financial assets at fair value through profit or loss and financial risk disclosures relating to financial instruments).

 

 

High value

The Group's portfolio of quoted investments makes up 92.8% of the Group's total assets (by value) and is considered to be the key driver of results. We do not consider these investments to be at a high risk of significant misstatement, or to be subject to a significant level of judgement because they comprise liquid, quoted investments as at 30 June 2018. However, due to their materiality in the context of the financial statements as a whole, they are considered to be the area which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our audit.

Our procedures included:

-    Control design: Documenting and assessing the processes in place to record investment transactions and to value the portfolio;

-    Tests of detail: Agreeing the valuation of 100 per cent of investments in the portfolio to externally quoted prices; and

-    Enquiry of custodians: Agreeing 100 per cent of investment holdings in the portfolio to independently received third party confirmations from investment custodians.

 

 

Carrying value of Parent Company's loan to and investment in subsidiary

(New this year)

 (US$64.3m and US$45.4m respectively, 2017: US$75.5m and US$37.7m respectively)

 

Refer to note 1(b) (note relating to loan to and investment in subsidiary).

 

 

High value

The carrying value of the Parent Company's loan to and investment in subsidiary represents 98.9% (2017: 99.1%) of the Parent Company's total assets. The assessment of carrying value is not at a high risk of significant misstatement or subject to significant judgement as the carrying value is equal to the audited net asset value of the subsidiary. However, due to its materiality in the context of the Parent Company financial statements, this is considered to be the area that had the greatest effect on our overall Parent Company audit.

Our procedures included:

-    Tests of detail: Assessing the loan to and investment in subsidiary to identify, with reference to the subsidiary's accounts, whether it has sufficient net asset value to cover the debt owed; and

-     Assessing subsidiary audits: The audit of the Group was performed as if it was a single aggregated set of financial information.

 

 

 

 

 

3.             Our application of materiality and an overview of the scope of our audit 

 

Materiality for the Group financial statements as a whole was set at US$1,130,000 (2017: US$1,150,000), determined with reference to a benchmark of group total assets, of which it represents 1% (2017: 1%). 

 

Materiality for the Parent Company financial statements as a whole was set at US$1,110,000 (2017: US$1,140,000), determined with reference to a benchmark of Company total assets, of which it represents 1% (2017: 1%).

 

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding US$56,500 (2017: US$57,500) for the Group financial statements and US$55,500 (2017: US$57,000) for the Parent Company financial statements, in addition to other identified misstatements that warranted reporting on qualitative grounds.

 

The Group team performed the audit of the Group, as if it was a single aggregated set of financial information. The audit was performed using the materiality level set out above and covered 100% of the total Group income, total Group profit before tax and total Group assets and liabilities.

 

4.             We have nothing to report on going concern 

 

We are required to report to you if we have anything material to add or draw attention to in relation to the Directors' statement in note 13.1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company's use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in this respect. 

 

5.             We have nothing to report on the other information in the Annual Report

 

The Directors are responsible for the other information presented in the Annual Report together with the financial statements.  Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon.

 

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.  Based solely on that work we have not identified material misstatements in the other information. 

 

 

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to: 

·      the Directors' confirmation within the viability statement on page 24 that they have carried out a robust assessment of the principal risks facing the Group and Company, including those that would threaten its business model, future performance, solvency and liquidity; 

·      the principal risks disclosures describing these risks and explaining how they are being managed and mitigated; and 

·      the Directors' explanation in the viability statement of how they have assessed the prospects of the Group and Company, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group and Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. 

 

Corporate governance disclosures 

We are required to report to you if:

·      we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors' statement that they consider that 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 Group's and Company's position and performance, business model and strategy; or 

·      the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

 

We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the 2016 UK Corporate Governance Code specified by the Listing Rules for our review. 

 

We have nothing to report in these respects. 

 

6.             We have nothing to report on the other matters on which we are required to report by exception 

 

Under the Companies Acts 1931 to 2004, we are required to report to you if, in our opinion: 

·      proper books of account have not been kept by the Parent Company and proper returns adequate for our audit have not been received from branches not visited by us; or 

·      the Parent Company's financial statements are not in agreement with the books of account and returns; or 

·      certain disclosures of directors' remuneration specified by law are not made; or 

·      we have not received all the information and explanations we require for our audit. 

 

We have nothing to report in these respects. 

 

7.             Respective responsibilities 

 

Directors' responsibilities 

As explained more fully in their statement set out on page 27, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. 

 

Auditor's responsibilities  

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud, or error, and to issue our opinion in an auditor's report.  Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.  Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. 

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities. 

 

8.             The purpose of our audit work and to whom we owe our responsibilities 

 

This report is made solely to the Company's members, as a body, in accordance with Section 15 of the Companies Act 1982.  Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed. 

 

Nicholas Quayle

Responsible Individual

For and on behalf of KPMG Audit LLC

Chartered Accountants and Recognised Auditors, Isle of Man

 

24 September 2018

Heritage Court

41 Athol Street

Douglas

Isle of Man

IM99 1HN

 

Consolidated Income Statement

 

Note

Year ended 30 June 2018

Year ended 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Income

 

 

 

  Dividend income on quoted equity

  investments

 

4,095

4,707

Realised loss on sale of financial                  assets at fair value through profit or loss

 

(7,186)

(3,922)

Net changes in fair value on financial assets at fair value through profit or loss

 

14,619

(4,912)

Interest income

 

20

-

Commission rebate income on quoted equity investments

 

-

15

Net foreign exchange gain/(loss)

 

256

(181)

Total net income/(expense)

 

11,804

(4,293)

 

 

 

 

Expenses

 

 

 

  Investment Manager's fees

7

995

1,281

  Other expenses

7

1,129

1,061

Total operating expenses

 

2,124

2,342

 

 

 

 

Profit/(loss) before tax

 

9,680

(6,635)

 

 

 

 

Income tax expense

9

-

-

 Profit/(loss) for the year

 

9,680

(6,635)

 

 

 

 

Basic profit/(loss) per share (cents)

4

9.95

(6.06)

Diluted profit/(loss)loss per share (cents)

4

9.95

(6.06)

 

The Directors consider that all results derive from continuing activities.

 

Consolidated Statement of Comprehensive Income

 

 

Year ended 30 June 2018

Year ended 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Profit/(loss) for the year

 

9,680

(6,635)

Other comprehensive income

 

 

 

Items that are or may be reclassified subsequently to profit or loss:

 

 

 

Currency translation differences

 

(5)

(3)

Total items that are or may be reclassified subsequently to profit or loss

 

(5)

(3)

Other comprehensive expense for the year (net of tax)

 

(5)

(3)

Total comprehensive profit/(loss) for the year

 

9,675

(6,638)

 

Company Income Statement

 

Note

Year ended 30 June 2018

Year ended 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Income

 

 

 

  Net change in investment in and amounts  due from subsidiary      

 

7,702

(8,848)

  Intercompany loan interest income

 

2,979

2,969

Total net income/(expense)

 

10,681

(5,879)

 

 

 

 

Expenses

 

 

 

 Expenses

7

1,006

759

Total operating expenses

 

1,006

759

 

 

 

 

Profit/(loss) before tax

 

9,675

(6,638)

 

 

 

 

Income tax expense

 

-

-

Profit/(loss) for the year

 

9,675

(6,638)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
             

Company Statement of Comprehensive Income

 

 

Year ended 30 June 2018

Year ended 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Profit/(loss) for the year

 

9,675

(6,638)

Other comprehensive income

 

 

 

Items that are or may be reclassified subsequently to profit or loss:

 

 

 

Currency translation differences

 

-

-

Total items that are or may be reclassified subsequently to profit or loss

 

-

-

Other comprehensive income for the year (net of tax)

 

-

-

Total comprehensive profit/(loss) for the year

 

9,675

(6,638)

 

Consolidated Balance Sheet

 

Note

At 30 June 2018

At 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Current Assets

 

 

 

Financial assets at fair value through profit or loss

1(a)

104,619

102,124

Other receivables and prepayments

 

2,683

2,468

Cash and cash equivalents

 

5,380

10,670

Total current assets

 

112,682

115,262

 

 

 

 

Equity

 

 

 

Issued share capital

5

925

1,032

Retained earnings

 

32,331

25,425

Distributable reserves

 

76,198

86,486

Other reserves

 

1,329

1,227

Total equity

 

110,783

114,170

 

 

 

 

Current liabilities

 

 

 

Other payables and accrued expenses

6

1,899

1,092

Total current liabilities

 

1,899

1,092

Total equity and liabilities

 

112,682

115,262

 

 

The financial statements were approved by the Directors on 21 September 2018 and signed on their behalf by:

 

 

                                                               

Nick Wilson                                                                           David Humbles

Chairman                                                                                 Director

 

Company Balance Sheet

 

Note

At 30 June 2018

At 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Investment in subsidiary

1(b)

45,442

37,739

Due from subsidiary

1(b)

64,322

75,537

Other receivables and prepayments

 

812

848

Cash and cash equivalents

 

382

199

Total assets

 

110,958

114,323

 

 

 

 

Equity

 

 

 

Issued share capital

5

925

1,032

Reserves

 

109,858

113,138

Total equity

 

110,783

114,170

 

 

 

 

Current liabilities

 

 

 

Other payables and accrued expenses

6

175

153

Total current liabilities

 

175

153

Total equity and liabilities

 

110,958

114,323

 

 

The financial statements were approved by the Directors on 21 September 2018 and signed on their behalf by:

 

 

 

Nick Wilson                                                                           David Humbles

Chairman                                                                                 Director

 

Consolidated Statement of Changes in Equity

 

 

 

 

 

Share Capital

(note 5)

Distributable

Reserves

 

Retained Earnings

 

Foreign Currency Translation  Reserve

 

Capital Redemption Reserve

Total

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Balance at 1 July 2016

1,194

103,904

36,177

(213)

1,281

142,343

Total comprehensive income for the year

 

 

 

 

 

 

Loss for the year

-

-

(6,635)

-

-

(6,635)

Other comprehensive income

 

 

 

 

 

 

Foreign exchange translation differences

-

-

-

(3)

-

(3)

Total other comprehensive expense

-

-

-

(3)

-

(3)

Total comprehensive expense for the year

-

-

(6,635)

(3)

-

(6,638)

Contributions by and distributions to owners

 

 

 

 

 

 

Dividends paid

-

-

(4,117)

-

-

(4,117)

Shares repurchased to be held in treasury

-

(543)

-

-

-

(543)

Shares subject to tender offer

(140)

(16,817)

-

-

140

(16,817)

Tender offer expenses

-

(58)

-

-

-

(58)

Shares in treasury cancelled

(22)

-

-

-

22

-

Total contributions by and distributions to owners

(162)

(17,418)

(4,117)

-

162

(21,535)

Balance at 30 June 2017

1,032

86,486

25,425

(216)

1,443

114,170

 

 

 

 

 

Share Capital

(note 5)

Distributable

Reserves

 

Retained Earnings

 

Foreign Currency Translation  Reserve

 

Capital Redemption Reserve

Total

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Balance at 1 July 2017

1,032

86,486

25,425

(216)

1,443

114,170

Total comprehensive income for the year

 

 

 

 

 

 

Profit for the year

-

-

9,680

-

-

9,680

Other comprehensive income

 

 

 

 

 

 

Foreign exchange translation differences

-

-

-

(5)

-

(5)

Total other comprehensive expense

-

-

-

(5)

-

(5)

Total comprehensive income for the year

-

-

9,680

(5)

-

9,675

 

 

 

 

 

 

Dividends paid

-

-

(2,774)

-

-

(2,774)

Shares subject to tender offer

(102)

(10,205)

-

-

102

(10,205)

Tender offer expenses*

-

(83)

-

-

-

(83)

Shares in treasury cancelled

(5)

-

-

-

5

-

Total contributions by and distributions to owners

(107)

(10,288)

(2,774)

-

107

(13,062)

Balance at 30 June 2018

925

76,198

32,331

(221)

1,550

110,783

 

 

 

The capital redemption reserve is created on the cancellation of shares equal to par value of shares cancelled. This reserve is not distributable.

 

Company Statement of Changes in Equity

 

Share Capital

Reserves

 

Total

 

US$'000

US$'000

US$'000

Balance at 1 July 2016

1,194

141,149

142,343

Total comprehensive income for the year

 

 

 

Loss for the year

-

(6,638)

(6,638)

Total comprehensive expense for the year

-

(6,638)

(6,638)

Contributions by and distributions to owners

 

 

 

Dividends paid

-

(4,117)

(4,117)

Shares repurchased to be held in treasury

-

(543)

(543)

Shares subject to tender offer

(140)

(16,677)

(16,817)

Tender offer expenses

-

(58)

(58)

Shares in treasury cancelled

(22)

22

-

Total contributions by and distributions to owners

(162)

(21,373)

(21,535)

Balance at 30 June 2017

1,032

113,138

114,170

 

 

 

 

 

Share Capital

Reserves

 

Total

 

US$'000

US$'000

US$'000

Balance at 1 July 2017

1,032

113,138

114,170

Total comprehensive income for the year

 

 

 

Profit for the year

-

9,675

9,675

Total comprehensive profit for the year

-

9,675

9,675

Contributions by and distributions to owners

 

 

 

Dividends paid

-

(2,774)

(2,774)

Shares subject to tender offer

(102)

(10,103)

(10,205)

Tender offer expenses

-

(83)

(83)

Shares in treasury cancelled

(5)

5

-

Total contributions by and distributions to owners

(107)

(12,955)

(13,062)

Balance at 30 June 2018

925

109,858

110,783

 

Consolidated Statement of Cash Flows

 

 

Year ended 30 June 2018

Year ended 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Cash flows from operating activities

 

 

 

Purchase of investments

 

(143,781)

(62,272)

Proceeds from sale of investments

 

149,319

90,788

Dividends received

 

4,000

4,707

Operating expenses paid

 

(2,108)

(2,357)

Interest received

 

20

-

Commission rebate

 

-

15

Net cash generated from operating activities

 

7,450

30,881

 

 

 

 

Financing activities

 

 

 

Dividends paid

 

(2,774)

(4,117)

Cash used in tender offer

 

(10,205)

(16,817)

Tender offer expenses

 

(83)

(58)

Cash used in share repurchases

 

-

(543)

Net cash used in financing activities

 

(13,062)

(21,535)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

(5,612)

9,346

Effects of exchange rate changes on cash and cash equivalents

 

322

(123)

Cash and cash equivalents at beginning of the year

 

10,670

1,447

Cash and cash equivalents at end of the year

 

5,380

10,670

 

 

Company Statement of Cash Flows

 

Note

Year ended 30 June 2018

Year ended 30 June 2017

 

 

US$'000

US$'000

 

 

 

 

Cash flows from operating activities

 

 

 

Investment in and amount due from subsidiary

 

14,214

22,162

Operating expenses paid

 

(964)

(824)

Net cash generated from operating activities

 

13,250

21,338

 

 

 

 

Financing activities

 

 

 

Dividends paid

 

(2,774)

(4,117)

Cash used in tender offer

 

(10,205)

(16,817)

Tender offer expenses

 

(83)

(58)

Cash used in share repurchases

 

-

(543)

Net cash used in financing activities

 

(13,062)

(21,535)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

188

(197)

Effects of exchange rate changes on cash and cash equivalents

 

(5)

(2)

Cash and cash equivalents at beginning of the year

 

199

398

Cash and cash equivalents at end of the year

 

382

199

 

Notes to the Consolidated Financial Statements

1(a)         Financial assets at fair value through profit or loss

 

Investments are designated at fair value through profit or loss on initial recognition. The Group invests in quoted equities and quoted convertible bonds for which fair value is based on quoted market prices. The quoted market price used for financial assets held by the Group is the current bid price ruling at the year-end without regard to selling prices.

 

Purchases and sales of investments are recognised on trade date - the date on which the Group commits to purchase or sell the asset. Investments are initially recorded at fair value, and transaction costs for all financial assets and financial liabilities carried at fair value through profit and loss are expensed as incurred.

 

Gains and losses (realised and unrealised) arising from changes in the fair value of the financial assets are included in the income statement in the year in which they arise.

 

Group

30 June 2018: Financial assets at fair value through profit or loss; all quoted equity securities:

 

 

Security name

Number

US$'000

 

 

 

 

Commercial Bank of Qatar (CBQK QD)

1,019,959

 

10,396

 

Qatar Gas Transport (QGTS QD)

2,117,667

 

9,187

 

Qatar Electricity & Water Co (QEWS QD)

166,478

 

8,326

 

Al Rajhi SHAMAL 09.02.2020

244,544

 

5,620

 

National Bank of Kuwait (NBK KK)

1,846,250

 

4,542

 

Gulf International Services (GISS QD)

866,679

 

4,052

 

Barwa Real Estate (BRES QD)

406,396

 

3,808

 

Samba Financial Group - SHAMAL (03.01.2022)

418,036

 

3,596

 

Company for Co-op Insurance

186,966

 

3,530

 

Bank AlJazira

830,000

 

3,258

 

Emaar Properties Company (EMAAR UH)

2,430,283

 

3,255

 

Saudii Kayan Petrochemical Co

695,000

 

2,913

 

Dubai Islamic Bank (DIB)

2,085,000

 

2,764

 

Kuwait International Bank

3,043,683

 

2,252

 

Emirates National Bank of Dubai (ENBD UH)

825,000

 

2,179

 

National Medical Care Company

132,000

 

2,084

 

National Commercial Bank

155,613

 

2,014

 

Mobile Telecommunications Company K.S.C. (ZAIN KK)

1,390,000

 

1,989

 

Dar Al Arkan Real

700,000

 

1,961

 

Kuwait Finance House KFIN

1,079,000

 

1,913

 

Saudi British Bank B12LSY7

225,000

 

1,887

 

Banque Saudi Fransi - SHAMAL 05.06.19

185,000

 

1,660

 

Qatar Insurance (QATI QD)

166,722

 

1,625

 

National Petrochemical Company

198,000

 

1,561

 

Yanbu Nat Petroche (YANSAB)

77,000

 

1,519

 

Fawaz Abdulaziz Al

210,000

 

1,443

 

Saudi Basic Industries

41,000

 

1,376

 

Rabigh Refining and Petrochemical Co

180,000

 

1,359

 

Middle East Healthcare

80,000

 

1,244

 

Saudi Industrial Investment Group

130,000

 

1,006

 

Abdullah Al Othaim Markets Co

50,000

 

1,000

 

Widam Food Company (WDAM)

56,279

 

960

 

Bupa Arabia Co

38,536

 

922

 

National Central Cooling Company (TABREED)

2,039,713

 

922

 

ABU DHABI Commercial Bank (ADCB UH)

475,000

 

913

 

Al Tayyar Travel Group

125,000

 

894

 

Qatar Fuel (QFLS QD)

20,000

 

802

 

Arab National Bank - Shamal

88,054

 

747

 

Saudi Cement Company

50,000

 

659

 

Group

Security name

Number

US$'000

 

 

 

 

Emirates NBD USD Stock

225,000

 

594

Southern Province Cement Co

50,000

 

546

Alinma Bank

90,000

 

513

Ooredoo (ORDS)

25,000

 

499

Agility Public Warehousing AGLTY

127,075

 

329

 

 

104,619
           

 

Group

30 June 2017: Financial assets at fair value through profit or loss; all quoted equity securities:

 

 

 

 

Security name

Number

US$'000

 

 

 

 

 

 

Qatar National Bank (QNBK QD)

475,653

 

16,088

 

Masraf Al Rayan (MARK QD)

1,307,544

 

13,798

 

Industries Qatar (IQCD QD)

496,285

 

12,595

 

Ooredoo (ORDS QD)

313,557

 

7,598

 

Qatar Electricity & Water Co (QEWS QD)

130,960

 

7,153

 

Barwa Real Estate (BRES QD)

754,724

 

6,482

 

Qatar Gas Transport (QGTS QD)

1,170,619

 

5,329

 

Commercial Bank of Qatar (CBQK QD)

626,605

 

5,022

 

Gulf International Services (GISS QD)

714,227

 

3,912

 

Qatar National Cement Co (QNCD QD)

218,303

 

3,837

 

Emaar Properties Company (EMAAR UH)

1,288,408

 

2,718

 

Qatar Insurance (QATI QD)

185,453

 

2,585

 

Qatar United Development Company (UDCD QD)

541,612

 

2,473

 

Al Meera Consumer Goods Co (MERS QD)

58,402

 

2,123

 

ABU DHABI Commercial Bank (ADCB UH)

1,098,579

 

2,096

 

Dubai Islamic Bank (DIB UH)

1,060,000

 

1,642

 

Gulf Warehousing (GWCS QD)

121,250

 

1,540

 

Qatar Islamic Bank (QIBK QD)

120,645

 

1,251

 

Vodaphone Qatar (VFQS QD)

552,351

 

1,247

 

Emirates National Bank of Dubai (ENBD UH)

300,000

 

653

 

First Abu Dhabi Bank (FAB UH)

180,000

 

510

 

DXB ENTERTAINMENTS (DXB UH)Doha Bank (DHBK QD)

2,395,627

 

493

 

Doha Bank (DHBK QD)

51,303

 

415

 

National Leasing (NLCS QD)

65,678

 

248

 

Union National Bank (UNB UH)

150,000

 

190

 

Al Khaleej Bank (KCBK QD)

34,968

 

126

 

 

 

 

102,124

 

 

 

 

 

1(b) Investment in and amount due from subsidiary

 

30 June 2018

30 June 2017

 

US$'000

US$'000

 

 

 

Investment in subsidiary

45,442

37,739

Amount due from subsidiary

64,322

75,537

 

Investment in subsidiary is stated at fair value. The amount due from the subsidiary is subject to interest on the aggregate principal amount drawn down from 1 January 2011, at the US prime rate per annum. All loan repayments made by the subsidiary will first be deducted from the outstanding loan interest before being applied to the principal balance. The loan is secured by fixed and floating charges over the assets of the subsidiary and is repayable on demand.

 

1(c) Risks relating to financial instruments

 

Risks relating to financial instruments comprise market price risk, credit risk, interest rate risk, liquidity risk and foreign currency risk. These are detailed below and in notes 2, 6 and 8.

 

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group.

 

The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to financial assets carried at amortised cost.

 

Credit risk continued

 

At the reporting date, the Group's financial assets exposed to credit risk comprised the following:

 

30 June 2018

30 June 2017

 

US$'000

US$'000

Financial assets at fair value through profit or loss

104,619

102,124

Cash and cash equivalents

5,380

10,670

Other receivables

2,683

2,468

 

112,682

115,262

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Management does not expect any counterparty to fail to meet its obligations and there are no debts past their due dates as at the year-end. All amounts are due within one month of the year end.

 

Investments are held by the Custodian, HSBC Bank (Middle East) Ltd.

 

The Group uses the banking services of HSBC (Middle East) Ltd and Barclays (Isle of Man) PLC. HSBC has a credit rating of A2 assigned by Moody and Barclays has a credit rating of A- from Standard and Poors.

 

Other receivables principally comprise unsettled trades.

 

Interest rate risk

The majority of the Group's financial assets are non-interest bearing. Cash held by the Group is invested at short-term market interest rates. As a result, the Group is not subject to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. However it is subject to cash flow risk arising from changes in market interest rates.

 

The table below summarises the Group's exposure to interest rate risks. It includes the Group's financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying value of assets and liabilities:

 

30 June 2018

Less than 1month

1-3 months

3 months

to 1 year

1-5 years

Over 5

years

Non-interest

bearing

Total

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial Assets

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

-

-

-

-

-

104,619

104,619

Other receivables and prepayments

-

-

-

-

-

2,683

2,683

Cash

5,380

-

-

-

-

-

5,380

Total financial assets

5,380

-

-

-

-

107,302

112,682

Financial Liabilities

 

 

 

 

 

 

 

Other creditors and accrued expenses

-

-

-

-

-

1,899

1,899

Total financial liabilities

-

-

-

-

-

1,899

1,899

 

 

 

 

 

 

 

 

Total interest rate sensitivity gap

5,380

-

-

-

-

 

 

 

 

30 June 2017

Less than 1month

1-3 months

3 months

to 1 year

1-5 years

Over 5

years

Non-interest

bearing

Total

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial Assets

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

-

-

-

-

-

102,124

102,124

Other receivables and prepayments

-

-

-

-

-

2,468

2,468

Cash

10,670

-

-

-

-

-

10,670

Total financial assets

10,670

-

-

-

-

104,592

115,262

Financial Liabilities

 

 

 

 

 

 

 

Other creditors and accrued expenses

-

-

-

-

-

(1,092)

(1,092)

Total financial liabilities

-

-

-

-

-

(1,092)

(1,092)

 

 

 

 

 

 

 

 

Total interest rate sensitivity gap

10,670

-

-

-

-

 

 

 

All interest received on cash balances are at variable rates. A sensitivity analysis for changes in interest rates on cash balances has not been provided as it is not deemed significant.

 

2              Fair Value Hierarchy

 

IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

 

• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

 

All the Group's investments are classed as level 1 investments.

 

The fair value of other financial instruments, including cash and short-term receivables and payables is a reasonable approximation of fair value.

 

Market price risk

The Group's strategy for the management of investment risk is driven by the Group's investment objective. The main objective of the Group is to capture the opportunities for growth offered by the Gulf Cooperation Council region ("GCC") by investing in GCC countries.

 

All investments present a risk of loss of capital through movements in market prices. The Investment Manager and Investment Adviser moderate this risk through a careful selection of securities within specified limits. The Investment Manager and the Investment Adviser review the position on a day to day basis and the Directors review the position at Board meetings.

 

The Group's market price risk is managed through the diversification of the investment portfolio. Approximately 89% of the net assets attributable to holders of Ordinary Shares is invested in equity securities.

At 30 June 2018, if the market value of the investment portfolio had increased/decreased by 2.50% (as per the movement in the SEMGGCPD Index post year-end) with all other variables held constant, this would have increased/decreased net assets attributable to Shareholders by approximately US$2.61 million (30 June 2017 : 0.87% : US$0.88 million).

 

3              Consolidated Net Asset Value per Share

 

The consolidated net asset value per share as at 30 June 2018 is US$1.1982 per share (30 June 2017: US$1.1113) based on 92,461,242 (30 June 2017: 102,734,713) Ordinary Shares in issue as at that date.

 

4              Earnings per Share

 

Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year.

 

 

30 June 2018

30 June 2017

 

 

 

Profit/(loss) attributable to equity holders of the Company (US$'000)

9,680

(6,635)

Weighted average number of Ordinary Shares in issue (thousands)

97,302

109,498

Basic and diluted earnings/(loss) per share (cents per share)

9.95

(6.06)

5              Share Capital

 

30 June 2018

30 June 2017

 

US$'000

US$'000

Authorised 500,000,000 Ordinary shares of US$0.01 each

5,000,000

5,000,000

Issued, Called-up and Fully-Paid:

 

 

92,461,242 (2017: 102,734,713) Ordinary Shares of US$0.01 each in issue, with full voting rights

925

1,027

Nil (2017: 493,445) Ordinary Shares of US$0.01 each held in Treasury

-

5

Issued share capital

925

1,032

 

During the year to 30 June 2018 the Company repurchased nil (2017: 493,445) Ordinary Shares, to be held in treasury, at a cost of US$ nil (2017: US$542,871) and cancelled 493,445 (2017: 2,102,373) Ordinary Shares in treasury which had been held for more than one year. The Ordinary Shares held in treasury have no voting rights and are not entitled to dividends.

 

On 27 December 2017 the Company completed a tender offer at a price of US$0.9933 per share (12 December 2016: US$1.1973 per share). Under the tender offer 10,273,471 shares (12 December 2016: 14,045,544) were repurchased and cancelled.

 

During the year US$83,457 (2017: US$58,373) tender expenses were deducted from equity.

 

Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the Group. The Board manages the Group's affairs to achieve Shareholder returns through capital growth rather than income, and monitors the achievement of this through growth in net asset value per share. 

 

Group capital comprises Share Capital and Reserves. Neither the Company nor its subsidiary is subject to externally imposed capital requirements. The Company also has an active share buyback program.

 

6              Other payables and accrued expenses

 

Group

 

30 June 2018

30 June 2017

 

US$'000

US$'000

Due to broker*

1,456

649

Management fee payable

267

278

Administration fee payable

57

56

Accruals and sundry creditors

119

109

 

1,899

1,092

*includes unsettled positions trading balances.

Company

 

30 June 2018

30 June 2017

 

US$'000

US$'000

Administration fee payable

51

50

Accruals and sundry creditors

124

103

 

175

153

 

Liquidity risk

The Group manages its liquidity risk by maintaining sufficient cash for operations and the ability to realise market positions. The Group's liquidity position is monitored by the Investment Manager and the Board of Directors.

 

The residual undiscounted contractual maturities of financial liabilities are in the table below:

 

30 June 2018

 

Less than

1 month

1-3

months

3 months to 1 year

1-5 years

Over 5 years

No stated maturity

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial liabilities

 

 

 

 

 

 

Other creditors and accrued expenses

1,899

-

-

-

-

-

 

1,899

-

-

-

-

-

 

 

 

 

 

 

 

30 June 2017

 

Less than

1 month

1-3

months

3 months to 1 year

1-5 years

Over 5 years

No stated maturity

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial liabilities

 

 

 

 

 

 

Other creditors and accrued expenses

1,092

-

-

-

-

-

 

1,092

-

-

-

-

-

 

 

7              Charges and Fees

 

Group                 30 June 2018

 

Company

30 June 2018

Group

30 June 2017

Company           30 June 2017

 

US$'000

US$'000

US$'000

US$'000

Investment Manager's fees (see below)

995

-

1,281

-

Administrator and Registrar's fees (see below)

226

200

225

199

Audit fees

34

34

28

28

Custodian fees (see below)

109

4

119

4

Directors' fees and expenses

308

308

297

297

Directors' insurance cover

30

30

31

31

Broker fees

53

53

51

51

Other

369

377

310

149

Other expenses

1,129

1,006

1,061

759

 

Investment Manager's fees

Annual fees

The Investment Manager was entitled to an annual management fee of 1.25% of the Net Asset Value of the Group, calculated monthly and payable quarterly in arrears. The Investment Management Agreement was subject to termination on 31 October 2013 with a revised agreement coming into effect from 1 November 2013. Under the revised agreement the annual fee reduced to 1.05% of the net asset value of the Company and further reduced to an annual fee of 0.90% of the net asset value of the Company from 1 November 2016 subject to termination on 31 October 2019.

 

Annual management fees for the year ended 30 June 2018 amounted to US$994,814 (30 June 2017: US$1,281,315) and the amount accrued but not paid at the year-end was US$267,445 (30 June 2017: US$277,684).

 

Administrator and Registrar fees

The Administrator is entitled to receive a fee of 12.5 basis points per annum of the net asset value of the Company between US$0 and US$100 million, 10 basis points of the net asset value of the Company above US$100 million.

 

This is subject to a minimum monthly fee of US$15,000, payable quarterly in arrears.

 

The Administrator assists in the preparation of the financial statements of the Group and provides general secretarial services.

 

The Administrator may utilise the services of a CREST accredited registrar for the purposes of settling share transactions through CREST.  The cost of this service will be borne by the Company.  It is anticipated that the cost will be in the region of £12,000 per annum subject to the number of CREST settled transactions undertaken.

 

Administration fees paid for the year ending 30 June 2018 amounted to US$225,774 and US$32,087 for additional services (30 June 2017: US$225,086 and US$32,838 respectively). Outstanding Administration fees at the year end amounted to US$57,385 (30 June 2017: US$56,747).

 

Custodian fees

The Custodian is entitled to receive fees of US$7,200 per annum and US$25 per processed transaction from the Company.

 

In addition the Custodian is entitled to receive fees of 8 basis points per annum in respect of Qatari securities held by the Group and 10 basis points per annum in respect of non-Qatari, GCC securities held by the Group and $45 per settled transaction (Qatar)/$50 per settled transaction (GCC excluding Qatar). From 1 March 2013 the custodian agreed to a 25% reduction in custodian fees relating to the Qatari market.

 

Custodian and sub-custodian fees for the year ending 30 June 2018 amounted to US$109,172 (30 June 2017: US$118,780) and the amount accrued but not paid at the year-end was US$8,756 (30 June 2017: US$4,034).

 

8              Foreign currency translation

 

The US Dollar is the currency of the primary economic environment in which the entity operates ("the functional currency"). The US Dollar is the currency in which the financial statements are presented ("the presentational currency") as reporting to shareholders is in US Dollars and the shares are quoted in US Dollars.

 

Monetary assets and liabilities denominated in foreign currencies as at the date of these financial statements are translated to US Dollar at exchange rates prevailing on that date. Income and expenses are translated into US Dollar based on exchange rates on the date of the transaction. All resulting exchange differences are recognised in the income statement at the exchange rate prevailing on the balance sheet date. Items of income and expense are translated at exchange rates on the date of the relevant transactions or an average rate. Components of equity are translated at the date of the relevant transaction and not retranslated. All resulting exchange differences are recognised in other comprehensive income.

 

Foreign exchange risk

The Group's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than US Dollar.  As a result, the Group is subject to the effects of exchange rate fluctuations with respect to these currencies. The Group's policy is not to enter into any currency hedging transactions

 

At the reporting date the Group had the following exposure:

Currency

30 June 2018

30 June 2017

 

%

%

 

 

 

British Pound

(0.04)

(0.03)

Omani Rial

0.00

0.00

US Dollar

41.86

0.41

Qatari Riyal

36.25

88.19

Kuwaiti Dinar

10.51

0.00

Saudi Arabia Riyal

0.09

0.00

UAE Dirham

11.32

11.43

 

The following table sets out the Group's total exposure to foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities:

 

30 June 2018

Monetary Assets

Monetary Liabilities

Net Exposure

 

US$'000

US$'000

US$'000

 

 

 

 

British Pound

18

(61)

(43)

US Dollar

46,759

(382)

46,377

Qatari Riyal

40,161

-

40,161

UAE Dirham

12,545

-

12,545

Kuwait Dinar

11,647

-

11,647

Saudi Arabia Riyal

96

-

96

 

111,226

(443)

110,783

30 June 2017

Monetary Assets

Monetary Liabilities

Net Exposure

 

US$'000

US$'000

US$'000

 

 

 

 

British Pound

20

(59)

(39)

US Dollar

852

(384)

468

Qatari Riyal

100,689

-

100,689

UAE Dirham

13,052

-

13,052

 

114,613

(443)

114,170

 

Foreign currency sensitivity risk - presentational currency

At 30 June 2018 had the US Dollar weakened/strengthened by 1% (2017 : weakened/strengthened 1%) in relation to all currencies, with all other variables held constant, net assets attributable to equity holders of the Company would have increased/decreased by the amounts shown below:

 

30 June 2018

US$'000

British Pound

-

Kuwaiti Dinar

116

UAE Dirham

125

Saudi Arabia Riyal

1

Effect on net assets

242

 

 

30 June 2017

US$'000

British Pound

-

Kuwaiti Dinar

-

UAE Dirham

130

Effect on net assets

130

 

Foreign currency sensitivity risk - functional currency

As 42% of net assets are denominated in USD and USD is the functional currency there is no significant functional currency risk. The Qatari Riyal is pegged to the USD within a tight band and therefore it is not included in the sensitivity analysis.

 

As USD is the functional currency of the Group and USD is the presentational currency any effect of changes in the foreign exchange rates between USD and the other currencies is assumed to relate to the investments and is included in the unrealised gain/loss of the investments on consolidation.

 

9              Taxation

 

Isle of Man taxation

The Company is resident for taxation purposes in the Isle of Man by virtue of being incorporated in the Isle of Man and is technically subject to taxation on its income but the rate of tax will be zero. The Company is required to pay an annual corporate charge of £250 per annum.

 

The Company became registered for VAT from 1 February 2011.

 

Qatar/United Arab Emirates(U.A.E)./Saudi Arabia taxation

The Company invests in equities in the GCC region. As at 30 June 2018 the Company held investment in Qatar, United Arab Emirates (U.A.E.), Saudi Arabia and Kuwait.

 

It is the intention of the Directors to conduct the affairs of the Company so that it is not considered to be either resident or doing business in any of these countries.

 

With the exception of Saudi Arabia, none of these countries impose withholding tax on dividend distributions to non-residents. Saudi Arabia imposes a 5% withholding tax on dividend distributions to non-residents.

 

Capital gains made by the Company on disposal of shares in Qatar, U.A.E., Saudi Arabia and Kuwait are not subject to tax in those countries.

 

There is no stamp duty or equivalent tax on the transfer of shares in Qatar/U.A.E./Saudi Arabia companies.

 

10            Related Party Transactions

 

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions.

 

The Investment Adviser is Qatar Insurance Company S.A.Q. The Group holds shares in Qatar Insurance Company S.A.Q. (see note 1(a)). The Investment Adviser's fees are paid by the Investment Manager.

 

The Investment Manager, Epicure Managers Qatar Limited, is a related party by virtue of its ability to make operational decisions for the Company and through common Directors. Fees paid and payable to the Investment Manager are disclosed in notes 6 and 7.

 

Epicure Managers Qatar Limited is a wholly owned subsidiary of the Investment Adviser, Qatar Insurance Company S.A.Q.

 

11            The Company

 

Gulf Investment Fund plc (formerly  Qatar Investment Fund plc) (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 26 June 2007 as a public company with registered number 120108C.

 

Pursuant to an Admission Document dated 25 July 2007 there was an original placing of up to 171,355,000 Ordinary Shares, with Warrants attached on the basis of 1 Warrant to every 5 Ordinary Shares. Following the placing on 31 July 2007, 171,355,000 Ordinary Shares and 34,271,000 Warrants were issued. The warrants expired on 16 November 2012.

 

The shares of the Company were admitted to trading on the AIM market of the London Stock Exchange ("AIM") on 31 July 2007, when dealings also commenced.

 

As a result of a further fund raising in December 2007, a further 76,172,523 Ordinary Shares were issued, which were admitted for trading on AIM on 13 December 2007.

 

On 4 December 2008, the Share Premium arising from the placing of shares was cancelled and the amount of the Share Premium account transferred to Retained Earnings.

 

The shares of the Company were admitted to trading on the Main Market of the London Stock Exchange on 13 May 2011.

 

In the year ended 30 June 2018, the Company purchased nil (2017: 493,445) of its Ordinary Shares for a total value of US$ nil (2017:US$542,871) to be held in treasury. 493,445 shares had been repurchased in the year ended 30 June 2017 for treasury but had been held for over a year and were therefore cancelled in the current financial year. The buy-backs are effected through retained reserves.

 

On 27 December 2017 the Company completed a tender offer at a price of US$0.9933 per share (previous offer US$1.1973 per share). Under the offer 10,273,471 shares were cancelled (previous offer 14,045,544 shares) with US$10,204,639 being paid to participating shareholders (previous offer US$16,816,730).

 

The shareholders approved a dividend of 3.0 cents per share on 16 November 2017 (previous dividend 4.0 cents per share); this was paid to shareholders on 9 February 2018.

The Company's agents and the Investment Manager perform all significant functions. Accordingly, the Company itself has no employees.

 

Duration

The Company currently does not have a fixed life but the Board considers it desirable that Shareholders should have the opportunity to review the future of the Company at appropriate intervals. Accordingly, at the annual general meeting of the Company in 2021 a resolution will be proposed that the Company ceases to continue in existence and there is the possibility of a 100% tender in 2020.

 

12            The Subsidiary

The Company has the following subsidiary company:

 

Country of incorporation

Percentage of shares held

Epicure Qatar Opportunities Holdings Limited

British Virgin Islands

100%

 

Epicure Qatar Opportunities Holdings Limited is a wholly owned subsidiary of the Company, and was incorporated in the British Virgin Islands on 4 July 2007 under the provisions of the BVI Companies Act 2001, as a limited liability company with registration number 1415393.  The principal activity of the subsidiary is holding investments on behalf of the Company.

 

13            Significant Accounting Policies

The consolidated financial statements of the Company for the year ended 30 June 2018 comprise the Company and its subsidiary, Note 1(b), (together referred to as the "Group").

 

 Accounting policies for certain items have been included in the relevant note.

 

13.1         Basis of presentation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and Isle of Man Companies Act 1931 to 2004. The financial statements have been prepared under the historic cost convention, as modified by the revaluation of financial assets held at fair value through profit or loss and investments in and amounts due from subsidiary which are stated at fair value.

 

The accounting policies applied in these financial statements are the same as those applied in the Group's consolidated financial statements as at the year ended 30 June 2017. Certain comparatives have been reclassified in accordance with the presentation adopted in these financial statements. In particular, in the Company Balance Sheet the balances with subsidiary have in the current year been presented as two components: Investment in Subsidiary and Amount due from Subsidiary. In the prior year financial statements these balances were shown as one aggregated amount: Amount Due from Subsidiary. This reclassification had no effect on total assets, net assets or profit or loss and was made in order to better present the nature of the underlying balances.

 

These consolidated financial statements have been prepared on the going concern basis, as the Board of Directors has a reasonable expectation that the Group and Company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the date of the next continuation vote for the Company (as described in the Investment Policy), future projections of profitability, cash flows and capital resources.

 

The Group's principal activities, investment objective and strategy and principal risks and uncertainties are described in the Chairman's Statement, Business Review, Investment Policy and Corporate Governance Report.

 

The Group's approach to capital management is described in note 5. The Group's objectives, policies and processes for managing credit, foreign exchange, liquidity and market risk along with the are described in Notes 1(a), 2, 6 and 8 of the financial statements.

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Group's accounting policies. The financial statements do not contain any critical accounting estimates.

 

13.2         Basis of consolidation

Subsidiaries

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries and subsidiary undertakings). Control is achieved where the Company has power over an investee, exposure or rights to variable returns and the ability to exert power to affect those returns.

 

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised gains or losses arising from intra-group transactions, are eliminated in full in the consolidated financial statements.

 

13.3         Segment reporting

The Group has one segment focusing on maximising total returns through investing in quoted securities in the GCC region. No additional disclosure is included in relation to segment reporting, as the Group's activities are limited to one business and geographic segment.

 

13.4         Investment in subsidiary

Investment in subsidiary in the Company balance sheet is stated at fair value.

 

13.5         Treasury shares

In accordance with shareholder authority shares continue to be bought back to be held in treasury in order to manage the discount between share price and NAV. Buy-backs are recorded in equity.

 

13.6         Cash and Cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

 

13.7         Future changes in accounting policies

A number of new standards, amendments to standards and interpretation are not yet effective for year ended 30 June 2018, and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the measurement of the amounts recognised on the Company's financial statements; however, IFRS 9, Financial Instruments ("IFRS9") may change the classification of financial assets. This is first effective for accounting periods beginning on or after 1 January 2018.

 

There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Company.

 

14            Post balance sheet events

There are no post balance sheet events.


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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