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
31 January
2020 |
As at
31 January
2019 |
% Change |
Shareholders’ funds |
£345.7m |
£332.7m |
3.9% |
Market capitalisation |
£324.2m |
£327.3m |
(0.9)% |
Performance |
One year to
31 January
2020 |
One year to
31 January
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, sterling adjusted* |
5.0% |
(7.7)% |
Average discount of share price to
net asset value per share*^ |
0.5% |
3.1% |
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 £3.2
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
Company |
Country |
MSCI sector |
Market
valuation
£’000 |
% of
total assets
less current
liabilities |
Tech Mahindra |
India |
Information Technology |
21,078 |
6.1 |
Unicharm |
Japan* |
Consumer Staples |
15,843 |
4.6 |
Vitasoy International
Holdings |
Hong Kong |
Consumer Staples |
14,023 |
4.1 |
Hoya |
Japan* |
Health Care |
12,147 |
3.5 |
Oversea-Chinese Banking
Corporation |
Singapore |
Financials |
12,107 |
3.4 |
Kotak Mahindra
Bank |
India |
Financials |
11,804 |
3.4 |
Mahindra &
Mahindra |
India |
Consumer Discretionary |
11,388 |
3.3 |
Housing Development
Finance |
India |
Financials |
10,944 |
3.2 |
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 Discretionary |
8,413 |
2.4 |
Chroma ATE |
Taiwan |
Information Technology |
8,269 |
2.4 |
Delta Electronics |
Taiwan |
Information Technology |
7,627 |
2.2 |
Koh Young
Technology |
South Korea |
Information Technology |
7,467 |
2.3 |
Bank OCBC NISP |
Indonesia |
Financials |
7,012 |
2.0 |
Tata Consultancy
Services |
India |
Information Technology |
6,653 |
1.9 |
Nippon Paint |
Japan* |
Materials |
6,086 |
1.8 |
Advantech Co |
Taiwan |
Information Technology |
5,992 |
1.7 |
Twenty largest
investments |
|
|
204,103 |
59.1 |
President Chain
Store |
Taiwan |
Consumer Staples |
5,907 |
1.7 |
Selamat Sempurna |
Indonesia |
Consumer Discretionary |
5,667 |
1.6 |
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 Technology |
4,563 |
1.3 |
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 Technology |
3,424 |
1.0 |
Taiwan Semiconductor
Manufacturing |
Taiwan |
Information Technology |
3,375 |
1.0 |
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 Technology |
112 |
0.0 |
Total
portfolio |
|
|
309,517 |
89.5 |
Net current
assets |
|
|
36,200 |
10.5 |
Total assets less
curent liabilities |
|
|
345,717 |
100.0 |
*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, the
Company’s portfolio is exposed to fluctuations in market prices
(from both individual security prices and foreign exchange rates)
in the regions and sectors in which it invests. Emerging markets in
the Asia Pacific region, in which the portfolio companies operate,
are expected to be more volatile than developed markets. As such,
investors should be aware that by investing in the Company they are
exposing themselves to market risk. |
To manage
this risk the Board have appointed Stewart Investors to manage the
portfolio within the remit of the investment objective and policy.
Compliance with the investment objective and investment policy
limits is monitored daily by Frostrow and Stewart Investors and
reported to the Board monthly. The investment policy limits ensure
that the portfolio is diversified, reducing the risks associated
with individual stocks and markets. Stewart Investors’ approach is
expected to lead to performance that will deviate from that of
comparators, including both market indices and other investments
companies investing in the Asia Pacific region. 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
risk arising from the use of counterparties. If a counterparty were
to fail, the Company could be adversely affected through either
delay in settlement or loss of assets. The most significant
counterparty to which the Company is exposed is J.P. Morgan Chase
Bank, the Custodian, which is responsible for the safekeeping of
the Company’s assets. |
Counterparty risk is managed by the Board through:
· reviews of the arrangements with, and services
provided by, the Custodian to ensure that the security of the
Company’s custodial assets is being maintained;
· monitoring of the Custodian, including reviews of
internal control reports and sub-custodial arrangements, as
appropriate; and
· reviews of Stewart Investors’ approved list of
counterparties, the process for monitoring and adding to the
approved counterparty list, and the Company’s use of those
counterparties.
Under the terms of the contract with J.P. Morgan Chase Bank, the
Company’s investments are required to be segregated from J.P.
Morgan Chase Bank’s own assets.
Further information on other financial risks can be found in note
14 to the financial statements. |
Strategic Risks |
|
Geopolitical Risk |
|
Geopolitical events around the world
may have an adverse impact on the Company’s performance by causing
exchange rate volatility, changes in tax or regulatory
environments, a reduced investment universe and/or a fall in market
prices. |
The Board
regularly discusses global geopolitical issues and general economic
conditions and developments.
Political changes in recent years, particularly in the US and Asia
Pacific region, have increased uncertainty and volatility in
financial markets. The Board discusses developments and how they
may 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(s) responsible for managing the Company’s portfolio may
leave their employment or may be prevented from undertaking their
duties. |
The Board
manages this risk by:
· appointing
an Investment Manager which operates a team environment such that
the loss of any individual should not impact on 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
risk, particularly if the investment strategy and approach
are unsuccessful, that the Company underperforms its peer group and
fails to achieve its Performance Objective, resulting in the
Company becoming unattractive to investors and a widening of the
share price discount to the net asset value per share. |
In managing
this risk the Board:
· reviews
the Company’s investment objective and policy, and Stewart
Investors’ investment approach in relation to the investment
performance, market and economic conditions and the operation of
the Company’s peers;
· regularly
discusses the Company’s future development and strategy;
· undertakes
a regular review of the level of the share price discount/premium
to net asset value per share and considers ways in which share
price performance may be enhanced, including the effectiveness of
marketing, share issuance and share 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
trust, the Company is reliant on the systems of its service
providers for dealing, trade processing, administrative services,
financial and other functions. If such systems were to fail or be
disrupted (including as a result of cyber-crime or a pandemic) this
could lead to a failure to comply with applicable laws, regulations
and governance requirements and/or to a financial loss. |
To manage
these risks the Board:
· visited
all key service providers to gain an understanding of their control
environment, and the processes in place to mitigate any disruptive
events;
· receives a
monthly report from Frostrow Capital LLP, which includes, inter
alia, confirmation of compliance with applicable laws and
regulations;
· reviews
internal control reports and key policies (including disaster
recovery procedures and business continuity plans) of its service
providers;
· maintains
a risk matrix with details of risks to which the Company is
exposed, the approach to 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
(5) |
Audit
Committee
(3) |
Engagement & Remuneration Committee
(1) |
Nomination Committee
(2) |
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 |
- 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.
- 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
£17.9 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
£6.9 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 £60,000 per annum plus 0.11% per annum of net assets up to
£150 million, plus 0.075% per annum of net assets in excess of £150
million up to £500 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 £1,767,000 as at 31 January
2020 (2019: £94,000), 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 £27,000 for the audit in 2020.
This represents an increase of £5,400 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 £38,000 pa (previously £36,000 pa, an increase of
5.6%); Chair of the Audit Committee £31,000 pa (previously £30,000
pa, an increase of 3.3%) ; Director £27,000 pa (previously £26,000
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
to the Board |
Fixed
Fees
2020
£ |
Taxable
Expenses
2020
£ |
Total
Remun-
eration
2020
£ |
Fixed
Fees
2019
£ |
Taxable
Expenses
2019
£ |
Total
Remun-
eration
2019
£ |
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 £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 £27,000 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
31 January 2020 |
Year
ended
31 January 2019 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’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 management fees |
3 |
(888) |
(2,665) |
(3,553) |
(832) |
(2,496) |
(3,328) |
Other expenses |
4 |
(637) |
– |
(637) |
(636) |
– |
(636) |
Return on ordinary
activities before taxation |
|
4,439 |
11,229 |
15,668 |
4,652 |
11,110 |
15,762 |
Taxation on ordinary
activities |
5 |
(507) |
(1,714) |
(2,221) |
(459) |
(243) |
(702) |
Return after
taxation attributable to equity shareholders |
|
3,932 |
9,515 |
13,447 |
4,193 |
10,867 |
15,060 |
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
£’000 |
Share
premium
£’000 |
Capital
redemption
reserve
£’000 |
Special
reserve
£’000 |
Capital
reserve
£’000 |
Revenue
reserve
£’000 |
Total
£’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
paid |
6 |
– |
– |
– |
– |
– |
(3,117) |
(3,117) |
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
paid |
6 |
– |
– |
– |
– |
– |
(3,614) |
(3,614) |
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 |
£’000 |
£’000 |
£’000 |
£’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 year) |
10 |
(3,257) |
|
(1,050) |
|
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 (£’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
£’000 |
2019
£’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 |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’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 |
|
£’000 |
£’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 |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’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 £1,701,000 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 £233,000. This included a provision of
£94,000 for unrealised capital gains tax on securities still held
at the balance sheet date, and a tax payment of £139,000 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 |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Total
return on ordinary activities before tax |
4,439 |
11,229 |
15,668 |
4,652 |
11,110 |
15,762 |
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 investment |
– |
(2,689) |
(2,689) |
– |
(2,506) |
(2,506) |
Non-taxable exchange differences |
– |
49 |
49 |
– |
(79) |
(79) |
Unutilised
management expenses |
277 |
506 |
783 |
273 |
474 |
747 |
Income not
subject to corporation tax |
(1,120) |
– |
(1,120) |
(1,157) |
– |
(1,157) |
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 £43,716,000 (2019: £39,592,000). 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 |
|
£’000 |
£’000 |
– final
dividend paid for the year ended 31 January 2019 of 3.0p per
share |
3,614 |
– |
– final
dividend paid for the year ended 31 January 2018 of 2.6p per
share |
– |
3,117 |
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 £7,267,000
(2019: £6,949,000). The Company generated a revenue return in the
year ended 31 January 2020 of
£3,932,000 (2019: £4,193,000).
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 |
|
£’000 |
£’000 |
Revenue
available for distribution by way of dividend for the year |
3,932 |
4,193 |
Interim
dividend of 3.0p per share (2019: final dividend of 3.0p) |
(3,629) |
(3,614) |
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 £13,447,000 (2019:
£15,060,000).
The revenue return per share is based on the net revenue return
attributable to shareholders of £3,932,000 (2019: £4,193,000).
The capital return per share is based on the net capital return
attributable to shareholders of £9,515,000 (2019: return of
£10,867,000).
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 |
|
£’000 |
£’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 £81,272,000 (2019: £63,003,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £64,920,000 (2019: £38,897,000). 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 £130,000 (2019: £74,000) and transaction costs on
sales of £240,000 (2019: £184,000).
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 |
|
£’000 |
£’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 |
|
£’000 |
£’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 |
|
£’000 |
£’000 |
Deferred taxation on
unrealised capital gains on Indian securities |
1,767 |
- |
See note 5 for further details and accounting policy.
12. Share Capital
|
2020 |
2019 |
|
£’000 |
£’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 £3,210,000 (2019: £nil).
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 £345,717,000 (2019: £332,674,000),
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 £30.7
million (2019: £29.5 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 |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Indian
rupee |
129,709 |
1 |
16 |
(1,767) |
107,693 |
1 |
– |
(99) |
New
Taiwanese dollar |
45,607 |
32 |
– |
– |
36,548 |
31 |
102 |
– |
Hong Kong
dollar |
14,023 |
– |
– |
(2,094) |
27,529 |
– |
– |
– |
Philippine
peso |
9,529 |
– |
635 |
– |
27,321 |
– |
– |
– |
Indonesian
rupiah |
21,996 |
– |
– |
(200) |
22,074 |
– |
– |
– |
Japanese
yen |
39,122 |
– |
118 |
– |
20,636 |
– |
79 |
– |
Bangladesh
taka |
16,461 |
– |
– |
– |
16,804 |
– |
– |
– |
Thai
baht |
5,643 |
– |
– |
– |
13,839 |
– |
– |
– |
Malaysian
ringgit |
3,424 |
– |
– |
– |
8,391 |
– |
– |
– |
Sri Lankan
rupee |
4,429 |
– |
– |
– |
6,725 |
– |
– |
– |
Singapore
dollar |
12,107 |
9,931 |
– |
– |
3,878 |
11,956 |
– |
– |
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
£19,419,000 of sterling cash balances (2019: £12,332,000).
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 £29.7 million (2019: negative £28.9 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 £36.4 million (2019: positive £35.4
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 |
|
£’000 |
£’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 £24.2
million from the share premium account.
Capital reserve
The following are accounted for in this reserve: gains and
losses on the disposal of investments; changes in the fair value of
investments; and, expenses and finance costs, together with the
related taxation effect, charged to capital in accordance with note
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 £3,175,000 (2019: £2,969,000)
in respect of Investment Management fees, of which £782,000 (2019:
£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 |
|
£’000 |
£’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
Total Return
(annualised) (%) |
CPI +
6%
(%) |
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 £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) 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 £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 £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