LONDON STOCK EXCHANGE ANNOUNCEMENT
Pacific Assets
Trust plc
(the “Company” or
the “Trust”)
Final Results for the Year Ended
31 January 2022
The Company's annual report for the year ended 31 January 2022, which includes the notice of the
Company’s forthcoming annual general meeting, has been submitted to
the UK Listing Authority, and will shortly be available for
inspection on the National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The annual report will be posted to shareholders on 17 May 2022. Members of the public may obtain
copies by writing to Frostrow Capital LLP, 25 Southampton
Buildings, London WC2A 1AL or from
the Company’s website at www.pacific-assets.co.uk where up to date
information on the Company, including daily NAV, share prices and
fact sheets, can also be found.
Frostrow Capital LLP, Company Secretary
0203 709 8734
10 May 2022
Performance Summary
|
As
at |
As
at |
|
31
January |
31
January |
|
2022 |
2021 |
Shareholders’
funds |
£450.7m |
£416.2m |
Market
capitalisation |
£411.3m |
£402.8m |
|
One year
to |
One year
to |
|
31
January |
31
January |
Performance |
2022 |
2021 |
Share price total
return*^ |
2.9% |
25.8% |
Net asset value per
share total return*^ |
9.1% |
22.3% |
CPI
+6%1 |
11.5% |
6.8% |
MSCI All Country Asia
ex Japan Index total return, sterling adjusted* |
(9.2)% |
30.7% |
Average discount of
share price to net asset value per share*^ |
7.3% |
9.1% |
Ongoing charges^ |
1.1% |
1.1% |
Revenue return per
share† |
2.0p |
2.6p |
Dividend per share |
1.9p |
2.4p |
*Source: Morningstar
† See Glossary
^ Alternative Performance Measure (See Glossary)
1 The Company’s Performance Objective (See Glossary)
Performance Assessment
The Company’s performance objective, against which the Portfolio
Manager’s performance is measured, is to provide shareholders with
a net asset value total return in excess of the UK Consumer Price
Index (“CPI”) plus 6%, calculated on an annual basis and measured
over three to five years.
The Board also monitors the Company’s performance against its
peer group. The Board reviewed the peer group during the year and
the revised peer group is presented for the first time, below. It
was agreed to exclude investment trusts with smaller companies or
higher income-focused mandates and therefore Invesco Asia, JP
Morgan Asia and Fidelity Asian Values have been removed. It was
agreed to add Aberdeen New Dawn which has a similar mandate to the
Company.
An analysis of performance and the Board’s approach to
monitoring it can be found below and in the Chairman’s Statement;
further information can be found in the Portfolio Manager’s Review
and details of the Key Performance Indicators are contained in the
Business Review.
Peer Group Net Asset Value per Share Total Return
|
1 Year |
|
3 years |
|
5 years |
|
|
£ |
Rank |
£ |
Rank |
£ |
Rank |
Pacific Assets
Trust |
109.1 |
1 |
138.2 |
5 |
162.8 |
4 |
Pacific Horizon |
107.1 |
2 |
251.0 |
1 |
306.2 |
1 |
Schroder Asian Total
Return |
98.9 |
3 |
153.4 |
2 |
189.9 |
2 |
Schroder Asia
Pacific |
95.4 |
4 |
142.6 |
3 |
170.0 |
3 |
Aberdeen New Dawn |
94.7 |
5 |
139.6 |
4 |
160.6 |
5 |
Asia Dragon Ord |
91.6 |
6 |
135.4 |
6 |
157.8 |
6 |
iShares MSCI Asia ex
Jpn ETF |
91.4 |
7 |
123.5 |
7 |
142.8 |
7 |
Peer Group
Average |
98.3 |
– |
154.8 |
– |
184.3 |
– |
CPI + 6% |
111.5 |
– |
128.8 |
– |
152.3 |
– |
MSCI AC Asia ex
Japan |
90.8 |
– |
124.6 |
– |
146.2 |
– |
Source: Morningstar. Figures show the value of £100 invested at
the start of the period as at 31 January
2022.
† The Company’s Performance Objective (see
Glossary)
Chairman’s Statement
We observe wrenching and dramatic change in the world around us.
The decisions on how to protect our capital are hard enough at the
best of times. Yet nowhere in the world has been isolated from the
economic and social destructiveness of the pandemic, and
increasingly assets of all types are under threat from rising
producer and consumer prices. Thrown into this situation has been
the invasion of Ukraine with the
apparent destruction of the post-cold war accord in Europe, bringing with it a ratcheting up of
uncertainty over food and energy prices.
My formative investing years were in the 1970s when at one point
inflation was halving our spending power every four and a half
years. Levels of price rises that are around us today would still
halve your purchasing power in 12 years. So, protection against
such destructive forces must be a priority for the professional
guardians of people’s savings. This is challenging with the quite
comfortable certainties of near deflation and negative interest
rates, long evaporated. ‘Real assets’ were thought to be the answer
to inflation, and these included equities of all types. However
even a slight whiff of higher bond yields has caused a dramatic
fall in values in what have been determined as ‘long duration
growth stocks’.
The Past Year
Pacific Assets Trust produced a positive return both in terms of
its net asset value and in terms of its share price. The net asset
value per share total return* of 9.1% (2021: 22.3%) compares with
the return of the Performance Objective (CPI+6%) of 11.5% (2021:
6.8%) and the average of our peer group of Asian investment trusts
which showed a decline in net asset value of 1.7% (2021: +42.8%).
During the year, the Board approved changes to the constituents of
the peer group. These changes are explained in full above, where
the performance data can also be seen in full.
* Alternative Performance Measure (see Glossary)
Over longer periods, the annualised NAV per share total return
was 9.9% over three years, 10.2% over five years, and 11.4% since
Stewart Investors were appointed as the Portfolio Manager in
June 2010. This compares with the
Performance Objective return of 6.0% over three years, 8.8% over
five years and 8.4% since Stewart Investors were appointed.
We are satisfied that the Trust was able to generate a positive
return in absolute terms and at a time when the overall market
index for the Asia Pacific region
fell by 9.2% during the year. The Trust under Stewart Investors’
management has always sought to characterise itself as being a
relative haven in difficult market conditions, and this has proved
to be the case in the 12 months to the end of January.
The statistics of returns and the comparative measures that the
Board uses to assess the Portfolio Manager’s performance can be
found on page 3 of the annual report.
The Portfolio Manager explains the outcomes in detail in their
report. We would however point to their sceptical view, held for a
long time, of the risks of political interference in companies in
China, which has been one of the
most harmful features of last year’s investing environment. The
Trust’s lack of exposure particularly to large capitalisation
Chinese internet stocks has been an important driver of good
relative returns in the last 12 months, although over the three and
five year period for the Trust against its peer group, the Trust
has still lost some ground. Whatever happens from here on, the
Portfolio Manager’s concerns over the risks of political
interference in the running of some key franchises in China, have been justified. Notwithstanding
this, we are still committed to seeking out good companies in
China, and the positioning of the
portfolio in both China and in
Hong Kong supports the opinion
that there will be valuable investment opportunities and more to be
found.
The backdrop to the year contained two destabilising forces,
neither new but of increasing note. First the many years of almost
‘free’ money has led to unprecedented debt accumulation, much of
which may be in invisible form, off balance sheet and off market.
Secondly the speed of change as technological innovation drives
disruption in business is creating both fear and opportunity. This
was prior to the destabilising event of Russia’s invasion of
Ukraine, which could potentially
have far reaching effects upon globalisation. All of these factors
are very much in the minds of the Trust’s Portfolio Manager when
selecting and holding onto Asian companies. The corporate world
contains visionary minds and boundless energies, and our best
protection in these times is to engage with the companies and their
creativity. However, we must keep in mind that having passed the
trough of interest rates, as seems likely, asset markets of all
types may have questions asked of them.
Benchmarking against Inflation
We introduced a Performance Objective of CPI plus 6% more than
two years ago to measure the achievement of the Trust’s investment
objective. The MSCI All Country Asia ex Japan Index (which was
previously our primary performance comparator) has always been
unrelated to the way in which the Trust’s assets are managed, which
is with an absolute return mindset. However, the Board does review
the extent to which the portfolio deviates from the Index, enabling
us to ask questions of the Portfolio Manager if it appears that
there is a move toward greater conformity. I should say that in all
my time with the Trust, we have never had to question this. The
last year we have provided a positive return against the Index’s
negative one which is not a cause of joy in the same way as two
previous years’ underperformance was not a cause for
disappointment.
CPI plus 6% recognises the home base of our shareholders
(predominately UK based) and the inflation bogey they must exceed
to protect purchasing power. The 6% is the premium that you should
expect from the faster growing, younger economies that provide our
investment mandate. We would typically look at this comparison over
three years at least, and more likely five years. This is
coincident with the Trust’s very long-term investment approach
combined with portfolio turnover averaging around 20%,
theoretically implying that the portfolio is turned over only over
a five year period.
If the trend of rising prices is sustained and is not
‘transitory’ (as some central bankers have suggested), we may have
to work very hard to exceed this objective. Indeed, in the year to
31 January 2022, this is already the
case. However, we would hope that by thinking in an absolutist way
about the portfolio, our shareholders can achieve some consistency
in protecting their funds from erosion and providing a meaningful
real return. However, this must be looked at over longer
periods.
Interaction of the Board and the Portfolio Manager
A closed-end investment company such as the Trust is overseen by
a board which is independent of the portfolio manager. All five
members of the Board are non-executive, but they are accountable
for the governance and the wellbeing of the Company. Oversight of
the Portfolio Manager and other service providers is an essential
part of the role.
Formal Board meetings are held four to five times a year,
including an on-site visit to one of the Asian markets in which the
Company has investments (although, sadly, that has not been
possible since 2019). The Board would expect to have in depth
understanding of the structure and the investment process of the
Portfolio Manager, and of the key members of the team that are
responsible for managing the portfolio of the Trust. The Board
monitors both investment risk and financial risk by receiving
detailed reports of the controls at the Portfolio Manager and at
other principal providers of services, such as the AIFM and the
Custodian.
The management of the Trust’s portfolio is delegated fully to
the Portfolio Manager, and the Board should not try to second guess
investment decisions in any way. The Board will have detailed
knowledge of the principal investments, recent purchases and sales,
the make- up of the assets by sector and by country, and the key
risks within the portfolio. There are also metrics tabled at
meetings that show the contributors and detractors of investment
return. All of this enables dialogue with the Portfolio Manager as
to the direction of investment strategy and enables constructive
challenge.
More strategic decisions are taken by the Board in consultation
with the Portfolio Manager and the AIFM. For instance, the widening
of the mandate to enable up to 20% of the portfolio to be invested
in companies outside the regional mandate, where a significant part
of their economic activities (at the time of investment) are within
the region, was a decision taken three years ago. This has
broadened the scope of potential investments and has added value to
the portfolio.
In extremis, the Board does have the ultimate authority to takes
steps to replace the Portfolio Manager, and there are several
examples of UK listed closed end investment companies that have
done this in recent times. Such action might have to be considered
should there be a deep level of dissatisfaction with the management
arrangements, or in the worst case a disintegration of the
Portfolio Manager’s investment team. It should be said clearly that
this is not the situation now and the Directors retain a high
degree of confidence in the abilities of the Portfolio Manager.
Total Return
We think of this when considering the discount that may exist
between the share price and the net asset value of the Trust.
The Trust’s shares traded at an average discount to net asset
value per share* of 7.3% through the 12 month period to the
end of January. While this is not unusual amongst Asian investment
companies, we would rather this was not the case. Better relative
performance after two difficult years is assisting investor
sentiment, as will the Portfolio Manager’s high level of
credibility as a sustainable investor, attractive to shareholders
who are seeking exposure to Asia
through genuinely responsible investing.
* Alternative Performance Measures (see Glossary for further
information).
The Board is working to introduce improvements to the visibility
of the Trust. We wish to see a broader range of shareholders
including retail investors who are less present on our shareholder
register than we would like. Stewart Investors, on their marketing
side, are raising their already high standards of paper materials
and electronic communications. All of this will be helpful in
ensuring continuing demand for the Trust’s shares, but only if the
Trust can continue to provide positive relative returns in the way
that it has done over the last 12 months.
There will be a resolution at the Annual General Meeting (please
refer to the notice of the meeting for full details) asking
shareholders to approve a new investment policy enabling the
Company to gear using up to 10% of its net asset value. This arises
because of a change in the AIFMD status of the Company, enabling it
to incur borrowing, when previously this was not permissible. This
power has always been available under the Company’s Articles of
Association but has not been used in the last 12 years. I should
state here that the Company has no borrowing facilities in place
and has no intention of using gearing in the immediate future.
However, the Board will continue to keep the position under review
with the AIFM and the Portfolio Manager.
Dividend
The Company generated a revenue return of 2.0p per share during
the year (2021: 2.6p per share) and, as a result, the Board
recommends to shareholders the payment of a final dividend to allow
the Company to comply with the investment trust rules regarding
distributable income.
Subject to shareholder approval at the AGM, a final dividend of
1.9p per share will be paid on 1 July
2022 to shareholders on the register on 10 June 2022. The associated ex-dividend date
will be 9 June 2022.
Annual Costs
We are aware that the ongoing charges ratio* of the Trust as
measured by conventional means (in line with AIC guidance) is
higher than the peer group of comparable funds. The figure stands
at 1.1% of net asset value compared with an average of 0.9% of the
other Asian trusts.
The comparative figures take no account of the costs associated
with investment turnover, where typically the Trust has a low
turnover and holds stocks for the long term, or gearing, which is
present in many of the peer group companies.
Stewart Investors, as Portfolio Manager, charges the Trust a
flat fee of 0.85%, reduced from a higher level two years ago. We
recognise the scope of engagement which the Portfolio Manager has,
often with smaller companies in areas that are very under
researched. The engagement involves a continuous dialogue with
company managers on sustainability or environmental, social and
governance (“ESG”) adherence. We recognise that this level of
research and contact is both time consuming and expensive, but we
believe it is in the best interests of shareholders who wish to
participate in successful companies that adhere to the highest
principles of sustainability and corporate governance.
We also employ Frostrow Capital LLP as AIFM and Company
Secretary, which is separate from the Portfolio Manager. This is an
arrangement that has worked very well for the last 12 years.
The Board remains focused on achieving value for money for
shareholders, and all costs, including management fees, are
regularly scrutinised.
The Board
We adhere to good corporate governance principles that we should
be looking to replace a director after they have served on the
Board for nine years. We do not agree with the assertion that
extreme longevity compromises independence, but we do believe that
there is room for fresh thinking and approach after a certain
time.
My own tenure of nine years comes up towards the end of this
calendar year, and we have already put in practice a process for
replacing me in 2023 both as a board member and as Chairman. There
will be other retirements in subsequent years. The challenge of
ensuring continuity of the Board and managing the relationships
with the Portfolio Manager and others is something that we are
aware of. We are very focused on successfully managing the
transitions with the right individuals and mix of people.
The Annual General Meeting
This year’s Annual General Meeting will be held at 12 noon on
Tuesday, 28 June 2022, at the offices
of Stewart Investors, Finsbury Circus House, 15 Finsbury Circus,
London EC2M 7EB. As well as the
formal proceedings, there will be an opportunity for shareholders
to meet the Board and the Portfolio Manager, and to receive an
update on the Company’s strategy and its key investments.
After Covid restrictions have prevented us from welcoming
shareholders to this event for the past two years, I very much look
forward to seeing as many shareholders as possible on that day. Of
course, should circumstances change and restrictions be
reintroduced, we will update shareholders on the final arrangements
for the meeting through the Company’s website:
www.pacific-assets.co.uk
I encourage all shareholders to exercise their right to vote at
the Company’s annual meeting. The Board strongly encourages
shareholders to register their votes online in advance (information
on how to vote can be found in the annual report). Registering your
vote in advance will not restrict shareholders from attending and
voting at the meeting in person should they wish to do so, subject
to any Government guidance to the contrary. As investors we take
corporate governance seriously among the companies that we own in
the Trust’s portfolio, and we urge you, our shareholders, to follow
suit and vote on the resolutions that are proposed.
The Outlook
The near future appears to hold little promise of reward for
investors. After many years of rising asset prices, circumstances
point to challenging times as central banks withdraw liquidity. A
belief that Russia’s invasion of Ukraine will become a limited ‘distant’
struggle away from the headlines would be naïve. Economic
dislocation will be inevitable, in Asia as well. Rising food prices and rising
energy prices may beget other unforeseen political problems
elsewhere in the world. This is a backdrop that may not be possible
to escape in the shorter term.
However as always, we seek out investments that will be
resilient in tough times; a strong balance sheet and a risk aware
management should be at a premium as we look ahead. Meanwhile the
Asian countries that Pacific Assets Trust invests in have
populations whose wealth is growing and who have appetite for
products and services that in the West are taken for granted. This
dynamic will not alter in the face of the adversity that appears to
surround us.
James Williams
Chairman
9 May 2022
Investment Portfolio
as at 31 January 2022
Company |
Country |
MSCI Sector |
Market
valuation
£’000 |
% Net
assets |
Tube Investments of
India |
India |
Consumer
Discretionary |
25,847 |
5.7% |
CG Power &
Industrial Solutions |
India |
Industrials |
22,877 |
5.1% |
Mahindra &
Mahindra |
India |
Consumer
Discretionary |
21,716 |
4.8% |
Marico |
India |
Consumer
Staples |
13,962 |
3.1% |
Hoya* |
Japan |
Health
Care |
13,720 |
3.0% |
Unicharm
Corporation* |
Japan |
Consumer
Staples |
13,284 |
3.0% |
Voltronic Power
Technology |
Taiwan |
Industrials |
11,703 |
2.6% |
Elgi Equipments |
India |
Industrials |
10,997 |
2.4% |
Taiwan Semiconductor
Manufacturing |
Taiwan |
Information Technology |
10,448 |
2.3% |
Koh Young
Technology |
South Korea |
Information Technology |
10,229 |
2.3% |
Top 10
Investments |
|
|
154,783 |
34.3% |
Housing Development
Finance Corporation |
India |
Financials |
10,097 |
2.2% |
Tata Consumer
Products |
India |
Consumer
Staples |
9,415 |
2.1% |
Techtronic
Industries |
Hong Kong |
Industrials |
9,322 |
2.1% |
Advantech |
Taiwan |
Information Technology |
9,196 |
2.0% |
Vitasoy
International |
Hong Kong |
Consumer
Staples |
9,097 |
2.0% |
Kotak Mahindra
Bank |
India |
Financials |
8,889 |
2.0% |
Vinda
International |
China |
Consumer
Staples |
8,597 |
1.9% |
Aavas Financiers |
India |
Financials |
8,402 |
1.9% |
Tata Consultancy
Services |
India |
Information Technology |
8,335 |
1.9% |
Delta Electronics |
Taiwan |
Information Technology |
8,293 |
1.8% |
Top 20
Investments |
|
|
244,426 |
54.2% |
NAVER |
South Korea |
Communication Services |
8,270 |
1.8% |
Chroma Ate |
Taiwan |
Information Technology |
8,050 |
1.8% |
Dr Lal Pathlabs |
India |
Health
Care |
7,379 |
1.6% |
Cholamandalam
Financial |
India |
Financials |
7,339 |
1.6% |
Info Edge |
India |
Communication Services |
7,079 |
1.6% |
Dabur India |
India |
Consumer
Staples |
6,584 |
1.5% |
Dr. Reddy’s
Laboratories |
India |
Health
Care |
6,397 |
1.4% |
Unicharm Indonesia |
Indonesia |
Consumer
Staples |
6,213 |
1.4% |
Tokyo Electron* |
Japan |
Information Technology |
6,089 |
1.4% |
Vitrox |
Malaysia |
Information Technology |
5,771 |
1.3% |
Top 30
Investments |
|
|
313,597 |
69.6% |
* at least 25% of their economic activities (at the time of
investment) are within the Asia Pacific Region with this proportion
being expected to grow significantly over the long term.
Company |
Country |
MSCI Sector |
Market
valuation
£’000 |
% Net
assets |
Godrej Consumer
Products |
India |
Consumer
Staples |
5,678 |
1.3% |
Philippine Seven |
Philippines |
Consumer
Staples |
5,489 |
1.2% |
Humanica |
Thailand |
Information Technology |
5,286 |
1.2% |
Tata
Communications |
India |
Communication Services |
5,259 |
1.2% |
PT Industri Jamu dan
Farmasi Sido Muncul |
Indonesia |
Consumer
Staples |
5,209 |
1.1% |
Selamat Sempurna |
Indonesia |
Consumer
Discretionary |
5,038 |
1.1% |
Silergy |
China |
Information Technology |
4,954 |
1.1% |
Infosys |
India |
Information Technology |
4,954 |
1.1% |
Bank OCBC |
Indonesia |
Financials |
4,945 |
1.1% |
Syngene
International |
India |
Health
Care |
4,879 |
1.1% |
Top 40
Investments |
|
|
365,288 |
81.1% |
Tech Mahindra |
India |
Information Technology |
4,816 |
1.1% |
Marico Bangladesh |
Bangladesh |
Consumer
Staples |
4,799 |
1.1% |
Pigeon
Corporation* |
Japan |
Consumer
Staples |
4,420 |
1.0% |
Tarsons Products |
India |
Health
Care |
4,372 |
1.0% |
Shenzhen Inovance
Technology |
China |
Industrials |
3,812 |
0.9% |
Hualan Biological |
China |
Health
Care |
3,776 |
0.8% |
Guangzhou Kingmed
Diagnostics |
China |
Health
Care |
3,747 |
0.8% |
Mahindra Logistics |
India |
Industrials |
3,586 |
0.8% |
Indiamart
Intermesh |
India |
Industrials |
3,488 |
0.8% |
Shanthi Gear |
India |
Industrials |
3,416 |
0.7% |
Top 50
Investments |
|
|
405,520 |
90.1% |
Centre Testing
International Group |
China |
Industrials |
3,332 |
0.7% |
Kasikornbank |
Thailand |
Financials |
3,231 |
0.7% |
Airtac International
Group |
Taiwan |
Industrials |
3,141 |
0.7% |
Glodon |
China |
Information Technology |
3,111 |
0.7% |
Brac Bank |
Bangladesh |
Financials |
3,052 |
0.7% |
Delta Brac Housing
Finance Corporation |
Bangladesh |
Financials |
2,754 |
0.6% |
Amoy Diagnostics |
China |
Health
Care |
2,606 |
0.6% |
Yifeng Pharmacy
Chain |
China |
Consumer
Staples |
2,346 |
0.5% |
Foshan Haitian
Flavouring & Food |
China |
Consumer
Staples |
2,140 |
0.5% |
Estun Automation |
China |
Industrials |
2,108 |
0.5% |
Nippon Paint* |
Japan |
Materials |
1,504 |
0.3% |
Pentamaster
International |
Malaysia |
Information Technology |
1,498 |
0.3% |
Sundaram Finance |
India |
Financials |
640 |
0.1% |
Total
Investments |
|
|
436,983 |
97.0% |
Net current assets |
|
|
13,683 |
3.0% |
Total Shareholders’
Funds |
|
|
450,666 |
100.0% |
* at least 25% of their economic activities (at the time of
investment) are within the Asia Pacific Region with this proportion
being expected to grow significantly over the long term.
Portfolio Manager’s Review
Return for the year
The net asset value per share of Pacific Assets Trust plc
returned 9.1% in the 12 months to 31 January
2022. This compares with an increase in the Performance
Objective of CPI plus 6% of 11.5%*. However, this comparison only
becomes relevant over a longer time period. Over five years, the
annualised net asset value total return of the Trust has been
10.2%, against the Performance Objective return of 8.8%* and over
10 years the annualised return of 12.3% compares with 8.2%* for the
Performance Objective. For the year there has been a decrease in
the MSCI AC Asia ex Japan index
(measured on a total return sterling adjusted basis) of
9.2%1.
* Source: Frostrow
1 Source: Morningstar
The divergence in performance between equity markets in
China and India was highlighted in the interim report.
During the remainder of the year, many equities in China suffered sharper falls while most
equities in India recorded strong
gains. Country weightings are purely an outcome - a residual - of
bottom-up stock selection. Nonetheless, the large differential in
performance between China and
India complemented strong stock
selection and helped to drive positive returns during the year.
This report will outline the main drivers of performance and the
most significant transactions made by the Trust. It will then
illustrate how we examine international peers as a means of
assessing possible pathways of development, also known as growth
runways, using two of the smaller companies in the Trust as
examples.
What contributed to our return?
Since 1988, the typical performance outcome of our investment
philosophy has been the preservation of capital when markets are
weak and steady, but trailing capital growth during rapidly rising
markets. Last year local equity markets within the Asia Pacific region delivered both of these
performance outcomes. Equities in Hong
Kong, South Korea and
China, in particular, fell sharply
while equities in Taiwan and
India were impressively strong.
Within this context, our typical performance outcome was evident at
the country level.
Contribution by investment for the year ended 31 January 2022
Top 10 contributors to and detractors from absolute performance
(%)
Top 10
Contributors |
% |
Tube Investments of
India |
3.48 |
CG Power &
Industrial Solutions |
2.34 |
Elgi Equipments |
1.29 |
Dr Lal Pathlabs |
1.06 |
Silergy |
0.73 |
Tech Mahindra |
0.71 |
Aavas Financiers |
0.71 |
Mahindra &
Mahindra |
0.71 |
Techtronic
Industries |
0.55 |
Marico |
0.55 |
|
|
Top 10
Detractors |
% |
Vitasoy
International |
-2.43 |
Guangzhou Kingmed
Diagnostics |
-0.61 |
Hualan Biological |
-0.59 |
Pigeon
Corporation |
-0.53 |
Unicharm |
-0.43 |
Vinda
International |
-0.32 |
Bank OCBC |
-0.31 |
Philippine Seven |
-0.28 |
NAVER |
-0.26 |
Amoy Diagnostics |
-0.26 |
As always, we held true to our investment philosophy and we did
not succumb to despondency in China or euphoria in India. Accordingly, the majority of the
Trust’s investments in Hong Kong,
South Korea and China fell less than local equity comparisons
while the majority of investments in Taiwan and India failed to keep pace with markets that
were driven by strong investor enthusiasm. This is evidenced by
examination of the top ten contributors to performance.
Eight of the Trust’s top ten contributors were listed in
India. India enjoyed a ‘blockbuster year’2
for new equity raisings in 2021. Record numbers, both in terms of
the number of listings (63) and the value of capital raised (almost
US$13 billion), were matched by
bullish adjectives such as ‘wild’, ‘buzzing’ and ‘frenzy’. We tend
not to participate in new issues unless we fully understand and can
cross-reference the track record of the founders. Moreover, the
pressures of being listed, with investors eager for quarterly
updates, can have a corrosive influence on a culture, which we
prefer to be long-term focused. For IPOs, it is often better to be
patient and wait until a track record is established and the
culture has settled. In this regard, it is noteworthy that, in
accordance with our investment philosophy, the majority of the top
contributors had been held in the Trust for over five years.
2 “2021: A blockbuster year for public offers despite hiccups”,
The Economic Times, Sanam
Mirchandani. 01/01/22
Examination of the Indian portion of the Trust shows that we
held true to our investment philosophy and did not get carried away
with over-exuberance. We did not participate in hot IPOs or invest
in fashionable areas such as clean energy, fintech, electric
vehicles or big data analytics. In stark contrast, the main
business of the top contributor (Tube Investments) is the
manufacture of bicycles. Tube Investments did not perform because
it is fashionable. It performed because this family-controlled
conglomerate is undertaking a powerful transformation under the
excellent leadership of Vellayan
Subbiah, a family member. Part of this restructuring
involved the purchase and rejuvenation of another old franchise in
India, CG Power and Industrial
Solutions Limited, which is owned by the Trust and performed
strongly over the period. Other strong contributors were Aavas
Financiers, Dr Lal Pathlabs, Elgi
Equipments, Tech Mahindra Mahindra & Mahindra and Marico. Each
of these businesses boast high quality stewardship, improving
franchises and robust financials. These were, at one time, each
small businesses accounting for a small portion of the Trust, but
they have grown into more significant holdings thanks to the long
growth runways available in India
and the rest of Asia.
Outside India, Techtronic
Industries (Hong Kong), a
manufacturer of power tools, Voltronic Power Technology
(Taiwan), an original design
manufacturer of uninterruptable power supplies and Silergy Corp, a
manufacturer of analogue semiconductors in China for Chinese customers, contributed
positively to the Trust’s performance.
What detracted from our return?
The most significant detractor of performance was Vitasoy
International (Hong Kong) where
politically motivated commotions, distinct from the management or
the products – plant based beverages – of the company, conspired to
disrupt sales in mainland China
during the peak summer months. The quality of the stewardship,
franchise and financials of Vitasoy is undiminished. In addition,
we note that Vitasoy has renewed advertising activities, is placing
orders with suppliers and has restarted production, which increases
our confidence that the worst of this unfortunate episode is in the
past. The rest of the detractors from performance were
significantly smaller. Sometimes it is hard to determine any
meaningful patterns in contributors or detractors. Last year,
however, seven of the top ten detractors were either listed in, or
had significant operations in, China. The seven companies are: Guangzhou
Kingmed Diagnostics, Hualan Biological, Amoy Diagnostics, Vinda
International, Vitasoy International, Pigeon Corporation and
Unicharm.
Over the course of the year, the Chinese economy slowed and
political headwinds strengthened. In pockets of the economy,
notably property, there was economic stress. The second order
impact of the weaker property sector was reduced confidence in
banks, insurance and retail. The once popular internet and
education sectors suffered from penalties as they were deemed to be
no longer compatible with the common prosperity of the Chinese
population. The combination of these connected but distinct factors
reduced equity valuations of these sectors dramatically and almost
all listed Chinese companies more generally. The Trust was not
invested in any of these specific sectors and the focus on high
quality sustainable businesses insulated the shareholders from the
worst of the falls in China in
2021.
Covid restrictions and rising input costs were two additional
factors impacting certain equities in the financial year. In this
regard, lockdowns and reduced economic activity help to explain
weak performance at Philippine Seven (Philippines) and Bank OCBC (Indonesia). Rising input costs, alongside
weaker domestic demand in China,
had a chilling effect on sentiment and operations at manufacturers
such as Unicharm (Japan, Diapers),
Pigeon Corporation (Japan, Baby
accessories) and Vinda International (China, Tissues).
Transactions
The most significant purchase was CG Power and Industrial
Solutions Limited (India) which
manufactures equipment for power manufacturing, distribution and
transmission. Formerly known as Cromptom Greaves, CG Power is an
old and high quality franchise that suffered from weak governance.
We are confident this will change as the franchise was recently
acquired by the Murugappan family who have an excellent record on
governance and franchise optimisation. Such is our confidence in
the possibilities for this group that Tube and CG Power are now two
of the larger investments in the Trust.
The largest sale was MediaTek (Taiwan) which designs semiconductor chips,
particularly but not exclusively, suited for mobile
telecommunications in China. Over
the course of the year we have become increasingly concerned with
cyclicality, valuations and sustainability of companies operating
along the semiconductor supply chain. Geopolitical headwinds have
also strengthened.
In addition to these larger transactions, we added to five
companies in China which were weak
over the year and we trimmed five companies in India and in Indonesia where valuations had run ahead of
fundamentals.
Growth Runways
The closed end nature of the Trust allows us to explore a number
of smaller companies. Liquidity considerations often confine
smaller companies to smaller holdings in the Trust. This portion of
a portfolio is often described, rather unflatteringly, as ‘the
tail’, as if it is an unattractive appendage. In the case of the
Trust, this pejorative description could not be less apt. We
believe that these smaller companies will contribute meaningfully
to future returns as they possess all the requisite qualities but
are simply at an earlier stage of development. As such, their small
size is an asset, a harbinger of superior growth. Often we reassure
ourselves of this growth by studying the history of companies or
industries in Europe or the
USA. Two examples of this approach
are Elgi Equipments (India) and
Humanica (Thailand).
Elgi Equipments manufactures and services air compressors, an
essential product in almost every manufacturing processes. “From
the paint on your wall to the car you drive, from the medicines you
take to the leather bag you carry, Elgi’s products have been used
either in their production, maintenance or usage”3. Elgi
Equipments is a family business and Dr Varadaraj, the current CEO,
is second generation. Since becoming CEO in 1994 his words and
actions have displayed quality decision making with a preference
for long-term prosperity over short-term enrichment. Study of Atlas
Copco, the Swedish multinational corporation, provides an
interesting development pathway which Dr Varadaraj emulates and
improves upon. The result is an extremely competent industrial
engineering franchise replete with high quality products and
clients, which competes admirably with international peers.
3 Stewart Investors’ Sustainable Funds Group company report.
Elgi now dominates the compressor market in India with 30% market share. The consolidated
nature of this industry coupled with the frequent need for reliable
servicing of compressors, protects this market share and provides
recurrent cash-flows which Dr Varadaraj has reinvested in growth
over and above the rate determined by the Indian industrial cycle.
Today, Elgi has one of the broadest product ranges in the industry
and derives half of its revenue from overseas markets. The beauty
of this model is that incremental product sales in India, a market with many decades of growth
ahead of it, generate more servicing revenues, therefore greater
cash-flow predictability, higher R&D expenditure and the
possibility for new geographic expansion. It is a virtuous cycle
without the need for debt or equity capital raisings. After
identifying the growth pathway, the question turns to how long the
cycle can continue and in this regard, the small revenues at Elgi
Equipment (only US$300m) are
encouraging.
No company is perfect, and there will be many difficulties along
the way not least the need to find a successor for Dr Varadaraj,
who in his words will require ‘temerity and grit’. Fortunately, the
family has instilled a wonderful culture with sustainability at its
core and it is for this reason that we are confident that Elgi
Equipments will overcome any difficulties and generate strong
shareholder returns for many years to come.
This approach was similar at Humanica, the outsourcing
specialist. Humanica provides HR software and accounting solutions,
mostly in Thailand and potentially
overseas, and is the smallest company in the Trust in terms of
revenues. The steward here is the founder and CEO Mr Dentham who
built a strong track record managing similar businesses at
PricewaterhouseCoopers (PwC). On leaving the partnership and
forming Humanica, Mr Dentham has created an excellent franchise in
a market capable of mid-teen growth for many years to come.
Confidence in this growth comes from observing that American and
European companies have been outsourcing for decades whereas 98% of
Thai corporations retain these functions in-house. Despite a
dominant market position and excellent reputation, Humanica
recorded only US$24 million of
revenues last year. Herein lies the opportunity as this small
figure confirms industry nascence and the prospect of strong
structural tailwinds. Moreover, outsourcing can offer counter
cyclical growth as it enables firms to reduce costs when economic
activity is weak. Of course, sales growth is necessary but not
sufficient, as it must translate into cash-flow growth to generate
shareholder returns. For Humanica, their relatively short record is
encouraging with operating cash flow eclipsing net profits since
listing in 2015. As a people-based business the opportunity might
be great but the risks are also high with a quality reputation
taking a long time to establish and only seconds of misjudgement to
destroy. In this regard, we are convinced that the talented Mr
Dentham has a strong appreciation of the risks as well as keen
sense of the opportunity. He is an excellent steward and we
anticipate Humanica being a much larger portion of the Trust in the
years ahead.
Outlook
The only certainty about the outlook is that it is uncertain. As
we write this report, newspapers are consumed with the direction of
inflation, interest rates, economic growth, heavily indebted
national accounts, heightened political uncertainties, a pandemic
and the outbreak of war in Europe.
This is on top of longer-term structural headwinds such as
biodiversity loss, inequality and climate change. Reasons for
despondence are many but, as always, we rely on our investment
principles as alluded to in our Hippocratic Oath: “We will
not succumb to irrational exuberance in good times, nor to
unjustified gloom in bad times”. The current context might seem
grim but we are confident that the Trust’s capital is invested in
the highest quality people, operating the finest franchises with
some of the strongest balance sheets in the region. This financial
strength gives high quality people such as Dr Varadaraj and Mr
Dentham the ability to endure difficulties and take advantage of
the plentiful runways of growth that exist in Asia.
Stewart Investors
Portfolio Manager
9 May 2022
Sustainability and ESG
Environmental, Social & Governance Policy
The Board believes that consideration of environmental, social
and governance (“ESG”) issues within its operations is of
importance to shareholders and other stakeholders, not least
because long-term returns are much more likely to be generated by
companies that have embedded corporate governance strengths, and
which respect the environment and the society in which they
operate. The Board believes that this investment approach is
readily applicable in the markets in Asia in which the Company invests.
As the Company delegates the management of the portfolio to
Stewart Investors, the Board has chosen to adopt and endorse their
approach to integrating sustainability into portfolio construction
and investee company engagement. This approach is described in
detail in this section. As part of this focus on sustainability,
the Board expects ESG concerns to be a key topic of engagement with
investee companies. The Company, through its Portfolio Manager,
expects to maintain a continuous constructive dialogue with the
owners and the managers of the companies where it owns shares. Such
a relationship is enhanced by the long-term nature of the
investment inherent in the Portfolio Manager’s investment approach,
reassuring companies of stability.
In the same way as the Board expects the Portfolio Manager to
test investee companies on their ESG adherence, the Board will also
assess the Company’s principal service providers. The Board asks
for assurances that a service provider has taken the necessary
steps to mitigate any negative environmental impact their
operations might have, to ensure that their internal governance is
compliant with expected high standards, and that they strive to
avoid negative social impacts resulting from their activities.
Similarly, the Board itself strives to uphold the highest ESG
standards. The Board’s operations mainly consist of governance
related matters, where it is important to the Directors to be at
the forefront of best practice.
As best practice, regulation and disclosure is evolving rapidly
in this area both for the Company and for the companies in which it
invests, the Board regularly discusses sustainability, including
ESG policy and practice, with the Portfolio Manager, encouraging
where possible further enhancements in both the policy and in
reporting to shareholders.
Stewart Investors’ Approach to Sustainable Investing and ESG
Sustainability is core to Stewart Investors investment
philosophy and integrated into their investment process. They do
not have a separate team that looks at sustainability – every
investment analyst in the team analyses the sustainability
positioning of a business, and is also responsible for engaging
with companies.
Stewart Investors only invest in high-quality companies that
contribute to and benefit from sustainable development. They define
development as sustainable if it furthers human development and has
an ecological footprint that respects planetary boundaries. All
members of the investment team sign the Stewart Investors
Hippocratic Oath1, pledging to uphold the principles of
stewardship.
1
https://www.stewartinvestors.com/all/about-us/our-hippocratic-oath.html
They approach sustainability as a means to mitigate risks and as
a driver of investment returns. Integrating sustainability into
their analysis is a natural extension of having a long-term
investment horizon; the sustainability headwinds and tailwinds that
affect companies are different from the shorter-term risks that
businesses face.
Their consideration of sustainability is holistic; it includes
ESG but is more than ESG. They consider financial sustainability –
conservatism around the balance sheet, for example – and
stewardship by management – the treatment of all stakeholders
through a crisis, for example – to be as essential to the
sustainability positioning of a company as the product or service
the company sells.
When assessing a company’s sustainability, they ask themselves
the following questions:
- Commercial proposition – Do the products and services
make a valuable contribution to sustainable development?
- Operational impact – Is the company trying to reduce
impacts from its operations?
- Company ethos – Do the culture and values embody
sustainability and continuous improvement?
- Context – Can the company benefit from sustainability
tailwinds and negative headwinds?
They avoid companies that have unsustainable business models and
engage with companies to improve sustainability outcomes.
The team have established a materiality threshold for harmful or
controversial activities at 5% of revenues – 0% for tobacco
production and controversial weapons. They explicitly seek to
invest in companies that are making a positive contribution to
society. Full details of the activities and practices Stewart
Investors finds inconsistent with their investment philosophy are
available on their website,
www.stewartinvestors.com2.
2 Our position on harmful and controversial products and
services:
https://www.stewartinvestors.com/uk/en/institutional/insights/sfg/
our-position-on-harmful-and-controversial-products-and-services.html
The team employ the services of an external ESG research
provider to supplement their internal research around
sustainability and provide a quarterly check on the portfolio to
ensure companies meet global norms for best practices and raise no
red flags against their thresholds for harmful activities. They
also receive regular updates from an external controversy
monitoring service.
Case Study – Mahindra and Mahindra
Mahindra & Mahindra
Website: https://www.mahindra.com/
Company profile: One of India’s most respected and
successful industrial groups.
Stewardship: 74% Free Float and now run by the third
generation of the family.
What Stewart Investors like:
- The heart of the group is the country’s dominant tractor
franchise. The Portfolio Manager believes there are few companies
better placed to contribute to and benefit from India’s sustainable
development than this, since rural productivity will hinge on
greater farm mechanisation.
- Stewart Investors believe they are backing a well-regarded
steward to allocate capital successfully in nurturing new
businesses using existing cash flows. As such, the group is
utilising its scale, reputation and capital to cultivate a range of
businesses ranging from clean energy to IT-outsourcing and social
housing development to inclusive financial services.
- The Portfolio Manager believes that the group’s palpable sense
of purpose and stellar track record provides a lot of comfort on
the group’s quality, and they can easily imagine Mahindra evolving
into a much more diversified conglomerate in ten years’ time.
Risks: Stewart Investors believe the company faces risks
of continued capital allocation to weak businesses such as autos
and commercial vehicles and an inability to transition quickly to
an electric vehicle world.
Areas for engagement:
- Better capital allocation and diversification away from
businesses with sustainability headwinds.
- Diversity in senior management.
Relevant Sustainable Development
Goals:
1 – No Poverty
Provider of affordable finance and financial products for rural
communities.
8 – Decent Work and Economic Growth
Agricultural machinery improves productivity and supports
India’s sustainable development.
Engagement and Voting
Stewart Investors believe that no company is perfect and
engagement and voting are key responsibilities for them as
long-term shareholders. Engagement is a means to mitigate business
risks, protect against potential headwinds and improve
sustainability outcomes.
Their engagement activity is prioritised from a bottom-up
perspective by the investment analysts. The way each company
responds to engagement is integrated into the analysts’ conviction
level in the company. Engagements are on issues such as:
- Pollution, natural resource degradation, biodiversity and
climate change – packaging, plastic pellets, deforestation,
sustainability of supply chains (soy, palm oil and coffee), fossil
fuel versus renewables, water, waste and energy efficiency.
- Aligned remuneration and incentives – living wage, gender
pay-gap and complexity of incentives.
- Diversity, equity and inclusion – diversity, particularly
gender, in senior management and on boards.
- Addictive products – indirect exposure to tobacco and sugar
content in food.
- Governance – corporate strategy and legal structure.
In addition to direct engagement with companies, the team take
part in collaborative engagements as both a participant and a
leader. Recent examples have included conflict minerals,
deforestation, plastic pellets, micro insurance and access to
medicine. The team uses the PRI Collaboration Platform to work with
other investment firms and asset owners to collectively encourage
companies to improve their approaches to ESG issues.
They consider each proxy vote individually and on its own merits
in the context of their knowledge about that particular company.
This process is not outsourced to an external provider or separate
proxy voting / engagement team. The investment analysts use proxy
voting as an extension of their engagement activities and are
guided by the principle that, where possible, voting should be used
to improve sustainability outcomes.
They vote against management to influence companies to improve
E, S and G issues, particularly when engagement has been
unproductive. A contrary vote is an important part of the
engagement process. They aim to explain their rationale for voting
against management before voting and will continue to engage
following the vote if appropriate. Contrary votes most frequently
relate to overly complex management remuneration packages, a
curtailment of minority shareholder rights, and director
appointments. Given their focus on investing in companies
contributing to sustainable development, votes on environmental and
social issues are less common than they would be for more
index-constrained strategies, but where relevant, they support
votes against management to improve social and environmental
outcomes. Quarterly voting records for the portfolio are available
on the Trust’s website.
Thematic Engagement Example – Reducing Plastic Waste
In July 2018, Stewart Investors
hosted an interactive forum with 11 Indian consumer goods companies
(four of which remain in the Trust today). The forum was set up to
discuss the challenges around plastic waste and to find a way for
the companies to work together to improve the situation in
India. The forum established that
there was demand for a new industry body to work with government
and agree on industry wide targets.
Since the forum, Stewart Investors have been working with WRAP,
a UK based global sustainability charity, who have experience in
rolling out nationwide ‘Plastic Pacts’ in the UK, Europe, US, Canada, South
Africa and Chile.
India was next on their list and
so Stewart Investors provided funding to support the operational
set up of the India Plastics Pact, which subsequently launched in
September 2021. So far, over 33
organisations have signed up to the pact, including major
fast-moving consumer goods (“FMCG”) brands, manufacturers,
retailers and recyclers, to create a unified national framework for
a circular economy for plastics, with agreed targets and associated
reporting by businesses in India.
Transparency
The Portfolio Manager is transparent about portfolio holdings
within the Trust and has developed a Portfolio Explorer tool
(available on the Trust’s website:
https://www.pacific-assets.co.uk/trust-information/portfolio-explorer.html)
to tell the stories of the companies they invest in on behalf of
the Trust. These stories have been written by the investment team
so that shareholders and other stakeholders can see why they
believe that the companies they invest in are making the world a
better place.
Portfolio Explorer provides four views of sustainable
development for the Trust:
Map: This global view provides detailed company
information including investment rationales, risks and engagement
priorities.
Sustainable Development Goals (“SDGs”): The 17 SDGs are
globally agreed goals that countries have committed to achieving by
2030. The SDGs offer a vision for the future towards which
sustainable investment efforts can be directed.
Climate solutions: Companies are mapped to Project
Drawdown’s 80 climate change solutions. Project Drawdown is a
non-profit organisation providing analysis of the solutions which
can help the world reach ‘drawdown’ – i.e. the future point in time
when levels of greenhouse gases in the atmosphere stop climbing and
start to decline. The solutions are diverse and cross-cutting, and
show the systemic change needed to avoid catastrophic warming.
Human development pillars: Stewart Investors have
developed 10 human development pillars inspired by the UN Human
Development Index that they believe are essential for lifting
people out of poverty and empowering them to achieve their
potential.
Sustainable Finance Disclosure Regulation
The Portfolio Manager’s report on the achievement of the Trust’s
sustainable investment objective, in accordance with the
requirements of the Sustainable Finance Disclosure Regulation
(“SFDR”), can be found on page 77 of the Annual Report.
Business Review
The Strategic Report contains a review of the Company’s business
model and strategy, an analysis of its performance during the
financial year and its future developments as well as details of
the principal risks and challenges it faces. Its purpose is to
inform shareholders and help them to assess how the Directors have
performed their duty to promote the success of the Company.
The Strategic Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report. Such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward-looking information.
Business Model
The Company is an externally managed investment trust and its
shares are listed on the premium segment of the Official List and
traded on the main market of the London Stock Exchange.
The purpose of the Company is to provide a vehicle for investors
to gain exposure to a portfolio of companies in the Asia Pacific
Region, through a single investment.
The Company’s strategy is to create value for shareholders by
addressing its investment objective.
As an externally managed investment trust, all of the Company’s
day-to-day management and administrative functions are outsourced
to service providers. As a result, the Company has no executive
directors, employees or internal operations.
The Company employs Frostrow Capital LLP (“Frostrow”) as its
Alternative Investment Fund Manager (AIFM) and they provide
corporate management, risk management, company secretarial and
administrative services. The Company employs Stewart Investors as
its Portfolio Manager.
The Board remains responsible for all aspects of the Company’s
affairs, including setting the parameters for monitoring the
investment strategy and the review of investment performance and
policy. It also has responsibility for all strategic policy issues,
including share issuance and buy backs, share price and discount/
premium monitoring, corporate governance matters, dividends and
gearing.
Further information on the Board’s role and the topics it
discusses with the Portfolio Manager is provided in the Corporate
Governance report.
Investment Objective
The Company’s investment objective along with Stewart Investors’
investment approach is set out above.
The Board measures Stewart Investors’ performance against a
performance objective, which is to provide shareholders with a net
asset value total return in excess of the UK Consumer Price Index
(“CPI”) plus 6% (calculated on an annual basis) measured over three
to five years (the “Performance Objective”). Please refer to the
Chairman’s Statement and the Glossary for further information.
Investment Policy
The Company invests in companies which Stewart Investors believe
will be able to generate long-term growth for shareholders.
The Company invests principally in listed equities although it
is able to invest in other securities, including preference shares,
debt instruments, convertible securities and warrants. In addition,
the Company may invest in open and closed-ended investment funds
and companies.
The Company is only able to invest in unlisted securities with
the Board’s prior approval. It is the current intention that such
investments are limited to those which are expected to be listed on
a stock exchange or which cease to be listed and the Company
decides to continue to hold or is required to do so.
Risk is diversified by investing in different countries, sectors
and stocks within the Asia Pacific Region. There are no defined
limits on countries or sectors but no single investment may exceed
7.5% of the Company’s total assets at the time of investment. This
limit is reviewed from time to time by the Board and may be revised
as appropriate.
No more than 10% of the Company’s total assets may be invested
in other listed closed-ended investment companies unless such
investment companies themselves have published investment policies
to invest no more than 15% of their total assets in other
closed-ended investment companies, in which case the limit is
15%.
The Company has the power under its Articles of Association to
borrow up to two times the adjusted total of capital and reserves.
During the year the Company appointed an external AIFM which means
that, in principle, the Company is now able to employ gearing with
the Board’s approval.
The use of derivatives is permitted with prior Board approval
and within agreed limits. However, Stewart Investors are unlikely
to use derivatives as they do not form part of their investment
strategy.
Change to Investment Policy
As noted above and in the Chairman’s Statement, the Company has
appointed an external AIFM which means that in principle the
Company is now able to employ gearing with the Board’s approval.
The Board proposes to shareholders that any gearing be limited to
10% of the Company’s net assets.
An ordinary resolution to approve the new investment policy is
included in the Notice of AGM and the full text of the proposed new
investment policy can be found in the explanatory notes. The
proposed amendment has been approved in principle by the Financial
Conduct Authority in accordance with the requirements of the
Listing Rules. The Company currently has no gearing facilities in
place and there is no intention to employ gearing in the immediate
future. However, the Board will keep the position under review,
together with the AIFM and the Portfolio Manager.
Dividend Policy
It is the Company’s policy to pursue capital growth for
shareholders with income being a secondary consideration. This
means that the Portfolio Manager is frequently drawn to companies
whose future growth profile is more important than the generation
of dividend income for shareholders.
The Company complies with the United Kingdom’s investment trust
rules which require investment trusts to retain no more than 15% of
their distributable income each year. The Company’s dividend policy
is that the Company will pay a dividend as a minimum to maintain
investment trust status.
The Board
At the date of this report, the Board of the Company comprises
James Williams (Chairman),
Charlotta Ginman, Sian Hansen, Robert
Talbut and Edward Troughton.
All of these Directors are non-executive, independent Directors and
served throughout the year.
Key Performance Indicators
The Board of Directors reviews performance against the following
measures (“KPIs”). The KPIs are unchanged from the prior year.
- Net asset value total return against the Consumer Price Index
+6% (the “Performance Objective”)* ^
- Net asset value per share total return against the peer group*
^
- Average discount/premium of share price to net asset value per
share over the year^
- Ongoing charges ratio^
* Calculated on an annual basis and measured over three to five
years
^ Alternative Performance Measure (see Glossary)
Net asset value per share total return – Performance
Objective
The Directors regard the Company’s net asset value total return
as being the overall measure of value delivered to shareholders
over the long term. Total return reflects both the net asset value
growth of the Company and the dividends paid to shareholders. The
performance objective of the Company is inflation (represented by
the Consumer Price Index) plus 6% (a fixed element to represent
what the Board considers to be a reasonable premium on investors’
capital which investing in the faster-growing Asian economies ought
to provide over time), measured over three to five years. The
Performance Objective is designed to reflect that the Portfolio
Manager’s approach does not consider index composition when
building and monitoring the portfolio.
During the year under review, the net asset value per share
total return was 9.1% underperforming the Performance Objective by
2.4% (2021: net asset value per share total return of 22.3%,
outperforming the Performance Objective by 15.5%). Over the past
three years, the annualised net asset value per share total return
was 9.9%, outperforming the Performance Objective by 3.9% per
annum. Over five years, the annualised net asset value per share
total return was 10.2%, outperforming the Performance Objective by
1.4% per annum.
A full description of performance during the year under review
is contained in the Portfolio Manager’s Review.
Net asset value total return – peer group
The Board also monitors the Company’s performance against its
peer group of five other investment trusts with similar investment
mandates and one exchange traded fund (“ETF”). The Board has agreed
changes to the peer group which are explained above.
Over the three years ended 31 January
2022, the Company ranked fifth in its peer group, over five
years it was ranked fourth. The Company’s performance and the
Board’s approach to monitoring it is discussed in the Chairman’s
Statement; further information can be found in the Portfolio
Manager’s Review.
Average discount/premium of share price to net asset value per
share
The Board believes that the principal drivers of an investment
trust’s share price discount or premium over the long term are
investment performance and a proactive marketing strategy. However,
there can be volatility in the discount or premium during the year.
Therefore, the Board takes powers each year to buy back and issue
shares with a view to limiting the volatility of the share price
discount or premium.
During the year under review no new shares were issued by the
Company and no shares were bought back by the Company. The
Company’s share price discount to the net asset value per share was
at times wider than the peer group average and the Board kept this
under close review. Please see the s172 Companies Act 2006
disclosure, below, for information regarding how the Board
addressed this issue during the year.
Average discount of share price to net asset value per share*^
during the year ended
31 January
2022
31 January 2021
7.3%
9.1%
Peer group
average
Peer group average
discount
5.0%
discount 7.0%
* Source: Morningstar
^ Alternative Performance Measure (see Glossary)
Ongoing charges ratio
Ongoing charges represent the costs that shareholders can
reasonably expect to pay from one year to the next, under normal
circumstances. The Board continues to be conscious of expenses and
seeks to maintain a sensible balance between high quality service
and costs. The Board therefore considers the ongoing charges ratio
to be a KPI and reviews the figure both in absolute terms and in
relation to the Company’s peers.
Ongoing charges ratio^
31 January
2022
31 January 2021
1.1%
1.1%
Peer group average*
0.9%
Peer group average* 0.9%
^ Alternative Performance Measure (see Glossary).
* Peer group average excludes performance fees
Shareholders should be aware that the Company’s relatively low
turnover, and the absence of any cost of capital associated with
gearing, will mean that the Company’s overall running costs are not
necessarily as high as some other investment vehicles, should these
costs be added into the calculation of ongoing charges. It should
also be noted that the Trust does not have a performance fee.
Performance fees are not included in the peer group average ongoing
charges ratio.
Risk Management
The Board is responsible for managing the risks faced by the
Company. Through delegation to the Audit Committee, the Board has
established procedures to manage risk, to review the Company’s
internal control framework and to establish the level and nature of
the principal risks the Company is prepared to accept in order to
achieve its long-term strategic objective. The Board, meeting as
the Audit Committee, has carried out a robust assessment of the
principal and emerging risks facing the Company with the assistance
of the AIFM. A process has been established to identify and assess
risks, their likelihood and the possible severity of impact.
These principal risks are detailed below with a high-level
summary of their management through mitigation and status arrows to
indicate any change in assessment during the year. The risks faced
by the Company have been categorised under three headings as
follows:
- Investment risks (including financial risks)
- Strategic risks
- Operational risks (including cyber crime, corporate governance,
accounting, legal and regulatory)
A summary of these risks and their mitigation is set out
below:
Principal Risks and Uncertainties |
Mitigation |
Change in assessment
of risk over the last
financial year |
Investment
Risks
(including financial risks) |
|
|
Market and Foreign
Exchange Risk |
|
|
The
Company’s portfolio is exposed to fluctuations in market prices
(from both individual security prices and foreign exchange rates)
in the regions and sectors in which it invests. Emerging markets in
the Asia Pacific region, in which the portfolio companies operate,
are expected to be more volatile than developed markets.
Stewart Investors’ approach is expected to lead to performance that
will deviate from that of comparators, including both market
indices and other investments companies investing in the Asia
Pacific Region. |
To manage these risks the Board has appointed Stewart
Investors to manage the portfolio within the remit of the
investment objective and policy. Compliance with the investment
objective and investment policy limits is monitored daily by
Frostrow and Stewart Investors and reported to the Board monthly.
The investment policy limits ensure that the portfolio is
diversified, reducing the risks associated with individual stocks
and markets. Stewart Investors report at each Board meeting on the
performance of the Company’s portfolio, which encompasses the
rationale for investment decisions, the make-up of the portfolio,
and the investment strategy.
As part of its review of the going concern and viability of the
Company, the Board also considers the sensitivity of the Company to
changes in market prices and foreign exchange rates (see note 14 to
the financial statements), how the portfolio would perform during a
market crisis, and the ability of the Company to liquidate its
portfolio if the need arose. Further details are included in the
Going Concern and Viability Statements. |
Counterparty Risk |
The Company is exposed
to credit risk arising from the use of counterparties. If a
counterparty were to fail, the Company could be adversely affected
through either delay in settlement or loss of assets. The most
significant counterparty to which the Company is exposed is J.P.
Morgan Chase Bank, the Custodian, which is responsible for the
safekeeping of the Company’s assets. |
Counterparty risk is managed by the Board through:
· reviews of the arrangements with, and
services provided by, the Custodian to ensure that the security of
the Company’s custodial assets is maintained;
· monitoring of the Custodian, including
reviews of internal control reports and sub-custodial arrangements,
as appropriate; and
· reviews of Stewart Investors’ approved
list of counterparties, the process for monitoring and adding to
the approved counterparty list, and the Company’s use of those
counterparties.
Under the terms of the contract with J.P. Morgan Chase Bank, the
Company’s investments are required to be segregated from J.P.
Morgan Chase Bank’s own assets.
Further information on other financial risks can be found in note
14 to the financial statements. |
Strategic Risks |
Geopolitical Risk |
Geopolitical events
may have an adverse impact on the Company’s performance by causing
exchange rate volatility, changes in tax or regulatory
environments, a reduced investment universe and/or a fall in market
prices. |
The Board regularly discusses global geopolitical issues
and general economic conditions and developments.
Political changes in recent years, particularly in the US and Asia
Pacific region and more recently in Ukraine and Eastern Europe,
have increased uncertainty and volatility in financial markets. The
Board discusses developments and how they may impact decision
making processes with Stewart Investors. |
Climate
Change Risk |
The Board is cognisant
of risks arising from climate change and the impact climate change
events could have on portfolio companies and their operations, as
well as on service providers to the Company. |
The Board
regularly reviews global geopolitical and economic developments
with the Portfolio Manager and the implications of these risks and
events on portfolio construction and the Company’s operations.
Given Stewart Investors’ focus on sustainability and ESG, the Board
considers the portfolio to be relatively well positioned to deal
with climate change events as they arise. |
Black Swan Risk |
|
A black swan event
(e.g. a pandemic/ war/closure of a major shipping route) could lead
to increased market volatility, and in a worst-case scenario, major
global trade and supply chain breakdown resulting in significant
volatility/declines in market prices. The Company’s service
providers and their operational systems may also be affected. |
The Board seeks to manage this risk by monitoring emerging
risks and the robustness of Stewart Investors’ and other service
providers’ processes for taking account of these risks.
Stewart Investors’ investment approach includes a focus on
sustainability and stewardship, which emphasises quality
investments with strong balance sheets, a proven track record in
previous crises, and on protecting shareholders’ funds, leaving
them well positioned to deal with unforeseen events.
All service providers are required to have business continuity /
disaster recovery policies and test them at least annually. Service
providers provide updates on contingency plans for coping with
major disruption to their operations.
The Board recognises that the emergence and spread of new
coronavirus variants represents a continuing risk. The Portfolio
Manager has maintained contact with investee companies and the
Board has stayed in close contact with the Portfolio Manager,
regularly monitoring portfolio and share price developments. The
Board has also received assurances from all of the Company’s
service providers in respect of:
· their business continuity plans and the steps taken to
guarantee the efficiency of their operations while ensuring the
safety and well-being of their employees;
· their cyber security measures including safe remote
working; and
· any increased risks of fraud as a result of weakness in
user access controls.
As global vaccination rates continue to grow, the outlook is
cautiously positive, but the Board will continue to monitor
developments as they occur. |
Portfolio Management
Key Person Risk |
|
There is a risk that
the individual(s) responsible for managing the Company’s portfolio
may leave their employment or may be prevented from undertaking
their duties. |
The Board manages this risk by:
· appointing a Portfolio Manager which operates a team
environment such that the loss of any one individual should not
impact on service levels;
· receiving regular reports from the Portfolio Manager,
including any significant changes in the make-up of the team
supporting the Company;
· meeting the wider team supporting the designated lead
manager, at both Board meetings and at the Portfolio Manager’s
offices; and
· delegating to the Engagement & Remuneration Committee
responsibility to perform an annual review of the service received
from the Portfolio Manager, including, inter alia, the team
supporting the lead manager and their succession planning. |
Share Price Risk |
|
The Company is exposed
to the risk, particularly if the investment strategy and approach
are unsuccessful, that the Company underperforms its peer group and
fails to achieve its Performance Objective, resulting in the
Company becoming unattractive to investors and a widening of the
share price discount to the net asset value per share. |
In managing this risk the Board:
· reviews the Company’s investment objective and policy, and
Stewart Investors’ investment approach in relation to investment
performance, market and economic conditions and the operation of
the Company’s peers;
· regularly discusses the Company’s future development and
strategy;
· undertakes a regular review of the level of the share price
discount/premium to net asset value per share and considers ways in
which share price performance may be enhanced, including the
effectiveness of marketing, share issuance and share buybacks,
where appropriate; and
· reviews an analysis of the shareholder register at each
Board meeting and is kept informed of shareholder sentiment. |
Operational
Risk |
|
Operational Risk |
|
As an
externally-managed investment trust, the Company is reliant on the
systems of its service providers for dealing, trade processing,
administration, financial and other functions. If such systems were
to fail or be disrupted (including, for example, as a result of
cyber-crime or a pandemic) this could lead to a failure to comply
with applicable laws, regulations and governance requirements
and/or to a financial loss. |
To manage these risks the Board:
· periodically visits all key service
providers to gain a better understanding of their control
environment, and the processes in place to mitigate any disruptive
events;
· receives a monthly report from Frostrow,
which includes, inter alia, confirmation of compliance with
applicable laws and regulations;
· reviews internal control reports and key
policies (including disaster recovery procedures and business
continuity plans) of its service providers;
· maintains a risk matrix with details of
risks to which the Company is exposed, the approach to managing
those risks, key controls relied on and the frequency of the
controls operation;
· receives updates on pending changes to
the regulatory and legal environment and progress towards the
Company’s compliance with such changes; and
· has considered the increased risk of
cyber-attacks and received reports and assurance from its service
providers regarding the information security controls in
place. |
Emerging Risks
Emerging risks are discussed in detail as part of the risk
review process and also throughout the year to try to ensure that
emerging (as well as known) risks are identified and, so far as
practicable, mitigated. Current identified emerging risks are as
follows:
- Corporations are looking to simplify and shorten supply chains
in response to the disruptions during the pandemic and increased
concerns over the impact of geopolitical uncertainty on their
operations. In effect, security of supply is becoming of greater
importance than the efficiency of supply. Having been beneficiaries
of globalisation, this ‘onshoring’ trend will increase uncertainty
over future corporate investment plans and may damage the growth
prospects of companies in the Asia Pacific Region.
2.
The increase in passive funds investing in the Asia Pacific Region
may make markets more volatile as the prices of companies in the
Index are inflated by substantial inflows and deflated by
substantial
outflows.
The Company’s relative performance may suffer as a result.
Stakeholder Interests and Board Decision-Making (Section 172 of
the Companies Act 2006)
As an externally managed investment trust, the Company has no
employees, customers, operations or premises. Therefore, the
Company’s key stakeholders (other than its shareholders) are
considered to be its service providers. The need to foster good
business relationships with service providers and maintain a
reputation for high standards of business conduct are central to
the Directors’ decision-making as the Board of an externally
managed investment trust.
The following disclosure, which is required by the Companies Act
2006 and the AIC Code, describes how the Directors have had regard
to the views of the Company’s stakeholders in their
decision-making.
STAKEHOLDER GROUP |
HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S
STAKEHOLDERS |
Investors |
The
Board’s key mechanisms of engagement with investors include:
· The Annual General Meeting
· The Company’s website which hosts reports, articles and
insights, and monthly factsheets
· One-to-one investor meetings
· Group meetings with professional investors
· The Annual and Half yearly Reports |
|
The Portfolio Manager
and the Company’s broker, on behalf of the Board, completed a
programme of investor relations throughout the year, reporting to
the Board on the feedback received. In addition, the Chairman has
been available to engage with the Company’s shareholders where
required. |
Portfolio
Manager |
The
Board met regularly with the Portfolio Manager throughout the year,
both formally at quarterly Board meetings and informally, as
required. The Board engaged primarily with key members of the
portfolio management team, discussing the Company’s overall
performance, as well as developments in individual portfolio
companies and wider macroeconomic developments.
The Board, meeting as the Audit Committee, also met with members of
the risk management and investment compliance teams to better
understand the Portfolio Manager’s internal controls. |
Service
Providers |
The Board
met regularly with the AIFM, representatives of which attend every
quarterly Board meeting to provide updates on risk management,
accounting, administration and corporate governance matters.
The Board, meeting as the Management Engagement Committee, reviewed
the performance of all the Company’s service providers, receiving
feedback from Frostrow in their capacity as AIFM and Company
Secretary. The AIFM, which is responsible for the day to day
operational management of the Company, meets and interacts with the
other service providers including the Depositary, Custodian and
Registrar, on behalf of the Board, on a daily basis. This can be
through email, one-to-one meetings and/or regular written
reporting.
The Audit Committee met with BDO LLP (“BDO”) to review the outcome
of the annual audit and assess the quality and effectiveness of the
audit process. The Audit Committee then recommended that the Board
propose to shareholders that BDO be reappointed as the Company’s
auditor. The Audit Committee also met with BDO to review the audit
plan for the subsequent year and to set their remuneration. Please
refer to the Audit Committee Report for further information. |
KEY AREAS OF ENGAGEMENT |
MAIN DECISIONS AND ACTIONS TAKEN |
Investors:
· Ongoing dialogue with shareholders concerning the strategy
of the Company, performance and the portfolio.
· The impact of market volatility caused by, inter
alia, the Covid-19 pandemic and certain geopolitical events on
the portfolio.
· Share price performance.
· The Portfolio Manager’s approach to sustainable development
and investment. |
The Board
and the Portfolio Manager provided updates on performance via RNS,
the Company’s website and the usual financial reports and monthly
fact sheets.
The Board continued to monitor share price movements closely, both
in absolute terms and in relation to the Company’s peer group. As
the discount remained relatively stable throughout the year, the
Board did not initiate any share buybacks. While recognising that
buybacks can generate shareholder value in the short term, the
Board decided that buybacks were not in the long-term interests of
shareholders, as they would reduce the size of the Company,
increase the ongoing charges ratio and reduce the liquidity of the
Company’s shares.
The Board decided to take steps to improve the visibility of the
Company and the Portfolio Manager’s sustainability credentials, in
particular to retail investors. Further information is provided in
the Chairman’s Statement. |
Portfolio
Manager:
· Portfolio composition, performance, outlook and business
updates.
· The ongoing impact of the Covid-19 pandemic on the
Portfolio Manager’s business and the businesses of the portfolio
companies.
· The integration of sustainability and ESG factors to the
Portfolio Manager’s investment process.
· The promotion and marketing strategy of the Company.
· The Portfolio Manager’s system of internal controls and
investment risk management. |
The Board
concluded that the Portfolio Manager had successfully implemented
temporary remote working with no material adverse impact on service
delivery. The Board agreed that high standards of research have
been maintained and the Portfolio Manager’s strategy has been
implemented consistently, leading to good returns over the past
year. The Board concluded that it was in the interests of
shareholders for Stewart Investors to continue in their role as
Portfolio Manager on the same terms and conditions.
The Board decided to take steps to improve the marketing strategy
of the Company, to highlight in particular the Portfolio Manager’s
sustainability credentials. Further information is provided in the
Chairman’s Statement.
The Board, meeting as the Audit Committee, concluded that the
Portfolio Manager’s internal controls were satisfactory. See the
Audit Committee Report for further information. |
Service
Providers:
· The ongoing impact of the Covid-19 pandemic and
restrictions on service providers’ businesses and service
provision.
· The assessment of the effectiveness of the audit and the
Auditor’s reappointment.
· The terms and conditions under which the Auditor is
engaged. |
The Board
concluded that the Company’s principal service providers had
successfully implemented temporary remote working with no material
adverse impact on service delivery.
The Board concluded that it was in the interests of shareholders
for Frostrow to continue in their role as AIFM on the same terms
and conditions.
The Board approved the Audit Committee’s recommendation to propose
to shareholders that BDO LLP to be re-appointed as the Company’s
auditor for a further year. Please refer to the Audit Committee
Report and the Notice of AGM for further information. |
Social, Human Rights and Environmental Matters
As an externally-managed investment trust, the Company does not
have any employees or maintain any premises, nor does it undertake
any manufacturing or other physical operations itself. All its
operational functions are outsourced to third party service
providers. Therefore the Company has no material, direct impact on
the environment or any particular community and, as a result, the
Company itself has no environmental, human rights, social or
community policies.
The Portfolio Manager engages with the Company’s underlying
investee companies in relation to their corporate governance
practices and the development of their policies on social,
community and environmental matters. The Portfolio Manager (under
their parent, legal entity name, First Sentier Investors) is a Tier
1 signatory to the UN Principles of Responsible Investment, an
investor signatory of Climate Action 100+ and an investor member of
the Institutional Investors Group on Climate Change.
Taskforce for Climate-Related Financial Disclosures (“TCFD”)
The Company notes the TCFD recommendations on climate-related
financial disclosures. The Company is an investment trust with no
employees, internal operations or property and, as such, it is
exempt from the Listing Rules requirement to report against the
TCFD framework.
The Portfolio Manager reports annually on progress against their
own climate change objectives and these reports can be found on
their website. Stewart Investors’ climate change statement, which
sets out their climate related commitments to investing, engagement
and reporting, as well as their approach to TCFD reporting, can be
found at:
https://sfg.stewartinvestors.com/climate-change-statement
Integrity and Business Ethics
The Company is committed to carrying out business in an honest
and fair manner with a zero-tolerance approach to bribery, tax
evasion and corruption. As such, policies and procedures are in
place to prevent this and can be found on the Company’s website. In
carrying out its activities, the Company aims to conduct itself
responsibly, ethically and fairly, including in relation to social
and human rights issues.
Performance and Future Developments
A review of the Company’s performance over the year and the
outlook for the Company can be found in the Chairman’s Statement
and in the Portfolio Manager’s Review.
The Company’s overall strategy remains unchanged.
By order of the Board
Frostrow Capital LLP
Company Secretary
9 May 2022
Statement of Directors’
Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice, including
FRS 102 ‘The Financial Reporting Standard applicable in the UK and
the Republic of Ireland’.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and accounting estimates that are reasonable
and prudent;
- state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business; and
- prepare a directors’ report, a strategic report and a
directors’ remuneration report which comply with the requirements
of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are responsible
for ensuring that the Annual Report and financial statements, taken
as a whole, are fair, balanced, and understandable and provide the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Statement
which comply with that law and those regulations.
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on the Company’s
website, which is maintained by the Portfolio Manager. Financial
statements are published on the Company’s website in accordance
with legislation in the United
Kingdom governing the preparation and dissemination of
financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company’s
website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Going Concern
The Company’s portfolio, investment activity, the Company’s cash
balances and revenue forecasts, and the trends and factors likely
to affect the Company’s performance are reviewed and discussed at
each Board meeting. The Board has considered a detailed assessment
of the Company’s ability to meet its liabilities as they fall due,
including stress tests which modelled the effects of substantial
falls in portfolio valuations and liquidity constraints on the
Company’s NAV, cash flows and expenses. Based on the information
available to the Directors at the date of this report, the
conclusions drawn in the Viability Statement (including the results
of the stress tests undertaken) in the Report of the Directors and
the Company’s cash balances, the Directors are satisfied that the
Company has adequate financial resources to continue in operation
for at least the next 12 months from the date of signing this
report and that, accordingly, it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this
report confirm that, so far as they are each aware, there is no
relevant audit information of which the Company’s auditor is
unaware; and each Director has taken all the steps that he/she
might reasonably be expected to have taken as a Director to make
himself/ herself aware of any relevant audit information and to
establish that the Company’s auditor is aware of that
information.
Responsibility Statement of the Directors in respect of the
Annual Financial Report
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and the return of
the Company for the year ended 31 January
2022; and
- the Annual Report includes a fair review of the development and
performance of the business and the financial position of the
Company, together with a description of the principal risks and
uncertainties that they face.
We consider the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company’s position and performance,
business model and strategy.
On behalf of the Board
James
Williams
Chairman
9 May 2022
Income Statement
for the year ended 31 January
2022
|
|
Year
ended 31 January 2022 |
Year
ended 31 January 2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Gains on investments |
8 |
- |
43,614 |
43,614 |
- |
77,226 |
77,226 |
Exchange differences |
|
- |
(114) |
(114) |
- |
(123) |
(123) |
Income |
2 |
4,657 |
- |
4,657 |
5,163 |
- |
5,163 |
Portfolio management and AIFM
fees |
3 |
(1,070) |
(3,212) |
(4,282) |
(851) |
(2,553) |
(3,404) |
Other expenses |
4 |
(692) |
- |
(692) |
(606) |
- |
(606) |
Return before taxation |
|
2,895 |
40,288 |
43,183 |
3,706 |
74,550 |
78,256 |
Taxation |
5 |
(487) |
(5,343) |
(5,830) |
(555) |
(3,574) |
(4,129) |
Return after taxation |
|
2,408 |
34,945 |
37,353 |
3,151 |
70,976 |
74,127 |
Return per share (p) |
7 |
2.0 |
28.9 |
30.9 |
2.6 |
58.7 |
61.3 |
The Total column of this statement represents the Company’s
Income Statement. The Revenue and Capital columns are supplementary
to this and are prepared under guidance published by the
Association of Investment Companies (“AIC”).
All revenue and capital items in the Income Statement derive
from continuing operations.
The Company had no recognised gains or losses other than those
shown above and therefore no separate Statement of Other
Comprehensive Income has been presented.
Statement of Changes in Equity
for the year ended 31 January
2022
|
|
Ordinary |
|
Capital |
|
|
|
|
|
|
Share |
Share |
Redemption |
Special |
Capital |
Revenue |
|
|
|
Capital |
premium |
reserve |
reserve |
reserve |
reserve |
Total |
|
Note |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
At 31 January 2020 |
|
15,120 |
8,811 |
1,648 |
14,572 |
298,299 |
7,267 |
345,717 |
Return after taxation |
|
- |
- |
- |
- |
70,976 |
3,151 |
74,127 |
Ordinary dividends paid |
6 |
- |
- |
- |
- |
- |
(3,628) |
(3,628) |
At 31 January 2021 |
|
15,120 |
8,811 |
1,648 |
14,572 |
369,275 |
6,790 |
416,216 |
Return after taxation |
|
- |
- |
- |
- |
34,945 |
2,408 |
37,353 |
Ordinary dividends paid |
6 |
- |
- |
- |
- |
- |
(2,903) |
(2,903) |
At 31 January 2022 |
|
15,120 |
8,811 |
1,648 |
14,572 |
404,220 |
6,295 |
450,666 |
The accompanying notes are an integral part of these
statements.
Statement of Financial Position
as at 31 January 2022
|
|
2022 |
2021 |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
Fixed assets |
|
|
|
|
|
Investments |
8 |
|
436,983 |
|
404,714 |
Current assets |
|
|
|
|
|
Debtors |
9 |
242 |
|
232 |
|
Cash and cash equivalents |
|
24,192 |
|
17,823 |
|
|
|
24,434 |
|
18,055 |
|
Creditors (amounts falling
due within one year) |
10 |
(2,356) |
|
(1,231) |
|
Net current assets |
|
|
22,078 |
|
16,824 |
Total assets less current
liabilities |
|
|
459,061 |
|
421,538 |
Non-current liabilities |
|
|
|
|
|
Provision for liabilities |
11 |
|
(8,395) |
|
(5,322) |
Net assets |
|
|
450,666 |
|
416,216 |
Capital and reserves |
|
|
|
|
|
Called up share capital |
12 |
|
15,120 |
|
15,120 |
Share premium account |
|
|
8,811 |
|
8,811 |
Capital redemption reserve |
15 |
|
1,648 |
|
1,648 |
Special reserve |
15 |
|
14,572 |
|
14,572 |
Capital reserve |
15 |
|
404,220 |
|
369,275 |
Revenue reserve |
15 |
|
6,295 |
|
6,790 |
Equity shareholders’
funds |
|
|
450,666 |
|
416,216 |
Net asset value per Ordinary
Share (p) |
13 |
|
372.6p |
|
344.1p |
The financial statements were approved and authorised for issue
by the Board of Directors on 9 May
2022 and signed on its behalf by:
James Williams
Chairman
The accompanying notes are an integral part of these
statements.
Pacific Assets Trust Public Limited Company – Company
Registration Number: SC091052 (Registered in Scotland)
Notes to the Financial Statements
1. Accounting Policies
A summary of the principal accounting policies adopted is set
out below or as appropriate within the relevant note to the
financial statements.
(a) Basis of Accounting
These financial statements have been prepared under UK Company
Law, FRS 102 ‘The Financial Reporting Standard applicable in the UK
and Ireland’, and in accordance with guidelines set out in the
Statement of Recommended Practice (‘SORP’), published in
February 2021, for Investment Trust
Companies and Venture Capital Trusts issued by the Association of
Investment Companies (‘AIC’), the historical cost convention, as
modified by the valuation of investments at fair value through
profit or loss.
The Board has considered a detailed assessment of the Company’s
ability to meets its liabilities as they fall due, including stress
and liquidity tests which modelled the effects of substantial falls
in markets and significant reductions in market liquidity
(including further stressing the current economic conditions caused
by the Covid-19 pandemic and certain geopolitical events) on the
Company’s assets and liabilities. In light of the results of these
tests, the Company’s cash balances, the liquidity of the Company’s
investments and the absence of any gearing, the Directors are
satisfied that the Company has adequate financial resources to
continue in operation for at least the next 12 months from the date
of approval of these financial statements and that, accordingly, it
is appropriate to adopt the going concern basis in preparing these
financial statements.
The Company has taken advantage of the exemption from preparing
a Cash Flow Statement under FRS 102, as it is an investment fund
whose investments are substantially highly liquid, carried at fair
(market) value and provides a statement of changes in net
assets.
The Board is of the opinion that the Company is engaged in a
single segment of business, namely investing in accordance with the
Investment Objective, and consequently no segmental analysis is
provided.
Significant Judgement
There is one significant judgement involved in the presentation
of the Company’s accounts being the judgement on the functional and
presentational currency of the Company.
The Company’s investments are made in foreign currencies,
however the Board considers the Company’s functional and
presentational currency to be sterling. In arriving at this
conclusion, the Board considered that the shares of the Company are
listed on the London Stock Exchange, it is incorporated in the
United Kingdom and pays dividends
and expenses in sterling. All values are rounded to the nearest
thousand pounds (£’000) except where otherwise indicated.
Presentation of the Income
Statement
In order to reflect better the activities of an investment trust
company and in accordance with the SORP, supplementary information
which analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement.
The net revenue return is the measure the Directors believe
appropriate in assessing the Company’s compliance with certain
requirements set out in Section 1158 of the Corporation Tax Act
2010.
(b) Foreign Currencies
Transactions denominated in foreign currencies are translated
into sterling at the exchange rates on the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are translated at the rate ruling at the date of the Statement of
Financial Position. Profits or losses on the translation of foreign
currency balances, whether realised or unrealised, are taken to the
capital or revenue column of the Income Statement, depending on
whether the gain or loss is of a capital or revenue nature.
(c) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand
deposits readily convertible to known amounts of cash and subject
to insignificant risk of changes in value.
2. Income
|
2022 |
2021 |
|
£’000 |
£’000 |
Income from investments |
|
|
Overseas dividends |
4,657 |
5,158 |
Bank interest |
- |
5 |
|
4,657 |
5,163 |
Dividends receivable are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when
the Company’s right to receive payment is established. Foreign
dividends are gross of withholding tax.
Special dividends of a revenue nature are recognised through the
revenue column of the Income Statement. Special dividends of a
capital nature are recognised through the capital column of the
Income Statement.
Where the Company has elected to receive its dividends in the
form of additional shares rather than cash the amount of the stock
dividend is recognised in the revenue column.
3. Portfolio Management and AIFM Fees
|
|
2022 |
|
|
2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Portfolio management fee |
|
|
|
|
|
|
– Stewart Investors |
949 |
2,850 |
3,799 |
755 |
2,265 |
3,020 |
AIFM fee – Frostrow |
121 |
362 |
483 |
96 |
288 |
384 |
|
1,070 |
3,212 |
4,282 |
851 |
2,553 |
3,404 |
Further information regarding Stewart Investors and Frostrow’s
fees can be found on pages 43 and 44 of the annual report.
All expenses and interest are accounted for on an accruals
basis. Expenses and interest are charged to the Income Statement as
revenue items except where incurred in connection with the
maintenance or enhancement of the value of the Company’s assets and
taking account of the expected long-term returns, when they are
split as follows:
- Portfolio Management and AIFM fees payable have been allocated
25% to revenue and 75% to capital.
- Transaction costs incurred on the purchase and sale of
investments are taken to the Income Statement as a capital item,
within gains on investments held at fair value through profit or
loss.
4. Other Expenses
|
2022 |
2021 |
|
£’000 |
£’000 |
Directors’ fees |
161 |
150 |
Employers NIC on directors’
remuneration |
13 |
13 |
Auditor’s remuneration for: |
|
|
– annual audit |
37 |
411 |
Depository fees |
41 |
- |
Custody fees |
217 |
185 |
Registrar fees |
26 |
25 |
Broker retainer |
30 |
30 |
Listing fees |
26 |
28 |
Legal and professional fees |
43 |
46 |
Other expenses |
98 |
88 |
Total expenses |
692 |
606 |
1 Included £7,000 payable to KPMG (the Company’s external
auditor at the time) relating to additional work required during
the 2020 audit as a result of the COVID pandemic
For accounting policy, see note 3.
5. Taxation
(a) Analysis of Charge in the Year
|
|
2022 |
|
|
2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Overseas taxation |
591 |
- |
591 |
585 |
3 |
588 |
Indian capital gains tax charge |
(104) |
5,343 |
5,239 |
- |
3,571 |
3,571 |
Overseas tax recoverable |
- |
- |
- |
(30) |
- |
(30) |
|
487 |
5,343 |
5,830 |
555 |
3,574 |
4,129 |
Overseas tax arose as a result of irrecoverable withholding tax
on overseas dividends and Indian capital gains tax (“CGT”).
As an investment trust, the Company is generally not subject to
tax on capital gains. However, Indian capital gains tax arises on
capital gains on the sale of Indian securities at a rate of 15% on
short-term capital gains (defined as those where the security was
held for less than a year) and 10% on long-term capital gains.
£3,037,000 (2021: £3,571,000) of the charge arose on unrealised
long-term capital gains on securities still held and is included in
deferred taxation on unrealised capital gains on Indian securities
as set out in note 11. £2,202,000 (2021: nil) of the charge relates
to capital gains tax paid on disposals during the year.
(b) Reconciliation of Tax Charge
The revenue account tax charge for the year is lower than the
standard rate of corporation tax in the UK of 19.0% (2021:
19.0%).
The differences are explained below:
|
|
2022 |
|
|
2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Total return on ordinary activities
before tax |
2,895 |
40,288 |
43,183 |
3,706 |
74,550 |
78,256 |
Corporation tax charged at 19.0%
(2021: 19.0%) |
550 |
7,655 |
8,205 |
704 |
14,165 |
14,869 |
Effects of: |
|
|
|
|
|
|
Gains on investment not subject to
UK corporation tax |
- |
(8,287) |
(8,287) |
- |
(14,673) |
(14,673) |
Non-taxable exchange
differences |
- |
22 |
22 |
- |
23 |
23 |
Expenses not deductible for tax
purposes |
335 |
610 |
945 |
276 |
485 |
761 |
Income not subject to corporation
tax |
(885) |
- |
(885) |
(980) |
- |
(980) |
Indian capital gains tax charge
(see note 5a) |
(104) |
5,343 |
5,239 |
- |
3,571 |
3,571 |
Overseas taxation |
591 |
- |
591 |
585 |
3 |
588 |
Overseas tax recovered |
- |
- |
- |
(30) |
- |
(30) |
Tax charge for the year |
487 |
5,343 |
5,830 |
555 |
3,574 |
4,129 |
As at 31 January 2022 the Company
had unutilised management expenses and other reliefs for taxation
purposes of £52,693,000 (2021: £47,719,000). It is not anticipated
that these will be utilised in the foreseeable future and as such
no related deferred tax asset has been recognised. A reduction in
the UK corporation tax rate from 19% to 17% (effective from
1 April 2021) was substantively
enacted on 6 September 2016. In the 11
March 2021 budget, it was announced that the UK tax rate
would remain at 19%.
The March 2021 Budget announced a
further increase to the main rate of corporation tax to 25% from
April 2023. This rate has been
enacted as at the date of the Statement of Financial Position.
The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue as set
out in this note. The standard rate of corporation tax is applied
to taxable net revenue. Any adjustment resulting from relief for
overseas tax is allocated to the revenue reserve.
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the Statement of Financial
Position date where transactions or events that result in an
obligation to pay more, or right to pay less, tax in future have
occurred at the Statement of Financial Position date. This is
subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits
from which the future reversal of the underlying timing differences
can be deducted. Timing differences are differences arising between
the Company’s taxable profits and its results as stated in the
accounts which are capable of reversal in one or more subsequent
periods. Deferred tax is measured without discounting and based on
enacted tax rates. Due to the Company’s status as an investment
trust, and the intention to meet the conditions required to obtain
approval under Section 1158 of the Corporation Tax Act 2010, the
Company has not provided for deferred UK tax on any capital gains
and losses arising on the revaluation or disposal of
investments.
Deferred tax has been provided for on capital gains arising on
Indian securities as noted in 5(a) above.
6. Dividends
Amounts recognised as distributable to shareholders for the year
ended 31 January 2022, were as
follows:
|
2022 |
2021 |
|
£’000 |
£’000 |
Final dividend paid for the year
ended 31 January 2021 of 2.4p per share |
2,903 |
- |
Final dividend paid for the year
ended 31 January 2020 of 3.0p per share |
- |
3,628 |
In respect of the year ended 31 January
2022, a final dividend of 1.9p per share has been proposed
and will be reflected in the Annual Report for the year ending
31 January 2023. Details of the
ex-dividend and payment dates are provided on page 42 of the annual
report.
The Board’s current policy is to pay dividends only out of
revenue reserves. Therefore the amount available for distribution
as at 31 January 2022 is £6,295,000
(2021: £6,790,000).
The dividends payable in respect of both the current and the
previous financial year, which meet the requirements of Section
1158 CTA 2010, are set out below:
|
2022 |
2021 |
|
£’000 |
£’000 |
Revenue available for distribution
by way of dividend for the year |
2,408 |
3,151 |
Final dividend of 1.9p per share
(2021: final dividend of 2.4p) |
(2,298) |
(2,903) |
Transfer to revenue
reserves |
110 |
248 |
Dividends paid by the Company on its shares are recognised in
the financial statements in the year in which they are paid and are
shown in the Statement of Changes in Equity.
7. Return per Share
The return per share is as follows:
|
|
2022 |
|
|
2021 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
pence |
pence |
pence |
pence |
pence |
pence |
Basic |
2.0p |
28.9p |
30.9p |
2.6 |
58.7 |
61.3 |
The total return per share is based on the total return
attributable to shareholders of £37,353,000 (2021:
£74,127,000).
The revenue return per share is based on the net revenue return
attributable to shareholders of £2,408,000 (2021: £3,151,000).
The capital return per share is based on the net capital return
attributable to shareholders of £34,945,000 (2021: return of
£70,976,000).
The total return, revenue return and the capital return per
share are based on the weighted average number of shares in issue
during the year of 120,958,386 (2021: 120,958,386).
The calculations of the returns per Ordinary Share have been
carried out in accordance with IAS 33 Earnings per Share.
8. Investments
|
2022 |
2021 |
|
£’000 |
£’000 |
Investments |
|
|
Cost at start of year |
267,140 |
222,736 |
Investment holding gains at start of
year |
137,574 |
86,781 |
Valuation at start of
year |
404,714 |
309,517 |
Purchases at cost |
82,266 |
110,858 |
Disposal proceeds |
(93,611) |
(92,887) |
Gains on investments |
43,614 |
77,226 |
Valuation at end of year |
436,983 |
404,714 |
Cost at 31 January |
290,337 |
267,140 |
Investment holding gains at 31
January |
146,646 |
137,574 |
Valuation at 31 January |
436,983 |
404,714 |
The Company received £93,611,000 (2021: £92,887,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £59,069,000 (2021: £66,454,000). These
investments have been revalued over time and until they were sold
any unrealised gains/losses were included in the fair value of the
investments.
During the year the Company incurred transaction costs on
purchases of £121,000 (2021: £156,000) and transaction costs on
sales of £206,000 (2021: £231,000).
Valuation of Investments
Investments are measured initially and at subsequent reporting
dates at fair value. Purchases and sales are recognised on the
trade date where a contract exists whose terms require delivery
within the time frame established by the market concerned. For
quoted securities fair value is either bid price or last traded
price, depending on the convention of the exchange on which the
investment is listed. Changes in fair value and gains or losses on
disposal are included in the Income Statement as a capital
item.
In addition, for financial reporting purposes, fair value
measurements are categorised into a fair value hierarchy based on
the degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
- Level 1 – Quoted prices in active markets.
- Level 2 – Inputs other than quoted prices included within Level
1 that are observable (i.e. developed using market data), either
directly or indirectly.
- Level 3 – Inputs are unobservable (i.e. for which market data
is unavailable).
All investments have been classified as Level 1 (2021: All Level
1).
9. Debtors
|
2022 |
2021 |
|
£’000 |
£’000 |
Accrued income |
204 |
163 |
Other debtors |
38 |
69 |
|
242 |
232 |
10. Creditors: Amounts Falling Due Within One Year
|
2022 |
2021 |
|
£’000 |
£’000 |
Amounts due to brokers |
1,016 |
143 |
Portfolio management fee – Stewart
Investors |
996 |
868 |
AIFM fee – Frostrow |
125 |
106 |
Other creditors |
219 |
114 |
|
2,356 |
1,231 |
11. Provisions for liabilities
|
2022 |
2021 |
|
£’000 |
£’000 |
Deferred taxation on unrealised
capital gains on Indian securities |
8,395 |
5,322 |
See note 5 for further details and accounting policy.
12. Share Capital
|
2022 |
2021 |
|
£’000 |
£’000 |
Allotted and fully paid: |
|
|
120,958,386 Ordinary shares of 12.5p
each (2021: 120,958,386) |
15,120 |
15,120 |
During the year, no Ordinary shares were issued (2021: nil).
The capital of the Company is managed in accordance with its
investment policy which is detailed in the Strategic Report.
The Company does not have any externally imposed capital
requirements.
13. Net Asset Value Per Share
The net asset value per share of 372.6p (2021: 344.1p) is
calculated on net assets of £450,666,000 (2021: £416,216,000),
divided by 120,958,386 (2021: 120,958,386) shares, being the number
of shares in issue at the year end.
14. Financial Instruments
The Company’s financial instruments comprise its investment
portfolio, cash balances, and debtors and creditors that arise
directly from its operations. As an investment trust, the Company
holds an investment portfolio of financial assets in pursuit of its
investment objective.
Fixed asset investments (see note 8) are valued at fair value in
accordance with the Company’s accounting policies. The fair value
of all other financial assets and liabilities is represented by
their carrying value in the Statement of Financial Position.
The main risks that the Company faces arising from its financial
instruments are:
(i) market risk, including:
– other price risk, being the risk that the
value of investments will fluctuate as a result of changes in
market prices;
– interest rate risk, being the risk that the
future cash flows of a financial instrument will fluctuate because
of changes in interest rates;
– foreign currency risk, being the risk that
the value of financial assets and liabilities will fluctuate
because of movements in currency rates;
(ii) credit risk, being the risk that a counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company; and
(iii) liquidity risk, being the risk that the Company will
not be able to meet its liabilities when they fall due. This may
arise should the Company not be able to liquidate its investments.
Under normal market trading volumes, the investment portfolio could
be substantially realised within a week.
Other price risk
The management of other price risk is part of the portfolio
management process and is typical of equity investment. The
investment portfolio is managed with an awareness of the effects of
adverse price movements through detailed and continuing analysis
with an objective of maximising overall returns to shareholders.
Further information on how the investment portfolio is managed is
set out on page 2 of the annual report. Although it is the
Company’s current policy not to use derivatives they may be used
from time to time, with prior Board approval, to hedge specific
market risk or gain exposure to a specific market.
If the investment portfolio valuation rose or fell by 10% at 31
January, the impact on the net asset value would have been £41.1
million (2021: £39.9 million). The calculations are based on the
investment portfolio valuation as at the respective Statement of
Financial Position dates and are not necessarily representative of
the year as a whole.
Interest rate risk
Floating rate
When the Company retains cash balances the majority of the cash
is held in overnight call accounts. The benchmark rate which
determines the interest payments received on cash balances is the
bank base rate for the relevant currency for each deposit.
Foreign currency risk
The Company invests in overseas securities and holds foreign
currency cash balances which give rise to currency risks. Foreign
currency risks are managed alongside other market risks as part of
the management of the investment portfolio. It is currently not the
Company’s policy to hedge this risk on a continuing basis but it
can do so from time to time.
Foreign currency exposure:
|
2022 |
2021 |
|
Investments |
Cash |
Debtors |
Creditors |
Investments |
Cash |
Debtors |
Creditors |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Chinese renminbi |
26,979 |
- |
- |
- |
15,613 |
- |
- |
- |
Indian rupee |
216,401 |
254 |
22 |
(9,355) |
164,672 |
5,331 |
- |
(5,427) |
New Taiwanese dollar |
55,785 |
69 |
10 |
- |
61,342 |
33 |
5 |
- |
Hong Kong dollar |
28,513 |
- |
- |
- |
39,573 |
- |
- |
- |
Philippine peso |
5,489 |
- |
- |
- |
6,677 |
- |
- |
- |
Indonesian rupiah |
21,405 |
- |
- |
- |
21,222 |
- |
- |
|
Japanese yen |
39,018 |
- |
100 |
- |
41,142 |
- |
69 |
- |
Bangladesh taka |
10,606 |
35 |
- |
- |
15,857 |
- |
72 |
- |
Thai baht |
8,517 |
- |
- |
- |
8,623 |
- |
- |
- |
Malaysian ringgit |
5,771 |
9 |
- |
- |
5,903 |
- |
- |
- |
Sri Lankan rupee |
- |
- |
- |
- |
2,594 |
- |
- |
- |
Singapore dollar |
- |
6,940 |
- |
- |
2,967 |
207 |
- |
- |
US dollar |
- |
7,147 |
- |
- |
- |
190 |
- |
- |
Korean won |
18,499 |
- |
68 |
(56) |
18,529 |
- |
8 |
- |
Total |
436,983 |
14,454 |
200 |
(9,411) |
404,714 |
5,761 |
154 |
(5,427) |
At 31 January 2022 the Company had
£9,738,000 of sterling cash balances (2021: £12,062,000).
During the year sterling strengthened by an average of 0.4%
(2021: strengthened by 1.5%) against all of the currencies in the
investment portfolio (weighted for exposure at 31 January). If the
value of sterling had strengthened against each of the currencies
in the portfolio by 10%, the impact on the net asset value would
have been negative £41.0 million (2021: negative £36.8 million). If
the value of sterling had weakened against each of the currencies
in the investment portfolio by 10%, the impact on the net asset
value would have been positive £50.2 million (2021: positive £45.0
million). The calculations are based on the investment portfolio
valuation and cash balances as at the year end and are not
necessarily representative of the year as a whole.
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 Company. The Portfolio Manager has in
place a monitoring procedure in respect of counterparty risk which
is reviewed on an ongoing basis. The carrying amounts of financial
assets best represents the maximum credit risk exposure at the
Statement of Financial Position date, and the main exposure to
credit risk is via the Custodian which is responsible for the
safeguarding of the Company’s investments and cash balances.
At the reporting date, the Company’s financial assets exposed to
credit risk amounted to the following:
|
2022 |
2021 |
|
£’000 |
£’000 |
Cash and cash equivalents |
24,192 |
17,823 |
Debtors |
242 |
232 |
|
24,434 |
18,055 |
All the assets of the Company which are traded on a recognised
exchange are held by J.P. Morgan Chase Bank, the Custodian.
Bankruptcy or insolvency of the Custodian may cause the Company’s
rights with respect to securities held by the Custodian to be
delayed or limited. The Board monitors the Company’s risk as
described in the Strategic Report.
The credit risk on cash is controlled through the use of
counterparties or banks with high credit ratings (rated AA or
higher), assigned by international credit rating agencies. Cash is
currently held at JP Morgan Chase Bank and Lloyds Bank plc.
Bankruptcy or insolvency of such financial institutions may cause
the Company’s ability to access cash placed on deposit to be
delayed, limited or lost.
Liquidity risk
The Company’s liquidity risk is managed on an ongoing basis by
the Portfolio Manager. Substantially all of the Company’s portfolio
would be realisable within one week, under normal market
conditions. There may be circumstances where market liquidity is
lower than normal. Stress tests have been performed to understand
how long the portfolio would take to realise in such situations.
The Board is comfortable that in such a situation the Company would
be able to meet its liabilities as they fall due.
Capital management policies and
procedures
The Company’s capital management objectives are to ensure that
it will be able to continue as a going concern and to maximise the
return to its equity shareholders.
The Board’s policy on gearing and leverage is set out on page 22
of the annual report. The Company had no gearing or leverage during
the current or prior year.
The capital structure of the Company consists of the equity
share capital, retained earnings and other reserves as shown in the
Statement of Financial Position.
The Board, with the assistance of the AIFM and the Portfolio
Manager, monitors and reviews the broad structure of the Company’s
capital on an ongoing basis. This includes a review of:
- the need to buy back equity shares, either for cancellation or
to hold in treasury, in light of any share price discount to net
asset value per share in accordance with the Company’s share
buy-back policy;
- the need for new issues of equity shares, including issues from
treasury; and
- the extent to which revenue in excess of that which is required
to be distributed should be retained.
The Company’s objectives, policies and processes for managing
capital are unchanged from the prior year.
15. Reserves
Capital redemption reserve
This reserve arose when ordinary shares were redeemed by the
Company and subsequently cancelled, at which point the amount equal
to the par value of the ordinary share capital was transferred from
the ordinary share capital to the Capital Redemption Reserve.
Special reserve
The Special Reserve arose following court approval in
February 1999 to transfer £24.2
million from the share premium account.
Capital reserve
The following are accounted for in this reserve: gains and
losses on the disposal of investments; changes in the fair value of
investments; and, expenses and finance costs, together with the
related taxation effect, charged to capital in accordance with note
3. Any gains in the fair value of investments that are not readily
convertible to cash are treated as unrealised gains in the capital
reserve.
Revenue reserve
The Revenue Reserve reflects all income and expenses that are
recognised in the revenue column of the Income Statement.
Distributable reserves
The Revenue, Special and Capital Reserves are distributable. It
is the Board’s current policy to pay dividends only from the
revenue reserve.
16. Related Party Transactions
The following are considered to be related parties:
- Frostrow Capital LLP (under the Listing Rules only)
- Stewart Investors
- The Directors of the Company
Details of the relationship between the Company and Frostrow
Capital LLP, the Company’s AIFM, are disclosed on pages 43 and 44
of the annual report. During the year ended 31 January 2022, Frostrow earned £483,000 (2021:
£384,000) in respect of portfolio management fees, of which
£125,000 (2021: £106,000) was outstanding at the year end.
The Company employs Stewart Investors as its Portfolio Manager,
details of this arrangement are disclosed on page 43 of the annual
report. During the year ended 31 January
2022, Stewart Investors earned £3,799,000 (2021: £3,020,000)
in respect of portfolio management fees, of which £996,000 (2021:
£868,000) was outstanding at the year end.
All material related party transactions have been disclosed in
notes 3 and 4. Details of the remuneration and the shareholdings of
all Directors can be found on pages 32 and 33 of the annual
report.
__
The figures and financial information
for 2021 are extracted from the published Annual Report for the
year ended 31 January 2021 and do not
constitute the statutory accounts for that year. The Annual Report
for the year ended 31 January 2021
has been delivered to the Registrar of Companies and included the
Independent Auditor’s Report which was unqualified and did not
contain a statement under either section 498(2) or section 498(3)
of the Companies Act 2006.
The figures and financial information
for 2022 are extracted from the Annual Report and financial
statements for the year ended 31 January
2022 and do not constitute the statutory accounts for the
year. The Annual Report for the year ended 31 January 2022 includes the Independent
Auditor’s Report which is unqualified and does not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The Annual Report and financial
statements have not yet been delivered to the Registrar of
Companies.
Glossary of Terms and Alternative
Performance Measures (unaudited)
AIFMD
The Alternative Investment Fund Managers Directive (the
‘Directive’) is a European Union Directive that entered into force
on 22 July 2013. The Directive, which
was retained in UK law following the withdrawal of the UK from the
European Union, regulates fund managers that manage alternative
investment funds (including investment trusts).
Where an entity falls within the scope of the Directive, it must
appoint a single Alternative Investment Fund Manager (‘AIFM’). The
core functions of an AIFM are portfolio and risk management. An
AIFM can delegate one but not both of these functions. The entity
must also appoint an independent Depositary whose duties include
the following: the safeguarding and verification of ownership of
assets; the monitoring of cashflows; and to ensure that appropriate
valuations are applied to the entity’s assets.
Average Discount
The average share price for the period divided by the average
net asset value for the period minus 1.
|
2022 |
2021 |
|
pence |
pence |
Average share price for the
year |
342.3 |
268.1 |
Average net asset value for the
year |
369.3 |
294.9 |
Average Discount |
7.3% |
9.1% |
Bottom Up Approach
An investment approach that focuses on the analysis of
individual stocks rather than the significance of macroeconomic
factors.
Discount or Premium
A description of the difference between the share price and the
net asset value per share. The size of the discount or premium is
calculated by subtracting the share price from the net asset value
per share and is usually expressed as a percentage (%) of the net
asset value per share. If the share price is higher than the net
asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading
at a discount.
Gearing
The term used to describe the process of borrowing money for
investment purposes. The expectation is that the returns on the
investments purchased will exceed the finance costs associated with
those borrowings.
There are several methods of calculating gearing and the
following has been selected:
Total assets less current liabilities (before deducting any
prior charges) minus cash/cash equivalents divided by shareholders’
funds, expressed as a percentage.
MSCI Disclaimer
The MSCI information (relating to the Index) may only be used
for your internal use, may not be reproduced or redisseminated in
any form and may not be used as a basis for or a component of any
financial instruments or products or indices. None of the MSCI
information is intended to constitute investment advice or a
recommendation to make (or refrain from making) any kind of
investment decision and may not be relied on as such. Historical
data and analysis should not be taken as an indication or guarantee
of any future performance analysis, forecast or prediction. The
MSCI information is provided on an “as is” basis and the user of
this information assumes the entire risk of any use made of this
information. MSCI, each of its affiliates and each other person
involved in or related to compiling, computing or creating any MSCI
information (collectively, the “MSCI Parties”) expressly disclaims
all warranties (including, without limitation, any warranties of
originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose) with respect
to this information. Without limiting any of the foregoing, in no
event shall any MSCI Party have any liability for any direct,
indirect, special, incidental, punitive, consequential (including,
without limitation lost profits) or any other damages.
(www.msci.com).
Net Asset Value (“NAV”)
The value of the Company’s assets, principally investments made
in other companies and cash being held, minus any liabilities. The
NAV is also described as “shareholders’ funds” per share. The NAV
is often expressed in pence per share after being divided by the
number of shares which have been issued. The NAV per share is
unlikely to be the same as the share price which is the price at
which the Company’s shares can be bought or sold by an investor.
The share price is determined by the relationship between the
demand and supply of the shares.
Net Asset Value (“NAV”) Per Share Total Return
The total return on an investment over a specified period
assuming dividends paid to shareholders were reinvested at net
asset value per share at the time the shares were quoted
ex-dividend. This is a way of measuring investment management
performance of investment trusts which is not affected by movements
in discounts or premiums.
|
31 January |
31 January |
|
2022 |
2021 |
NAV Total Return |
p |
p |
Opening NAV |
344.1 |
285.8 |
Increase in NAV |
30.9 |
61.3 |
Dividend paid |
(2.4) |
(3.0) |
Closing NAV |
372.6 |
344.1 |
Increase in NAV |
9.0% |
21.4% |
Impact of reinvested dividends |
0.1% |
0.9% |
NAV Total Return |
9.1% |
22.3% |
Ongoing Charges
Ongoing charges are calculated by taking the Company’s
annualised operating expenses as a proportion of the average daily
net asset value of the Company over the year. The costs of buying
and selling investments are excluded, as are interest costs,
taxation, cost of buying back or issuing ordinary shares and other
non-recurring costs.
|
31 January |
31 January |
|
2022 |
2021 |
|
£’000 |
£’000 |
Operating expenses |
4,974 |
4,010 |
Average net assets during the
year |
446,596 |
356,104 |
Ongoing charges |
1.1% |
1.1% |
Performance Objective
The Company’s performance objective, against which the Portfolio
Manager’s performance is measured, is to provide shareholders with
a net asset value total return in excess of the UK Consumer Price
Index (“CPI”) plus 6% (calculated on an annual basis) measured over
three to five years. The Consumer Price Index is published by the
UK Office for National Statistics and represents inflation. The
additional 6% is a fixed element to represent what the Board
considers to be a reasonable premium on investors’ capital which
investing in the faster-growing Asian economies ought to provide
over time. The performance objective is designed to reflect that
the Portfolio Manager’s approach does not consider index
composition when investing.
|
Total
Return (annualised) |
|
Share Price |
NAV |
CPI + 6% |
|
(%) |
(%) |
(%) |
One year to 31 January 2022 |
2.9 |
9.1 |
11.5 |
Three years to 31 January 2022 |
9.0 |
9.9 |
6.0 |
Five years to 31 January 2022 |
9.4 |
10.2 |
8.8 |
Revenue Return per Share
The revenue return per share is calculated by taking the return
on ordinary activities after taxation and dividing it by the
weighted average number of shares in issue during the year (see
note 7 for further information).
Share Price Total Return
The total return on an investment over a specified period
assuming dividends paid to shareholders were reinvested in the
Company’s shares at the share price at the time the shares were
quoted ex-dividend.
|
31 January |
31 January |
|
2022 |
2021 |
Share Price Total Return |
p |
p |
Opening share price |
333.0 |
268.0 |
Increase in share price |
9.4 |
68.0 |
Dividend paid |
(2.4) |
(3.0) |
Closing share price |
340.0 |
333.0 |
Increase in share price |
2.8% |
25.4% |
Impact of reinvested dividends |
0.1% |
0.4% |
Share Price Total Return |
2.9% |
25.8% |
Volatility
A measure of the range of possible returns for a given security
or market index.
ANNOUNCEMENT ENDS
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.