TIDMPAC
LONDON STOCK EXCHANGE ANNOUNCEMENT
Pacific Assets Trust plc
(the "Company" or the "Trust")
Final Results for the Year Ended 31 January 2020
The Company's annual report will be posted to shareholders on 15 April 2020.
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.
The Company's annual report for the year ended 31 January 2020 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
Frostrow Capital LLP, Company Secretary
020 3709 8734
6 April 2020
Company Performance
Performance Summary
As at As at % Change
31 January 31 January
2020 2019
Shareholders' funds GBP345.7m GBP332.7m 3.9%
Market capitalisation GBP324.2m GBP327.3m (0.9)%
Performance One year to One year to
31 January 31 January
2020 2019
Share price total return*^ (0.8)% 8.1%
Net asset value per share total return*^ 4.2% 4.7%
CPI +6%1 7.5% 8.4%
MSCI All Country Asia ex Japan Index total return, 5.0% (7.7)%
sterling adjusted*
Average discount of share price to net asset value per 0.5% 3.1%
share*^
Ongoing charges^ 1.2% 1.2%
Revenue return per share? 3.3p 3.5p
Dividend per share 3.0p 3.0p
*Source: Morningstar
? See Glossary
^ Alternative Performance Measure (see Glossary)
1 The Company's Performance Objective (see Glossary)
Key Information
Pacific Assets Trust plc (the "Company" or the "Trust") aims to achieve
long-term capital growth through investment in selected companies in the Asia
Pacific region and the Indian sub-continent, but excluding Japan, Australia and
New Zealand (the 'Asia Pacific Region'). Up to a maximum of 20% of the
Company's total assets (at the time of investment) may be invested in companies
incorporated and/or listed outside the Asia Pacific Region, (as defined above);
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.
Investment Manager
Stewart Investors* have been the Company's Investment Manager since 1 July 2010
and they adopt a sustainable investment strategy in selecting the investments
that make up the Company's portfolio. Stewart Investors is a semi-autonomous
business within First State Investments. It operates through the legal entities
and regulatory licences of First State Investments. First State Investment
Management (UK) Limited is the legal entity that Pacific Assets Trust plc has
appointed as Investment Manager.
Investment Philosophy
Stewart Investors seek to invest in good quality companies with a focus on the
quality of management, franchise and financials. By analysing the sustainable
development performance and positioning of companies they believe they can
better measure less tangible elements of quality and identify less obvious
risks.
Stewart Investors strive to make investment decisions with a minimum five-year
time horizon. They have an absolute return mind-set and define risk as that of
losing client money, rather than deviation from any benchmark index. They focus
as much on the potential downside of investment decisions as on the anticipated
upside. They believe that the identification of long-term sustainable
development risks is an extremely important way of managing risk.
Their willingness to differ substantially from index weightings, both country
and company, means they are not obliged to invest in any company or country if
they have particular sustainability concerns.
What does Stewart Investors mean by Sustainable Development?
The root causes of the sustainable development challenges the world is facing
are numerous and complex. In order to tackle these challenges both developed
and developing countries will have to shift from a resource-intensive,
consumption-driven, debt-dependent model of development and growth to a more
sustainable one.
How does this apply to investment?
Stewart Investors invest in those companies which they believe are particularly
well-positioned to deliver positive long-term returns in the face of the huge
sustainable development challenges facing all countries today. These challenges
include population pressure, land and water scarcity and degradation, resource
constraints, income inequality, ethnic and gender inequalities and extreme
levels of poverty.
Their emphasis is on sustainable development and not 'green', 'clean tech' or
'ethical' investing.
They devote a significant amount of time to engaging with management teams of
the companies in which they invest. They engage on a wide range of issues,
including strategy, governance, alignment of interests and reputation.
Chairman's Statement
Outcomes for the Year to 31 January 2020.
The net asset value per share total return for the year ending 31 January 2020
was 4.2%*. Over the last three years, the annualised return was 7.0%, and over
five years 7.8%.
The one-year figure lies behind the performance objective of UK CPI plus 6%,
which was 7.5%*. Over the longer periods of three and five years, the Trust is
also slightly behind this measure; the annualised return of the performance
objective over three years was 8.4% and it was 7.9% over five years. Taking
account of the peer group of Asia Pacific investment companies, the Trust over
all periods lies behind the average.
These figures are obviously disappointing even when taking the longer-term
perspective of three to five years, which we regard as being the appropriate
time frame to view the performance of an investment manager. Within the long
term, there are many short terms. In the last quarter of the Trust's financial
year, three of the larger holdings, Marico, Vitasoy, and Mahindra & Mahindra
all suffered for different reasons. I mention this because it shows how some
dramatic short-term moves can impact the longer-term numbers. Although only 7%
of the portfolio was held in the Philippines at the start of that quarter, the
exposure there proved to be a detractor. However, to put this into the
longer-term context, Vitasoy (mentioned above) has been one of the Trust's
stand out performers providing a 694 basis point return over three years, and
1,190 basis points over five years.
The stock markets of Asia have not been able to match the returns of developed
markets around the world in the last 12 months with both the United States and
Europe leading performance. Although the Trust's exposure to China has been
minimal, there is no doubt that the escalating rhetoric from the United States
government over Chinese trade practices and perceived technological piracy, has
had some impact on wider sentiment. This cloud is not going to evaporate, and
we face a long period of adjustment in transpacific terms of trade. Within this
wider picture, there were political headwinds with increasingly authoritarian
moves by governments in India and the Philippines, for example, being prepared
to exceed their constitutional authority, while the Hong Kong government
struggled to deal with continuing unrest.
* Alternative Performance Measure (see Glossary).
Coronavirus
The points above shrink into insignificance as the global health crisis has
unfolded, the impact after the closure of the Company's financial year. As we
write, it appears that the centre of the storm has moved away from Asia to
other parts of the world, with consequent impact on asset prices almost
everywhere. The de-rating of markets reflects uncertainty over future profits,
credit defaults, and the timing of the peak of the crisis. It is too early to
assess the economic impact, but all risk assets continue to be fundamentally
re-priced to reflect the uncertainty created from the spread of infection, and
the measures that are being taken to lock down major countries and their
communications. In spite of this being a short period to measure, we note that
the net asset value of the Trust had fallen by 17.4% between 1 February and 2
April 2020, the latest practicable date before the date of this report.
The Sustainability Question
1 July 2020 will mark the tenth anniversary of Stewart Investors' management of
the Trust. Ten years ago, the Investment Manager expressed their strong
preference for owning companies that paid close attention to their impact on
the environment around them. An investment would only qualify for inclusion in
the Trust's portfolio if the management and the board supported exemplary
corporate behaviour, whether in their treatment of employees, or in their
probity in business environments that were often marred by corruption. At the
time and subsequently, there were many who felt that such an approach was
unworkable in an emerging market environment and was out of line with normal
practice. Back handers, ecological destruction and misogyny to take some
examples, were all meant to be part and parcel of the Asian investment
experience. Indeed, in China, the largest market capitalisation, our Investment
Manager has always had difficulty in reconciling the covert or indeed overt
state interference in the business sector, with a viable investment
opportunity. Hence throughout the last ten years there has been virtually no
direct exposure to Chinese listed companies.
Times have changed. Companies, the world over, are aiming their business models
at stakeholders rather than just shareholders. The phrase, 'responsible
capitalism' is widely used. Annual meetings are highly focussed on
environmental impact, or on preventing corporate larceny in one form or
another. Even oil companies are setting targets to become carbon neutral. The
terms of the debate have changed, as has the regulatory environment in which
businesses operate. Economic historians may look back on this period as being a
new version of the industrial revolution in the ways that businesses set their
priorities. Perhaps the identification of stakeholders over shareholders will
be comparable to when limited liability was introduced to joint stock companies
in the nineteenth century. However, we would argue that while the seeds have
been sown, the outcomes are still deficient and there is a long way to travel
before business practice is aligned to the high ideals that are now being
paraded. There is also a lack of leadership from some governments, most notably
in the United States.
We are long term investors. Our portfolio turns over less than 25% a year and
has averaged 20% over the last five years. Many stocks in the Company's
portfolio have been there since the start of our Investment Manager's tenure.
The long term to some people can mean the use of a dividend discount model that
looks far into the future, but whose inputs have limited credibility in today's
easily disrupted business world. Longer term is perhaps better understood by
having confidence that a company has the ingrained culture that it is not going
to diminish the returns of tomorrow, by short term actions that may enhance the
returns of today.
The enthusiasm for ESG (Environmental, Social, Governance) principles across
the investment management industry is heartening because it adds weight to the
current trend of listed companies re-thinking their business models. We applaud
the steps that many professional investors are taking, not least where there is
a younger generation of managers coming forward arguing that they have the
influence, as voting shareholders, with companies to turn the wheel a bit
further. New analytics have been introduced to score adherence to these
principles, although in our view they remain inadequately developed, and can be
frequently misleading.
Pacific Assets Trust and Stewart Investors, our investment manager, will
continue to look at ways of improving interaction with companies that we own,
and then lock in positions for the long term, enabling a continuous
constructive dialogue with the owners and the managers.
Measurement and Investment Management
One of our most important roles as directors of the Company is to scrutinise
the manager on behalf of shareholders. The metrics that we use must be
consistent, and we need to understand why sometimes our returns have fallen
short, as they have in the last 12 months. The Trust's investment decisions are
not undertaken in an opportunistic way. Market timing, momentum, or popular
trends do not feature in decisions that are taken. Our Investment Manager has
emphasised consistency of style, and in our meetings with shareholders, we have
generally found a good recognition of this.
Last year in my Chairman's statement, I discussed the move to a form of
measurement which did not have the misleading qualities of the MSCI All Country
Asia ex?Japan Index to which our investment portfolio maintains minimal
adherence. I do not plan to rehearse this but would like to explain the
measures that we look at to ensure consistency.
The indicators that the Board looks at are additional to the performance
measures relating to the peer group and to CPI plus 6%. Our suite of style
measures includes volatility and turnover, which we would expect to be low. We
look at downside protection during periods of market weakness and would be
surprised if all the upside was to be captured in a momentum driven rising
market. The final measure is 'active share' to see whether there is any drift
towards the index, counter to a style that seeks to invest and build on bottom
up investments. The Board uses these metrics to identify signals of any
deviation from what for ten years has been an entirely consistent approach.
This provides a coherent framework for discussion should one or more of these
measures appear to deviate from its longer-term trend.
The Board formally reviews the Company's investment management arrangements
annually. We looked at the ownership, the organisation and the approach of
Stewart Investors. We considered the stability of the team, their ability to
cover a wide-ranging set of markets, and their investment style. We looked to
see consistency of their stated investment approach with the implementation of
their decisions. In performance terms, we have evaluated them over a five-year
period against the CPI plus 6% objective and against a peer group of Asian
focussed investment companies. The Board also joined members of the Stewart
Investors team in October for three days in Hong Kong visiting companies that
the Company owns or that have the potential to become part of the portfolio.
The Board is satisfied that the interests of shareholders are well served by
Stewart Investors continuing to manage the assets of the Trust.
Costs
We recognise a trend for active management fees to come down. We also note that
the ongoing charges ratio* of the Trust has been higher than most of the peer
group. However, shareholders should also be aware that the Trust's relatively
low turnover, and the absence of any cost of capital associated with gearing,
will mean that the Trust's overall running costs are not necessarily as high as
some other investment vehicles, should these be added into the ongoing cost
ratio.
* Alternative Performance Measure (see Glossary).
With effect from 1 February 2020, the start of the new financial year of the
Trust, the annual management charge payable to Stewart Investors fell from 0.9%
to 0.85% per annum, based on the net asset value of the Trust at the end of
each quarter. This follows a reduction in the fees paid to Frostrow, our
Manager, Company Secretary and Administrator, two years ago and the removal of
the Investment Manager's performance fee three years prior to that.
While we are pleased by this reduction, we also recognise that there is a cost
for the Trust to access some of the smaller, harder to find or to research
companies, and that the Investment Manager should be appropriately equipped to
achieve this.
The Board
Terry Mahony, our longest serving board member retired at the end of the
financial year. Terry has brought his remarkable insight into the Asian sphere
to our boardroom table. His knowledge and experience have enabled the Board to
scrutinise and sometimes challenge the decisions of our managers, and thus keep
everyone on top of their game. He is a fine example of how a non-executive
director can bring additional value to the relationship between an investment
manager and a board. We thank him.
Edward Troughton has joined the Board and will be standing for election at the
AGM. Ed has lived and worked in Asia in the past, and brings with him knowledge
of the Asian region, experience of investment companies, and a deep
understanding of the way fund management companies work. Ed is a partner of
Oldfield Partners LLP, a highly regarded global investment boutique.
We pay close attention to the capacity of individual Directors to carry out
their work on behalf of the Company. In recommending individual Directors to
shareholders for re-election, we considered their other Board positions and
their time commitments and are satisfied that each Director is fully engaged
with the Company's business. In the biographies of Directors, there is a
section on what each one brings to the work of the Board.
Dividend
The Company made a revenue profit of 3.3p per share during the year (2019:
3.5p). The Company usually recommends for shareholders' approval at the AGM
the payment of a final dividend to allow the Company to comply with the
investment trust rules regarding distributable income. However, in light of the
ongoing response to the coronavirus pandemic, this year the Board has decided
to declare an interim dividend of 3.0p per share, to be paid on 2 July 2020 to
shareholders on the register on 29 May 2020. The associated ex-dividend date
will be 28 May 2020.
Declaring an interim dividend means that shareholders will be paid a dividend
irrespective of whether the AGM is able to proceed as planned. Instead of
voting to approve the payment of a dividend, shareholders will instead be able
to vote on the Company's dividend policy at the forthcoming AGM. However, this
will not affect the payment of the dividend itself. It is expected that the
Company will revert to paying a final dividend next year.
Share Issuance
During the year, favourable demand for the Company's shares led to the issue of
a total of 1,085,000 new shares, raising GBP3.2 million. The net proceeds
received from the issue of these new shares were invested in line with the
Company's investment objective. This coincides with our policy of enlarging the
Company's invested capital to the benefit of all shareholders, rather than
seeing the share price rise to a material premium to NAV per share in the
market.
The issuance of new shares takes place only at a premium to the NAV per share,
incorporates any associated costs and is accretive to existing shareholders.
Share issuance can also improve the liquidity of the Company's shares and
contribute to the reduction of the ongoing charges ratio, as operating costs
are spread over a larger capital base.
As at 31 January 2020, the Company had 120,958,386 shares of 12.5p each in
issue (31 January 2019: 119,873,386).
At the last Annual General Meeting ("AGM") in June 2019, shareholders granted
the Board authority to issue up to 10% of the Company's issued share capital
without pre-emption rights. The Board will ask for the same authority again, to
issue up to 10% of issued share capital without pre-emption rights, at the
forthcoming AGM.
Discount and the Share Price
The Company's shares have traded at an average discount to the net asset value
per share of 0.5%* through the year, compared to an average discount of 3.1% in
the previous year. For the year, the share price total return was -0.8%
compared with the net asset value per share total return of 4.2%. However, the
discount has widened since the year end, affected by the volatility of markets
coming to terms with the impact of the new coronavirus.
The Board monitors the share price discount closely and considers ways in which
it may be addressed, including through share buybacks and the Company's
marketing strategy. The Board considers it desirable that the Company's shares
do not trade at a price which, on average, represents a discount that is out of
line with the Company's peer group. The Board will continue to monitor the
discount and, should a material and sustained deviation emerge in the Company's
discount from that of its peer group, it has the authority to buy back shares
in the market.
Shareholder approval to renew the authority to repurchase existing shares in
the market will be sought at the forthcoming AGM.
Annual General Meeting
This year's AGM will be held at 12 noon on Thursday, 25 June 2020, and will be
held at the offices of Frostrow Capital LLP, 25 Southampton Buildings, London
WC2A 1AL. The Board has considered how best to deal with the potential impact
of the coronavirus outbreak on arrangements for the AGM. We are required by
law to hold an AGM, but we are concerned for the safety and wellbeing of our
shareholders and other attendees. Given these unprecedented circumstances, the
Board has decided that we will conduct only the statutory, formal business to
meet the minimum legal requirements. There will be no presentation from our
Investment Manager and no opportunity to interact with the Directors. We will
not be providing any refreshments after the meeting in order to minimise
contact. It may also prove to be necessary to postpone the meeting to a later
date.
The Board strongly encourages all shareholders to exercise their votes in
respect of the meeting in advance and to submit any questions they may have to
the Company Secretary. Voting by proxy will ensure that your votes are
registered in the event that attendance at the AGM is not possible or
restricted, or if the meeting is postponed (your votes will still be valid when
the meeting is eventually held). The Board will continue to monitor the
Government's advice and urges all shareholders to comply with any restrictions
in place at the time of the AGM.
Of course, in the event that the situation has improved and we are able to hold
a meeting with full participation from the Board and the Investment Manager, we
will do so. We will keep shareholders updated via the Company's website,
www.pacific-assets.co.uk, in this regard.
The Outlook
Since the year end there has been a momentous change to the landscape which has
left no market untouched. Stocks in February and March have endured a severe
loss in value, and volatility has risen to levels never previously seen. When
considering the outlook, one must account for the almost deafening noise as
authorities take steps which effectively close their economies. It is hard to
see how even the most stress tested business model can anticipate the
challenges that the global health crisis has introduced. We would suggest that
much of the volatility and the damage to asset prices within such a short time
frame results from market seizure as liquidity evaporates, with many actors
being forced sellers as downward momentum accelerates.
it is too early to comment on the resilience of the Trust's portfolio. However,
owning companies that have the combination of strong and liquid balance sheets
and secure franchises should under most circumstances provide defensive
qualities, if the inevitable recession and loss of confidence were to linger.
Unprecedented monetary and fiscal assistance combined with the benefit to
consumers from a much lower oil price should all help to mitigate some of the
worst effects of the social and economic closure that faces us, but there
remain many unknowns.
Pacific Assets Trust is designed to provide its shareholders with exposure to
quality businesses that not only have inner resilience but are also engaged
with the growth opportunities that Asia's upwardly mobile societies will
continue to provide. As I write there seems to be virtually no comfort to be
taken from the near-term outlook. However, we have faith in the managements of
the companies that we own in the Trust to weather the great turbulence that is
now taking place, and to be positioned to benefit from a return to stability
which will inevitably happen.
James Williams
Chairman
6 April 2020
Investment Portfolio
as at 31 January 2020
% of
Market total
Company Country MSCI sector valuation assets
GBP'000 less
current
liabilities
Tech Mahindra India Information 21,078 6.1
Technology
Unicharm Japan* Consumer Staples 15,843 4.6
Vitasoy International Hong Kong Consumer Staples 14,023 4.1
Holdings
Hoya Japan* Health Care 12,147 3.5
Oversea-Chinese Banking Singapore Financials 12,107 3.4
Corporation
Kotak Mahindra Bank India Financials 11,804 3.4
Mahindra & Mahindra India Consumer 11,388 3.3
Discretionary
Housing Development India Financials 10,944 3.2
Finance
Marico India Consumer Staples 9,683 2.8
Dr. Lal PathLabs India Health Care 9,529 2.8
Ten largest investments 128,546 37.2
Sundaram Finance India Financials 9,217 2.7
Dabur India India Consumer Staples 8,821 2.5
Tube Investments of India India Consumer 8,413 2.4
Discretionary
Chroma ATE Taiwan Information 8,269 2.4
Technology
Delta Electronics Taiwan Information 7,627 2.2
Technology
Koh Young Technology South Korea Information 7,467 2.3
Technology
Bank OCBC NISP Indonesia Financials 7,012 2.0
Tata Consultancy Services India Information 6,653 1.9
Technology
Nippon Paint Japan* Materials 6,086 1.8
Advantech Co Taiwan Information 5,992 1.7
Technology
Twenty largest investments 204,103 59.1
President Chain Store Taiwan Consumer Staples 5,907 1.7
Selamat Sempurna Indonesia Consumer 5,667 1.6
Discretionary
Kasikornbank Thailand Financials 5,532 1.6
Uni-President Enterprise Taiwan Consumer Staples 5,531 1.6
Delta Brac Housing Finance Bangladesh Financials 5,368 1.5
Philippine Seven Philippines Consumer Staples 5,099 1.4
Pigeon Japan* Consumer Staples 5,046 1.5
Dr. Reddy's Laboratories India Health Care 4,938 1.4
E.Sun Financial Taiwan Financials 4,929 1.4
Godrej Consumer Products India Consumer Staples 4,577 1.3
Thirty largest investments 256,697 74.1
Cyient India Information 4,563 1.3
Technology
Elgi Equipments India Industrials 4,223 1.2
Uni-Charm Indonesia Indonesia Consumer Staples 4,022 1.2
Voltronic Power Technology Taiwan Industrials 3,976 1.2
Brac Bank Bangladesh Financials 3,881 1.1
Square Pharmaceuticals Bangladesh Health Care 3,649 1.1
Marico Bangladesh Bangladesh Consumer Staples 3,563 1.0
ViTrox Malaysia Information 3,424 1.0
Technology
Taiwan Semiconductor Taiwan Information 3,375 1.0
Manufacturing Technology
Robinsons Retail Philippines Consumer Staples 3,144 1.0
Forty largest investments 294,517 85.2
Bank Central Asia Indonesia Financials 3,060 0.9
Mahindra Logistics India Industrials 2,783 0.8
Commercial Bank of Ceylon Sri Lanka Financials 2,259 0.7
Kalbe Farma Indonesia Health Care 2,236 0.6
Hemas Holdings Sri Lanka Industrials 2,170 0.6
Concepcion Industrial Philippines Industrials 1,286 0.4
Shanthi Gears India Industrials 1,094 0.3
Humanica Thailand Information 112 0.0
Technology
Total portfolio 309,517 89.5
Net current assets 36,200 10.5
Total assets less curent 345,717 100.0
liabilities
*Economic activity takes place principally in the Asia Pacific Region
Investment Manager's Review
Over the financial year, the Trust's net asset value per share total return was
4.2%. This return lagged both the performance objective of CPI +6% (+7.5%) and
the performance of the MSCI Asia All Country ex-Japan Index (the "Index")
(+5.0%, measured on a total return, sterling-adjusted basis). The Trust's
relative underperformance was more significant towards the end of the calendar
year when Asian markets had one of their strongest quarters outside of a
post-crash recovery - a market that our investment philosophy will tend to lag.
However, in January, the Trust protected capital well, with the NAV rising
0.2%, against the broader market which fell 4.0%.
Comparison with Peers
We find it hard to comment on relative performance but given the
underperformance of the Trust, it is worth touching on a few points.
Firstly, we have not owned the largest companies in the Index which have
fuelled much of the gains over recent years. As we have discussed on a number
of occasions, our philosophy struggles to own the large Chinese internet
companies Alibaba and Tencent. We have doubts over their governance, the
quality and sustainability of their business models and the opaqueness of their
financials.
The Trust does not own the large Korean technology company Samsung Electronics,
again due to concerns around the quality of the people behind the business,
specifically the integrity of the company's founding family where successive
Chairmen have been imprisoned on charges of corruption. Although they have
proven themselves competent technologists, Samsung's businesses are cyclical,
suffer from price deflation and are coming under increasing pressure from
emerging Chinese competition. Taiwan Semiconductor Manufacturing ("TSMC") is
another large position in the Index. We have held this high quality
semiconductor company for close to a decade but more recently we chose to
reduce the Trust's holding due to concerns that the very full valuations we
were being asked to pay failed to reflect the cyclicality of the cash flows.
These four companies, Tencent, Alibaba, TSMC and Samsung account for 23% of the
Index and are currently very popular holdings in many Asian portfolios. Our
decision to have minimal exposure to these names has cost the Trust in a
relative sense.
Secondly, when comparing recent performance with peers, a lack of gearing is a
likely detractor in recent rising markets. We did not use any gearing when
first appointed as Investment Manager in 2010 and the Trust has been unable to
employ gearing since registering as a Small Registered UK AIFM in 2014. However
given our concerns about valuations and our focus on capital preservation, even
if gearing was possible we would still opt to run a net cash balance rather
than gearing the Trust with debt. Whilst such leverage works in the good times,
as has proven recently, it increases the likelihood of a permanent impairment
of capital in the bad times. This is a risk we are uncomfortable taking,
especially in expensive markets such as these.
Thirdly, in strong, liquidity fuelled markets our philosophy will nearly always
underperform. Even with the benefit of hindsight we would change very little.
This is not meant to sound stubborn but is a reflection of faith in our
philosophy to deliver attractive, risk-adjusted returns over the long-term.
Such outcomes require remaining disciplined and not digressing in order to
chase performance whenever our philosophy is relatively unpopular.
Contributors and Detractors
Over the year, the Trust had a number of strong performers that are
successfully taking advantage of long-term structural growth trends. Hoya is a
Japanese-listed manufacturer of health care products (e.g. contact lenses,
lenses for eyeglass and endoscopes) and critical inputs to the semiconductor
and data centre industries. It has a number of attractive qualities that we
look for: a competent, aligned steward with an impressive track record of
capital allocation, a net cash balance sheet, success overseas and world-class
products that generate attractive rates of return. Going forward, both Hoya's
healthcare and IT portfolios are well placed to benefit from sustainable
development. We believe Hoya will be one of the leaders in providing access to
the more than two billion people who have yet to receive corrected vision, most
of which are in Asia. Not only is there significant profit opportunity for Hoya
by providing sight to billions of people, their products have a substantial
impact on the development of the region. Providing glasses to adults with poor
eyesight improves their chance of overcoming illiteracy, getting a job, and
remaining in the work force for longer. Less obvious benefits include better
road safety and a greater participation in the economic benefits that come from
the use of technology.
Contribution by investment for the year ended 31 January 2020
Top 10 contributors to and detractors from absolute performance (%)
[Graph shown in Annual Report]
Dr. Lal PathLabs is the leading health diagnostic chain in India. Like
financial services, the diagnostic industry tends to be accident prone, so
values such as quality and conservatism are critical to long-term success. The
powerful combination of a family steward and professional management at Dr
Lal's has been vital in ensuring the company's culture and brand is renowned
for its quality. As we have seen globally, the diagnostics industry's role in
screening, early detection and monitoring plays an important part in reducing
costs elsewhere in the healthcare industry. Historically only spending 4% of
its GDP on healthcare, India has significantly underinvested relative to other
nations.
This level of investment is unsustainable, especially when the country has a
growing prevalence of chronic and lifestyle related disease. We believe Dr Lal
can both improve access to healthcare and support the Indian healthcare system
to develop in a financially sustainable manner. This low base of healthcare
penetration and the fragmented nature of the Indian diagnostic industry
provides the opportunity for Dr Lal to sustain their growth for a long time to
come.
Vitasoy International Holdings, the leading soy milk provider in China,
continues to deliver on its long-term commitment to provide affordable
nutrition to the masses. Their trusted brand and established distribution
network in China puts them in a great position to benefit as China's middle
class looks to consume a healthier diet and become more aware of the need to
tread lighter on the country's fragile natural resources: soy milk's
nutritional value and resource intensity positions it very favourably relative
to other sources of protein. We continue to engage with the company on
improving the recyclability of their packaging and the transparency of its
supply chain. By doing so we hope to improve the quality of Vitasoy's cash
flows by reducing potential regulatory and consumer risks.
Kotak Mahindra Bank also performed well over the year. India's economy
continues to struggle for a number of structural and cyclical reasons. One of
the more pressing cyclical challenges has been the pressure on the country's
financial institutions as they work through the waves caused by the default of
a major lender. It is in times of stress that financial institutions prove
their mettle. As we would have hoped, given their long track record of
conservatism and quality lending, Kotak not only survived but has come out
stronger as depositors increasingly lose trust in lesser quality lenders and
move their hard-earned savings to Kotak. Sound, trusted financial institutions
are critical to the long-term development of an economy. Given India's
relatively low financial penetration level there is significant opportunity for
Kotak to continue its long track record of attractive, risk-aware, growth.
There will always be detractors but this year one of the major disappointments
came from a company listed in the Philippines. Manila Water, frustratingly
became the subject of unexpected political attention. The company is owned and
run by the Ayala Family, a family that for more than two centuries has managed
its businesses with the utmost respect for all its stakeholders. Over the last
few years we had been reducing the Trust's position size in Manila Water, not
over stewardship concerns but due to questions over their ability to grow in a
sustainable manner outside of Manila. In hindsight, we should have been far
more aggressive in selling as over the last twelve months the company became a
target of the Philippines' President, Rodrigo Duterte. The share price came
under intense stress as the President threatened to remove Manila Water's
licence after they successfully won an appeal in an international court over
their right to raise water tariffs. This served as a great tool for Duterte's
populist agenda.
We have since exited the position as we see little opportunity to make our
money back in such an environment. In fact, our concerns were confirmed as the
Ayalas were forced to sell a significant stake in Manila Water to a businessman
with a long track record of questionable integrity. Such transactions sadly
serve as a great example of what is required for success in the Philippines
today and despite our trust in the likes of the Ayalas, we have waning trust in
the independence of the country's institutions. This led us to sell our
Filipino companies with significant regulatory risk: Ayala Corp and Bank of
Philippine Islands. For now, we are comfortable with our remaining holdings as
they serve the retail market and are thus less politically exposed.
Another significant detractor was the Trust's holding in Mahindra and Mahindra.
While we misjudged the Indian auto and tractor cycles, which are now in the
pits of the deepest cycle in decades, we remain confident in the long-term
opportunity. During the depths of the pain, Mahindra and Mahindra has
strengthened its balance sheet, improved its margins and embarked on a major
leadership transition. These factors set the company up well to benefit from a
turn in the cycle and in the longer term, from increased investment in Indian
infrastructure and the development of its vast agricultural industry.
India Exposure
At the end of January, the Trust had 37.2% of the portfolio invested in Indian
listed companies. This is entirely the result of bottom-up stock picking and
not driven by a view on politics or macroeconomics - nevertheless we are often
asked to comment on India by shareholders. Focusing on the Trusts' Indian
exposure purely from a listing perspective misses the diverse cash flows
generated by the underlying holdings. For example, on a weighted average basis,
the Indian companies in the portfolio generate roughly half of their sales from
the domestic market, with the rest being derived overseas.
The Trust's Indian listed Information Technology companies (Tata Consultancy
Services ('TCS'), Tech Mahindra and Cyient) are internationally competitive and
make the majority of their cash flows helping customers in the US and Europe
who trust them to transform their businesses through the use of technology.
These businesses have proven to be resilient in previous economic downturns and
continue to be very well positioned as companies globally become increasingly
dependent on technology and look to partner with the likes of TCS to help in
their evolution. The Trust's healthcare companies (for example Dr Reddy's
Laboratories) are also globally competitive and generate a large portion of
their sales selling affordable medicine outside India. The cash flows of the
consumer companies (Marico, Dabur India, and Godrej Consumer Products) come
from selling, low-priced daily necessities (e.g. toothpaste, shampoo, and
household insecticides) to millions of Indians every day. These companies have
also built formidable businesses throughout Asia. For example, Marico's brands
in Bangladesh and Godrej's in Indonesia account for 10% and 15% of their sales
respectively.
Whilst there are a large number of families in India whom we deliberately avoid
investing alongside, we are able to find a large number of extremely high
quality family owned companies, with long histories of treating stakeholders
fairly, particularly in times of stress. We believe the quality of these
stewards, combined with a diverse set of cash flows, provide the portfolio with
an appropriate level of resilience against the unexpected, while continuing to
offer attractive opportunities for long-term growth.
Outcomes of Our Philosophy
Our philosophy of owning high-quality companies and our focus on capital
preservation has remained unchanged since we took over management of the Trust
almost ten years ago. It will remain unchanged over the next ten.
Despite the volatility and uncertainty that comes with equity markets,
especially in developing countries, we hope shareholders are comfortable with
the relative predictability of how we invest and the outcomes, both short-term
and long-term, of our approach.
Bottom-up approach
Our bottom-up, benchmark agnostic process is reflected in the Trust's active
share consistently sitting above 90%. The active share measure is simply a
short-hand ratio used to calculate how different a fund looks relative to an
index. The higher the number, the less the Trust looks like the Index. With
such a meaningful difference comes performance that is meaningfully different
to the Index and to other funds with a significant overlap with the Index.
Although this can appear frustrating, especially in strong markets where the
Trust has historically lagged, we are grateful to shareholders and to the Board
for allowing us to invest with such an active approach.
Longer-term time horizon
When we look to allocate the Trust's capital we do so with a time horizon of at
least five years. With this time horizon, we avoid much of the meaningless
noise that entraps equity markets and focus on the enduring values of a
company: the quality of the people, quality of the franchise, quality of the
financials, as well as its sustainability positioning. It is these values that
drive long-term earnings and share prices.
The turnover1 of the Trust has averaged 20% over the last five years. It is
worth highlighting that this number includes transactions where we have either
chosen to trim positions because valuations reached excessive levels, or have
added to existing names. It is not the result of constantly chopping and
changing the names in the Trust based on short-term noise. One example is
Vitasoy International Holdings. As discussed in last year's interim report,
Vitasoy's valuation had been inflated to excessive levels by unrealistic
expectations of extreme growth and its inclusion in a worldwide index which led
to indiscriminate buying from passive funds.
These forces pushed the share price up 60%2 in the first six months of the
year, far ahead of the growth in the underlying business. At its peak,
Vitasoy's position in the Trust's portfolio was above 8%. We subsequently more
than halved the position size to a level more in line, despite its quality,
with the extreme rating. Over the rest of the year, as passive buyers
dissipated and expectations of growth became more realistic, Vitasoy's share
price and valuations came back to more acceptable levels. We have since added
to the Trust's position and brought it back to a top three position.
Underlying the turnover number, ten of the 49 holdings in the portfolio at the
time of writing were bought when Stewart Investors took over management of the
Trust. 19 names were held five years ago. Those original ten companies
currently account for 26% of the Trust's portfolio and since their initial
purchase, have returned on average 17% per annum in GBP3. This is arguably a
better reflection of our true portfolio turnover and an outcome of our
conviction in holding quality companies for the long-term.
1 Turnover is calculated by dividing the average total trading by the manager
as a percentage of the portfolio's market value over the period. Source:
Stewart Investors.
2 Source: Bloomberg
3 Source: Bloomberg
Capital preservation
It is very easy for a manager to achieve a high active share. All they need to
do is own companies different to the index. However, what matters is not only
being different but ensuring those companies are of high quality and capable of
protecting capital in down markets. Below are a couple of ways of expressing
how the Trust performs in such markets.
[Graph shown in Annual Report]
The bars on the left and in the centre of this chart measure the proportion of
the Trust's outperformance in down markets. Since Stewart Investors was
appointed, the Trust has outperformed 75% of months where the Index has fallen
and outperformed in 100% of rolling 12-month periods where the Index has
fallen. The bar on the right, Downside Capture, is a way of expressing the
magnitude of the Trust's ability to protect capital. Over the last five years,
the Trust's downside capture ratio is 55%. This means, on average, the Trust
has fallen close to half that of the Index in down months (100% would have
meant that the Trust fell exactly the same amount as the Index).
This ability to preserve capital in such markets has been critical to the
long-term cumulative performance of the Trust.
Long term cumulative performance
[Graph shown in Annual Report]
Risk Management over Return Measurement
By prioritizing risks and ensuring we own quality companies, we believe the
Trust has the ability to protect capital in bear markets (lose less) and
deliver higher returns (greater capital gains over a full market cycle).
As discussed last year, the environment in which the Trust is invested has
become increasingly fragile. Despite growing macro political risk, record
levels of debt, drought, floods, pandemics and stagnating earnings growth,
markets march relentlessly upward. Much of the recent gains has been fuelled by
an expansion in valuations (and the expectation of interest rates staying lower
for longer) rather than growth in the underlying business. There is a long list
of examples across the US and Asia of companies where earnings were flat or
even fell, some significantly, yet share prices were up more than 50%. This
means generating returns is finite given valuations can't continue to expand
indefinitely and, at some point, share prices have to be grounded by a
company's fundamentals.
Strong markets always invoke the fear of missing out or at least being left
behind and as a result, the focus tends to turn away from risk and toward
returns. Today is no different. Many poor quality or extremely valued companies
have been some of the best performers. From an outcome perspective, these
companies haven't seemed risky (they haven't gone down) and in turn, they
remain popular, and owners of these companies have been handsomely rewarded.
However, there is a difference between risk outcomes and risk exposure: the
latter being a risk that hasn't yet materialised but has the potential to cause
permanent loss of capital. It is this exposure that hurts when sentiment
reverses from a short-term focus on return measurement toward the management of
risk. Examples today would include the popularity of severely indebted
companies, companies without earnings or cash flows, cyclical companies that
believe that there will never be a cycle again, management teams publishing
increasingly aggressive accounting practices and companies on valuation
multiples that extrapolate extreme growth. These are all risks to which we are
unwilling to expose the Trust.
Instead we try to actively manage the risk exposure of the Trust with:
* Our focus on stewardship. For example, 70% of the Trust's portfolio is
invested in companies owned and run by high-quality family stewards who are
similarly focused on protecting and growing their wealth over the
long-term. Where there isn't a family, we ensure that the people behind the
business are suitably aligned from both a financial and cultural
perspective.
* 80% of the Trust's portfolio being invested in companies with net cash
balance sheets and thus relatively resilient to external shock and
well-placed to invest counter-cyclically.
* Owning quality franchises with the potential for attractive long-term
earnings growth.
* Our focus on ensuring companies are well positioned to benefit and
contribute from sustainable development and consequently have earnings
streams that are less at risk from consumer, political and environmental
headwinds.
Comments on ESG
It is becoming increasingly popular to use third-party ESG (environmental,
social and governance) scores as a way of excluding companies and demonstrating
the sustainability credentials of a portfolio. We do not use these services. We
believe that our bottom-up analysis incorporates ESG factors naturally.
When investing with a long-term time horizon, sustainability and quality become
critical to wealth preservation and growth. Understanding how a company is
positioned relative to the development challenges facing our planet forms a key
part of how we think about growth and risk. Challenges include population
pressure, resource constraints, income inequality, ethnic and gender
inequalities, and extreme levels of poverty. We are looking for companies which
are well-positioned to deliver positive long term returns in the face of these
challenges.
Companies positioned well for sustainability themes can make poor long term
investments. There are many companies or sectors that, despite being
well-positioned to contribute to sustainable development, have untrustworthy or
incompetent management teams, franchises incapable of generating economic
returns, or balance sheets loaded with debt. Popular examples today would be
manufacturers of electric vehicles, providers of plant-based meat, and solar
panel manufacturers. We believe that quality is critical if businesses, and
shareholders, are to benefit from the long-term tailwinds enjoyed by an
attractive sustainable development position.
Many of the factors used by third party ESG providers represent a very
simplistic, top-down view of what constitutes 'good ESG'. Scores are often
dependent on the ability of companies to provide reporting on various 'ESG
measures' rather than considerations of quality. Many of the Trust's holdings
do not receive a score - often because companies lack the resources to complete
the required reporting or are too small to be covered by ESG providers. In
addition, providers often apply a negative view to all family owned companies.
We do not agree that such a scoring system provides the resiliency to long term
risks and opportunities arising from ESG factors that these providers claim.
Significant Changes During the Year
Rationales for transactions are discussed in the quarterly reports over the
course of the year but we will repeat them here.
Five new companies entered the Trust over the course of the year.
We initiated a position in Voltronic Power Technology (Taiwan). Voltronic is a
manufacturer of uninterruptible power supplies (UPS); products that provide
critical backup systems for their customers e.g. emergency power for factories,
hospital equipment and data centres. We are comfortable investing alongside the
very capable founder and industry veteran, Alex Hsieh, and his aim to build a
franchise renowned for its quality and trustworthiness. The high product mix,
low volume nature of the business means new entrants can't just throw capital
at the problem (a popular strategy of Chinese industrial companies) and success
requires years of effort in building a broad product offering and reputation in
the industry. The high rates of return that Voltronic earns on its capital
reflect their unique model. Although having some cyclical elements to demand,
Voltronic is well placed to benefit from both the structural growth of the
industry and taking market share from less quality peers.
The Trust participated in the IPO of Uni-Charm Indonesia. This listing allows
the Trust to hold a direct stake in a franchise very well positioned to benefit
from the growing use of female sanitary products and baby nappies from what is
currently a low level relative to more developed markets. The Trust has held a
position in the Japanese-listed parent company for a number of years and so we
are very comfortable with the quality of the steward at Uni-Charm Indonesia. We
believe the growth opportunity provided by under-penetration and margins that
are materially below that of the parent company offer the potential for
attractive levels of growth over the long term.
We initiated a position in ViTrox (Malaysia). ViTrox is a Penang-based,
founder-run company focused on the design, development and assembly of vision
inspection equipment. Attractive margins and returns are reflective of how
essential ViTrox is to their customers' ability to ensure defective products do
not leave the factory floor and in reducing costs as they remove the dependence
on the human eye in a repetitive and demanding environment. ViTrox's founders
remain the company's largest shareholders and in our conversations with them,
we have been very impressed with their integrity and technology-focused
culture. Despite being relatively early in their evolution, with sales of less
than US$100m, ViTrox has developed world-class technology and is very well
placed to benefit as vision inspection is utilised in a growing number of
industries.
Bank Central Asia (BCA) is the leading commercial bank in Indonesia and
possesses what we look for in banking franchises: a strong low-cost deposit
base that enables attractive returns despite the bank participating in largely
low-risk parts of the market. One unique feature of Indonesian banking law is
that directors, including independents, are personally liable for the bank's
solvency; unsurprisingly, they, including BCA, tend to be very conservatively
run with little leverage and lots of excess capital. Indonesia's relatively low
level of credit to GDP and an economy that is largely driven by private
consumption provides an appealing environment for a quality bank such as BCA to
continue compounding its earnings at an attractive, risk-aware rate.
Concepcion Industrial is the largest manufacturer and distributor of air
conditioners in the Philippines and has a number of quality attributes. It is
owned and managed by the Concepcion family - a steward we believe to be
long-term, competent and suitably risk-aware. Their leading market share,
strong brands and established distribution network offer an attractive position
from which to benefit as air conditioning penetration in the Philippines
increases.
Over the year we disposed of a number of smaller positions in the Trust as we
lacked the long-term conviction to make them more meaningful weightings. As
mentioned earlier, due to growing political risk and questions over future
growth we exited all of the Ayala owned companies: Manila Water, Ayala Corp and
Bank of the Philippine Islands.
Over the year, we commissioned a couple of pieces of research work on the palm
oil industry that provided valuable insight into the mounting consumption and
supply chain headwinds facing the sector. On the back of this work, we sold our
small position in the Malaysian palm oil company United Plantations. Despite
United Plantations being the industry and sustainability leader, the headwinds
facing the industry are likely to be too great for any player to be able to
offer attractive levels of long-term returns.
We sold our small position in Public Bank. Although we believe it to be the
most conservative bank in Malaysia, the high indebtedness of the Malaysian
household reduces the opportunity for quality growth while increasing the
fragility of the loan book. We believe Bank Central Asia to be a more
attractive place to protect and grow capital over the long-term.
We sold the Trust's position in the Indian generic pharmaceutical company
Cipla. Although being one of the leading suppliers of medicines in India, we
believe the quality of Cipla's franchise to be headed in the wrong direction.
Ambitions of building a meaningful presence in the US requires having to
contend with a consolidated base of powerful intermediaries and the
unpredictability of constantly going head-to head with capable peers to market
new drugs. Both of these factors contribute to a more volatile earnings stream
and increasing pressure on profit margins.
We sold Kansai Paint listed in Japan, having held it in the Trust for less than
a year. We initiated the original position as we believed Kansai to offer an
attractive way of gaining exposure to Asia's growing demand for paint. However,
recent company presentations and their interest in a large US acquisition
suggest Asia is unlikely to be the key driver of growth over the coming years.
We never like to see companies come in and out of the Trust so quickly but
there will be instances, such as these, where selling and admitting a mistake
is preferable to holding on.
Outlook
Last year, many companies favoured by the market delivered high returns driven
by interest rate-fuelled valuation inflation. Going forward, it is hard to see
such an environment repeating itself and returns are likely to be much more a
function of earnings growth, which is usually the case.
The outbreak of coronavirus adds another major variable to the mix. We will
refrain from making any exact predictions on how it will impact both demand and
supply for the global economy and the Trust's holdings - it is too early to
tell. So far the selling has been indiscriminate and dramatic, which is often
the case in the initial stages of a significant correction. We expect to see
more discernment emerging as the world adjusts to the new environment of
reduced economic activity. In the long-term the impacts of COVID-19 will be
wide and unparalleled. We are still at the beginning of the beginning. These
are extraordinary times, but we have been here before. Who would have thought
that 3 million South Koreans would queue up in 1997 to hand over US$2bn worth
of their own gold to the
Government to help pay the national debt. The history of Asian markets is full
of extraordinary times. Fortunately, the resilience of Asian companies, and
particularly their emphasis on net cash balance sheets, should leave good
quality Asian companies well placed to weather this storm, just as they have
done many times before. What we can do is ensure that the companies we own are
as resilient as possible to uncertainty. Corporate memory of historic crisis,
non-discretionary cash flows and strong balance sheets are all valuable assets
in such scenarios.
As discussed earlier, we believe the Trust has significant exposure to such
companies while our cash balance provides the opportunity to add to some
quality companies if they fall foul of discriminate selling. Going forward, we
believe the quality of the companies in the Trust provides an attractive
balance between safety and growth. This positions the Trust well to continue
delivering long-term capital growth through investment in the Asian region.
Stewart Investors
Investment Manager
6 April 2020
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 and 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 Company is a small registered UK Alternative
Investment Fund Manager under the European Union's Alternative Investment Fund
Managers Directive.
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, which is set out above.
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 Board has retained responsibility for risk management and has appointed
Stewart Investors to manage its investment portfolio. Company management,
company secretarial and administrative services are outsourced to Frostrow
Capital LLP.
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
Investment Manager is provided in the Corporate Governance Report.
Investment Objective
The Company's investment objective along with Stewart Investors' investment
approach is set out at the outset of this report.
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. However, in accordance with
the Alternative Investment Fund Managers Directive ("AIFMD"), the Company was
registered by the FCA as a Small Registered UK Alternative Investment Fund
Manager ("AIFM") with effect from 30 April 2014. To retain its Small Registered
UK AIFM status, the Company is unable to employ gearing. Notwithstanding this,
the Company's approach is not to gear the portfolio.
The use of derivatives is permitted with prior Board approval and within agreed
limits. However, Stewart Investors are unlikely to use derivatives.
Dividend Policy
It is the Company's policy to pursue capital growth for shareholders with
income being a secondary consideration. This means that the Company's
Investment 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 regarding
distributable income 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.
All of the Directors served throughout the year except Mr Troughton, who was
appointed to the Board on 18 December 2019. Terence Mahony served as a Director
until his retirement on 31 January 2020.
Further information on the Directors can be found in the Governance Report.
Key Performance Indicators
The Board of Directors reviews performance against the following measures
(KPIs). During the year, the Board changed the Company's performance objective
to refer to inflation rather than the MSCI Index. The first KPI reflects this
change, accordingly. The other KPIs are unchanged from the prior year.
* Net asset value total return against the Consumer Price Index +6% (the
"Performance Objective")* ^
* Net asset value total return against the peer group* ^
* Average discount/premium of share price to net asset value per share over
the year^
* Ongoing charges ratio^
* Measured over three to five years
^ Alternative Performance Measure (see Glossary).
Net asset value 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. During the year, the performance objective of
the Company was amended to refer to 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. This change was designed to reflect that the Investment
Manager's approach does not consider index composition when investing.
During the year under review, the net asset value per share showed a total
return of +4.2% underperforming the Performance Objective by 3.3% (2019: +4.7%,
underperforming the Performance Objective by 3.7%). Over the past three years,
the Company's net asset value has produced an annualised total return of 7.0%,
underperforming the Performance Objective by 1.4%. Over five years, the
annualised NAV total return was 7.8%, underperforming the Performance Objective
by 0.1%.
A full description of performance during the year under review is contained in
the Investment Manager's Review.
Net asset value total return - peer group
The Company exists in a competitive environment and aims to be a leader in its
peer group, defined as being consistently within the top third of that group
measured by net asset value total return. The Company is committed to building
a long-term investment record and will assess itself by reference to its peers
on a rolling three to five-year basis.
Over the three years ended 31 January 2020, the Company ranked sixth in its
peer group of the Company, an exchange traded fund and seven other investment
trusts with a similar investment objective; over five years it was ranked
seventh. The Company's performance is discussed in the Chairman's Statement
beginning on page 6 and the Investment Manager's Review.
Average discount/premium of share price to net asset value per share
The Board believes that an important driver of an investment trust's share
price discount or premium over the long term is investment performance together
with 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 1,085,000 new shares were issued by the Company at
a 1.2% premium to the Company's cum income net asset value per share at the
time of issue. No shares were bought back by the Company. The Company's share
price discount to the net asset value per share was consistently narrower than
the peer group average.
Average discount of share price to net asset value per share*^ during the year
ended
31 January 2020 31 January 2019
0.5% 3.1%
Peer group average Peer group average
discount 5.0% discount 5.9%
* 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 works hard 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 2020 31 January 2019
1.2% 1.2%
Peer group average 0.9% Peer group average 1.0%
^ Alternative Performance Measure (see Glossary)
Shareholders should be aware that the Trust's relatively low turnover, and the
absence of any cost of capital associated with gearing, will mean that the
Trust's overall running costs are not necessarily as high as some other
investment vehicles, should these be added into the ongoing cost ratio. It
should also be noted that the Trust does not have a performance fee, which are
not included in published charges for peers.
Risk Management
Principal Risks and Uncertainties Mitigation
Investment Risks
(including financial risks)
Market and Foreign Exchange Risk
By the nature of its activities, To manage this risk the Board have appointed
the Company's portfolio is exposed Stewart Investors to manage the portfolio within
to fluctuations in market prices the remit of the investment objective and policy.
(from both individual security Compliance with the investment objective and
prices and foreign exchange rates) investment policy limits is monitored daily by
in the regions and sectors in which Frostrow and Stewart Investors and reported to
it invests. Emerging markets in the the Board monthly. The investment policy limits
Asia Pacific region, in which the ensure that the portfolio is diversified,
portfolio companies operate, are reducing the risks associated with individual
expected to be more volatile than stocks and markets. Stewart Investors' approach
developed markets. As such, is expected to lead to performance that will
investors should be aware that by deviate from that of comparators, including both
investing in the Company they are market indices and other investments companies
exposing themselves to market risk. investing in the Asia Pacific region. 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.
The Board undertakes, at least annually, a
strategic review of the Company, its investment
objective and policy, and Stewart Investors'
approach to managing the mandate.
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.
The Board have also considered the impact of
passive funds on market prices in the Asia
Pacific region as an emerging risk. The Board
believe that flows into/out of passive funds are
likely to increase volatility in the shorter term
as they inflate/deflate prices of companies in
the relevant indices. However, the Board believes
that over the longer term, active management and
a focus on the fundamentals of each investment
will prove beneficial.
Counterparty Risk
The Company is exposed to credit Counterparty risk is managed by the Board
risk arising from the use of through:
counterparties. If a counterparty · reviews of the arrangements with, and
were to fail, the Company could be services provided by, the Custodian to ensure
adversely affected through either that the security of the Company's custodial
delay in settlement or loss of assets is being maintained;
assets. The most significant · monitoring of the Custodian, including
counterparty to which the Company reviews of internal control reports and
is exposed is J.P. Morgan Chase sub-custodial arrangements, as appropriate; and
Bank, the Custodian, which is · reviews of Stewart Investors' approved list
responsible for the safekeeping of of counterparties, the process for monitoring and
the Company's assets. 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 around the The Board regularly discusses global geopolitical
world may have an adverse impact on issues and general economic conditions and
the Company's performance by developments.
causing exchange rate volatility, Political changes in recent years, particularly
changes in tax or regulatory in the US and Asia Pacific region, have increased
environments, a reduced investment uncertainty and volatility in financial markets.
universe and/or a fall in market The Board discusses developments and how they may
prices. impact decision making processes with Stewart
Investors.
The Board is also aware of the potential impact
of climate change on the portfolio as an emerging
risk and discusses this with Stewart Investors.
Given Stewart Investors focus on sustainability,
the Board considers the portfolio to be well
positioned in this regard.
Investment Management Key Person
Risk
There is a risk that the individual The Board manages this risk by:
(s) responsible for managing the · appointing an Investment Manager
Company's portfolio may leave their which operates a team environment such that the
employment or may be prevented from loss of any individual should not impact on
undertaking their duties. service levels;
· receiving regular reports from the
Investment 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 Investment Manager's offices; and
· delegating to the Engagement &
Remuneration Committee responsibility to perform
an annual review of the service received from the
Investment Manager, including, inter-alia, the
team supporting the lead manager and their
succession planning.
Shareholder Relations
The Company is also exposed to the In managing this risk the Board:
risk, particularly if the · reviews the Company's investment
investment strategy and approach objective and policy, and Stewart Investors'
are unsuccessful, that the Company investment approach in relation to the investment
underperforms its peer group and performance, market and economic conditions and
fails to achieve its Performance the operation of the Company's peers;
Objective, resulting in the Company · regularly discusses the Company's
becoming unattractive to investors future development and strategy;
and a widening of the share price · undertakes a regular review of the
discount to the net asset value per level of the share price discount/premium to net
share. asset value per share and considers ways in which
share price performance may be enhanced,
including the effectiveness of marketing, share
issuance and share buy backs, where appropriate;
and
· reviews an analysis of the
shareholder register at each Board meeting and is
kept informed of shareholder sentiment.
In addition, the Chairman contacts the major
shareholders annually to understand their views
of the Company.
Operational Risk
Service Providers
As an externally-managed investment To manage these risks the Board:
trust, the Company is reliant on · visited all key service providers to
the systems of its service gain an understanding of their control
providers for dealing, trade environment, and the processes in place to
processing, administrative mitigate any disruptive events;
services, financial and other · receives a monthly report from
functions. If such systems were to Frostrow Capital LLP, which includes, inter alia,
fail or be disrupted (including as confirmation of compliance with applicable laws
a result of cyber-crime or a and regulations;
pandemic) this could lead to a · reviews internal control reports and
failure to comply with applicable key policies (including disaster recovery
laws, regulations and governance procedures and business continuity plans) of its
requirements and/or to a financial service providers;
loss. · maintains a risk matrix with details
of risks to which the Company is exposed, the
approach to 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.
The Board is responsible for the management of the risks faced by the Company.
The Board has carried out a robust assessment of the principal and emerging
risks facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity. The Audit Committee on behalf
of the Board regularly reviews these risks and how they are managed. 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:
Impact of Brexit
The Board has considered whether Brexit poses a discrete risk to the Company.
At the date of this report, the UK had entered into a "transition period" while
it negotiates new arrangements with the EU. There is, therefore, still
considerable uncertainty about the effects of Brexit.
As the Company is priced in sterling and the Company's portfolio companies are
priced in foreign currencies sharp movements in exchange rates can affect the
net asset value (see page 69 for the foreign currency sensitivity analysis).
Furthermore, whilst the Company's current shareholders are predominantly UK
based, sharp or unexpected changes in investor sentiment, or tax or regulatory
changes, could lead to short term selling pressure on the Company's shares
which potentially could lead to the share price discount widening.
Overall, however, the Board believes that over the longer term, Brexit is
unlikely to affect the Company's business model or whether the Company's shares
trade at a premium or discount to the net asset value per share. The Board will
continue to monitor developments as they occur.
Coronavirus
The Board has identified the emergence and spread of the new coronavirus
(COVID-19) as an emerging risk facing the Company. The Board has reviewed the
business continuity plans of each of the Company's principal service providers
in relation to the steps being taken to combat the spread of the virus and will
continue to monitor developments as they occur. See the Chairman's Statement
and the Investment Manager's Review for further comments.
Stakeholder Interests and Board Decision-Making (Section 172 Statement)
Under new reporting regulations and the new AIC Code, the Directors must now
expain more fully how they have discharged their duties under Section 172 of
the Companies Act 2006 in promoting the success of the Company for the benefit
of the members as a whole. This includes the likely consequences of the
Directors' decisions in the long-term and how they have taken wider
stakeholders' needs into account.
The Directors aim to act fairly as between the Company's shareholders. The
Board's approach to shareholder relations is summarised in the Corporate
Governance Report. The Chairman's Statement provides an explanation of actions
taken by the Directors during the year to achieve the Board's long-term aim of
ensuring that the Company's shares trade at a price close to the NAV per share.
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 business relationships with the 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
Directors believe that fostering constructive and collaborative relationships
with the Company's service providers will assist in their promotion of the
success of the Company for the benefit of all shareholders.
The Board engages with representatives from its service providers throughout
the year. Representatives from Stewart Investors and Frostrow are in attendance
at each Board meeting. As the Investment Manager and the Manager, Company
Secretary and Administrator respectively, the services they provide are
fundamental to the long-term success of the Company. The Chairman's Statement,
and the Report of the Directors, describe relevant decisions taken during the
year relating to Stewart Investors and Frostrow. In particular, they describe
changes to the Company's performance measurement and the reduction in the
Investment Management Fee which were decisions taken in consultation with
Stewart Investors and which both parties believe will be of benefit to
shareholders over the longer term. Further details about the matters discussed
in Board meetings and the relationship between Stewart Investors and the Board
are set out in the Corporate Governance Report. Stewart Investors' emphasis on
sustainable development and their commitment to effective stewardship are
particularly valued by the Board. The Chairman's Statement discusses this in
further detail.
Representatives from other service providers are asked to attend Board meetings
when deemed appropriate. During the year under review, the Audit Committee
conducted a series of risk-focussed deep dives at the offices of each of the
principal service providers in order to better understand their operations, the
risks facing their businesses and the potential impact on the Company should
such risks materialise. The Audit Committee also approved an increase in the
fee for the external audit. Further information is provided in the Audit
Committee Report.
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 the Company
itself has no environmental, human rights, social or community policies.
The Investment 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 Investment
Manager (under their parent, legal entity name, First State Investments) 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.
Performance and Future Developments
The Board concentrates its attention on the Company's investment performance,
Stewart Investors' investment approach and on factors that may have an effect
on this approach.
The Board monitors the performance of the Company's investment portfolio in
relation to the Performance Objective and also its peer group.
The Board is regularly updated by Frostrow Capital LLP on wider investment
trust industry issues and regular discussions are held concerning the Company's
future development and strategy.
A review of the Company's year, its performance and the outlook for the Company
can be found in the Chairman's Statement and in the Investment Manager's
Review.
The Company's overall strategy remains unchanged.
By order of the Board
Frostrow Capital LLP
Company Secretary
6 April 2020
Board of Directors
James Williams
Independent Non-Executive Chairman
Joined the Board in 2013 and became Chairman in June 2015
James is Chairman of the Nomination Committee.
Shareholding in the Company: 50,000
Skills and Experience
James has worked in investment management for over 45 years. He was formerly
the Chief Investment Officer of Baring Asset Management. He was a founder in
Asia of the Henderson Baring group. James has also held several non-executive
directorships.
His leadership of the Board draws on his long and varied experience on
investment company boards, and the fund management industry. His focus is on
long-term strategic issues, which are a key characteristic of Board discussion.
Other Appointments
James is currently a non-executive Director of BMO UK High Income Trust plc.
Standing for re-election
Yes
Charlotta Ginman, FCA
Independent Non-Executive Director
Joined the Board in 2014
Charlotta is Chair of the Audit Committee and the Senior Independent Director.
Shareholding in the Company: 13,789
Skills and Experience
Charlotta has held senior positions in the investment banking and the
technology/telecom sectors.
As an FCA Charlotta brings to the Board, and especially the Audit Committee
under her Chairmanship, an incisive and detailed perspective of the Company's
financial position and its risk control environment. Charlotta is not afraid to
confront complex issues on a range of topics.
Other Appointments
Charlotta is a non-executive Director and Chair of the Audit Committee of Polar
Capital Technology Trust plc and Keywords Studios plc. She is also a
non-executive Director of Unicorn AIM VCT plc.
Standing for re-election
Yes
Sian Hansen
Independent Non-Executive Director
Joined the Board in 2015
Sian is Chair of the Engagement & Remuneration Committee.
Shareholding in the Company: 10,096
Skills and Experience
Previously Sian was Executive Director of the Legatum Institute and before
this, Managing Director of the UK think tank Policy Exchange. Earlier in her
career Sian was a senior equity analyst and Co-Director of Sales for Asian
Emerging Markets at Société Générale.
Sian enhances the Board's knowledge of sustainability, enabling meaningful
debates with the Investment Manager to take place. As a thought leader in
political and other forums she brings a valuable perspective on geo-political
matters.
Other Appointments
Sian is currently chief operating officer of CIT Group and a non-executive
Director of the JP Morgan Multi-Asset Trust PLC.
Standing for re-election
Yes
Robert Talbut
Independent Non-Executive Director
Joined the Board in 2016
Shareholding in the Company: 9,611
Skills and Experience
Robert was formerly a director and Chief Investment Officer at Royal London
Asset Management Limited.
Robert is well prepared to take a contrary position on issues that may come up.
His understanding of today's corporate governance and the matters that a Board
must confront, helps to ensure that the Company is run in accordance with best
practice.
In addition, his ongoing knowledge of the asset management industry and the
strategies adopted by portfolio managers is useful in many board debates.
Other Appointments
Robert is non-executive Chairman of Shires Income PLC and a non-executive
Director of Schroder UK Mid Cap Fund PLC, and JP Morgan American Investment
Trust plc.
Standing for re-election
Yes
Edward Troughton
Independent Non-Executive Director
Joined the Board in 2019
Shareholding in the Company: 18,157
Skills and Experience
Edward was previously the Principal Representative Officer of Bank of London
and the Middle East in Dubai. Before that he was Managing Director of Alliance
Trust Investments for seven years and Managing Director at BlackRock with
various responsibilities including Head of Asia, based in Hong Kong. He started
his career at Baring Asset Management as an Asian Equity portfolio manager.
Edward's experience in the investment sector and first-hand knowledge of living
and working in Asia enables the Board to engage authoritatively with the
Investment Manager on their investment strategy.
Other Appointments
Edward is a partner at Oldfield Partners LLP.
Standing for election
Yes
Corporate Governance
The Board and Committees
Responsibility for effective governance lies with the Board whose role is to
promote the long-term success of the Company. The governance framework of the
Company reflects the fact that as an externally-managed investment company it
has no employees and outsources portfolio management to Stewart Investors and
company management, company secretarial and administrative services to Frostrow
Capital LLP. The Board generates value for shareholders through its oversight
of the service providers and management of costs associated with running the
Company.
The Board
Chairman - James Williams
Senior Independent Director - Charlotta Ginman
Three additional non-executive Directors, all considered independent.
Key responsibilities:
* to provide leadership and set strategy, values and standards within a
framework of effective controls which enable risk to be assessed and
managed;
* to ensure that a robust corporate governance framework is implemented; and
* to challenge constructively and scrutinise performance of all outsourced
activities.
Engagement & Remuneration Committee
Chair - Sian Hansen
All Independent Directors
Key responsibilities:
* to review the contracts, the performance and remuneration of the Company's
principal service providers;
* to set the remuneration policy of the Company; and
* to review the terms and conditions of the Directors' appointments.
Audit Committee
Chair - Charlotta Ginman, FCA
All Independent Directors
Key responsibilities:
* to review the Company's financial reports;
* to oversee the risk and control environment; and
* to have primary responsibility for the relationship with the Company's
external auditor, to review their independence and performance, and to
determine their remuneration.
Nomination Committee
Chairman - James Williams
All Independent Directors
Key responsibilities:
* to review the Board's structure and composition; and
* to make recommendations for any changes or new appointments.
Copies of the full terms of reference, which clearly define the
responsibilities of each Committee, can be obtained from the Company Secretary
and will be available for inspection at the Annual General Meeting. They can
also be found on the Company's website at www.pacific-assets.co.uk.
Corporate Governance Statement
The Board has considered the principles and recommendations of the AIC Code of
Corporate Governance published in February 2019 (the "AIC Code"). The AIC Code
addresses all the principles set out in the UK Corporate Governance Code (the
"UK Code"), as well as setting out additional provisions on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and provisions of the
AIC Code (which has been endorsed by the Financial Reporting Council) will
provide better information to shareholders. By reporting against the AIC Code,
the Company meets its obligations under the UK Code (and associated disclosure
requirements under paragraph 9.8.6 of the Listing Rules) and as such does not
need to report further on issues contained in the UK Code which are irrelevant
to the Company as an externally-managed investment company, including the
provisions relating to the role of the chief executive, executive directors'
remuneration and the internal audit function.
The AIC Code is available on the AIC's website www.theaic.co.uk and the UK Code
can be viewed on the Financial Reporting Council website www.frc.org.uk. The
AIC Code includes an explanation of how the AIC Code adapts the principles and
provisions set out in the UK Code to make them relevant for investment
companies.
The Company has complied with the principles and provisions of the AIC Code.
The Corporate Governance Statement forms part of the Report of the Directors.
Board Leadership and Purpose
Purpose and Strategy
The purpose and strategy of the Company are described in the Strategic Report.
Strategy issues and all material operational matters are considered at Board
meetings.
Board Culture
The Board aims to fully enlist differences of opinion, unique vantage points
and areas of expertise. The Chairman encourages open debate to foster a
supportive and co-operative approach for all participants. Strategic decisions
are discussed openly and constructively. The Board aims to be open and
transparent with shareholders and other stakeholders, and for the Company to
conduct itself responsibly, ethically and fairly in its relationships with
service providers.
Shareholder Relations
During the year, the Board met with institutional shareholders to understand
their views on governance and the Company's performance. The Chairman also met
with the Company's largest institutional shareholders to discuss the
performance measurement changes outlined in the Chairman's Statement beginning
on page 6. In general, representatives of Stewart Investors and Investec Bank
plc, the Company's corporate stockbroker, meet regularly with institutional
shareholders and private client asset managers to discuss investment strategy,
any issues or concerns and, if applicable, corporate governance matters.
Reports on investor sentiment and the feedback from investor meetings are
discussed with the Directors at the following Board meeting.
Shareholder Communications
The Directors welcome the views of all shareholders and place considerable
importance on communications with them. Shareholders wishing to communicate
with the Chairman, or any other member of the Board, may do so by writing to
the Company Secretary at the offices of Frostrow Capital LLP. Shareholders are
usually encouraged to attend the Annual General Meeting, where they are
normally given the opportunity to question the Chairman, the Board and
representatives of Stewart Investors. In addition, Stewart Investors usually
make a presentation to shareholders covering the investment performance and
strategy of the Company at the Annual General meeting. However, in light of
government advice relating to the coronavirus outbreak at the date of this
report, the Board has made different arrangements for the forthcoming AGM and
these are explained in the Chairman's Statement.
Significant Holdings and Voting Rights
Details of the shareholders with substantial interests in the Company's shares,
the Directors' authorities to issue and repurchase the Company's shares, and
the voting rights of the shares are set out in the Report of the Directors.
Conflicts of Interest
Company Directors have a statutory obligation to avoid a situation in which
they (and connected persons) have, or can have, a direct or indirect interest
that conflicts, or may possibly conflict, with the interests of the Company. In
line with the Companies Act 2006, the Board has the power to authorise any
potential conflicts of interest that may arise and impose such limits or
conditions as it thinks fit. A register of interests and potential conflicts is
maintained and is reviewed at every Board meeting. No conflicts of interest
arose during the year under review.
Division of Responsibilities
Responsibilities of the Chairman and the SID
The Chairman's primary role is to provide leadership to the Board, assuming
responsibility for its overall effectiveness in directing the company. The
Chairman is responsible for:
* taking the chair at general meetings and Board meetings, conducting
meetings effectively and ensuring all Directors are involved in discussions
and decision-making
* setting the agenda for Board meetings and ensuring the Directors receive
accurate, timely and clear information for decision-making
* taking a leading role in determining the Board's composition and structure
* overseeing the induction of new directors and the development of the Board
as a whole
* leading the annual board evaluation process and assessing the contribution
of individual Directors
* supporting and also challenging the Investment Manager (and other suppliers
where necessary)
* ensuring effective communications with shareholders and, where appropriate,
stakeholders
* engaging with shareholders to ensure that the Board has a clear
understanding of shareholder views
The Senior Independent Director (SID) serves as a sounding board for the
Chairman and acts as an intermediary for the other Directors and the
shareholders. The SID is responsible for:
* working closely with the Chairman and providing support
* leading the annual assessment of the performance of the Chairman
* holding meetings with the other non-executive Directors without the
Chairman being present, on such occasions as necessary
* carrying out succession planning for the Chairman's role
* working with the Chairman, other Directors and shareholders to resolve
major issues
* being available to shareholders and other Directors to address any concerns
or issues they feel have not been adequately dealt with through the usual
channels of communication (i.e. through the Chairman or the Investment
Manager)
Director Independence
The Board consists of five non-executive Directors, each of whom is independent
of Stewart Investors and the Company's other service providers. Each of the
Directors, including the Chairman, was independent on appointment and continues
to be independent when assessed against the circumstances set out in Provision
13 of the AIC Code (and Provision 12 of the AIC Code which relates specifically
to the Chairman). The Board carefully considers these guidelines but places
particular weight on the view that independence is evidenced by an individual
being independent of mind, character and judgement. The Board considers that
all of the Directors are independent and there are no relationships or
circumstances which are likely to impair or could appear to impair their
judgement.
Directors' Other Commitments
During the year, none of the Directors took on any significant new commitments
or appointments. All of the Directors consider that they have sufficient time
to discharge their duties.
Board Meetings
The Board meets formally at least five times each year. The primary focus at
regular Board meetings is the review of investment performance and associated
matters, including asset allocation, marketing/investor relations, peer group
information and industry issues. The Board reviews key investment and financial
data, revenue and expenses projections, analyses of asset allocation,
transactions, customised performance metrics and performance comparisons, share
price and net asset value performance. The Board's approach to addressing the
Investment Manager's and the Company's share price performance during the year
is described in the Chairman's Statement.
The Board is responsible for setting the Company's corporate strategy and
reviews the continued appropriateness of the Company's investment objective,
investment strategy and investment restrictions at each meeting.
Matters Reserved for Decision by the Board
The Board has adopted a schedule of matters reserved for its decision. This
includes, inter alia, the following:
* Decisions relating to the strategic objectives and overall management of
the Company, including the appointment or removal of the Investment Manager
and other service providers, establishing the investment objectives,
strategy and performance comparators, the permitted types or categories of
investments and the proportion of assets that may be invested in them, and
the markets in which transactions may be undertaken.
* Requirements under the Companies Act 2006, including approval of the half
year and annual financial statements, recommendation of the final dividend
(if any), declaration of any interim dividends, the appointment or removal
of the Company Secretary, and determining the policy on share issuance and
buybacks.
* Matters relating to certain Stock Exchange requirements and announcements,
the Company's internal controls, and the Company's corporate governance
structure, policies and procedures.
* Matters relating to the Board and Board committees, including the terms of
reference and membership of the committees, and the appointment of
directors (including the Chairman and the SID).
Day-to-day investment management is delegated to Stewart Investors and
operational management is delegated to Frostrow.
The Board takes responsibility for the content of communications regarding
major corporate issues, even if Stewart Investors or Frostrow acts as
spokesman. The Board is kept informed of relevant promotional material that is
issued by Stewart Investors.
Relationship with the Investment Manager
A representative from Stewart Investors is in attendance at each Board meeting
to provide updates and address questions on specific matters and to seek
approval for specific transactions which they are required to refer to the
Board.
The Engagement and Remuneration Committee evaluates Stewart Investors'
performance and reviews the terms of the Investment Management Agreement at
least annually. The outcome of this year's review is described in the Report of
the Directors.
Relationship with Other Service Providers
Representatives from Frostrow are in attendance at each Board meeting to
address questions on the Company's operations, administration and governance
requirements. The Engagement and Remuneration Committee monitors and evaluates
all of the Company's other service providers, including Frostrow, and also the
Custodian, the Registrar and the Broker. At the most recent review in December
2019, the Committee concluded that all the service providers were performing
well and should be retained on their existing terms and conditions.
Stewardship and the Exercise of Voting Powers
The Board and the Investment Manager support the UK Stewardship Code, which
sets out the principles of effective stewardship by institutional asset owners
and asset managers. Stewart Investors (under their legal parent entity name,
First State Investments) is a Tier 1 signatory to the UK Stewardship Code.
First State Investments produce an annual Responsible Investment and
Stewardship Report which is published on their website
www.firststateinvestments.com.
The Board has delegated authority to Stewart Investors (as Investment Manager)
to engage with companies held in the portfolio and to vote the shares owned by
the Company.
Stewart Investors have a strong commitment to effective stewardship and their
approach, including their consideration of environmental, social and governance
issues, is set out in their Stewardship and Corporate Engagement policy which
can be found on their website www.stewartinvestors.com. During the year, the
Board reviewed quarterly reports from Stewart Investors on their voting and
engagement and is satisfied with their approach.
Independent Professional Advice
The Board has formalised arrangements under which the Directors, in the
furtherance of their duties, may seek independent professional advice at the
Company's expense. No such advice was sought during the year.
Company Secretary
The Directors have access to the advice and services of an investment trust
specialist Company Secretary through its appointed representative, which is
responsible for advising the Board on all governance matters. The Company
Secretary ensures governance procedures are followed and that the Company
complies with applicable statutory and regulatory requirements.
Composition, Succession and Evaluation
Board Evaluation
During the year, the performance of the Board, its committees and the
individual Directors (including each Director's independence) was evaluated
through a formal assessment process led by the Chairman. This involved the
circulation of a Board effectiveness questionnaire, tailored to suit the nature
of the Company, followed by discussions between the Chairman and each of the
Directors. The performance of the Chairman was evaluated by the other Directors
under the leadership of Charlotta Ginman as the Senior Independent Director.
The review concluded that the Board was working well.
The number of scheduled Board and Committee meetings held during the year and
the number of meetings attended by each Director is set out below:
Number of meetings Board Audit Committee Engagement & Nomination
(5) (3) Remuneration Committee
Committee (2)
(1)
James Williams1 5 3 1 2
Charlotta Ginman 5 3 1 2
Sian Hansen 5 3 1 2
Terence Mahony2 5 3 1 2
Robert Talbut 5 3 1 2
1. The Chairman of the Board ceased to be a member of the Audit Committee on
26 September 2018 however, at the Committee's request, continued to attend
meetings and was reappointed on
17 December 2019.
2. Retired from the Board on 31 January 2020.
Note: Edward Troughton was appointed as a Director on 18 December 2019 and to
the Committees with effect from 1 February 2020. Mr Troughton attended a Board
meeting on 17 December 2019 as an observer and there were no subsequent
meetings until after the year end.
Other ad hoc meetings of the Board and Committees are held in connection with
specific events as and when necessary. All the Directors (who were appointed at
the time) attended the Annual General Meeting held on 27 June 2019.
All Directors submit themselves for election and annual re-election thereafter
by shareholders (unless they intend to retire from the Board). The particular
contribution of each individual Director is summarised at the outset of the
Governance section. Following the evaluation process, the Board recommends that
shareholders vote in favour of the Directors' re-election at the forthcoming
AGM.
As an independent external review of the Board was last undertaken in 2017, it
is the Board's intention that the next such review will be held towards the end
of 2020. It is expected that the results of that review will be summarised in
the next Annual Report.
Succession Planning
The Board, meeting as the Nomination Committee, regularly considers its
structure and recognises the need for progressive refreshment.
The Board has an approved succession planning policy to ensure that (i) there
is a formal, rigorous and transparent procedure for the appointment of new
directors; and (ii) the Board is comprised of members who collectively display
the necessary balance of professional skills, experience, length of service and
industry/Company knowledge. The policy is reviewed annually and at such other
times as circumstances may require.
During the year, the Board reviewed the policy on Directors' tenure and
considered the overall length of service of the Board as a whole. A new
Director, Edward Troughton, was appointed, succeeding Terence Mahony who
retired at the year end.
Policy on the Tenure of the Chairman and other Non-Executive Directors
The tenure of each independent, non-executive director, including the Chairman,
is not ordinarily expected to exceed nine years. However, the Board has agreed
that the tenure of the Chairman may be extended briefly provided such an
extension is conducive to the Board's overall orderly succession. The Board
believes that this more flexible approach to the tenure of the Chairman is
appropriate in the context of the regulatory rules that apply to investment
companies, which ensure that the chair remains independent after appointment,
while being consistent with the need for regular refreshment and diversity.
Appointments to the Board
The Nomination Committee considers annually the skills possessed by the
Directors and identifies any skill shortages to be filled by new directors. The
rules governing the appointment and replacement of directors are set out in the
Company's Articles of Association and the aforementioned succession planning
policy. Where the Board appoints a new director during the year, that director
will stand for election by shareholders at the next AGM. The minimum number of
directors is two and the maximum is seven. When considering new appointments,
the Board endeavours to ensure that it has the capabilities required to be
effective and oversee the Company's strategic priorities. This will include an
appropriate range, balance and diversity of skills, experience and knowledge.
The Company is committed to ensuring that any vacancies arising are filled by
the most qualified candidates.
During the year, Edward Troughton was appointed to the Board. The Board engaged
the services of a specialist recruitment platform, Nurole, to assist with the
search process. Nurole sourced and prepared a long list of potential candidates
for consideration by the Nomination Committee. The Nomination Committee then
selected a short list of candidates to interview, following which a
recommendation was made to the Board that Mr Troughton be appointed as a
Director. Nurole has no other connection with the Company.
Diversity Policy
The Board supports the principle of Boardroom diversity, of which gender is one
important aspect and the recommendations of Lord Davies review and the
Hampton-Alexander review. The Company's policy is that the Board should be
comprised of directors who collectively display the necessary balance of
professional skills, experience, length of service and industry knowledge and
that appointments to the Board should be made on merit, against objective
criteria, including diversity in its broadest sense.
The objective of the policy is to have a broad range of approaches,
backgrounds, skills, knowledge and experience represented on the Board. The
Directors believe that this will make the Board more effective at promoting the
long-term sustainable success of the Company and generating value for
shareholders by providing a range of perspectives and the challenge needed to
support good decision-making. To this end achieving a diversity of perspectives
and backgrounds on the Board will be a key consideration in any Director search
process.
The gender balance of three men and two women meets the original recommendation
of Lord Davies' report on Women on Boards and the more recent target set for
FTSE 350 companies. The Board is aware that targets concerning ethnic diversity
have been recommended for FTSE 250 companies. While the Company is not a FTSE
350 constituent and the Board is small in size, the Directors will continue to
monitor developments in these areas and to consider diversity during any
director search process.
Audit, Risk and Internal Control
The Statement of Directors' Responsibilities describes the Directors'
responsibility for preparing this report. The Audit Committee Report explains
the work undertaken to allow the Directors to make this statement and to apply
the going concern basis of accounting. It also sets out the main roles and
responsibilities and the work of the Audit Committee throughout the year, and
describes the Directors' review of the Company's risk management and internal
control systems.
A description of the principal risks facing the Company and an explanation of
how they are being managed is provided in the Strategic Report.
The Board's assessment of the Company's longer-term viability is set out in the
Report of the Directors.
Remuneration
The Directors' Remuneration Report sets out the levels of remuneration for each
Director and explains how Directors' remuneration is determined.
Frostrow Capital LLP
Company Secretary
6 April 2020
Report of the Directors
The Directors present this Annual Report on the affairs of the Company together
with the audited financial statements and the Independent Auditor's Report for
the year ended 31 January 2020.
Business and Status of the Company
The Company is registered as a public limited company in Scotland (Registered
Number SC091052) and is an investment company within the terms of Section 833
of the Companies Act 2006 (the 'Act'). Its shares are listed on the premium
segment of the Official List of the UK Listing Authority and traded on the main
market of the London Stock Exchange, which is a regulated market as defined in
Section 1173 of the Act.
The Company has applied for and been accepted as an investment trust under
Section 1158 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 of
Statutory Instrument 2011/2999. This approval relates to accounting periods
commencing on or after 1 February 2012. The Directors are of the opinion that
the Company has conducted its affairs so as to be able to retain such approval.
It is the Directors' intention that the Company should continue to manage its
affairs so as to be a qualifying investment for inclusion in the stocks and
shares components of an Individual Savings Account ('ISA') and Junior ISA.
The Company is a member of the Association of Investment Companies ('AIC').
Alternative Performance Measures
The Financial Statements set out the required statutory reporting measures of
the Company's financial performance. In addition, the Board assesses the
Company's performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised at the outset
of this report and explained in greater detail in the Strategic Report, under
the heading 'Key Performance Indicators'. The Directors believe that these
measures enhance the comparability of information between reporting periods and
investors in understanding the Company's performance.
The measures used for the year under review have remained consistent with the
prior year.
Definitions of the terms used and the basis of calculation adopted are set out
in the Glossary.
Annual General Meeting
THE FOLLOWING INFORMATION TO BE DISCUSSED AT THE FORTHCOMING ANNUAL GENERAL
MEETING IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the action you should take, you should seek
advice from your stockbroker, bank manager, solicitor, accountant or other
financial adviser authorised under the Financial Services and Markets Act 2000
(as amended). If you have sold or transferred all of your ordinary shares in
the Company, you should pass this document, together with any other
accompanying documents, including the form of proxy, at once to the purchaser
or transferee, or to the stockbroker, bank or other agent through whom the sale
or transfer was effected, for onward transmission to the purchaser or
transferee.
Resolutions relating to the following items of special business will be
proposed at the forthcoming Annual General Meeting.
Resolution 12 Authority to allot shares
Resolution 13 Authority to disapply pre-emption rights
Resolution 14 Authority to buy back shares
Resolution 15 Authority to hold General Meetings (other than the AGM) on at
least 14 clear days' notice
The full text of the resolutions can be found in the Notice of Annual General
Meeting. Explanatory notes regarding the resolutions can be found after the
Notice.
Results and Dividend
The results attributable to shareholders for the year are shown on the Income
Statement. Details of the Company's dividend record can be found in the
Strategic Report and the dividend policy is outlined in the Strategic Report.
An interim dividend of 3.0p per ordinary share will be paid on 2 July 2020 to
shareholders on the register on 29 May 2020. The associated ex-dividend date is
28 May 2020.
Capital Structure
As at 31 January 2020 there were 120,958,386 ordinary shares of 12.5p each
('shares') in issue (2019: 119,873,386). All shares rank equally for dividends
and distributions. Each shareholder is entitled to one vote on a show of hands
and, on a poll, to one vote for every share held. Details of the substantial
shareholders in the Company are listed on page 42.
At the start of the year under review, the Directors had shareholder authority
to issue up to 11,987,338 ordinary shares of 12.5 pence each on a
non-pre-emptive basis and to buy back up to 17,969,020 ordinary shares in the
market. At the Company's annual general meeting held on Thursday, 27 June 2019,
these authorities expired and new authorities to allot up to 12,068,338
ordinary shares (representing 10% of the Company's issued share capital) on a
non-pre-emptive basis and to buy back up to 18,090,439 ordinary shares
(representing 14.99% of the Company's issued share capital) were granted.
During the year, 1,085,000 new shares were issued (2019: nil) at a minimum
premium of 1.2% to the last published cum-income net asset value per share.
Details are provided in the notes to the financial statements.
No shares were repurchased during the year and there are no shares held in
Treasury.
The giving of powers to issue or buy-back the Company's shares requires the
relevant resolution to be passed by shareholders. Proposals for the renewal of
the Board's authorities to issue and buy-back shares are detailed in the Notice
of AGM beginning on page 77.
There are no restrictions concerning the transfer of securities in the Company;
no special rights with regard to control attached to securities; no
restrictions on voting rights; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements which the
Company is party to that might affect its control following a successful
takeover bid.
Financial Instruments
The Company's financial instruments comprise its investment portfolio, cash
balances, debtors and creditors which arise directly from its operations such
as sales and purchases awaiting settlement, and accrued income. The financial
risk management objectives and policies arising from its financial instruments
and the exposure of the Company to risk are disclosed in note 14 to the
financial statements, beginning on page 68.
Viability Statement
The Directors have carefully assessed the Company's current position and
prospects as described in the Chairman's Statement and the Investment Manager's
Review, as well as the Principal Risks and Uncertainties and have formed a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
The particular factors the Directors have considered in assessing the prospects
of the Company, its ability to liquidate its portfolio, and in selecting a
suitable period for this assessment are as follows:
* the Company is a long-term investor and the Investment Manager adopts a
long-term view when making investments. When making new investments, the
anticipated holding period can be five years or more. The Board believes
this also reflects the investment horizons of the majority of the Company's
shareholders. While anticipated holding periods can be longer than five
years, due to the limitations inherent in predicting market conditions, the
Directors have determined that five years is the longest period for which
it is reasonable to make this assessment;
* the portfolio is comprised of investments traded on major international
stock exchanges and there is a spread of investments by country and by size
of company. The Directors have taken into account an assessment of the
liquidity of the portfolio and considered the viability of the Company
under various scenarios. Using historic market crashes and the recent
global economic crisis caused by the coronavirus pandemic as base cases,
the tests modelled the effects of severe stock market volatility on the
Company's NAV and its ability to meet its liabilities over the next five
years. Further information is provided in the Audit Committee report.
Based on the results of the tests, the Board concluded that the schedule of
investment limits and restrictions put in place by the Board and the
mitigating actions for the principal risks would protect the value of the
Company's assets to a sufficient degree;
* the closed-ended nature of the Company means that, unlike an open-ended
fund, it does not need to realise investments when shareholders wish to
sell their shares; and
* the expenses of the Company are predictable and modest in comparison with
the assets and there are no capital commitments currently foreseen which
would alter that position.
In carrying out their assessment, the Directors have made the following
assumptions:
* investors will wish to continue to have exposure to the type of companies
that the Company invests in, namely companies listed in the Asia Pacific
region;
* the performance of the Company will be satisfactory;
* the threats to the Company's solvency or liquidity, outlined in the
Principal Risks and Uncertainties, will be managed or mitigated as outlined
in the Strategic Report; and
* there will be no material change in strategy or objectives, nor any events
that would prevent the Company from continuing to operate as an investment
trust.
Principal Service Providers
Investment Manager
The Company's investment portfolio is managed by Stewart Investors which had
approximately
GBP17.9 billion in assets under management as at 31 December 2019.
Stewart Investors are engaged under the terms of an Investment Management
Agreement (the "IMA") effective from 1 February 2015. The IMA is terminable by
six months' notice. Stewart Investors have complied with the terms of the IMA
throughout the year to 31 January 2020. During the year under review, a
management fee of 0.9% of net assets was payable. With effect from 1 February
2020, the management fee has reduced to 0.85% of net assets per annum. Further
information is provided overleaf and in the Chairman's Statement beginning on
page 6.
Manager, Company Secretary and Administrator
Frostrow Capital LLP acts as the Company's Manager, Company Secretary and
Administrator. It is an independent provider of services to the investment
companies sector and currently has 13 other investment trust clients whose
assets totalled approximately GBP6.9 billion as at 18 March 2020.
Frostrow Capital LLP provides company management, company secretarial and
administrative services to the Company under the terms of a Management,
Administrative and Secretarial Services Agreement, effective from 1 February
2015. During the year under review Frostrow received a fixed fee of GBP60,000 per
annum plus 0.11% per annum of net assets up to GBP150 million, plus 0.075% per
annum of net assets in excess of GBP150 million up to GBP500 million. Frostrow's
appointment can be terminated by either party by giving six months' notice.
Further details of the fees payable to Stewart Investors and Frostrow Capital
LLP are set out in note 3 to the financial statements.
Custodian
J.P. Morgan Chase Bank have been appointed as the Company's Custodian. The
Custodian's fees are charged according to the jurisdiction in which the
holdings are based. Variable transaction fees are also chargeable.
Investment Manager and Manager Evaluation and Re-Appointment
The review of the performance of Stewart Investors as Investment Manager and
Frostrow Capital LLP as Manager, Company Secretary and Administrator is a
continuous process carried out by the Board and the Engagement and Remuneration
Committee (the "ERC"), with a formal evaluation being undertaken each year. As
part of this process the Board monitors the services provided by Stewart
Investors and Frostrow and receives regular reports and views from them. The
Board also receives comprehensive performance measurement reports to enable it
to determine whether or not the performance objective set by the Board has been
met.
The ERC formally reviewed the appointment of Stewart Investors in December
2019. The ERC agreed with Stewart Investors a reduction in the investment
management fee, with a recommendation being made to the Board. It was agreed
that the investment management fee would reduce from 0.9% to 0.85% of the
Company's net asset value, with effect from 1 February 2020.
The Board believes the continuing appointment of Stewart Investors, under the
terms described above, is in the interests of shareholders. In coming to this
decision the Board took into consideration the following additional reasons:
* the terms of the Investment Management Agreement, in particular the level
and method of remuneration and the notice period, and the comparable
arrangements of a group of the Company's peers; and
* the quality and depth of experience of Stewart Investors and the level of
performance of the portfolio in absolute terms and also by reference to the
Company's Performance Objective and the Company's peer group over the
medium to longer term.
The ERC also formally reviewed Frostrow's appointment in December 2019 with a
formal recommendation being made to them. The Board believes the continuing
appointment of Frostrow Capital LLP, under the terms described above is in the
interests of shareholders. In coming to this decision, the Board took into
consideration the quality and depth of experience of the management,
administrative and company secretarial team that Frostrow Capital LLP allocates
to the Company.
Directors
Directors' and Officers' Liability Insurance Cover
Directors' and Officers' liability insurance cover was maintained by the Board
during the year ended 31 January 2020. It is intended that this policy will
continue for the year ending 31 January 2021 and subsequent years.
Directors' Indemnities
As at the date of this report, a deed of indemnity has been entered into by the
Company and each of its Directors under which the Company has agreed to
indemnify each Director, to the extent permitted by law, in respect of certain
liabilities incurred as a result of carrying out his role as a Director of the
Company. Each Director is indemnified against the costs of defending any
criminal or civil proceedings or any claim by the Company or a regulator as
they are incurred provided that where the defence is unsuccessful the Director
must repay those defence costs to the Company. The indemnities are qualifying
third party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the offices of
Frostrow during normal business hours and will be available for inspection at
the Annual General Meeting.
Articles of Association
Amendment of the Company's Articles of Association requires a special
resolution to be passed by shareholders.
Substantial Interests in Share Capital
As at 29 February 2020, being the latest practicable date before publication of
the Annual Report, the Company was aware of the following substantial interests
in the voting rights of the Company:
Number of %
shares held held
Brewin Dolphin Capital
Investments (Ireland) 12,068,457 9.98
Rathbones 11,628,066 9.61
Brewin Dolphin Stockbrokers 10,101,009 8.35
Smith & Williamson 6,503,859 5.38
Interactive Investor 5,509,467 4.55
Charles Stanley 5,234,862 4.33
Hargreaves Lansdown 4,856,968 4.02
AJ Bell 4,040,332 3.34
Veritas Investment Management 3,750,393 3.10
Beneficial Owners of Shares - Information Rights
The beneficial owners of shares who have been nominated by the registered
holder of those shares to receive information rights under Section 146 of the
Companies Act 2006 are required to direct all communications to the registered
holder of their shares rather than to the Company's registrar, Equiniti, or to
the Company directly.
Modern Slavery Act 2015
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle, does not have customers.
Therefore, the Directors do not consider that the Company is required to make a
statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking. The Company's suppliers are typically professional advisers and
the Company's supply chains are considered to be low risk in this regard.
Anti-Bribery and Corruption Policy
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly, it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit for
themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company.
A copy of the Company's Anti Bribery and Corruption Policy can be found on its
website at
www.pacific-assets.co.uk. The policy is reviewed annually by the Audit
Committee.
Prevention of the Facilitation of Tax Evasion
In response to the implementation of the Criminal Finances Act 2017, the Board
adopted a zero-tolerance approach to the criminal facilitation of tax evasion.
A copy of the Company's policy on preventing the facilitation of tax evasion
can be found on the Company's website www.pacific-assets.co.uk. The policy is
reviewed annually by the Audit Committee.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under the
Companies Act 2006 (Strategic Reports and Directors' Reports) Regulations 2013
or the Companies (Directors' Report) and Limited Liability Partnerships (Energy
and Carbon Report) Regulations 2018
Political Donations
The Company has not made and does not intend to make any political donations.
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of information commissioned
by the Organisation for Economic Cooperation and Development and incorporated
into UK law by the International Tax Compliance Regulations 2015. CRS requires
the Company to provide certain additional details to HMRC in relation to
certain shareholders. The reporting obligation began in 2016 and will be an
annual requirement going forward. The Registrars, Equiniti, have been engaged
to collate such information and file the reports with HMRC on behalf of the
Company.
Listing Rule 9.8.4
The Directors confirm that there are no disclosures to be made in regard of
Listing Rule 9.8.4.
By order of the Board
Frostrow Capital LLP
Company Secretary
6 April 2020
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with UK accounting standards, including FRS 102 The
Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
* assess the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
* use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the 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 responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that complies with that law and those
regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, which is
maintained by the Company's Investment Manager. Legislation in the UK governing
the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Going Concern
The content of the Company's portfolio, trading 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 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 coronavirus pandemic) on the Company's NAV and its
expenses. Further information is provided in the Audit Committee report., and
in light of the results of these tests, the conclusions drawn in the Viability
Statement, 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 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 for the year ended
31 January 2020; and
* the Strategic Report and the Directors' Report include a fair review of the
development and performance of information required by 4.1.8R to 4.1.11R of
the FCA's Disclosure Guidance and Transparency Rules.
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
6 April 2020
Audit Committee Report
for the year ended 31 January 2020
Introduction from the Chair
I am pleased to present the fifth Audit Committee report to shareholders, for
the year ended 31 January 2020, since I was appointed Chair of the Committee in
2015.
Composition
As all the Directors on the Board are independent non-executive directors, the
Committee comprises the whole Board.
At least one member of the Committee has recent and relevant financial
experience and the Committee as a whole has competence relevant to the
investment trust sector. I am a Fellow of the Institute of Chartered
Accountants in England and Wales and I chair the audit committees of two other
listed investment companies; the other Committee members have a combination of
financial, investment and other relevant experience gained throughout their
careers. The experience of the Committee members can be assessed from the
Directors' biographies.
In light of the Chairman of the Board's relevant financial experience, his
continued independence and his valued contributions in Committee meetings, the
Audit Committee considers it appropriate that he is a member.
Role and Responsibilities
A comprehensive description of the Committee's role, its duties and
responsibilities, can be found in its terms of reference, which are available
on the Company's website www.pacific-assets.co.uk
In summary, the Committee's principal functions are:
* to monitor the integrity of the Company's annual and half-year financial
statements and any announcements relating to the Company's financial
performance;
* to review the internal controls and risk management systems of the Company
and its third-party service providers;
* to make recommendations to the Board regarding the appointment,
re-appointment or removal of the external Auditor, and to be responsible
for leading an audit tender process at least once every ten years;
* to have primary responsibility for the Company's relationship with the
external Auditor, including reviewing the external Auditor's independence
and objectivity as well as the effectiveness of the external audit process;
* to agree the scope of the external Auditor's work and to approve their
remuneration; and
* to develop and implement policy on the engagement of the external Auditor
to supply non-audit services and to review and approve any non-audit work
to be carried out by the external Auditor.
Financial Statements
The Board asked the Audit Committee to confirm that, in its opinion, the Annual
Report taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's financial
position, performance, business model and strategy. In doing so, the Committee
considered:
* the procedures followed in the production of the Annual Report, including
the processes in place to assure the accuracy of factual content;
* the extensive levels of review that were undertaken in the production
process, by Frostrow and also by the Committee; and
* the internal control environment operated by Stewart Investors (the
Investment Manager), Frostrow Capital LLP ('Frostrow', the Manager, Company
Secretary and Administrator), JP Morgan (the Custodian) and other service
providers.
Significant Issues
Significant Reporting Matters
Issue Considered How the issue was addressed
Valuation of Investments The Committee took steps to reconfirm its
understanding of the processes in place to
record investment transactions and to
value the portfolio. It was noted that
established pricing vendors are used to
source and verify the prices of the
Company's investments. The correct
recording of investment transactions was
established through regular
reconciliations of both cash and
securities by Frostrow with the Custodian
or relevant bank.
Existence and Ownership of Investments The Committee received assurance that all
investment holdings and cash/deposit
balances had been agreed by Frostrow to an
independent confirmation from the
Custodian or relevant bank. The Committee
reviewed the internal controls reports of
Frostrow and JP Morgan, the Custodian.
Other Reporting Matters
Recognition of Revenue from Investments
Frostrow confirmed to the Committee that all dividends, both received and
receivable, had been accounted for correctly. It was noted that there was an
appropriate segregation of duties between Frostrow and JP Morgan.
Accounting Policies
The Committee ensured that the accounting policies set out in the notes to the
financial statements were applied consistently throughout the year.
Going Concern
The Committee reviewed the Company's financial position and concluded that it
was appropriate to adopt the going concern basis of accounting. Further detail
is provided in the Statement of Directors' Responsibilities.
Viability Statement
The Committee considered the longer-term viability of the Company in connection
with the Board's statement in the Report of the Directors. The Committee
reviewed the Company's financial position (including its cash flows and
liquidity position), the principal risks and uncertainties and the results of a
series of stress tests and scenarios which considered the impact of severe
stock market and currency volatility on shareholders' funds. This included
modelling a further substantial market fall, and significantly reduced market
liquidity, to that experienced recently in connection with the coronavirus
pandemic.
The stress tests applied values to a number of the Company's principal risks
and the effect on the portfolio of those risks materialising was projected over
a five year period. The results demonstrated the impact on the Company's NAV,
its expenses and its ability to meet its liabilities over the same five year
period. The Committee concluded it was reasonable for the Board to expect that
the Company will be able to continue in operation and meet its liabilities as
they fall due over the next five financial years.
Internal Controls and Risk Management
The Board has overall responsibility for the Company's risk management and
internal control systems and for reviewing their effectiveness. The Company
applies the guidance published by the Financial Reporting Council on internal
controls. Internal control systems are designed to manage, rather than
eliminate, the risk of failure to achieve the business objective and can
provide only reasonable and not absolute assurance against material
misstatement or loss. These controls aim to ensure that the assets of the
Company are safeguarded, that proper accounting records are maintained, and
that the Company's financial information is reliable.
A description of the principal risks facing the Company and an explanation of
how they are being managed is provided in the Strategic Report. The Directors
have a robust process for identifying, evaluating and managing the risks faced
by the Company, including emerging risks, which are recorded in a risk matrix.
The Audit Committee, on behalf of the Board, considers each risk as well as
reviewing the mitigating controls in place. The likelihood of occurrence and
the impact of each risk is assessed, and the resultant numerical rating
determines its ranking into 'Principal/Key', 'Significant' or 'Minor'. The
Committee also considers at each meeting whether there are any emerging risks
to which the Company is becoming increasingly exposed. As an externally managed
investment trust, the Company is reliant on the systems utilised by its service
providers. Therefore, the process also involves the Audit Committee receiving
and examining internal control reports from the Company's principal service
providers. The Audit Committee then reports to the Board on its findings.
The Committee reviewed the effectiveness of the Company's risk management and
internal controls systems at each of its meetings during the year. There were
no changes to the Company's risk management processes during the year and no
significant failings or weaknesses were identified.
The Committee also conducted its annual review of internal controls reports
from Stewart Investors, Frostrow, JP Morgan and Equiniti (the Registrar).
Following its review, the Committee concluded that there were no significant
control weaknesses or other issues that were required to be brought to the
attention of the Board. The Committee is satisfied that appropriate systems
have been in place for the year under review and up to the date of approval of
this report.
Investment Trust Status
The Committee sought and received confirmation from Frostrow that the Company
continues to comply with Section 1158 of the Corporation Tax Act 2010, so that
its status as an investment trust is maintained.
Withholding Tax
The Committee also monitored the reclamation of withholding tax, receiving
regular updates from Frostrow on the process and the appointment of specialist
local agents in jurisdictions such as Taiwan, India and Bangladesh.
Taxation
In 2018 the rules on the taxation of Indian capital gains changed. Previously,
short term capital gains (defined as capital gains on securities that had been
held for less than a year) were subject to a 15% tax rate and long term capital
gains were not subject to tax. Following the changes, long term capital gains
became subject to a tax rate of 10%. The Committee has been monitoring the
provision for Indian capital gains tax, which has increased to GBP1,767,000 as at
31 January 2020 (2019: GBP94,000), receiving regular updates on the position. A
local tax specialist has been appointed to ensure that tax returns and any tax
due are calculated accurately and in line with the relevant legislation.
Internal Audit
The Committee considered whether there was a need for the Company to have an
internal audit function. As the Company delegates its day-to-day operations to
third parties and has no employees, the Committee concluded that there was no
such need.
Other Activities During the Year
The Committee met three times during the year with all members attending each
meeting.
In addition to carrying out the principal functions listed above, the Committee
also reviewed:
* the Committee's terms of reference, updated to reflect the new AIC Code
of Corporate Governance published in February 2019;
* the revised, 2020 UK Stewardship Code published by the Financial
Reporting Council and Stewart Investors' Stewardship and Corporate Engagement
Policy;
* Stewart Investors' list of approved brokers, commission rates and the
amount of commission paid by the Company throughout the year;
* the cyber security and data storage arrangements put in place by the
Company's service providers;
* the whistleblowing policies of the Company's service providers;
* the Company's anti-bribery and corruption policy;
* the Company's commitment to the prevention of the criminal facilitation
of tax evasion;
* the Company's audit tender guidelines; and
* the Company's gifts and hospitality policy.
At the end of the previous financial year and throughout the year under review,
the Committee also undertook a series of 'deep dive' visits to the offices of
the Company's principal service providers: Stewart Investors, Frostrow, JP
Morgan and Equiniti Limited. These visits helped the Committee to better
understand the operations and internal control environments of the Company's
service providers. The visits focused primarily on areas such as risk and
control management, fraud identification, cyber security and business
resiliency. At the visit to JP Morgan, the Committee also examined the
management of the network of sub-custodians and the efficacy of their
monitoring processes. No issues arose as a result of these visits.
External Auditor
The Audit
The Committee reviewed KPMG LLP's audit plan, including the nature and scope of
the audit, on
25 September 2019. The Committee also met with KPMG on 3 March 2020 to discuss
the progress of the audit and the draft Annual Report. The Committee then met
KPMG on 17 March 2020 to formally review the outcome of the audit.
This year, in addition to their usual work on the financial statements, the
Committee discussed with the Auditor our reporting on the emerging risk of the
new coronavirus, the presentation of our Alternative Performance Measures (see
Glossary), the statement on how the Directors' have complied with duties under
section 172 of the Companies Act, and our reporting under the revised AIC Code
of Corporate Governance (see the Corporate Governance Report).
Remuneration
The Committee approved a fee of GBP27,000 for the audit in 2020. This represents
an increase of GBP5,400 or 25% from the previous year. The Committee believes
that the increase is reflective of the increased level of work required to
audit a listed company and that the level of the increase is in line with wider
trends in the audit industry.
Independence and Effectiveness
The Committee evaluated the independence of the Auditor and the effectiveness
of the external audit. In order to fulfil this responsibility, the Committee
reviewed:
* the senior audit personnel in the audit plan, in order to ensure that
there were sufficient, suitably experienced staff with knowledge of the
investment trust sector working on the audit;
* the steps the Auditor takes to ensure its independence and objectivity;
* the statement by the Auditor that they remain independent within the
meaning of the relevant regulations and their professional standards;
* the extent of any non-audit services provided by the Auditor (there were
none during the year under review);
* the Company's policy on former employees of the Auditor (and other
service providers) joining the Board;
* the Auditor's fulfilment of the agreed audit plan, including their
ability to communicate with management and to resolve any issues promptly and
satisfactorily;
* the presentation of the audit findings; and
* feedback from KPMG and also Frostrow as the Manager, Company Secretary
and Administrator on their working relationship.
The Committee is satisfied with the Auditors' independence and the
effectiveness of the audit process.
Appointment and Tenure
KPMG has been the appointed external auditor since 2008, meaning that they have
carried out the external audit for the past 12 years. The last audit tender
process was held in 2017, following which the Committee recommended to the
Board that KPMG be reappointed. In accordance with current legislation, the
Company is required to instigate an audit tender process at least every 10
years and to change its auditor after a maximum of 20 years. Based on these
requirements, another tender process will be conducted no later than 2027, with
the audit for the year ending 31 January 2028 being the last that KPMG may
undertake. The Committee will, however, continue to consider annually the need
to go to tender for audit quality, remuneration or independence reasons.
Mr Waterson has been the audit partner allocated to the Company since 2018.
Audit legislation requires the audit partner to rotate after serving a maximum
of five years with the Company; it is therefore anticipated that Mr Waterson
will serve as audit partner until completion of the audit process in 2022.
The re-appointment of KPMG as Auditor to the Company is subject to shareholder
approval at the next Annual General Meeting to be held in June 2020, and
details can be found in the Notice of AGM.
Non-Audit Services
The Committee develops and implements the Company's policy on the provision of
non-audit services by the Auditor. Any non-audit services to be provided by the
Auditor must be pre-approved by the Committee. Such services are only
permissible where the service is not expressly prohibited by audit legislation,
where no conflicts of interest arise, where the independence of the Auditor is
non likely to be impinged by undertaking the work, and the quality and
objectivity of both the audit and non-audit work will not be compromised.
Non-audit services may be provided if they are inconsequential or would have no
direct effect on the Company's financial statements and the audit firm would
not place significant reliance on the work for the purposes of the statutory
audit. In addition, non-audit fees must not exceed 70% of the average audit
fees in the last three years.
No non-audit services were provided by the Auditor in the year under review or
in the prior year.
Effectiveness of the Committee
A formal, internal Board review which included an assessment of the Committee's
effectiveness, was led by the Chairman of the Board during the year. The
outcome was positive with no significant concerns expressed. The last
externally facilitated review was held in 2017. The next such review will be
undertaken later in 2020.
Charlotta Ginman FCA
Chair of the Audit Committee
6 April 2020
Directors' Remuneration Report
for the year ended 31 January 2020
Statement from the Chair
As Chair of the Engagement and Remuneration Committee, I am pleased to present
the Directors' Remuneration Report to shareholders. The Directors' Remuneration
Report is subject to an annual advisory vote and therefore an ordinary
resolution for the approval of this report will be put to shareholders at the
Company's forthcoming Annual General Meeting (AGM).
The law requires the Company's Auditor to audit certain disclosures provided in
this report. Where disclosures have been audited, they are indicated as such
and the Auditor's audit opinion is included in its report to shareholders.
The Engagement & Remuneration Committee considers the framework for the
remuneration of the Directors. It reviews the ongoing appropriateness of the
Company's remuneration policy and the individual remuneration of Directors by
reference to the activities of the Company and in comparison with other
companies of a similar structure and size. This is in-line with the AIC Code.
The simple fee structure reflects the non-executive nature of the Board, which
itself reflects the Company's business model as an externally-managed
investment trust (please refer to the Business Review for more information).
Accordingly, statutory requirements relating to executive directors' and
employees' pay do not apply.
The Engagement & Remuneration Committee met once during the year and it was
agreed to increase the fees paid to the Directors with effect from 1 February
2020 as follows: Chairman GBP38,000 pa (previously GBP36,000 pa, an increase of
5.6%); Chair of the Audit Committee GBP31,000 pa (previously GBP30,000 pa, an
increase of 3.3%) ; Director GBP27,000 pa (previously GBP26,000 pa, an increase of
3.8%). The last increase to the fees paid to the Directors took effect from 1
February 2019.
Directors' Fees
The Directors as at the date of this report received the fees listed in the
table below. These exclude any employer's national insurance contributions, if
applicable. No other forms of remuneration were received by the Directors and
so fees represent the total remuneration of each Director.
No communications have been received from shareholders regarding Directors'
remuneration and no remuneration consultants were engaged during the year.
Article 117 of the Company's Articles of Association provides that Directors
are entitled to be reimbursed for reasonable expenses incurred by them in
connection with the performance of their duties and attendance at Board and
General Meetings.
Under HMRC guidance, travel expenses and other out of pocket expenses may be
considered as taxable benefits for the Directors. Where expenses reimbursed to
the Directors are classed as taxable under HMRC guidance, they are shown in the
taxable expenses column of the Directors' remuneration table along with the
associated tax liability which is settled by the Company.
Approval
A resolution to approve the Remuneration Report was put to shareholders at the
AGM of the Company held on 27 June 2019. Of the votes cast, 98.2% were in
favour and 1.8% were against; this resolution will be put to shareholders again
this year. A binding resolution to approve the Remuneration Policy was last put
to shareholders at the AGM held on 29 June 2017. Of the votes cast, 97.3% were
in favour and 2.7% were against. A resolution to approve the Remuneration
Policy will be put to shareholders at the forthcoming AGM to be held on 25 June
2020.
Directors' Remuneration for the Year (audited)
The Directors who served in the year received the following remuneration:
Date of Appointment Fixed Taxable Total Fixed Taxable Total
to the Board Fees Expenses Remun- Fees Expenses Remun-
2020 2020 eration 2019 2019 eration
GBP GBP 2020 GBP GBP 2019
GBP GBP
James Williams 1 October 2013 36,000 535 36,535 35,000 887 35,887
Charlotta Ginman 9 October 2014 30,000 - 30,000 30,000 - 28,500
Sian Hansen 3 August 2015 26,000 - 26,000 25,000 - 25,000
Terence Mahony* 1 February 2004 26,000 - 26,000 25,000 - 25,000
Robert Talbut 23 September 2016 26,000 338 26,338 25,000 370 25,370
Edward Troughton 18 December 2019 3,167 - 3,167 - - -
147,167 873 148,040 138,500 370 139,457
* Mr Mahony retired as a Director on 31 January 2020
Loss of Office
Directors do not have service contracts with the Company but are engaged under
letters of engagement. These specifically exclude any entitlement to
compensation upon leaving office for whatever reason.
Relative Cost of Directors' Remuneration
The bar chart below shows the comparative cost of Directors' fees compared with
the level of dividend distribution and Company expenses for the years ended 31
January 2019 and 2020.
Directors' Interests in Shares (audited)
The interests of the Directors who served in the year in the share capital of
the Company are shown in the table below:
Number of shares held
31 January 2020 31 January 2019
James Williams Beneficial 50,000 40,000
Charlotta Ginman Beneficial 13,789 9,716
Sian Hansen Beneficial 10,096 4,680
Terence Mahony1 Beneficial 25,000 25,000
Robert Talbut Beneficial 9,611 9,611
Edward Troughton2 Beneficial 18,157 0
Total 126,653 89,007
1 Retired from the Board on 31 January 2020
2 Appointed to the Board on 18 December 2019
Since the year end there have not been any changes in the Directors' interests.
Share Price Total Return
The Board has adopted the MSCI All Country Asia ex Japan Index measured on a
total return, sterling adjusted basis as a comparator for the Company's
performance. In accordance with statutory reporting purposes, this report is
required to compare the Company's share price total return to that of the
Index. The chart below provides this comparison.
Total Shareholder Return for the Ten Years to 31 January 2020
[Graph shown in Annual Report]
Directors' Remuneration Policy
The Directors' Remuneration Policy is subject to a binding shareholder vote
every three years. It is due to be brought before shareholders again at the
forthcoming AGM. There have been no changes to the Remuneration Policy during
the year and no changes are proposed for the year ending 31 January 2021. If,
however, the Remuneration Policy is varied, shareholder approval for the new
policy will be sought at the AGM following such variation. The Board has agreed
that the Directors Remuneration Policy will be reviewed at least once a year to
ensure that it remains appropriate.
The Directors' Remuneration Policy provides that fees payable to the Directors
should reflect the time spent by the Board on the Company's affairs and the
responsibilities borne by the Directors and should be sufficient to enable
candidates of high calibre to be recruited. Directors are remunerated in the
form of fees payable monthly in arrears, paid to the Director personally. There
are no long-term incentive schemes, bonuses, share option schemes or pension
arrangements and the fees are not specifically related to the Directors'
performance, either individually or collectively. The Company does not have any
employees.
The remuneration for the non-executive Directors is determined within the
limits set out in the Company's Articles of Association. The present limit is GBP
200,000 in aggregate per annum.
Any new Director being appointed to the Board that has not been appointed as
either Chairman, Chair of the Audit Committee or Senior Independent Director
will, under the current level of fees, receive GBP27,000 per annum.
None of the Directors has a service contract. The terms of their appointment
provide that Directors shall retire and be subject to election at the first AGM
after their appointment and to re-election annually thereafter. The terms also
provide that a Director may be removed without notice and that compensation
will not be due on leaving office.
Sian Hansen
Chair of the Engagement & Remuneration Committee
6 April 2020
Income Statement
for the year ended 31 January 2020
Year ended Year ended
31 January 2020 31 January 2019
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments 8 - 14,154 14,154 - 13,192 13,192
Exchange differences - (260) (260) - 414 414
Income 2 5,964 - 5,964 6,120 - 6,120
Investment management and 3 (888) (2,665) (3,553) (832) (2,496) (3,328)
management fees
Other expenses 4 (637) - (637) (636) - (636)
Return on ordinary 4,439 11,229 15,668 4,652 11,110 15,762
activities before taxation
Taxation on ordinary 5 (507) (1,714) (2,221) (459) (243) (702)
activities
Return after taxation 3,932 9,515 13,447 4,193 10,867 15,060
attributable to equity
shareholders
Return per share (p) 7 3.3 7.8 11.1 3.5 9.1 12.6
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 2020
Note Ordinary Share Capital Special Capital Revenue Total
Share premium redemption reserve reserve reserve GBP'000
Capital GBP'000 reserve GBP'000 GBP'000 GBP'000
GBP'000 GBP'000
At 31 January 2018 14,984 5,737 1,648 14,572 277,917 5,873 320,731
Return after taxation - - - - 10,867 4,193 15,060
Ordinary dividends 6 - - - - - (3,117) (3,117)
paid
At 31 January 2019 14,984 5,737 1,648 14,572 288,784 6,949 332,674
Return after taxation - - - - 9,515 3,932 13,447
Ordinary dividends 6 - - - - - (3,614) (3,614)
paid
Issue of shares 136 3,074 - - - - 3,210
At 31 January 2020 15,120 8,811 1,648 14,572 298,299 7,267 345,717
The accompanying notes are an integral part of these statements.
Statement of Financial Position
as at 31 January 2020
2020 2019
Notes GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 8 309,517 297,348
Current assets
Debtors 9 806 224
Cash and cash equivalents 40,418 36,152
41,224 36,376
Creditors (amounts falling due within one 10 (3,257) (1,050)
year)
Net current assets 37,967 35,326
Total assets less current liabilities 347,484 332,674
Non-current liabilities
Provision for liabilities 11 (1,767) -
Net assets 345,717 332,674
Capital and reserves
Called up share capital 12 15,120 14,984
Share premium account 8,811 5,737
Capital redemption reserve 15 1,648 1,648
Special reserve 15 14,572 14,572
Capital reserve 15 298,299 288,784
Revenue reserve 15 7,267 6,949
Equity shareholders' funds 345,717 332,674
Net asset value per Ordinary Share (p) 13 285.8p 277.5p
The financial statements were approved and authorised for issue by the Board of
Directors on 6 April 2020 and signed on its behalf by:
James Williams
Chairman
The accompanying notes are an integral part of these statements.
Pacific Assets Trust plc - 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 stateements.
(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'), issued in October 2019, 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 coronavirus pandemic)
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 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 and carried at fair (market) value.
The Board is of the opinion that the Company is engaged in a single segment of
business, namely investing in accordance with the Company's 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 regulated in the United
Kingdom and pays dividends and expenses in sterling. All values are rounded to
the nearest thousand pounds (GBP'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
2020 2019
GBP'000 GBP'000
Income from investments
Overseas Dividends 5,898 6,091
Bank Interest 66 29
5,964 6,120
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 grossed up at the
appropriate rate 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. Investment Management and Management Fees
2020 2019
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee
- Stewart Investors 794 2,381 3,175 742 2,227 2,969
Management fee - Frostrow 94 284 378 90 269 359
888 2,665 3,553 832 2,496 3,328
Further information regarding Investment Management and Manager's fees can be
found on page 41.
For accounting policy see note 4 overleaf.
4. Other Expenses
2020 2019
GBP'000 GBP'000
Directors' fees 148 139
Auditor's remuneration for:
- annual audit 27 21
Custody fees 207 189
Printing and postage 23 27
Registrar fees 23 34
Broker retainer 30 30
Listing fees 25 21
Legal and professional fees 38 80
Other expenses 115 95
Total expenses 637 636
All expenses and interest are accounted for on an accruals basis. Expenses and
interest are charged to the Income Statement as a revenue item 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:
* Investment Management and Management 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.
5. Taxation
(a) Analysis of Charge in the Year
2020 2019
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Overseas taxation 507 13 520 500 10 510
Indian capital gains tax - 1,701 1,701 - 233 233
Overseas tax recoverable - - - (41) - (41)
507 1,714 2,221 459 243 702
Overseas tax arose as a result of irrecoverable withholding tax on overseas
dividends and Indian capital gains tax (CGT).
Indian capital gains tax arises on capitals 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.
The charge of GBP1,701,000 in the year ended 31 January 2020 arose on unrealised
long term capital gains on securities still held and is included in the
provisions for liabilities as set out in note 11 on page 67. The charge for the
year ended 31 January 2019 was GBP233,000. This included a provision of GBP94,000
for unrealised capital gains tax on securities still held at the balance sheet
date, and a tax payment of GBP139,000 for short term capital gains tax.
(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% (2019: 19.0%).
The differences are explained below:
2020 2019
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total return on ordinary 4,439 11,229 15,668 4,652 11,110 15,762
activities before tax
Corporation tax charged at
19.0%
(2019: 19.0%) 843 2,134 2,977 884 2,111 2,995
Effects of:
Non-taxable (gains) on - (2,689) (2,689) - (2,506) (2,506)
investment
Non-taxable exchange - 49 49 - (79) (79)
differences
Unutilised management 277 506 783 273 474 747
expenses
Income not subject to (1,120) - (1,120) (1,157) - (1,157)
corporation tax
Indian capital gains tax - 1,701 1,701 - 233 233
Overseas taxation 507 13 520 500 10 510
Overseas tax recovered - - - (41) - (41)
Tax charge for the year 507 1,714 2,221 459 243 702
As at 31 January 2020 the Company had unutilised management expenses and other
reliefs for taxation purposes of GBP43,716,000 (2019: GBP39,592,000). It is not
anticipated that these will be utilised in the foreseeable future and as such
no related deferred tax asset has been recognised.
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 2020, were as follows:
2020 2019
GBP'000 GBP'000
- final dividend paid for the year ended 31 January 2019 of 3,614 -
3.0p per share
- final dividend paid for the year ended 31 January 2018 of - 3,117
2.6p per share
In respect of the year ended 31 January 2020, an interim dividend of 3.0p has
been declared and will be reflected in the Annual Report for the year ending 31
January 2021. Details of the ex-dividend and payment dates are shown in the
Report of the Directors.
The Board's current policy is to only pay dividends out of revenue reserves.
Therefore the amount available for distribution as at 31 January 2020 is GBP
7,267,000 (2019: GBP6,949,000). The Company generated a revenue return in the
year ended 31 January 2020 of GBP3,932,000 (2019: GBP4,193,000).
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:
2020 2019
GBP'000 GBP'000
Revenue available for distribution by way of dividend for the 3,932 4,193
year
Interim dividend of 3.0p per share (2019: final dividend of (3,629) (3,614)
3.0p)
Transfer to revenue reserves 303 579
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:
2020 2019
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence Pence
Basic 3.3 7.8 11.1 3.5 9.1 12.6
The total return per share is based on the total return attributable to
shareholders of GBP13,447,000 (2019: GBP15,060,000).
The revenue return per share is based on the net revenue return attributable to
shareholders of GBP3,932,000 (2019: GBP4,193,000).
The capital return per share is based on the net capital return attributable to
shareholders of GBP9,515,000 (2019: return of GBP10,867,000).
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 120,643,454
(2019: 119,873,386).
The calculations of the returns per Ordinary Share have been carried out in
accordance with IAS 33 Earnings per Share.
8. Investments
2020 2019
GBP'000 GBP'000
Investments
Cost at start of year 208,369 201,054
Investment holding gains at start of year 88,979 99,893
Valuation at start of year 297,348 300,947
Purchases at cost 79,287 46,212
Disposal proceeds (81,272) (63,003)
Gains on investments 14,154 13,192
Valuation at end of year 309,517 297,348
Cost at 31 January 222,736 208,369
Investment holding gains at 31 January 86,781 88,979
Valuation at 31 January 309,517 297,348
The Company received GBP81,272,000 (2019: GBP63,003,000) from investments sold in
the year. The book cost of these investments when they were purchased was GBP
64,920,000 (2019: GBP38,897,000). 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 GBP130,000
(2019: GBP74,000) and transaction costs on sales of GBP240,000 (2019: GBP184,000).
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).
9. Debtors
2020 2019
GBP'000 GBP'000
Amount due from brokers 635 102
Accrued income 134 92
Other debtors 37 30
806 224
10. Creditors: Amounts Falling Due Within One Year
2020 2019
GBP'000 GBP'000
Amounts due to brokers 2,294 6
Investment management fee - Stewart Investors 784 759
Management fee - Frostrow 93 90
Other creditors 86 195
3,257 1,050
11. Provisions for Liabilities
2020 2019
GBP'000 GBP'000
Deferred taxation on unrealised capital gains on Indian 1,767 -
securities
See note 5 for further details and accounting policy.
12. Share Capital
2020 2019
GBP'000 GBP'000
Allotted and fully paid:
120,958,386 Ordinary shares of 12.5p each (2019: 119,873,386) 15,120 14,984
During the year 1,085,000 (2019: nil) Ordinary shares were issued raising net
proceeds of GBP3,210,000 (2019: GBPnil).
The capital of the Company is managed in accordance with its investment policy
which is detailed in the Strategic Report on page 22.
The Company does not have any externally imposed capital requirements.
13. Net Asset Value Per Share
The net asset value per share of 285.8p (2019: 277.5p) is calculated on net
assets of GBP345,717,000 (2019: GBP332,674,000), divided by 120,958,386 (2019:
119,873,386) 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 on page 66) 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 shown on page 60.
All investments have been classified as Level 1 (2019: All Level 1).
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;
(iii) 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
(iv) 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 investment 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. 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 GBP30.7 million (2019: GBP29.5
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:
2020 2019
Investments Cash Debtors Creditors Investments Cash Debtors Creditors
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Indian rupee 129,709 1 16 (1,767) 107,693 1 - (99)
New Taiwanese 45,607 32 - - 36,548 31 102 -
dollar
Hong Kong 14,023 - - (2,094) 27,529 - - -
dollar
Philippine peso 9,529 - 635 - 27,321 - - -
Indonesian 21,996 - - (200) 22,074 - - -
rupiah
Japanese yen 39,122 - 118 - 20,636 - 79 -
Bangladesh taka 16,461 - - - 16,804 - - -
Thai baht 5,643 - - - 13,839 - - -
Malaysian 3,424 - - - 8,391 - - -
ringgit
Sri Lankan 4,429 - - - 6,725 - - -
rupee
Singapore 12,107 9,931 - - 3,878 11,956 - -
dollar
US dollar - 11,037 - - 3,730 11,832 - -
Korean won 7,467 - - - 2,180 - 14 -
Total 309,517 21,000 769 (4,061) 297,348 23,820 195 (99)
At 31 January 2020 the Company had GBP19,419,000 of sterling cash balances (2019:
GBP12,332,000).
During the year sterling strengthened by an average of 0.1% (2019: weakened by
2%) 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 GBP29.7 million (2019: negative GBP28.9 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 GBP
36.4 million (2019: positive GBP35.4 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 Investment 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:
2020 2019
GBP'000 GBP'000
Cash and cash equivalents 40,418 36,152
Debtors 806 224
41,224 36,376
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 on pages 24 to 27.
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. 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.
The Company's liquidity risk is managed on an ongoing basis by the Investment
Manager. The Company's overall liquidity risks are monitored on a quarterly
basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses.
Liquidity risk
Substantially all of the Company's portfolio would be realisable within one
week, under normal market conditions. There maybe 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 are
comfortable that in such a situation the Company would be able to meet its
liabilities as they fall due.
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
GBP24.2 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 4 on page 63. 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 only pay dividends out of the revenue reserve.
16. Related Party Transactions
The following are considered to be related parties:
* Stewart Investors
* The Directors of the Company
The Company employs Stewart Investors as its Investment Manager. During the
year ended 31 January 2020, Stewart Investors earned GBP3,175,000 (2019: GBP
2,969,000) in respect of Investment Management fees, of which GBP782,000 (2019: GBP
759,000) was outstanding at the year end. All material related party
transactions have been disclosed on page 52 and in notes 3 and 4 on pages 62
and 63. Details of the remuneration and the shareholdings of all Directors can
be found on page 52.
17. Non-Adjusting Subsequent Reporting Events
Subsequent to the year end, equity markets experienced substantial falls
associated with uncertainties linked to the COVID-19 pandemic. As at 2 April
2020, the Company's unaudited net asset value had declined by 17.4%. See
comments in the Chairman's Statement.
Note: The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 January 2020 or 2019 but is derived
from those accounts. Statutory accounts for 2019 have been delivered to the
Registrar of Companies, and those for 2020 will be delivered in due course. The
Auditor has reported on those accounts; their reports (i) were unqualified;
(ii) did not include a reference to any matters to which the Auditor drew
attention by way of emphasis without qualifying their report; and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Glossary of Terms and Alternative Performance Measures ('APMs')
AIFMD
The Alternative Investment Fund Managers Directive (the 'Directive') is a
European Union Directive that entered into force on 22 July 2013. The Directive
regulates EU fund managers that manage alternative investment funds (including
investment trusts).
Average Discount
The average share price for the period divided by the average net asset value
for the period minus 1.
2020 2019
pence pence
Average share price for the year 290.5 264.1
Average net asset value for the year 292.1 272.5
Average Discount 0.5% 3.1%
Bear Market
A condition where securities fall from recent highs. In addition it can also be
associated with widespread pessimism and negative investor sentiment.
Benchmark Agnostic
An investment approach that doesn't consider index weightings when constructing
portfolios.
Bottom Up Approach
An investment approach that focuses on the analysis of individual stocks rather
than the significance of macroeconomic factors.
Brexit
The process of the United Kingdom's withdrawal from the European Union.
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.
Full Market Cycle
A full market cycle is a period of time which contains a wide variety of market
environments. It often refers to the period between the two latest highs, or
lows, of a widely used index or historic economic trend.
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.
Long-term Sustainable Development Tailwind
The benefit afforded to a company by it providing a solution to a specific
sustainable development challenge.
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 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
2020 2019
NAV Total Return p p
Opening NAV 277.5 267.6
Increase in NAV 11.3 12.5
Dividend paid (3.0) (2.6)
Closing NAV 285.8 277.5
Increase in NAV 3.0% 3.7%
Impact of reinvested dividends 1.2% 1.0%
NAV Total Return 4.2% 4.7%
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
2020 2019
GBP'000 GBP'000
Operating expenses 4,190 3,964
Average net assets during the year 350,745 326,503
Ongoing charges 1.2% 1.2%
Performance Objective
During the year, the Board amended the Company's performance objective, against
which the Investment Manager's performance is measured. The performance
objective, which previously referred to the MSCI AC Asia ex Japan Index, is now
to provide shareholders with a net asset value total return in excess of the UK
Consumer Price Index (CPI) plus 6 per cent. (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. This change was designed to reflect that
the Investment Manager's approach does not consider index composition when
investing.
Company NAV CPI + 6%
Total Return (%)
(annualised)
(%)
One year to 31 January 2020 4.2 7.5
Three years to 31 January 2020 7.0 8.4
Five years to 31 January 2020 7.8 7.9
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 on page 65 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 shares at the share price at the time
the shares were quoted ex-dividend.
31 January 31 January
2020 2019
Share Price Total Return p p
Opening share price 273.0 255.0
(Decrease)/increase in share price (2.0) 20.6
Dividend paid (3.0) (2.6)
Closing share price 268.0 273.0
(Decrease)/increase in share price (1.8)% 7.1%
Impact of reinvested dividends 1.0% 1.0%
Share price Total Return (0.8)% 8.1%
Top Down Approach
An investment approach that involves looking first at the macro picture of the
economy.
Volatility
A measure of the range of possible returns for a given security or market
index.
Notice of the Annual General Meeting
Notice is hereby given that the thirty-fourth Annual General Meeting of Pacific
Assets Trust Public Limited Company (the "Company") will be held at the offices
of Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL on Thursday,
25 June 2020 at 12 noon for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following as Ordinary Resolutions:
1. That the Report of the Directors and the Financial Statements for the year
ended 31 January 2020 together with the Report of the Auditor thereon be
received.
2. That the Directors' Remuneration Report for the year ended 31 January 2020
be approved.
3. That the Directors' Remuneration Policy set out on page 53 of the Annual
Report for the year ended 31 January 2020 be approved.
4. That the Company's dividend policy set out on page 23 of the Annual Report
for the year ended 31 January 2020 be approved.
5. That Ms M C Ginman be re-elected as a Director.
6. That Mrs S E Hansen be re-elected as a Director.
7. That Mr R E Talbut be re-elected as a Director.
8. That Mr E T A Troughton be elected as a Director.
9. That Mr J P Williams be re-elected as a Director.
10. That KPMG LLP be re-appointed as Auditor to hold office from the
conclusion of the meeting to the conclusion of the next Annual General Meeting
at which accounts are laid.
11. That the Audit Committee be authorised to determine KPMG LLP's
remuneration.
Special Business
To consider and, if thought fit, pass the following resolutions, of which
resolutions 13, 14 and 15 will be proposed as Special Resolutions.
Authority to Allot Shares
12. That the Board of Directors of the Company (the 'Board') be and it is
hereby generally and unconditionally authorised pursuant to and in accordance
with section 551 of the Companies Act 2006 to exercise all the powers of the
Company to allot shares in the Company and to grant rights to subscribe for or
to convert any security into shares in the Company up to an aggregate nominal
amount of GBP1,511,979.75 (or if changed, the number representing 10% of the
issued share capital of the Company immediately prior to the passing of this
resolution) provided that this authority shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2021 or 15 months from the
date of passing this resolution, whichever is the earlier, unless previously
revoked, varied or renewed by the Company in general meeting and provided that
the Company may before such expiry make an offer or enter into an agreement
which would or might require shares to be allotted, or rights to subscribe for
or to convert securities into shares to be granted, after such expiry and the
Board may allot shares or grant such rights in pursuance of such an offer or
agreement as if the authority conferred hereby had not expired.
Disapplication of Pre-emption Rights
13. That, subject to the passing of resolution 12 proposed at the Annual
General Meeting of the Company convened for 25 June 2020 ('Resolution 12'), the
Board of Directors of the Company (the 'Board') be and it is hereby generally
empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the
'Act') to allot equity securities (within the meaning of section 560 of the
Act) (including the grant of rights to subscribe for, or to convert any
securities into, ordinary shares of 12.5 pence each in the capital of the
Company ('Ordinary Shares')) for cash pursuant to the authority conferred on
them by such Resolution 12 as if section 561(1) of the Act did not apply to any
such allotment, provided that this power shall be limited to:
the allotment of equity securities up to an aggregate nominal amount of GBP
1,511,979.75, (or if changed, the number representing 10% of the issued share
capital of the Company immediately prior to the passing of this resolution) and
shall expire (unless previously renewed, varied or revoked by the Company in
general meeting) at the conclusion of the Annual General Meeting of the Company
to be held in 2021 or 15 months from the date of passing this resolution,
whichever is the earlier, unless previously revoked, varied or renewed by the
Company in general meeting and provided that the Company may before such expiry
make an offer or enter into an agreement which would or might require equity
securities to be allotted after such expiry and the Board may allot equity
securities in pursuance of such an offer or agreement as if the authority
conferred hereby had not expired.
Authority to Repurchase Shares
14. That the Company be and is hereby generally and unconditionally authorised
for the purposes of section 701 of the Companies Act 2006 (the 'Act') to make
one or more market purchases (as defined in section 693(4) of the Act) of
ordinary shares of 12.5 pence each in the capital of the Company ('Ordinary
Shares') for cancellation on such terms and in such manner as the board of
directors may determine provided that:
(i) the maximum aggregate number of Ordinary Shares which may be purchased is
18,131,662 or, if changed, the number representing 14.99% of the issued share
capital of the Company immediately prior to the passing of this resolution;
(ii) the minimum price which may be paid for an Ordinary Share is 12.5 pence
(exclusive of associated expenses);
(iii) the maximum price which may be paid for an Ordinary Share (exclusive of
associated expenses) shall not be more than the higher of: (a) an amount equal
to 105% of the average of the middle market quotations for an Ordinary Share as
derived from the London Stock Exchange Daily Official List for the five dealing
days immediately preceding the day on which the Ordinary Share is purchased;
and (b) the higher of the last independent trade and the highest current
independent bid on the London Stock Exchange for an Ordinary Share; and
(iv) unless previously renewed, varied or revoked, this authority shall expire
at the conclusion of the Annual General Meeting of the Company to be held in
2021 or 15 months from the date of passing this resolution, whichever is the
earlier, unless previously revoked, varied or renewed by the Company in general
meeting and provided that the Company may before such expiry enter into a
contract to purchase Ordinary Shares which will or may be completed wholly or
partly after such expiry and a purchase of Ordinary Shares may be made pursuant
to any such contract.
General Meetings
15. That any General Meeting of the Company (other than the Annual General
Meeting of the Company) shall be called by notice of at least 14 clear days in
accordance with the provisions of the Articles of Association of the Company
provided that the authority shall expire on the conclusion of the next Annual
General Meeting of the Company, or, if earlier, on the expiry 15 months from
the date of the passing of this resolution.
By order of the Board Registered office
16 Charlotte Square
Frostrow Capital LLP Edinburgh
Company Secretary EH2 4DF
6 April 2020
Notes
1. If you wish to attend the Annual General Meeting in person, you should
arrive at the venue for the Annual General Meeting in good time to allow your
attendance to be registered. It is advisable to have some form of
identification with you as you may be asked to provide evidence of your
identity to the Company's registrar, Equiniti Limited (the 'Registrar'), prior
to being admitted to the Annual General Meeting.
2. Members are entitled to appoint one or more proxies to exercise all or
any of their rights to attend, speak and vote at the Annual General Meeting. A
proxy need not be a member of the Company but must attend the Annual General
Meeting to represent a member. To be validly appointed a proxy must be
appointed using the procedures set out in these notes and in the notes to the
accompanying proxy form.
If members wish their proxy to speak on their behalf at the meeting, members
will need to appoint their own choice of proxy (not the chairman of the Annual
General Meeting) and give their instructions directly to them.
Members can only appoint more than one proxy where each proxy is appointed to
exercise rights attached to different shares. Members cannot appoint more than
one proxy to exercise the rights attached to the same share(s). If a member
wishes to appoint more than one proxy, they should contact the Registrar on
0371 384 2466. Lines are open between 8.30 am and 5.30 pm, Monday to Friday,
the Registrars' overseas helpline number is +44 121 415 7047.
A member may instruct their proxy to abstain from voting on any resolution to
be considered at the meeting by marking the abstain option when appointing
their proxy. It should be noted that an abstention is not a vote in law and
will not be counted in the calculation of the proportion of votes "for" or
"against" the resolution.
The appointment of a proxy will not prevent a member from attending the Annual
General Meeting and voting in person if he or she wishes.
A person who is not a member of the Company but who has been nominated by a
member to enjoy information rights does not have a right to appoint any proxies
under the procedures set out in these notes and should read note 8 overleaf.
3. A proxy form for use in connection with the Annual General Meeting is
enclosed. To be valid any proxy form or other instrument appointing a proxy,
together with any power of attorney or other authority under which it is signed
or a certified copy thereof, must be received by post or (during normal
business hours only) by hand by the Registrar at Equiniti Limited, Aspect
House, Spencer Road, Lancing, West Sussex BN99 6DA no later than 48 hours
(excluding non?working days) before the time of the Annual General Meeting or
any adjournment of that meeting.
If you do not have a proxy form and believe that you should have one, or you
require additional proxy forms, please contact the Registrar on 0371 384 2466.
Other service providers' costs may vary. Lines are open between 8.30 am and
5.30 pm, Monday to Friday, The Registrars' overseas helpline number is +44 121
415 7047.
4. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual and by logging on to the following website:
www. euroclear.com/CREST. CREST personal members or other CREST sponsored
members, and those CREST members who have appointed (a) voting service provider
(s), should refer to their CREST sponsor or voting service provider(s) who will
be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to
be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be
properly authenticated in accordance with Euroclear UK & Ireland Limited's
specifications, and must contain the information required for such instruction,
as described in the CREST Manual. The message, regardless of whether it
constitutes the appointment of a proxy or is an amendment to the instruction
given to a previously appointed proxy, must in order to be valid, be
transmitted so as to be received by the Registrar (ID RA19) no later 48 hours
(excluding non-working days) before the time of the Annual General Meeting or
any adjournment of that meeting. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by
the CREST Application Host) from which the Registrar is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this time
any change of instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service
provider(s) should note that Euroclear UK & Ireland Limited does not make
available special procedures in CREST for any particular message.
Normal system timings and limitations will, therefore, apply in relation to the
input of CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member, or
sponsored member, or has appointed (a) voting service provider(s), to procure
that his CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting system providers are referred,
in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances
set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations
2001.
5. In the case of joint holders, where more than one of the joint holders
purports to appoint one or more proxies, only the purported appointment
submitted by the most senior holder will be accepted. Seniority is determined
by the order in which the names of the joint holders appear in the Company's
register of members in respect of the joint holding (the first named being the
most senior).
6. Any corporation which is a member can appoint one or more corporate
representatives. Members can only appoint more than one corporate
representative where each corporate representative is appointed to exercise
rights attached to different shares. Members cannot appoint more than one
corporate representative to exercise the rights attached to the same share(s).
7. To be entitled to attend and vote at the Annual General Meeting (and for
the purpose of determining the votes they may cast), members must be registered
in the Company's register of members at 6.30 p.m. on 23 June 2020 (or, if the
Annual General Meeting is adjourned, at 6.30 p.m. on the day two working days
prior to the adjourned meeting). Changes to the register of members after the
relevant deadline will be disregarded in determining the rights of any person
to attend and vote at the Annual General Meeting.
8. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 (the "2006 Act") to enjoy information
rights (a "Nominated Person") may, under an agreement between him/her and the
member by whom he/she was nominated, have a right to be appointed (or to have
someone else appointed) as a proxy for the Annual General Meeting. If a
Nominated Person has no such proxy appointment right or does not wish to
exercise it, he/she may, under any such agreement, have a right to give
instructions to the member as to the exercise of voting rights.
9. Information regarding the Annual General Meeting, including information
required by section 311A of the 2006 Act, and a copy of this notice of Annual
General Meeting is available from
www.pacific-assets.co.uk.
10. Members should note that it is possible that, pursuant to requests made by
members of the Company under section 527 of the 2006 Act, the Company may be
required to publish on a website a statement setting out any matter relating
to: (a) the audit of the Company's accounts (including the auditor's report and
the conduct of the audit) that are to be laid before the Annual General
Meeting; or (b) any circumstance connected with an auditor of the Company
ceasing to hold office since the previous meeting at which annual accounts and
reports were laid in accordance with section 437 of the 2006 Act. The Company
may not require the members requesting any such website publication to pay its
expenses in complying with sections 527 or 528 of the 2006 Act. Where the
Company is required to place a statement on a website under section 527 of the
2006 Act, it must forward the statement to the Company's auditor not later than
the time when it makes the statement available on the website. The business
which may be dealt with at the Annual General Meeting includes any statement
that the Company has been required under section 527 of the 2006 Act to publish
on a website.
11. As at 24 March 2020 (being the latest practicable date prior to the
publication of this notice) the Company's issued share capital consisted of
120,958,386 ordinary shares carrying one vote each. Accordingly, the total
voting rights in the Company at 24 March 2020 were 120,958,386 votes.
12. Any person holding 3% or more of the total voting rights of the Company
who appoints a person other than the chairman of the Annual General Meeting as
his proxy will need to ensure that both he, and his proxy, comply with their
respective disclosure obligations under the UK Disclosure Guidance and
Transparency Rules.
13. Under section 319A of the 2006 Act, the Company must cause to be answered
any question relating to the business being dealt with at the Annual General
Meeting put by a member attending the meeting unless answering the question
would interfere unduly with the preparation for the meeting or involve the
disclosure of confidential information, or the answer has already been given on
a website in the form of an answer to a question, or it is undesirable in the
interests of the Company or the good order of the meeting that the question be
answered.
Members who have any queries about the Annual General Meeting should contact
Frostrow Capital LLP, the Company Secretary, at 25 Southampton Buildings,
London WC2A 1AL.
Members may not use any electronic address provided in this notice or in any
related documents (including the accompanying proxy form) to communicate with
the Company for any purpose other than those expressly stated.
14. The following documents will be available for inspection at the offices of
Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL during normal
business hours on any weekday (Saturdays, Sundays and English public holidays
excepted) from the date of this notice and at the venue of the Annual General
Meeting from 9.45 a.m. on the day of the Annual General Meeting until the
conclusion of the Annual General Meeting:
14.1 copies of the Directors' letters of appointment; and
14.2 copies of the Directors' deeds of indemnity.
15. Under section 338 and section 338A of the Companies Act 2006, members
meeting the threshold requirements in those sections have the right to require
the Company (i) to give, to members of the Company entitled to receive notice
of the meeting, notice of a resolution which may properly be moved and is
intended to be moved at the meeting; and/or (ii) to include in the business to
be dealt with at the meeting any matter (other than a proposed resolution)
which may be properly included in the business. A resolution may properly be
moved or a matter may properly be included in the business unless (a) (in the
case of a resolution only) it would, if passed, be ineffective (whether by
reason of inconsistency with any enactment or the Company's constitution or
otherwise), (b) it is defamatory of any person, or (c) it is frivolous or
vexatious. Such a request may be in hard copy form or in electronic form, must
identify the resolution of which notice is to be given or the matter to be
included in the business, must be authorised by the person or persons making
it, must be received by the Company not later than 16 May 2019, being the date
six clear weeks before the meeting, and (in the case of a matter to be included
on the business only) must be accompanied by a statement setting out the
grounds for the request.
16. Given the risks posed by the spread of Covid-19 and in accordance with the
Articles and Government guidance, the Company may impose restrictions on
shareholders wishing to attend the AGM. Such restrictions may include limiting
the number of shareholders permitted to attend the AGM in person. Other
restrictions may be imposed as the chairman of the meeting may specify in order
to ensure the safety of those attending the AGM.
Explanatory Notes to the Resolutions
Resolution 1 - To receive the Report of the Directors and the Financial
Statements
The Report of the Directors and the Financial Statements for the year ended 31
January 2020 will be presented to the AGM. These accounts accompany this Notice
of Meeting and shareholders will be given an opportunity to ask questions at
the meeting.
Resolutions 2 and 3 - Remuneration Report and Policy
It is mandatory for all listed companies to put their report on Directors'
Remuneration to an advisory shareholder vote every year and their Remuneration
Policy to a binding shareholder vote every three years. After the forthcoming
AGM, it is anticipated that the Remuneration Policy will next be put to
shareholders at the AGM in 2023.
The Directors' Remuneration Report is set out in full on page 51 to 53 and the
Remuneration Policy is set out on page 53.
Resolution 4 - Approval of the Company's Dividend Policy
Resolution 4 seeks shareholder approval of the Company's dividend policy, which
is set out on page 23 of the Annual Report. The Company usually recommends a
final dividend for shareholders approval, however this year the Board has
decided to declare an interim dividend to ensure that the dividend is paid even
if the AGM needs to be postponed for reasons relating to the coronavirus
outbreak. See the Chairman's Statement beginning for further explanation.
Resolutions 5 to 9 - Re-election of Directors
Resolutions 5 to 9 deal with the re-election of each Director. Biographies of
each of the Directors and details of their specific contribution to the Board,
can be found on pages 30 and 31.
The Board has confirmed, following a performance review, that the Directors
standing for re?election continue to perform effectively.
Resolutions 10 and 11 - Re-appointment of Auditor and the determination of its
remuneration
Resolutions 10 and 11 relate to the re-appointment of KPMG LLP as the Company's
independent Auditor to hold office until the next AGM and also authorises the
Audit Committee to set their remuneration.
Resolutions 12 and 13 - Issue of Shares
Ordinary Resolution 12 in the Notice of Annual General Meeting will renew the
authority to allot share capital up to an aggregate nominal amount of GBP
1,511,979.75 (equivalent to 12,095,838 shares or 10% of the Company's existing
issued share capital on 24 March 2020, being the nearest practicable date prior
to the signing of this Report or, if changed, the number representing 10% of
the issued share capital of the Company immediately prior to the passing of
this resolution). Such authority will expire on the date of the next AGM or
after a period of 15 months from the date of the passing of the resolution,
whichever is earlier. This means that the authority will have to be renewed at
the next AGM.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006
(the "Act") provides that existing shareholders have pre-emption rights and
that the new shares must be offered first to such shareholders in proportion to
their existing holding of shares. However, shareholders can, by special
resolution, authorise the Directors to allot shares otherwise than by a pro
rata issue to existing shareholders. Special Resolution 13 will, if passed,
give the Directors power to allot for cash equity securities up to 10% of the
Company's existing share capital on 24 March 2020, or, if changed, the number
representing 10% of the issued share capital of the Company immediately prior
to the passing of this resolution as if Section 551 of the Act does not apply.
This is the same nominal amount of share capital which the Directors are
seeking the authority to allot pursuant to Resolution 12. This authority will
also expire on the date of the next AGM or after a period of 15 months,
whichever is earlier. This authority will not be used in connection with a
rights issue by the Company.
The Directors intend to use the authority given by Resolutions 12 and 13 to
allot shares and disapply pre?emption rights only in circumstances where this
will be clearly beneficial to shareholders as a whole. The issue proceeds would
be available for investment in line with the Company's investment policy. No
issue of shares will be made which would effectively alter the control of the
Company without the prior approval of shareholders in general meeting.
Shares will only be issued at a premium to the Company's cum income net asset
value per share at the time of issue.
Resolution 14 - Repurchase of Shares
The Directors wish to renew the authority given by shareholders at the previous
AGM. The principal aim of a share buy-back facility is to enhance shareholder
value by acquiring shares at a discount to net asset value, as and when the
Directors consider this to be appropriate. The purchase of shares, when they
are trading at a discount to the net asset value per share, should result in an
increase in the net asset value per share for the remaining shareholders. This
authority, if conferred, will only be exercised if to do so would result in an
increase in the net asset value per share for the remaining shareholders and if
it is in the best interests of shareholders generally. Any purchase of shares
will be made within guidelines established from time to time by the Board. It
is proposed to seek shareholder authority to renew this facility for another
year at the AGM.
Under the current Listing Rules, the maximum price that may be paid on the
exercise of this authority must not exceed the higher of (i) 105% of the
average of the middle market quotations for the shares over the five business
days immediately preceding the date of purchase and (ii) the higher of the last
independent trade and the highest current independent bid on the trading venue
where the purchase is carried out. The minimum price which may be paid is 12.5p
per share. Shares which are purchased under this authority will be cancelled.
Special Resolution 14 in the Notice of AGM will renew the authority to purchase
in the market a maximum of 14.99% of shares in issue on 24 March 2020, being
the nearest practicable date prior to the signing of this Report, (amounting to
18,131,662 shares or, if changed, the number representing 14.99% of the issued
share capital of the Company immediately prior to the passing of this
resolution). Such authority will expire on the date of the next Annual General
Meeting or after a period of 15 months from the date of passing of the
resolution, whichever is earlier. This means that the authority will have to be
renewed at the next AGM or earlier if the authority has been exhausted.
Resolution 15 - General Meetings
Special Resolution 15 seeks shareholder approval for the Company to hold
General Meetings (other than the AGM) on at least 14 clear days' notice. The
Company will only use this shorter notice period where it is merited by the
purpose of the meeting and will endeavour to give at least 14 working days'
notice if possible.
Recommendation
The Board considers that the resolutions detailed above are in the best
interests of shareholders as a whole. Accordingly, the Board unanimously
recommends to the shareholders that they vote in favour of the above
resolutions to be proposed at the forthcoming AGM as the Directors intend to do
in respect of their own beneficial holdings totalling 101,653 shares.
Contact: Katherine Manson at Frostrow Capital LLP, 020 3709 8734
Frostrow Capital LLP,
Company Secretary
6 April 2020
ANNOUNCEMENT ENDS
END
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