Source - RNS
RNS Number : 2543L
Pacific Horizon Investment Tst PLC
29 September 2016
 

Pacific Horizon Investment Trust PLC

 

Circular and Annual Financial Report

 

Pacific Horizon Investment Trust PLC ('the Company') has today published a circular ('the Circular') containing notice of the Annual General Meeting of the Company. In addition to the customary business to be conducted at the Annual General Meeting the notice also includes a resolution, as outlined in the Chairman's Statement below, proposing to extend the life of the Company.

Full details of all the resolutions are set out in the Circular. Copies of the Circular are available for inspection during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

 

Expected Timetable

Latest time and date for receipt of forms of direction

11.00 a.m. on 2 November 2016

Latest time and date for receipt of forms of proxy

11.00 a.m. on 7 November 2016

Annual General Meeting

11.00 a.m. on 9 November 2016

 

A copy of the Circular and the Annual Report and Financial Statements for the year ended 31 July 2016 has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM

The Circular and Annual Report and Financial Statements for the year ended 31 July 2016 are also available on Pacific Horizon's page of the Baillie Gifford website at:http://www.pacifichorizon.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 July 2016 which require to be published by DTR 4.1 are set out below.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

 

Baillie Gifford & Co Limited

Company Secretaries

29 September 2016

 

Chairman's Statement

 

Performance

In the year to 31 July 2016, the Company's net asset value per share (NAV) total return was 13.3%. During the same period the Company's comparative index, the MSCI All Country Asia ex Japan Index, total return was 16.2% in sterling terms. The share price total return was 10.9%, and the discount widened from 8.2% to 10.1%. Over the five years to 31 July 2016 the Company's NAV and share price returned 29.8% and 26.8% respectively; over the same period the Company's comparative index, the MSCI All Country Asia ex Japan Index, returned 30.3% in sterling terms.

The Managers' Review below provides a more detailed review of the Company's performance along with comment on the various markets in which the Company invests.

Earnings per share decreased from 0.35p to a deficit of 0.30p. The Company's objective is to invest for capital growth rather than income and all expenses, including borrowing costs, are charged to revenue. The Company has revenue reserves and the Board is recommending that a final dividend of 0.35p (2015 - 0.35p) be paid on this occasion. Any dividend payable in future will be determined as being the minimum permissible in order to maintain investment trust status and be paid by way of one final payment per year. As the Company's objective is to achieve capital growth, it is not recommended that investors consider investing in this Company if they require income from this investment.

The ongoing charges increased to 1.13% (2015 - 1.02%). Although the Company's NAV per share increased over the financial year, shareholders' funds averaged less than in the prior year partly as a result of the bi-annual tender offers. Consequently, the fixed administrative expenses accounted for a higher proportion of shareholders' funds.

The Board and Managers believe that the long term stock picking approach, focussing on growth companies in the Asia Pacific ex Japan region and markets of the Indian Sub-continent, will generate competitive positive long term returns. Although the Company can invest in a broad spread of markets and sectors, it remains differentiated from its peers at present not only through its geographic exposure (being mainly China/Hong Kong, South Korea, Taiwan, India and increasingly Vietnam), but also as a result of its focus on asset light innovating companies. There continues to be a bias to companies which have the potential to benefit significantly from the growing wealth and sophistication of the Asian consumer. The overlap between the Company's portfolio and index was 19% as at 31 July 2016, meaning that the active share was over 81%, again demonstrating a very distinct investment style.

 

Continuation of the Company

At this year's Annual General Meeting ('AGM') the Directors are proposing, in accordance with the Articles, that the life of the Company be extended for a further five years. Having conducted a thorough review of the Managers' approach and resources, the Board judges them to have the right team to manage a portfolio in what it considers to be a region with superior long term prospects for investment.

Your Directors therefore believe that it is desirable to extend the Company's life and recommend that shareholders vote in favour of the extension for a further period of five years. A fuller outline of the proposal is set out in the circular containing the Notice of the AGM accompanying this Report.

 

Tender Mechanism

At the Company's 2015 AGM, shareholders once again authorised the implementation of bi-annual tender offers for up to 5% of the Company's shares at a 2% discount to NAV, less costs. The decision to implement the tender was at the Board's discretion in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July 2016. Over the six month periods to 31 July 2015 and 31 January 2016 the Company's average discounts were 9.6% and 10.3% respectively and consequently the Board implemented tender offers in October 2015 and April 2016. The Company's average discount for the six month period to 31 July 2016 was 11.9% and the Board has again decided to implement a 5% tender offer, applicable to shareholders on the register on 9 August 2016. Details of how to tender your shares in respect of this 5% tender offer are contained within the Tender Offer Circular accompanying this Report.

Through tender offers implemented on 31 July 2015 and 31 January 2016, the Company bought back a total of 6,170,662 ordinary shares, representing 9.7% of the issued share capital as at 31 July 2015, at a cost of £11,618,000.

Following consultation with a number of shareholders, the Board is not proposing to seek authority for the existing bi-annual 5% tender to be continued for a period of at least the next three years. Some investors have commented that they require the Company to have liquidity and scale and have found the existing size and/or frequency of tenders unhelpful. In addition, they felt that the trigger for tenders can be over influenced by market sentiment towards the asset class, rather than by the Company's performance. Instead, the Board is proposing a tender that will be triggered if the Company's NAV, calculated at fair value cum-income, total return fails to exceed the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. If this performance target is not met, it is the intention that the Directors will propose a 25% tender of the Company's issued share capital at the time of calculation. The tender would be at a 2% discount to NAV less costs.

This would be subject to shareholders' approval of the tender authority that will be put to shareholders at the 2018 AGM. If the authority is obtained and the tender is subsequently triggered, a separate circular and tender form will be sent to shareholders which will set out the full terms and conditions of the tender offer and the procedure for tendering shares.

 

Share Buy-backs

At the forthcoming AGM, the Board will be asking shareholders to renew the mandate to repurchase up to 14.99% of the outstanding shares on an ad hoc basis. The Board uses this authority opportunistically, taking into account not only the level of the discount but also the underlying liquidity and trading volumes in the Company's shares. This approach allows the Board to seek to address any imbalance between the supply and demand for the Company's shares that results in a large discount to NAV whilst being cognisant that current and potential shareholders require continuing liquidity.

 

Gearing

The Board sets the gearing parameters within which the portfolio managers are permitted to operate and these are reviewed at each Board meeting. At present, the agreed range of equity gearing is minus 15% to plus 10%. At the year end, equity gearing was relatively low at 2.9%, having started the year at 7.9%. Gearing ranged between a negative of 8.3% (i.e. holding net cash) and a positive of 8.1%. Gearing is achieved through the use of bank borrowings. At present the Company has a Royal Bank of Scotland £10 million multi-currency revolving credit facility, of which £5 million was drawn at 31 July 2016. In addition the Company benefits from a £10 million one year uncommitted revolving credit facility with The Bank of New York Mellon which was undrawn at 31 July 2016.

 

Annual General Meeting

This year's AGM will take place on 9 November 2016 at the offices of Baillie Gifford & Co in Edinburgh at 11.00am. I would encourage shareholders to arrive by 10.50am to allow time to register. The Managers will make a presentation and, along with the Directors, will answer any questions from shareholders. I hope to see as many of you as possible there.

 

Outlook

Over the year, the performance of stockmarkets across Asia was mixed. In local currency terms, the Chinese and Hong Kong markets were weaker, whilst South Korea and India were largely unchanged, albeit with some volatility during the year. These are the areas where we have most of our exposure. The headline economic numbers indicate reasonable growth potential and we believe that there are good opportunities across the Asian markets to find entrepreneurial companies on valuations which look reasonably priced. Our exposure to technologies of differing types - such as internet search tools, online services and biotechnology - offer us plenty of scope to invest in growing businesses with the opportunity to take market share from traditional businesses and benefit from the disruption which is now occurring internationally.

 

 

Jean Matterson

Chairman

15 September 2016

 

 

Past performance is not a guide to future performance.

 

 

 

 

Managers' Review

 

Overview

Management of Pacific Horizon's portfolio is focussed on finding and investing in attractive growth companies within Asia Ex-Japan and the Indian Sub-continent. We believe that investing for the long-term in companies that can deliver significantly faster growth than the market will, over time, deliver rewards. We are looking to invest in companies that have the potential to grow their revenue and earnings at around 15% per annum for at least the next five years and where we feel the growth prospects have not been fully recognised. This investment approach can lead to significant concentration in certain areas of the market.

Over the Company's financial year the NAV total return was 13.3% compared with 16.2% for the comparative index in sterling terms. We are disappointed with this relative performance, but we believe that our investment stance will be vindicated over the longer-term. As at the Company's year end we had equity gearing of 2.9% and we would look to be adding investment exposure if there were to be any significant weakness in markets or were we to find opportunities to invest in new exciting companies with significant growth potential.

 

The Portfolio

The weighting in technology companies increased from 47.9% to 50.9% following outperformance of the sector during the year and additions to our Chinese holdings. The consumer internet names in China now represent the largest concentration in our portfolio at 22%; we see significant upside from both earnings growth and a potential re-rating of valuations in this sector, which have been significantly de-rated over the last year due to fear of an overall Chinese slowdown. We feel that the sector represents one of the most compelling long-term investments within our region.

Tencent Holdings, which is the portfolio's largest holding at just over 10%, significantly beat consensus earnings expectations recently, growing its revenues by 52% and net profit by 47% year on year, which is impressive for a $250bn company. With the second largest user base in the world after Facebook, we see tremendous opportunity for Tencent to monetise its network through games, video, music and advertising. Alibaba accounts for 3% of the portfolio and announced recent revenue growth of 59%. Five of the Company's top six largest holdings and 25% of the portfolio as a whole represent companies that profit from the supply of information through their respective networks.

Our technology holdings, in China and elsewhere, helped our overall performance, with Sunny Optical, Tencent and NAVER being our top contributors to overall performance. On the other hand, not holding sufficient positions in TSMC and Samsung Electronics and severe weakness in some of our Chinese names: JD.com, Kingdee, Kingsoft and Jumei International dampened portfolio returns.

Within China we bought China Harmony New Energy Auto, a leading car dealer and after-market operator in China, which is investing in a partnership with Tencent and Hon Hai to create a leading electric vehicle. We bought the stock on a price earnings ratio of 8x and with potential three year earnings growth of 20% per annum.

Korean investments represent some 30% of the portfolio and we continue to find plenty of interesting innovative growth companies in this market; this is at odds with the consensus judgement on the country. We took a position in Finetex EnE which is one of the world's leading companies in nano-materials. We believe the company is in late stage negotiations to supply innovative materials to Nike, improved performance facial masks in Korea and China, and has the potential to revolutionise the membranes and materials used in air conditioning systems.

We hold a number of smaller technology companies in Korea, where we believe the growth potential is underappreciated; for example, Koh Young, a $500m company where our holding represents 2.2% of the portfolio, the world leader in automated 3D inspection equipment. Koh Young's combination of leading algorithms and hardware has led it to achieve a 49% market share in the Silicon Paste Inspection industry and potential leadership in adjacent semiconductor inspection markets.

Our Korean healthcare investments experienced a mixed year. We hold 9.2% of the portfolio in a number of small biotech companies in both Korea and Taiwan, all of which we believe are at or close to the leading edge of their technology specialisation or have a distinct technological manufacturing advantage. The volatility of this sector and the size of the individual companies has meant that they are under-researched and tend to have been overlooked by many institutional investors. By taking a long-term approach and by investing alongside management we believe we can add significant value to the Company over time from these investments.

We repositioned our Indian exposure away from the IT services sector where, after many years of positive performance, we became worried that the longer-term growth outlook was slowing due to changes in the outsourcing model and the need to invest in digitalisation which favoured larger and western players. Consequently, Tech Mahindra and HCL Technologies were sold and our Indian weighting reduced from 21.3% to 14.3%. We purchased a holding in Arvind Ltd, a leading textile and consumer brand company in India. There appears to be a general economic trigger point of a per capita income of $1,500 per annum when demand for apparel takes off quite rapidly and we believe India is at this turning point. We feel that the market may be underestimating the effect on margins and asset turnover that this increase in demand can have and hence improve profitability. We like the longer-term outlook for the Indian market and will be looking for interesting companies on any valuation pull-back.

We increased our Vietnamese market exposure from 1.3% to 4.8% of the portfolio. We believe that Vietnam is at a very early stage of becoming part of the global market. Given its large and educated workforce and the geographical benefits of being near the centre of Asia, we see probability of a very positive long-term outlook for the country. The Vietnam Hanoi Index is currently cheap at a price earnings ratio of around 11x and is under-researched by foreign investors. We have an indirect holding via the Dragon Capital Vietnam Enterprise Investments where we are impressed by the domestic managers' ability to source interesting ideas; their long-term active approach fits our philosophy. We have also acquired holdings in two domestic companies, Military Commercial Joint Stock Bank, the fourth largest bank and largest private sector operator in the country, and Vingroup, a real-estate and consumer conglomerate, which we believe has the potential to increase its earnings significantly.

In Taiwan we added an innovative biotech manufacturing company called TTY Biopharm to our portfolio. It is a leading global manufacturer of liposomal products with a significant technological edge that has allowed it to be the key licensed partner for Johnson & Johnson's Doxil drug. With this technological manufacturing know-how, we see significant market opportunities for a pipeline of high margin drugs to deliver 20% plus earnings growth in the long term.

Our largest country exposures are in China/Hong Kong, followed by Korea and then Taiwan. With the exception of Vietnam we retain little exposure to the smaller ASEAN markets. Our investment philosophy means that we inevitably focus on technology and currently 50.9% of the portfolio is invested in this sector. After technology, consumer discretionary and financials make up the largest sector investments.

We believe that the broader economic environment is driven by cycles of innovation rather than being the creator of change. For example, many of the structural issues affecting China and much of Asia today are the result of a technological shift to a more productive economic structure which is leaving investments in fixed assets, heavy industry and other "old economy" assets in severe overcapacity. Within this changing economic structure the affluent Asian consumer stands out as a key beneficiary of rising wealth and increased penetration of technology. Around 30% of the portfolio is invested in consumer, outside of technology, companies that benefit from the rise of the middle class in Asia.

We are also looking for companies that are innovating and moving up their respective value chain. Geely Automotive, a leading Chinese automotive manufacturer, has managed to upgrade its manufacturing capability substantially following its acquisition of Volvo and is launching new sports utility vehicle models, a segment in the car market that is forecast to grow above 20% for the next few years due to the rise in the affluent middle-class. Positive shorter-term growth prospects are starting to be recognised by the market; however, the company's strategic goal to make electric vehicles 90% of its output by 2020 is still being under-appreciated by investors.

Financials represent our third largest sector position although we do not hold investments in banks in a number of the larger countries, including China, Korea and Taiwan, where we feel returns are likely to be challenged or depressed for many years. In line with our investment approach, our holdings are focused on the merits of the individual companies, for example, in India, where we see the return of a structural growth story, and in Vietnam. We find the insurance industry a more compelling investment proposition. We hold significant positions in the Korean insurers, Samsung Fire & Marine and Hyundai Marine & Fire, and in Taiwan's China Life Insurance. These should all benefit from a number of fundamental social and economic changes in the coming years, such as demographics, increased financial sophistication and increasing wealth; we are of the view that there will be significant development of the insurance markets to provide mitigation for the increased risks to which a more wealthy society is exposed.

 

Investment Approach

The growth characteristics of the portfolio remain strong with historic earnings growth at 11%, almost double the market's 5.7%, and one year forecast earnings growth at 12.2%, double that for the comparative index, the MSCI All Country Asia ex Japan Index. The price earnings ratio of the Company is 19.2x on the current year, versus 13x for the comparative index. Over the longer-term time frame, we believe the higher growth potential of our holdings more than justifies the additional multiple.

Our comparative index has changed materially over the year with the average company size moving from around £35bn to £45bn largely due to the inclusion of US-listed Chinese internet names, several of which we own, and the outperformance of large capitalisation stocks. Over 20% of our portfolio is invested in companies with a market capitalisation below £1bn; a further 34% is invested in companies with a market capitalisation less than £10bn. This compares with 0.1% and 35% respectively for the comparative index. The portfolio's active share has decreased slightly, to 81%, largely due to the inclusion of the Chinese US-listed internet companies within the comparative index.

We continue to implement our strategy of investing in companies with good long-term growth prospects. The corporate characteristics we look for include strong growth potential, sustainable competitive advantage, attractive financials and sensible management. In addition, we target stocks that we consider to have very significant long-term opportunities to enhance future profitability.

 

Environmental, Social and Governance Matters

As growth investors, we are looking for companies whose products will benefit from strong future demand. These companies not only have to produce better and cheaper products and services than their competitors but also have to be alert to the changing nature and views of the societies in which they exist. Companies who do not change tend to fail either due to falling demand for their product or as a result of government intervention. When we invest, we take into account the potential positive and negative impact these companies have on the world today and how their commercial activities will be perceived in the future.

For our long-term investments to be successful the companies in which we invest must add value to society. We see this being achieved in a variety of ways: the regenerative biotech companies we own, whose products may allow many people to gain otherwise unachievable medical benefits, our internet companies which provide goods and services to people at prices and quantities previously unobtainable, and our technology holdings that are helping to enable the greatest and most rapid increase in human connectivity and information availability in human history.

Lastly, the interests of minority shareholders must be upheld; we remain careful to make sure our investments are aligned with those of majority shareholders and owners.

 

Outlook

It is our view that there is significant potential for positive returns from the region over the coming years. Our focus remains on investment in individual stocks which will benefit from the economic, social and technological changes which are in evidence across the region. After almost five years of slow GDP growth we feel that the region may be gradually recovering. Cheap assets and an improving growth profile may be all that is needed to generate strong positive absolute returns to investors. We believe that our philosophy, process and investment style will reward our shareholders over the medium to long-term.

 


List of Investments as at 31 July 2016

 

 

 

Name

 

 

Country

 

 

Business

 

Value

£'000

% of total

assets

Tencent Holdings

HK/China

Online gaming and social networking

13,457

10.1

NAVER

Korea

Online search and messaging

5,413

4.1

Baidu ADR

HK/China

Internet search engine

4,855

3.7

Alibaba Group ADR

HK/China

Online and mobile commerce

4,012

3.0

Hon Hai Precision Industries

Taiwan

Electronic manufacturing

3,849

2.9

JD.com

HK/China

Online mobile commerce

3,729

2.8

Dragon Capital Vietnam Enterprise

Investments

Vietnam

Vietnam investment fund

 

3,707

 

2.8

Sunny Optical Technology

HK/China

Small optical lenses manufacturer

3,368

2.5

Geely Automobile

HK/China

Automobile manufacturer

3,047

2.3

Koh Young Technology

Korea

3D inspection machine manufacturer

2,952

2.2

China Life Insurance (Taiwan)

Taiwan

Life insurance provider

2,760

2.1

Mahindra & Mahindra

India

Tractor and SUV manufacturer

2,688

2.0

Advantech

Taiwan

Computer manufacturer

2,636

2.0

SK Hynix

Korea

Electronic component and device

  manufacturer

2,609

2.0

Reliance Industries

India

Indian petrochemical conglomerate

2,602

2.0

Taiwan Semiconductor Manufacturing

Taiwan

Semiconductor foundry

2,383

1.8

Ctrip.com International ADR

HK/China

Chinese online travel agency

2,332

1.8

ICICI Bank

India

Retail and corporate bank

2,270

1.7

Indusind Bank

India

Commercial bank focusing on consumer

  lending

2,046

1.5

Samsung Fire & Marine Insurance

Korea

Non-life insurance provider

2,006

1.5

CJ E&M

Korea

Media and entertainment creator and

supplier

 

1,962

 

1.5

Samsung Electronics

Korea

Memory, phones and electronic

  components manufacturer

 

1,929

 

1.5

Techtronic Industries

HK/China

Power tool manufacturer

1,892

1.4

WH Group

HK/China

Pork processor and distributor

1,872

1.4

Bioneer

Korea

Drug researcher and development

1,861

1.4

Himax Technologies ADR

Taiwan

Markets semiconductors

1,683

1.3

Medy-Tox

Korea

Global biopharmaceutical company

1,674

1.3

Infosys

India

Software development

1,632

1.2

Container Corporation of India

India

Transportation services provider

1,565

1.2

Seegene

Korea

In vitro diagnostic screening producer

1,549

1.2

Samsung C&T

Korea

Korean conglomerate

1,544

1.2

MediaTek

Taiwan

Integrated circuit design house

1,526

1.1

EO Technics

Korea

Laser equipment manufacturer and

  distributor

1,493

1.1

Finetax EnE

Korea

Nano-technology material manufacturer

1,492

1.1

Genexine

Korea

Therapeutic vaccine researcher and

  developer

1,479

1.1

Vingroup

Vietnam

Property developer

1,451

1.1

NCSOFT

Korea

Online games developer

1,426

1.1

Phison Electronics

Taiwan

Designer and manufacturer of flash

  memory controllers

 

1,411

 

1.1

Mindtree

India

IT services provider

1,356

1.0

Eclat Textile

Taiwan

Textile manufacturer

1,322

1.0

China Harmony New Energy Auto

HK/China

Luxury car dealership

1,300

1.0

Delta Electronics

Taiwan

Power supplies and video display product 

manufacturer

 

1,292

 

1.0

Persistent Systems

India

Outsourced software product developer

1,280

1.0

Info Edge

India

Jobseekers, housing sales and restaurant

  online review provider

 

1,254

 

0.9

Military Commercial Joint Stock Bank

Vietnam

Retail and corporate bank

1,245

0.9

Orion Corp

Korea

Consumer conglomerate

1,231

0.9

Intron Biotechnology

Korea

Antibiotics drug researcher

1,226

0.9

Duzonbizon

Korea

Enterprise resource planning software

  developer

1,194

0.9

Arvind

India

Consumer textile brand owner and

  manufacturer

1,186

0.9

SK Telecom

Korea

Telecoms operator

1,171

0.9

 

Kingdee International Software

HK/China

Enterprise management software

  distributor

1,130

0.8

Mahindra CIE Automotive

India

Truck parts manufacturer

1,092

0.8

Haier Electronics Group

HK/China

Washing machine and water heater

  manufacturer

1,035

0.8

Hansol Technics

Korea

Electrical components manufacturer

937

0.7

Sarine Technologies

Singapore

Diamond grading measurement systems

  developer

 

921

 

0.7

Hermes Microvision

Taiwan

Electron beam inspection tool manufacturer

892

0.7

HTC

Taiwan

Smartphone and virtual reality

  manufacturer

844

0.6

Interpark

Korea

Internet-based shopping mall

835

0.6

Johnson Electric Holding

HK/China

Electric motor manufacturer

802

0.6

Kingsoft

HK/China

Gaming, cloud and digital advertiser

796

0.6

Qurient

Korea

Antibiotics and cancer drug researcher

693

0.5

Theragen Etex

Korea

Genetics researcher and developer

674

0.5

TTY Biopharm

Taiwan

Manufacturer of specialist genetics

656

0.5

ST Pharm

Korea

Manufacturer of specialist pharmaceutical

  ingredients

 

652

 

0.5

Viromed

Korea

Drug developer of recombinant DNA

613

0.5

JHL Biotech

Taiwan

Biologics manufacturer

565

0.4

Crystalgenomics

Korea

Proteomic drug discovery investigator

557

0.4

Hyundai Marine and Fire Insurance

Korea

Non-life insurance provider

504

0.4

Philtown Properties*

Philippines

Property developer

0

0.0

Total Investments

 

 

131,417

99.0

Net Current Assets

 

 

1,285

1.0

Total Assets



132,702

100.0

 

HK/China denotes Hong Kong and China

‡      Total assets less current liabilities, before deduction of borrowings.

*      Denotes unlisted investment.

 

Distribution of Portfolio

 

Geographical Analysis



At 31 July

2016

%

At 31 July

2015

%

Equities:

Hong Kong and China

32.9

35.6

 

Korea

29.9

23.1

 

Taiwan

16.4

15.0

 

India

14.3

21.3

 

Vietnam

4.8

1.3

 

Singapore

0.7

0.8

Total equities

99.0

97.1

Net current assets

1.0

2.9

Total assets

100.0

100.0

 

Sectoral Analysis



At 31 July

2016

%

At 31 July

2015

%

Equities:

Energy

2.0

-

 

Consumer Discretionary

16.9

17.3

 

Consumer Staples

2.3

2.2

 

Financials

12.0

14.8

 

Health Care

9.2

7.9

 

Industrials

4.8

6.0

 

Information Technology

50.9

47.9

 

Telecommunication Services

0.9

0.9

 

Utilities

-

0.1

Total equities

99.0

97.1

Net current assets

1.0

2.9

Total assets

100.0

100.0

 

‡      Total assets less current liabilities, before deduction of borrowings.

 

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

¾ the movement in net asset value per ordinary share;

¾ the movement in the share price;

¾ the premium/(discount) of the share price to the net asset value per share;

¾ the movement in the comparative index (MSCI All Country Asia ex Japan Index (in sterling terms)); and

¾ the ongoing charges.

The one, five and ten year records for the KPIs can be found on pages 4, 5 and 6 of the Annual Report and Financial Statements respectively.

 

Future Developments of the Company

 

The outlook for the Company is set out in the Chairman's Statement and the Managers' Review.

 

Buy-backs, Issuances and Share Tenders

 

The Company currently has powers to buy back up to 14.99% of its own ordinary shares for cancellation at a discount to net asset value per share (NAV) on an ad hoc basis as well as to issue shares at a premium to NAV. During the year to 31 July 2016 no shares were bought back under the buy-back authority and no shares were issued. At 31 July 2016 the Company had authority to buy back a further 9,012,649 ordinary shares. At the forthcoming Annual General Meeting, the Directors are seeking to renew these authorities, details of these resolutions are contained in the Circular sent to shareholders with the Annual Report and Financial Statements.

 

The Company also has authority to implement, at the Board's discretion, bi-annual tender offers for up to 5% of its shares at a 2% discount to net asset value, less costs, in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July in the years 2014, 2015 and 2016. The Board implemented a 5% tender offer in October 2015 and April 2016 in respect of the tender periods to 31 July 2015 and 31 January 2016. Through the exercise of both of these tenders the Company bought back a total of 6,170,662 (2015 - 6,837,299) ordinary shares at a total cost of £11,618,000 (2015 - £14,336,000). The nominal value of these shares was £617,000 and represented 9.75% of the issued share capital at 31 July 2015. The Board is not proposing to seek shareholder authority for the existing bi-annual 5% tender to be continued for a period of at least the next three years but it is the intention that the Directors will propose a 25% tender to be triggered if the Company's NAV, calculated at fair value cum-income, total return fails to exceed the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. Details of this are contained in the Circular sent to shareholders with the Annual Report and Financial Statements.

 

Related Party Transactions

 

Details of the management contract are set out in the Directors' Report on page 18 of the Annual Report and Financial Statements. The management fee payable to the Manager by the Company for the year, as disclosed in note 3 of the Annual Report and Financial Statements, was £899,000 (2015 - £1,032,000) of which £245,000 (2015 - £241,000) was outstanding at the year end, as disclosed in note 11 of the Annual Report and Financial Statements.

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 26 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

 

Management Fee Arrangements

 

Details of the Investment Management Agreement are set out on page 18 of the Annual Report and Financial Statements. The annual management fee is 0.95% on the first £50m of net assets and 0.65% on the balance. Management fees are calculated and payable on a quarterly basis.

 


2016

£'000


2015

£'000

Investment management fee

                   899


1,032

 

Principal Risks

 

As explained on pages 22 and 23 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 16 to the Financial Statements on pages 41 to 45 of the Annual Report and Financial Statements. As oversight of this risk, the Board considers at each meeting various metrics including regional and industrial sector weightings, top and bottom stock contributors to performance along with sales and purchases of investments. Individual investments are discussed with the portfolio managers together with their general views on the various investment markets and sectors. A strategy review is held annually.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to the Company being subject to tax on capital gains, suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive with reference to inside information.  

Custody and Depositary Risk - safe custody of the Company's assets may be compromised as a result of control failures by the Depositary, including cyber hacking. To monitor potential risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other third party providers are reviewed by Baillie Gifford on behalf of the Board.

Discount/Premium Volatility - the discount/premium at which the Company's shares trade can widen. The Board monitors the level of discount/premium and the Company has authority to buy back its own shares, as well as to issue shares at a premium, when deemed to be in the best interest of all of its shareholders.

Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts. All borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found in note 17 on page 45 of the Annual Report and Financial Statements and the Glossary of Terms on page 51 of the Annual Report and Financial Statements.

 

Political and Associated Economic Risk - the Board is of the view that political change in areas in which the Company invests or may invest may have practical consequences for the Company. Political developments are closely monitored and considered by the Board. The Board has noted the results of the UK referendum on continuing membership of the European Union. Whilst there is considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.

 

Viability Statement

Notwithstanding that the continuation of the Company is subject to approval of shareholders every five years, with the next vote at the Annual General Meeting in November 2016, the Directors have, in accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, assessed the prospects of the Company over a three year period. The Directors believe this period to be appropriate as it is reflective of the Company's investment approach. In the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, such a period is one over which they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. The Directors do not envisage any change in the Company's strategy or objectives nor do they foresee any events that would prevent the Company from continuing in existence over that period.

In making this assessment, the Directors have taken into account the Company's current position and have conducted a robust assessment of the Company's principal risks and uncertainties (as detailed above), in particular the impact of market risk where a significant fall in the Asia-Pacific (excluding Japan) and the Indian Sub-continent equity markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's investment objective and policy, the level of demand for the Company's shares, the nature of its assets, its liabilities and its projected income and expenditure. The vast majority of the Company's investments are readily realisable and can be sold to meet its liabilities as they fall due, the main liability currently being the short term bank borrowings. In addition, substantially all of the essential services required by the Company are outsourced to third party service providers; this allows key service providers to be replaced at relatively short notice where necessary.

Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

 

 

Going Concern

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained above.

The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. The Board approves borrowing and gearing limits and reviews regularly the amounts of any borrowing and the level of gearing as well as compliance with borrowing covenants. In accordance with the Company's Articles of Association, shareholders have the right to vote on the continuation of the Company every five years, the next vote being on 9 November 2016. The Directors have no reason to believe that the continuation resolution will not be passed this year. After making enquiries and considering the future prospects of the Company and notwithstanding the above, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

If the continuation resolution is not passed, the Articles provide that the Directors shall convene an Extraordinary General Meeting at which a resolution will be proposed to wind up the Company voluntarily.

 

Financial Instruments

As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of maximising capital appreciation from a focused and actively managed portfolio of investments from the Asia-Pacific region including the Indian Sub-continent. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise short term volatility. Risk provides the potential for both losses and gains. In assessing risk, the Board encourages the Managers to exploit the opportunities that risk affords.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

 

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.

Details of the Company's investment portfolios are shown in note 9 of the Annual Report and Financial Statements. The Company may, from time to time, enter into derivative transactions to hedge specific market, currency or interest rate risk. During the years to 31 July 2015 and 31 July 2016 no such transactions were entered into.

The Company's Managers may not enter into derivative transactions without the prior approval of the Board.

 

Currency Risk

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

The Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

 

 

 

 

At 31 July 2016

 

 

Investments

£'000

 

Cash and deposits

£'000

 

 

Loans

£'000

 

Other debtors and creditors*

£'000

 

 

Net exposure

£'000

Korean won

39,676

-

-

39,681 

Hong Kong dollar

28,699

83

-

(59)

28,723 

Taiwan dollar

20,136

-

-

260 

20,396 

Indian rupee

18,971

-

-

31 

19,002 

US dollar

16,611

1,220

-

12 

17,843 

Vietnam dong

2,696

-

-

 2,696 

Singapore dollar

921

-

-

921 

Total exposure to currency risk

127,710

1,303

-

249 

129,262 

Sterling

3,707

20

(5,000)

(287)

(1,560)


131,417

1,323

(5,000)

(38)

127,702 

* Includes net non-monetary assets of £14,000.

 

 

 

 

At 31 July 2015

 

 

Investments

£'000

 

Cash and deposits

£'000

 

 

Loans

£'000

 

Other debtors and creditors*

£'000

 

 

Net exposure

£'000

Korean won            

32,112

-

32,117 

Hong Kong dollar

32,357

13

21 

32,391 

Taiwan dollar

19,536

-

133 

19,669 

Indian rupee

29,812

-

89 

29,901 

US dollar

20,278

4,032

(3,497)

20,817 

Vietnam dong

-

-

Singapore dollar

1,038

-

1,038 

Total exposure to currency risk

135,133

4,045

(3,497)

252 

135,933 

Sterling

-

16

(10,500)

(279)

(10,763)


135,133

4,061

(13,997)

(27)

125,170 

* Includes net non-monetary assets of £13,000.

 

Currency Risk Sensitivity

At 31 July 2016, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2015.

 


2016

£'000


2015

£'000

Korean won

1,984


1,606

Hong Kong dollar

1,436


1,620

Taiwan dollar

1,020


983

Indian rupee

950


1,495

US dollar

892


1,041

Vietnam dong

135


-

Singapore dollar

46


52


6,463


6,797

Interest Rate Risk

Interest rate movements may affect directly:

¾ the fair value of any investments in fixed interest rate securities;

¾ the level of income receivable on cash deposits;

¾ the fair value of any fixed-rate borrowings; and

¾ the interest payable on any variable rate borrowings.

Interest rate movements may also impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements. The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates).

The interest rate risk profile of the Company's financial assets and liabilities at 31 July is shown below.

 

Financial Assets

The Company's interest rate risk exposure on its financial assets at 31 July 2016 amounted to £1,323,000 (2015 - £4,061,000), comprising of its cash and short term deposits.

The cash deposits generally comprise call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

 

Financial Liabilities

The interest rate risk profile of the Company's financial liabilities and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31 July are shown below.

 

Interest Rate Risk Profile


2016

£'000


2015

£'000

Floating rate bank loan  - sterling denominated

                                       - US$ denominated

5,000

-


10,500

3,497


5,000


13,997

 

Maturity Profile


2016

Within 1 year

£'000


2015

Within 1 year

£'000

Repayment of loans

5,000


13,997

Interest on loans

56


111


5,056


14,108

 

 

Interest Rate Risk Sensitivity

The sensitivity analysis below has been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

An increase of 100 basis points in interest rates, with all other variables being held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 July 2016 by £99,000 (2015 - decrease of £29,000). This is mainly due to the Company's exposure to interest rates on its floating rate bank loan and cash balances. A decrease of 100 basis points would have had an equal but opposite effect.

 

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index. Investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.

 

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given above. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector are contained in the Strategic Report of the Annual Report and Financial Statements.

102.9% (2015 - 108.0%) of the Company's net assets are invested in quoted equities. A 5% (2015 - 5%) increase in quoted equity valuations at 31 July 2016 would have increased total assets and total return on ordinary activities by £6,571,000 (2015 - £6,757,000). A decrease of 5% would have had an equal but opposite effect.

 

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board provides guidance to the Managers as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings.

The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facility is detailed in note 11 of the Annual Report and Financial Statements and the maturity profile of its borrowings are set out above. Under the terms of the borrowing facility, borrowings are repayable on demand at their current carrying value.

 

Borrowings Falling Due Within One Year


2016

£'000


2015

£'000

Bank loan

5,000


13,997

 

Borrowing Facilities

The Company has a one year £10 million multi-currency revolving credit facility with The Royal Bank of Scotland Plc (2015 - one year £14 million multi-currency revolving credit facility with The Royal Bank of Scotland Plc) and a £10 million one year uncommitted, unsecured floating rate revolving credit facility with The Bank of New York Mellon (2015 - £20 million one year uncommitted, unsecured floating rate revolving credit facility with The Bank of New York Mellon). At 31 July 2016 there were outstanding drawings of £5,000,000 at an interest rate of 1.02906% (2015 - £10,500,000 and US$5,456,850 at interest rates of 0.97188% and 0.68625% per annum respectively) under The Royal Bank of Scotland Plc facility. There were no drawings under The Bank of New York Mellon facility at either date. The main covenant relating to the loan is that borrowings should not exceed 20% of the Company's net asset value. There were no breaches in the loan covenants during the year.

 

Credit Risk

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

This risk is managed as follows:

¾ where the Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

¾ the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to Bank of New York Mellon SA/NV London Branch. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

¾ investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

¾ the creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Managers; and

¾ cash is only held at banks that are regularly reviewed by the Managers.

 

Credit Risk Exposure

The exposure to credit risk at 31 July was:


2016

£'000

2015

£'000

Cash and short term deposits

1,323

4,061

Debtors and prepayments

359

276


1,682

4,337

 

The maximum exposure in cash during the year was £23,434,000 (2015 - £9,615,000) and the minimum £1,323,000 (2015 - £150,000). None of the Company's financial assets are past due or impaired (2015 - none).

 

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the carrying amount of financial assets and liabilities in the Balance Sheet approximates their fair value.

 

Capital Management

The capital of the Company is its share capital and reserves as set out in note 13 of the Annual Report and Financial Statements together with its borrowings (see note 11 of the Annual Report and Financial Statements). The objective of the Company is to invest in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent in order to achieve capital growth. The Company's investment policy is set out on page 7 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on page 19, pages 7 and 8 and pages 21 and 22, respectively, of the Annual Report and Financial Statements. The Company has the ability to buy back its shares (see page 19 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in note 12 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loan which are detailed in note 11 of the Annual Report and Financial Statements.

 

Investments

 

As at 31 July 2016

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Listed equities

131,417

-

-

131,417

Total financial asset investments

131,417

-

-

131,417

 

 

As at 31 July 2015

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Listed equities

135,133

-

-

135,133

Total financial asset investments

135,133

-

-

135,133

 

Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

 

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

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

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly

                observable (based on market data); and

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

 

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the Alternative Investment Fund Managers Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy is available at www.bailliegifford.com on request and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ended 31 March 2016) are also available at www.bailliegifford.com.

The Company's maximum and actual leverage (see Glossary of Terms on page 52 of the Annual Report and Financial Statements) levels at 31 July 2016 are shown below:

 

Leverage Exposure


Gross

Method

Commitment

Method

Maximum limit

2.50:1

2.00:1

Actual

1.04:1

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

 

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:

¾ select suitable accounting policies and then apply them consistently;

¾ make judgements and accounting estimates that are reasonable and prudent;

¾ state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

¾ prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The work carried out by the Auditor does not involve any consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

Each of the Directors, whose names and functions are listed within the Directors and Managers section confirm that, to the best of their knowledge:

¾ the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾ the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

By order of the Board

Jean Matterson

Chairman

15 September 2016



Income Statement

 


For the year ended

31 July 2016

For the year ended

31 July 2015


Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Gains/(losses) on investments

13,414

13,414 

(338)

(338)

Currency gains/(losses)

1,140

1,140 

(322)

(322)

Income (note 2)

1,331 

-

1,331 

1,886 

1,886 

Investment management fee (note 3)

(899)

-

(899)

(1,032)

(1,032)

Other administrative expenses

(389)

-

(389)

(397)

(397)

Net return before finance costs and taxation

43 

14,554

14,597 

457 

(660)

(203)

Finance costs of borrowing

(127)

-

(127)

(93)

(93)

Net return on ordinary activities before taxation

(84)

14,554

14,470 

364 

(660)

(296)

Tax on ordinary activities

(98)

-

(98)

(133)

(133)

Net return on ordinary activities after taxation

(182)

14,554

14,372 

231

(660)

(429)

Net return per ordinary share (note 4)

(0.30p)

24.25p

23.95p 

0.35p

(0.99p)

(0.64p)

 

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

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

A Statement of Comprehensive Income is not required as there is no other comprehensive income.


Balance Sheet

 


At 31 July 2016

At 31 July 2015


£'000

£'000

£'000

£'000

Fixed assets

 

 

 

 

Investments held at fair value through profit or loss

 

131,417 

 

135,133 

Current assets





Debtors

359 

 

276 

 

Cash and cash equivalents

1,323 

 

4,061 

 


1,682 

 

4,337 

 

Creditors





Amounts falling due within one year (note 6)

(5,397)

 

(14,300)

 

Net current liabilities


(3,715)


(9,963)

Net assets


127,702 


125,170 


 

 

 

 

Capital and reserves





Called up share capital

 

5,712 

 

6,329 

Share premium

 

3,166 

 

3,166 

Capital redemption reserve

 

20,081 

 

19,464 

Capital reserve

 

94,377 

 

91,441 

Revenue reserve

 

4,366 

 

4,770 

Shareholders' funds


127,702 

  

125,170 

Net asset value per ordinary share


223.58p


197.78p

Ordinary shares in issue (note 7)

57,118,191

63,288,853



 

 

 


Statement of Changes in Equity

 

For the year ended 31 July 2016

 

Called up share
capital

£'000

Share
premium

£'000

Capital redemption

reserve

£'000

Capital reserve

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

Shareholders' funds at 1 August 2015

6,329 

3,166

19,464

91,441 

4,770 

125,170 

Net return on ordinary activities after taxation

-

-

14,554 

(182)

14,372 

Shares purchased for cancellation (note 7)

(617)

-

617

(11,618)

(11,618)

Dividends paid during the year (note 5)

-

-

(222)

(222)

Shareholders' funds at 31 July 2016

5,712 

3,166

20,081

94,377 

4,366 

127,702 

 

For the year ended 31 July 2015


Called up share
capital

£'000

Share
premium

£'000

Capital redemption

reserve

£'000

Capital reserve

£'000

Revenue reserve

£'000

Shareholders'
funds

£'000

 

Shareholders' funds at 1 August 2014

7,013 

3,166 

18,780 

106,437 

5,521 

140,917 

 

Net return on ordinary activities after taxation

(660)

231 

(429)

 

Shares purchased for cancellation (note 7)

(684)

684 

(14,336)

(14,336)

 

Dividends paid during the year (note 5)

(982)

(982)

 

Shareholders' funds at 31 July 2015

6,329 

3,166 

19,464 

91,441 

4,770 

125,170 

 


Cash Flow Statement

 

 

For the year ended

31 July 2016

For the year ended

31 July 2015

 

£'000

£'000

£'000

£'000

Cash flows from operating activities





Net return on ordinary activities before taxation

 

14,470 

 

(296)

Net (gains)/losses on investments

 

(13,414)

 

338 

Currency (gains)/losses

 

(1,140)

 

322 

Finance costs of borrowings

 

127 

 

93 

Overseas tax incurred

 

(84)

 

(150)

Changes in debtors and creditors

 

(86)

 

155 

Cash from operations


(127)


462 

Interest paid

 

(134)

 

(84)

Net cash (outflow)/inflow from operating activities


(261)


378 

Cash flows from investing activities





Acquisitions of investments

(29,853)

 

(70,065)

 

Disposals of investments

47,072 

 

78,263 

 

Net cash inflow from investing activities


17,219 


8,198 

Cash flows from financing activities





Equity dividends paid (note 5)

(222)

 

(982)

 

Shares purchased for cancellation (note 7)

(11,618)

 

(14,336)

 

Borrowings (repaid)/drawn down

(9,369)

 

9,518 

 

Net cash outflow from financing activities


(21,209)


(5,800)

(Decrease)/increase in cash and cash equivalents


(4,251)


2,776 

Exchange movements

 

1,513 

 

11 

Cash and cash equivalents at 1 August

 

4,061 

 

1,274 

Cash and cash equivalents at 31 July


1,323 


4,061 



 

Notes to the Financial Statements

 

1.

The Financial Statements for the year to 31 July 2016 have been prepared in accordance with The Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102') which the Company must adopt for its financial year ending 31 July 2016. Following the application of the new reporting standard and the AIC's issued Statement of Recommended Practice, there has been no change in the Company's Income Statement, Balance Sheet or Statement of Changes in Equity (previously called the Reconciliation of Movements in Shareholders' Funds) from the period previously reported. The Cash Flow Statement reflects the presentational requirements of FRS 102, which are different to FRS 1. In addition, the Cash Flow Statement reconciles to cash and cash equivalents whereas under previous UK GAAP the Cash Flow Statement reconciled to net funds/debt. The Company has already adopted the amendments to Section 34 of FRS 102 regarding fair value hierarchy disclosures.

The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.

 



31 July 2016

£'000


31 July 2015

                £'000

 

2.

Income from financial assets designated at fair value through profit or loss




 


Listed overseas dividends

1,331

 

1,886

 


Total income

1,331


1,866

 



 



31 July 2016

£'000


31 July 2015

£'000

 

3.

Net return per ordinary share

 


 

 


Revenue return on ordinary activities after taxation

(182)


231 

 


Capital return on ordinary activities after taxation

14,554 


(660)

 


Total return

14,372 


(429)

 


Weighted average number of ordinary shares in issue

 

60,007,258 


 

66,526,663 

 


The figures for net return per ordinary share are based on the above totals for revenue and capital and the weighted average number of ordinary shares in issue during the year.

There are no dilutive or potentially dilutive shares in issue.

 



31 July 2016

31 July 2015

 

31 July 2016

£'000

31 July 2015

£'000

 

4.

Ordinary Dividends

 

 

 

 

 


Amounts recognised as distributions in the year:





 


Previous year's final (paid 11 November 2015)

0.35p

1.40p

222

982

 


Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. There is no revenue available for distribution by way of dividend for the year (31 July 2016 - revenue loss of £182,000; 2015 - revenue gain of £231,000).

 



31 July 2016

31 July 2015

 

31 July 2016

£'000

31 July 2015

£'000

 


Amounts paid and proposed in respect of the financial year:

 

 

 

 

 

 

 

Proposed final dividend per ordinary share (payable 11 November 2016)

0.35p

0.35p

200

222

 


If approved, the recommended final dividend of 0.35p per ordinary share for the year ended 31 July 2016 will be paid on 11 November 2016 to shareholders on the register at the close of business on 14 October 2016. The ex-dividend date is 13 October 2016. The Company's Registrar offers a Dividend Reinvestment Plan and the final date for elections for this dividend is 21 October 2016.

 

 

5.

The Company has authority to buy back up to 14.99% of its shares on an ad hoc basis and to implement, at the Board's discretion, bi-annual tender offers for up to 5% of its shares at a 2% discount to net asset value, less costs, in the event that the discount averaged more than 9% during the six month period to 31 January and 31 July in the years 2014, 2015 and 2016. The Board implemented a 5% tender offer in October 2015 and April 2016 in respect of the tender periods to 31 July 2015 and 31 January 2016. Through the exercise of both of these tenders during the year, the Company bought back a total of 6,170,662 (2015 - 6,837,299) ordinary shares at a total cost of £11,618,000 (2015 - £14,336,000). The nominal value of these shares was £617,000 and represented 9.75% of the issued share capital at 31 July 2015. At 31 July 2016 the Company had authority to buy back a further 9,012,649 ordinary shares.

The Company also has authority to allot shares under section 551 of the Companies Act 2006. In the years to 31 July 2015 and 31 July 2016 no shares were issued.

 

 

6.

The Company incurred transaction costs on purchases of £46,000 (2015 - £157,000) and on sales of £133,000 (2015 - £239,000), being £179,000 (2015 - £396,000) in total.

 

 

 

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

- ends -


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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