LONDON STOCK EXCHANGE ANNOUNCEMENT
Pacific
Assets Trust plc
(the
“Company”)
Final
Results for the Year Ended 31 January
2024
The
Company's annual report for the year ended 31 January 2024 (the “Annual Report”), which
includes the notice of the Company’s forthcoming annual general
meeting, has been submitted to the UK Listing Authority, and will
shortly be available in full, unedited text for inspection on the
National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual
Report will be posted to shareholders on 9
May 2024. Members of the public may obtain copies by writing
to Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL or from the Company’s website
at
www.pacific-assets.co.uk where up
to date information on the Company, including daily NAV, share
prices and fact sheets, can also be found.
Frostrow
Capital LLP, Company Secretary
0203 709
8734
30 April 2024
Company
Performance
Performance
Summary
|
As
at
|
As
at
|
|
31
January
|
31
January
|
|
2024
|
2023
|
Shareholders’
funds
|
£464.8m
|
£473.7m
|
Market
capitalisation
|
£422.1m
|
£433.0m
|
|
One year
to
|
One year
to
|
|
31
January
|
31
January
|
Performance
|
2024
|
2023
|
Share
price total return1
2
|
(1.9)%
|
5.9%
|
Net asset
value per share total return1
2
|
(1.3)%
|
5.7%
|
CPI
+6%3
|
10.4%
|
17.3%
|
MSCI All
Country Asia ex Japan Index total return, sterling
adjusted1
|
(10.5)%
|
(2.2)%
|
Average
discount of share price to net asset value per
share1
2
|
6.4%
|
10.1%
|
Ongoing
charges2
|
1.1%
|
1.1%
|
Revenue
return per share4
|
4.3p
|
2.5p
|
Dividend
per share
|
4.0p
|
2.3p
|
1 Source:
Morningstar
2
Alternative Performance Measure (see Glossary)
3 The
Company’s Performance Objective (see Glossary)
4 See
Glossary
Chair’s
Statement
Introduction
and Results
The net
asset value total return for the year ended 31 January 2024 was (1.3)% (2023: +5.7%). While
this is a disappointing result relative to the performance
objective set by the Board, your Portfolio Manager is to be
commended that the Company’s performance over the year was the best
of the peer group of four other trusts and an exchange traded fund,
all of which also suffered negative returns, with a collective
average NAV decline of 9.0% (2023: average decline of
3.0%).
Over
longer periods we consider investment return against the UK CPI
plus 6% as we believe that our largely UK-based investors are
seeking to protect their capital in real terms while extracting a
premium over their home markets from the faster growing Asian
economies. Over the last five years, our annualised NAV total
return of 7.6% has fallen behind the annualised CPI plus 6% figure
of 10.8%. This is a result of the rise and persistence of inflation
in Western economies in recent years and we believe that the
performance objective remains appropriate.
While the
Board would like to see a higher rate of return from our
investments in Asia, we note the
negative total return (sterling adjusted) of the MSCI All Country
Asia ex Japan Index of (10.5)%, as well as the strong relative
outperformance over the peer group mentioned above. This pleasing
relative performance reflects the Portfolio Manager’s emphasis on
long term returns and capital preservation. It also reflects, as my
predecessor remarked last year, that Asia
Pacific markets have not recently delivered the premium
return over developed markets, that the asset allocation models
suggest should be the case.
Again, the
Company’s high exposure to India
was helpful to returns: seven of the top ten principal contributors
to the return in the year were Indian companies, including CG Power
& Industrial Solutions, Tube Investments, and Cholamandalam
Financial Holdings. By contrast, China’s weakened economic outlook
and lacklustre performance is reflected in the Company’s principal
detractors, six of which were companies based in China and Hong
Kong including Vitasoy, Glodon and Wuxi
Biologics.
Further
analysis of the Company’s performance can be found in the Portfolio
Manager’s Review.
Sustainability
Shareholders
will be well aware that Stewart Investors have long since adopted a
sustainable investment strategy and are considered to be amongst
the leaders in this field. In selecting the investments that make
up the Company’s portfolio, their process aims to generate strong,
long-term, risk-adjusted returns by investing in the shares of
companies that they consider to be high-quality and particularly
well positioned to contribute to and benefit from sustainable
development in the Asia Pacific Region.
Pursuant
to the Company’s Environmental, Social and Governance (“ESG”)
Policy, the Board has chosen to adopt and endorse Stewart
Investors’ approach to integrating sustainability into portfolio
construction and investee company engagement. This means that, in
effect, the Company has a de
facto sustainability
objective: to achieve long-term capital appreciation by investing
in companies which both contribute to, and benefit from,
sustainable development, achieving positive social and
environmental sustainable outcomes.
Given this
long-standing sustainable investment strategy which has been
applied in managing the Company’s portfolio, the Company reports
against a high standard of sustainability disclosures (Article 9)
under the EU Sustainable Finance Disclosure Regulations (“SFDR”)
which must be complied with due to the Company being marketed in
Ireland. The Company’s annual SFDR
Article 9 report,
produced by Stewart Investors, begins on page 82 of the Annual
Report.
Due to
genuine concerns over ‘greenwashing’, in November and after a long
delay, the FCA published its Policy Statement on the UK
Sustainability Disclosure Requirements (“SDR”), which confirmed
that it would be possible for investment companies which met
certain qualifying criteria to apply one of four sustainable
investment ‘labels’. One of the requirements of the SDR is that any
“product” qualifying for a label must have an explicit
sustainability objective as part of its investment objective. While
sustainability has been and continues to be one of the defining
features of Stewart Investors’ strategy, and the
de facto sustainability
objective is recognised in the Company’s own ESG policy, the
Company’s formal, published investment objective does not
explicitly reference sustainability.
The
Company would therefore need to amend its published investment
objective and policy in order to utilise a UK SDR label. The
Company’s legal advisers have confirmed that the changes envisaged
to explicitly reference sustainability in the objective would be
expected to constitute material changes, requiring shareholder
approval at a general meeting. This is despite the fact that it has
long been the case that the Company only invests in companies that
the Portfolio Manager believes are sustainable/have sustainability
characteristics.
The Board
wishes to understand better whether the adoption of a UK SDR label
will bring real benefits to the Company, and have time to consider
relevant guidance published by the Association of Investment
Companies (the “AIC”), before recommending any changes. Given the
proximity of this material change to the Company’s year end, the
Board believes it is prudent to take the necessary time to consider
if and how the Company’s published investment objective and policy
should be developed, rather than formally proposing any changes to
shareholders at the AGM in July. As a result, the Company will not
apply a sustainability label under UK SDR for the time
being.
The Board
wishes to emphasise to shareholders that UK SDR will not change
Stewart Investors’ strategy in managing the Company’s portfolio. We
would also highlight, for the avoidance of doubt, that we have been
advised that our existing disclosures are sufficient for
maintaining the Company’s classification under Article 9 of the EU
SFDR. If any shareholders wish to discuss the implications of the
UK SDR with the Board, they are encouraged to contact me through
the Company Secretary.
Share
price performance
The
Company’s shares traded at an average discount to the net asset
value per share of 6.4% through the year to the end of January
(2023: 10.1%). This was again narrower than the peer group average
discount of 9.3%. In line with the investment trust sector
generally, the discount narrowed towards the end of December, and
at one point the shares briefly traded at a small premium, before
the discount widened again towards the end of the financial year to
close at 9.2% (2023: 8.6%).
The Board
has continued its work to improve the visibility of the Company
throughout the year. We wish to bolster our long-standing wealth
manager base by attracting a broader range of shareholders,
including retail investors who represent a smaller proportion of
our shareholder base. The Board has established a new standing
subcommittee, the Sales, Marketing and Communications Committee
(the “SMCC”), which is chaired by Edward
Troughton. The Board has delegated to the SMCC
responsibility, together with the Portfolio Manager, for developing
and overseeing the marketing and promotional strategy for the
Company. It will review all the marketing activities taken by and
on behalf of the Company by third parties. The intention is that
this will be helpful in increasing wider demand for the Company’s
shares. Strong relative performance will assist investor sentiment,
as will the Portfolio Manager’s high level of credibility as a
sustainable investor; offering an appealing prospect to
shareholders who are seeking exposure to Asia through genuinely responsible
investing.
Dividend
The
Company generated a revenue return of 4.3p per share during the
year (2023: 2.5p per share) and, as a result, the Board recommends
to shareholders the payment of a final dividend to allow the
Company to comply with the investment trust rules regarding
distributable income and the Company’s policy to pay out the
majority of income earned in any one year.
Subject to
shareholder approval at the AGM, a final dividend of 4.0p per share
will be paid on 12 July 2024 to
shareholders on the register on 14 June
2024. The associated ex-dividend date will be
13 June
2024.
The
increased revenue return arose as a result of increased dividend
receipts from several companies, most notably Bank OCBC and
Overseas Chinese Banking Corporation, in which the Company’s
position was increased during the year. We would like to remind
shareholders that the Company’s policy is to pursue capital growth,
with income being a secondary consideration. Accordingly,
shareholders should not expect this higher dividend rate to be
maintained.
The
Board
During the
year, as reported in the Company’s half yearly report, James Williams retired from the Board and I
succeeded him as Chair.
In
October, we announced the appointment of Nandita Sahgal to the Board, effective
1 January 2024. We were delighted to
welcome a Director with extensive expertise both in the financial
sector and in Indian and emerging markets. It is intended that
Nandita will succeed Charlotta
Ginman as Chair of the Audit Committee after Charlotta
retires at the conclusion of the AGM in 2024.
In
anticipation of her retirement, I would like to extend my sincere
gratitude to Charlotta for her dedicated service and incisive
contributions during her tenure as Audit Committee Chair.
Charlotta’s expertise, professionalism and commitment to upholding
the highest standards of financial integrity and governance have
been invaluable to the Board.
We adhere
to good corporate governance principles that directors should not
serve on the Board for over nine years. Accordingly, the Board has
appointed an executive search firm to assist in the appointment of
a director to replace Sian Hansen
when she steps down at the AGM in 2025.
The Annual
General Meeting
As some
shareholders will be aware, the Company is incorporated in
Scotland and our Portfolio
Manager, Stewart Investors, have an
office in Edinburgh. The Board has
decided that this year, the AGM will return to Edinburgh, having last been held there in
2004. The AGM will be held at 12 noon on Tuesday, 9 July 2024, at the Royal College of Physicians
of Edinburgh, 11 Queen Street,
Edinburgh EH2 1JQ.
As well as
the formal proceedings, there will be an opportunity for
shareholders to meet the Board and the Portfolio Manager, and to
receive an update on the Company’s performance and its key
investments.
The
meeting, including the Portfolio Manager’s presentation, will be
live streamed by Investor Meet Company for the benefit of those
shareholders who are unable to attend in person. Shareholders
joining the meeting remotely will not be able to speak or vote
through the platform but will be able to submit written questions.
Full details of how to participate this way are set out on page 104
of the Annual Report.
I
encourage all shareholders to exercise their right to vote at the
AGM. The Board strongly encourages shareholders to register their
votes online in advance. Registering your vote in advance will not
restrict shareholders from attending and voting at the meeting in
person should they wish to do so. The Board recommends that
shareholders vote in favour of all the resolutions set out in the
Notice of AGM, as the directors intend to do ourselves.
Outlook
It is
always difficult, if not impossible, to predict the short-term
future of a region as diverse as the Asia
Pacific. However, there is a general expectation that,
despite heightened geopolitical tensions and economic challenges,
the region will continue its long-term growth trajectory. Key
drivers include technological advancements, infrastructure
development and increasing consumer demand from the growing middle
classes. Ever-present risks posed by trade disputes, currency
fluctuations, climate change events and regulatory changes will
need to be closely monitored. Notwithstanding these risks, our
Portfolio Manager aims to invest for the long term, selecting
companies with skilled, successful and experienced management
teams, strong balance sheets and sustainable businesses.
Andrew Impey
Chair
29 April 2024
Investment
Portfolio
as at
31 January 2024
Company
|
Country
|
Sector
|
Value
£’000
|
%
Total
Investments
|
Mahindra
& Mahindra
|
India
|
Consumer
Discretionary
|
25,830
|
5.5%
|
Tube
Investments of India
|
India
|
Consumer
Discretionary
|
25,749
|
5.5%
|
CG Power
& Industrial Solutions
|
India
|
Industrials
|
23,346
|
4.9%
|
Oversea-Chinese
Banking Corporation
|
Singapore
|
Financials
|
14,660
|
3.1%
|
UniCharm
|
Japan
|
Consumer
Staples
|
13,975
|
3.0%
|
Samsung
Electronics
|
South
Korea
|
Information
Technology
|
13,471
|
2.9%
|
Marico
|
India
|
Consumer
Staples
|
13,373
|
2.8%
|
Hoya
Corporation
|
Japan
|
Health
Care
|
13,370
|
2.8%
|
Voltronic
Power Technology
|
Taiwan
|
Industrials
|
13,039
|
2.8%
|
Midea
Group
|
China
|
Consumer
Discretionary
|
12,622
|
2.7%
|
Top
10 Investments
|
|
|
169,435
|
36.0%
|
Cholamandalam
Financial Holdings
|
India
|
Financials
|
11,700
|
2.5%
|
Shanthi
Gears
|
India
|
Industrials
|
11,486
|
2.4%
|
Elgi
Equipments
|
India
|
Industrials
|
10,644
|
2.3%
|
HDFC
Bank
|
India
|
Financials
|
10,595
|
2.3%
|
Tata
Consumer Products
|
India
|
Consumer
Staples
|
10,064
|
2.1%
|
Taiwan
Semiconductor Manufacturing
|
Taiwan
|
Information
Technology
|
9,658
|
2.1%
|
Shenzhen
Inovance Technology
|
China
|
Industrials
|
9,356
|
2.0%
|
Bank OCBC
NISP
|
Indonesia
|
Financials
|
9,309
|
2.0%
|
Koh Young
Technology
|
South
Korea
|
Information
Technology
|
7,770
|
1.7%
|
Tokyo
Electron
|
Japan
|
Information
Technology
|
7,714
|
1.6%
|
Top
20 Investments
|
|
|
267,731
|
57.0%
|
Selamat
Sempurna
|
Indonesia
|
Consumer
Discretionary
|
7,403
|
1.6%
|
Kotak
Mahindra Bank
|
India
|
Financials
|
7,215
|
1.5%
|
Chroma
ATE
|
Taiwan
|
Information
Technology
|
7,144
|
1.5%
|
Sheng
Siong Group
|
Singapore
|
Consumer
Staples
|
6,902
|
1.5%
|
Humanica
|
Thailand
|
Industrials
|
6,900
|
1.5%
|
Tata
Consultancy Services
|
India
|
Information
Technology
|
6,650
|
1.4%
|
Triveni
Turbine
|
India
|
Industrials
|
6,507
|
1.4%
|
Advantech
|
Taiwan
|
Information
Technology
|
6,306
|
1.3%
|
Tech
Mahindra
|
India
|
Information
Technology
|
6,232
|
1.3%
|
Kalbe
Farma
|
Indonesia
|
Health
Care
|
6,004
|
1.3%
|
Top
30 Investments
|
|
|
334,994
|
71.3%
|
Company
|
Country
|
Sector
|
Value
£’000
|
%
Total
Investments
|
Delta
Electronics
|
Taiwan
|
Information
Technology
|
5,809
|
1.2%
|
Aavas
Financiers
|
India
|
Financials
|
5,758
|
1.2%
|
Tata
Communications
|
India
|
Communication
Services
|
5,520
|
1.2%
|
Cyient
|
India
|
Information
Technology
|
5,472
|
1.2%
|
Dr. Lal
PathLabs
|
India
|
Health
Care
|
4,969
|
1.1%
|
Vinda
International Holdings
|
China
|
Consumer
Staples
|
4,876
|
1.0%
|
Godrej
Consumer Products
|
India
|
Consumer
Staples
|
4,813
|
1.0%
|
Advanced
Energy Solution Holding
|
Taiwan
|
Industrials
|
4,796
|
1.0%
|
Philippine
Seven Corporation
|
Philippines
|
Consumer
Staples
|
4,688
|
1.0%
|
Vitrox
|
Malaysia
|
Information
Technology
|
4,587
|
1.0%
|
Top
40 Investments
|
|
|
386,282
|
82.2%
|
Dr.
Reddy’s Laboratories
|
India
|
Health
Care
|
4,474
|
1.0%
|
Samsung
Biologics
|
South
Korea
|
Health
Care
|
4,138
|
0.9%
|
Dabur
India
|
India
|
Consumer
Staples
|
4,016
|
0.9%
|
Tarsons
Products
|
India
|
Health
Care
|
3,967
|
0.8%
|
Amoy
Diagnostics
|
China
|
Health
Care
|
3,922
|
0.8%
|
UniCharm
Indonesia
|
Indonesia
|
Consumer
Staples
|
3,866
|
0.8%
|
Vitasoy
International
|
Hong
Kong
|
Consumer
Staples
|
3,789
|
0.8%
|
RBL
Bank
|
India
|
Financials
|
3,751
|
0.8%
|
Telkom
Indonesia
|
Indonesia
|
Communication
Services
|
3,730
|
0.8%
|
Zhejiang
Supor
|
China
|
Consumer
Discretionary
|
3,668
|
0.7%
|
Top
50 Investments
|
|
|
425,603
|
90.5%
|
Glodon
|
China
|
Information
Technology
|
3,487
|
0.7%
|
Unilever
Indonesia
|
Indonesia
|
Consumer
Staples
|
3,461
|
0.7%
|
Indiamart
Intermesh
|
India
|
Industrials
|
3,453
|
0.7%
|
Wuxi
Biologics
|
China
|
Health
Care
|
3,278
|
0.7%
|
Marico
Bangladesh
|
Bangladesh
|
Consumer
Staples
|
3,171
|
0.7%
|
Hangzhou
Robam
|
China
|
Consumer
Discretionary
|
3,152
|
0.7%
|
Airtac
International
|
Taiwan
|
Industrials
|
2,898
|
0.6%
|
Yifeng
Pharmacy Chain
|
China
|
Consumer
Staples
|
2,798
|
0.6%
|
Industri
Jamu dan Farmasi Sido Muncul
|
Indonesia
|
Consumer
Staples
|
2,716
|
0.6%
|
Pigeon
Corporation
|
Japan
|
Consumer
Staples
|
2,649
|
0.6%
|
Kasikornbank
|
Thailand
|
Financials
|
2,571
|
0.6%
|
Syngene
International
|
India
|
Health
Care
|
2,481
|
0.5%
|
Guangzhou
Kingmed Diagnostics
|
China
|
Health
Care
|
2,035
|
0.4%
|
Silergy
|
China
|
Information
Technology
|
1,973
|
0.4%
|
Centre
Testing International
|
China
|
Industrials
|
1,965
|
0.4%
|
Pentamaster
International
|
Malaysia
|
Information
Technology
|
1,231
|
0.3%
|
DBH
Finance
|
Bangladesh
|
Financials
|
1,187
|
0.3%
|
Total
Investments
|
|
|
470,109
|
100.0%
|
Portfolio
Manager’s Review
Our
Investment Philosophy in Action
Risk
as loss of client capital
|
Long
term time horizon
|
Quality
and sustainability positioning
|
Active
share
89%
|
Average
name turnover
10%
|
Holdings
with stewards
80%
|
Outperformance
in down months
80%
|
Average
holding period of top ten
10
years
|
Holdings
with net cash
75%
|
Downside
capture
63%
|
Average
age of holdings
44
years
|
Carbon
footprint relative to
benchmark
-86%*
|
Source:
Stewart Investors and ISS ESG solutions as at 31 December 2023 and *as at 30 September 2023. Data shown is for a
representative Stewart Investors Asia Pacific Sustainability
account and the Stewart Investors Asia ex-Japan Sustainable Equity
Composite. Please refer to the Glossary for further information on
these metrics.
The table
above highlights key outcomes of our philosophy; outcomes that have
been consistent across the 14 years Stewart Investors have had the
privilege of managing the Company. An explanation of the terms used
and how the statistics are calculated is provided in the Glossary.
It should be noted that the statistics above are for a
representative Stewart Investors Asia Pacific sustainability
account and the Stewart Investors Asia ex-Japan Sustainable Equity
Composite (a weighted average of a group of accounts managed in a
similar way by the same portfolio management team). However, as we
are consistent in our investment approach, the outcomes for the
Company will be broadly similar.
We believe
consistency in the application of this philosophy is critical in
preserving the trust we are required to earn, and maintain, as
stewards of this precious capital. We publish these outcomes so
clients may “hold our feet to the fire” should any material changes
in these metrics appear.
Over the
short term we have very little control over our performance, but
over the longer term, periods of over five years, we believe the
characteristics presented above have been foundational to the
returns, in good times and bad, that the Company has been able to
deliver to its shareholders.
Risk as
loss of client capital
In most
industries there is a standard definition of risk. In the
construction of a bridge, engineers would agree that risk is the
prospect of the bridge collapsing and lives being lost. In surgery,
surgeons see risk in terms of the potential negative health
outcomes, including death, which may arise from the procedure. In
contrast, the investment industry has failed to settle on such a
fundamental concept.
At Stewart
Investors we have always seen risk as the possibility of losing
clients’ capital rather than deviation from a benchmark. Each of
the data points within the “Risk as a loss of client capital”
column above are reflections of how we approach the management of
risk. Seeing risk in absolutes frees us to build the portfolio
bottom-up with a blank sheet of paper. When done with authenticity
this should, usually, lead to a high active share: we do not start
with an index and work backwards or start with a macro view and
work down.
Today, the
Company continues to have a material weight invested in
India. This is not the result of a
“macro overlay”, a view on politics or a desire to gain exposure to
a particular theme. Very simply, India is where we continue to find the
greatest opportunity to protect and grow the Company’s capital by
backing high quality people running great franchises which are
wonderfully well-positioned for long-term growth.
Across
Asia, the companies in the index
(both at the regional and country levels) are not the opportunity
set for the long-term, active investor. In India this is very much the case with roughly
75% of the top 100 companies in the MSCI India Index being
uninvestible to us due to concerns around quality or sustainability
positioning.
Valuations
in India are a hot topic. There
are certainly pockets of the market where valuation multiples have
run far ahead of fundamentals and the risk of mediocre (at best)
returns from here feel high. However, our active approach, one with
a belief that valuations matter, provides us the freedom to go
hunting for long-term value wherever we can find it. Thankfully for
the Company’s future returns, the Indian market is wonderfully deep
in the treasures it offers the active investor.
Value, for
us, is the opportunity to generate attractive returns over the next
ten years. This view does not confine us to a particular
price/earnings ratio or valuation rule of thumb. We own companies
in India
on less than 20x price to earnings ratio and others on 50x. In
each, we are appraising the long-term potential to create value
relative to today’s price. Below we have listed a collection of our
Indian holdings lined up against their global peers. Each of these
names is potentially a very large company hidden in a small market
capitalisation. None of these appear as material weights in the
MSCI India Index but they all offer the potential for very
attractive returns over the next ten years, and beyond.
Industry
|
Company
|
Market cap
(USDbn)
|
Farm
equipment
|
Mahindra
& Mahindra
|
25
|
|
John
Deere
|
110
|
Industrial
conglomerate
|
Tube
Investments
|
9
|
|
Danaher
|
177
|
Air
compressors
|
Elgi
Equipments
|
2
|
|
Atlas
Copco
|
76
|
Diagnostics
|
Dr.
Lal PathLabs
|
3
|
|
Quest
Diagnostics
|
14
|
Business
Supplies
|
IndiaMART
|
2
|
|
WW
Grainger
|
44
|
Companies
held in the Company.
Source for
market capitalisation: FactSet as at 31
January 2024.
In
China, due to the dominance of
explicitly state-owned or implicitly state-controlled companies and
the critical misalignment between the State and minority
shareholders, our investable universe is not as deep as in
India. However, we would stress
that despite the Company long having only a marginal allocation to
China, we have not ignored the
market. Working our way through China’s listed universe over the
last 20 years has occupied a lot of research bandwidth with Chinese
meetings and reports accounting for a far higher percentage of our
workload than the portfolio allocation would initially suggest. For
a team of analysts who crave meeting new people and studying new
businesses, it’s been a wonderfully enjoyable
experience.
Today, we
have roughly 20 Chinese companies that we see as investible but for
much of recent history they’ve not been attractively priced.
Despite the MSCI China Index being valued on very low multiples,
the types of companies we get excited about have traded on very
high valuations while typically earning margins in excess of
comparable companies overseas: we saw this combination as entailing
too much risk to the Company’s capital. Things are beginning to
change. Since the beginning of the year, Chinese stocks have come
under extreme pressure with no real delineation being made between
what companies do, what their balance sheets look like, who owns
them or their valuation. All their share prices looked the same.
This is the type of environment that excites us as bottom-up
stockpickers!
As above,
we have some of our China holdings
paired against their global peers.
Industry
|
Company
|
Market cap
(USDbn)
|
Third
party verification
|
Centre
Testing International
|
2
|
|
SGS
|
17
|
Software
for building industry
|
Glodon
|
2
|
|
Autodesk
|
54
|
Industrial
automation and electrification
|
Shenzhen
Inovance Tech
|
18
|
|
Siemens
|
145
|
Pharmacy
chains
|
Yifeng
Pharmacy Chain
|
5
|
|
CVS
|
94
|
Analog
semiconductors
|
Silergy
Corp
|
5
|
|
Texas
Instruments
|
146
|
Companies
held in the Company.
Source for
market capitalisation: FactSet as at 31
January 2024.
In each of
these companies we are backing local entrepreneurs, supported by
high quality management teams, often boasting multinational
experience, to build businesses that will play a key role in
China’s development while, vitally, allowing minority shareholders
to benefit from their value creation. If the current environment
endures, we expect the Company’s weighting in China will continue to increase.
Outperformance
in down markets
Our focus
on quality, long-term growth and absolute risk leads the Company to
own companies that tend not to lose a lot of their value in times
of stress.
Over the
last 14 years, in over 75% of months when the market has lost
value, the Company has outperformed. In value terms, the Company
has tended to fall less than two-thirds of the comparable losses of
the Index and has done so with less volatility. Protecting capital
in such periods means our companies have less ground to make up
before they can get back to long-term compounding: this has served
as a vital foundation in the long-term protection and growth of the
Company’s capital.
Notably,
these outcomes are not the result of any successful predication on
our part. We have failed to envision any of the major headline
grabbing events over the last 14 years. And in Asia, there have been a lot! We don’t believe
we add any value in this kind of forecasting. Instead, we seek to
ensure the Company’s portfolio is constructed of companies that are
suitably diversified from a cash flow perspective (not a MSCI
sector) and that their quality and long-term growth positioning
means they have a strong likelihood of surviving, and prospering,
in most macroeconomic and political environments.
It is
important to note that adhering to an investment philosophy that
emphasises the minimisation of loss does not preclude the Company
from owning companies whose share price can go up multiple fold: we
care as much about capital growth as we do about capital
protection. We have been fortunate to own numerous such companies
across the region over the last 14 years and we hope there are many
more in the portfolio today. Crucially, minimising losses in times
of stress has allowed our winners to create a lot of value for the
Company as their gains have not been diluted by substantial losses
elsewhere in the portfolio.
We have
always endeavoured to be the best long-term investors in
Asia. We just choose to come at
the problem of generating great long-term returns from a different
angle to many others.
Time
horizon
Like the
companies we own, we feel very fortunate to be able to take a
long-term view. This feels a very advantaged position to hold in a
world where US corporate executives now enjoy an average tenure of
less than four years and average holding periods of stocks in the
US and China are measured in
days.
Our
average holding period is ten years. With this time horizon, we are
not forced to guess what our companies will earn next quarter or
which way central banks will lean. As investors allocating capital
over the long-term, our philosophy focuses on, and heavily weights,
information that:
-
Is
enduring and doesn’t change quarter to quarter.
-
Is heavily
qualitative.
-
Has a
material bearing on long-term outcomes.
This leads
us to think about the quality of a business and how it is
positioned relative to the many headwinds, tailwinds and evolving
profit pools created by the shift to a more sustainable form of
development. In our eyes, well positioned, high quality companies
have the strongest stream of future cash flows: it is these cash
flows that drive share prices over long term. This belief has been
a foundational component of our philosophy for over thirty years,
long before the advent of ESG or the Sustainable Development
Goals.
Our time
horizon and view of risk leads to 80% of the companies in the
portfolio having some form of economic steward, whether that be an
entrepreneur, family or foundation. We feel very fortunate to be
able to hand the Company’s precious capital to people who not only
have their own money invested alongside us but their family’s
legacy on the line. In some cases, they literally have the family’s
name above the door and on the product! Simply, they too think
about risk in absolutes. For the companies lacking in an economic
steward, we are handing the Company’s capital to cultures that
exhibit a similar owner’s mindset. These stewards are fanatical
about building businesses that solve some of Asia’s deepest
problems. Crucially, they do so with a time horizon measured in
decades, not quarters. We believe this mindset creates one of the
most enduring competitive advantages.
World-class
stewards and quality, cash generative, businesses enable many
companies in the portfolio to build, and hold, net cash balance
sheets. These balance sheets provide enormous value when the
inevitable unanticipated event comes along. Whether that be
recession, political transition or pandemic. In investing, and in
life, all time is not created equal. Some moments matter a lot more
than others. Our companies, thanks to institutional memory, greatly
appreciate this. On average they are over four decades old. They
understand that being able to act independently, and not at the
behest of creditors, in times of unavoidable extreme stress, allows
them to continue to pay their staff; continue to act as partners
with their suppliers, and continue to invest in future growth.
Paranoia about surviving extreme events paired with passion for
building something of extreme value over the long-term is a rare
but vital foundation of great companies. It tends not to be too
prevalent with professional management teams incentivised with
lucrative short-term stock packages or sleepy state-owned cooperate
executives.
We hope
our companies continue to go into down-cycles stronger than peers
and emerge in an even more advantageous position. This is one of
the strongest and simplest examples of how a focus on “not losing”
sets the foundation for extreme long-term outperformance. It also
frees us of having to predict when the next cycle is coming. When
it comes, we know our companies will be prepared.
Investment
Returns
Over the
year to 31 January, the net asset value of the Company was down
1.3%. As a reference, the MSCI AC Asia ex Japan Index (the “Index”)
was down 10.5%.
Extending
the time frame of performance to three, five and seven years – time
periods more in-line with our investment horizon – the Company has
delivered satisfactory levels of capital appreciation.
Cumulative
Performance
|
Since
inception
|
7
years
|
5
years
|
3
years
|
1
year
|
(% in
GBP) to 31 January 2024
|
(01/07/2010)
|
|
|
|
|
NAV
|
265.6
|
69.6
|
44.2
|
13.8
|
-1.3
|
Share
Price
|
267.4
|
62.7
|
33.4
|
6.9
|
-1.9
|
CPI +
6%
|
230.6
|
97.1
|
66.3
|
44.3
|
10.4
|
MSCI AC
Asia ex Japan Index (Net)
|
110.1
|
27.9
|
9.1
|
-20.5
|
-10.5
|
Source:
Lipper IM/Bloomberg/Frostrow. The NAV performance data is
calculated on a net basis after deducting all fees (e.g. investment
management fee) and costs (e.g. transaction and custody costs)
incurred by the Company. The NAV includes dividends reinvested on a
net of tax basis. Source for comparator benchmark index: FactSet.
Table data is shown versus the MSCI AC Asia ex Japan Index,
calculated on an income reinvested net of tax basis. Source for
Consumer Price Index (“CPI”) + 6% data: FactSet. CPI data is quoted
on a one month lag. Performance calculated from when Stewart
Investors became Portfolio Manager of the Trust on 30 June 2010.
Contribution
by investment for the year ended 31 January
2024
Top 10
contributors to and detractors from absolute performance
(%)
Contributors
During the
year under review, the Company’s material ownership of Indian
companies, especially those with exposure to capital spending and
industrial growth, was a key contributor to absolute
performance.
CG
Power & Industrial Solutions
(India:
Industrials)
Contribution:
2.4%
The
Company acquired CG Power in the first quarter of 2021, very
quickly after Tube Investments took a controlling stake. Previous
owners had abused their power resulting in their creditors taking
control of the company, putting it up for sale, and Tube
Investments subsequently taking ownership. CG Power is the leading
manufacturer of motors in India, a
high-quality franchise with fantastic long-term
avenues for growth. It has performed well thanks to the
opportunities provided by Tube Investments’ ownership as well as
very attractive levels of underlying growth. Had we not followed
quality people would not have identified CG Power as a potential
investment. It certainly would not have appeared in a very
favourable light had it been put through a quantitative
screen.
Tube
Investments of India
(India:
Consumer Discretionary)
Contribution:
1.9%
The
Company has owned Tube for close to ten years but materially
increased its position in 2017 when a new CEO took over this fourth
generation family company. His intention was to evolve Tube away
from its existing businesses - parts for the auto and rail
industries, as well as bicycles - to an industrial conglomerate
with leadership positions across higher value industries. This was
to be done in a manner similar to that achieved by the high
performing conglomerates we have studied in the USA or Europe: taking free cash flow from existing
businesses and expanding, both organically and through mergers and
acquisitions (“M&A”), into higher quality industries. Since
2017, Tube has grown its sales at more than 20% a year, its free
cash flow at a higher rate, while improving its return on capital
employed from 22% to 47%1.
We have also seen the company embark on high quality M&A while
organically entering the fields of electric mobility and
manufacturing in the IT industry – most recently in semiconductor
inspection.
1 Source: Tube Investments, 2021-22 Annual Report and
FactSet
Cholamandalam
Financial Holdings
(India:
Financials)
Contribution:
1.1%.
Chola
Financial is a holding company that owns stakes in a non-banking
financial company and a general insurance business. Like CG Power
and Tube Investments, Chola Financial is owned and stewarded by the
well-respected Murugappa family. The company provides financial
services products to around 2.5 million customers in India. They provide vehicle loans for income
yielding assets such as trucks, tractors, and business loans plus
home loans where they aim to reach lower middle income families in
urban and semi-urban markets. Chola’s insurance business provides a
safety net for those using it, preventing families from falling
(back) into poverty after experiencing a shock.
In their
2022 financial year, the finance business entered into a new
segment of consumer and small enterprise loans and micro, small and
medium enterprise loans. Their small enterprise loans aim to reach
an underpenetrated market and provide economic benefit by
specialising in loans for manufacturing, trading and services
sectors. During the reporting period the company saw strong growth
in the incumbent vehicle financing business as well as new
businesses.
Detractors
During the
year under review the most significant detractors were companies
with substantial business interests in China.
Vitasoy
International Holdings
(Hong
Kong: Consumer Staples)
Contribution:
-1.5%
The
Company has owned Vitasoy since Stewart Investors became Portfolio
Manager in June 2010. We have written
about this family-owned, Hong Kong
listed, plant-based beverage provider repeatedly over the years. At
Stewart Investors we commit to our Hippocratic
Oath2
– a set of
principles for effective stewardship. One of these principles is
“not to succumb to irrational exuberance in good times, nor to
unjustified gloom in bad times”. This is exemplified by Vitasoy. In
the Company’s half yearly report in July
2019, when Vitasoy was the strongest contributor to returns
by more than 100 basis points, we wrote that we believed valuations
had become excessive after the company had become included in a
global index. Moreover, we reminded shareholders that companies are
much more than just a line on a graph: “If
Vitasoy had been viewed merely as a stock ticker, and not a quality
business going through a tough time, it would have been very easy
to have been scared out of the company at the height of the fear in
1997”. Vitasoy
is going through another
tough time but now, as then, sober analysis has led us to conclude
that there has not been a significant deterioration in the quality
of the company and that the current gloom is
unjustified.
2
https://www.stewartinvestors.com/uk/en/private-investor.html
Glodon
(China:
Information Technology)
Contribution:
-1.3%
Glodon
designs products and software services for the entire product life
cycle of buildings and large-scale construction projects. They
provide customers with an enduring cost saving proposition –
equivalent to a 1% margin and help to expedite project completion
by a third, without compromising on safety. Gloomy headlines on the
Chinese economy and the property sector in particular are
commonplace. The share price has weakened as investor interest in
the property related companies has ebbed. However, Glodon exhibits
two important differences from the Chinese property developers
making negative headlines. The first is the strength of the balance
sheet. Glodon has around USD340 million
of net cash. The second is a much quicker cash conversion cycle.
Indeed, Glodon has a negative working cycle, meaning that cash
comes into the business faster than it goes out. This financial
strength is allowing quality stewards to invest in new, exciting
and resilient services despite the currently weak operating
environment. It is this commitment to the long term that deepens
our conviction in the quality of stewardship and the
franchise.
Wuxi
Biologics
(China:
Health Care)
Contribution:
-0.9%
Wuxi is a
contract research, development and manufacturing organisation
offering end-to-end solutions that enable partners to discover,
develop and manufacture biologic drugs – from concept to
commercialisation. This benefits patients worldwide. Since
purchasing Wuxi in the fourth quarter of 2023 the share price has
been volatile, mostly weak, driven by speculation of increased
political discord between the USA
and China that could negatively
impact the company. Since then, management have issued statements
correcting misperceptions about the company and its founder. To
match words with action, management also proposed a share
repurchase programme.
Wuxi has almost USD500 million in net
cash on the balance sheet, a strong/multi-year customer
relationship and management team who exhibit honesty and
competence. In our opinion these are some of the key assets
necessary to overcome current difficulties and prosper in the
future.
Significant
Transactions
Over the
course of the year, the portfolio turnover3
of the
Company was 18.3%.
3 See Glossary for definition of portfolio turnover.
New
investments
There was
a slightly greater number of new initiations than in previous years
partly because valuations were lower, particularly in China. During the year, the Company made new
purchases in: Cyient (India:
Information Technology), Hangzhou Robam (China: Consumer Discretionary), Midea
(China: Consumer Discretionary),
Telkom Indonesia (Indonesia:
Communications), RBL Bank (India:
Financials), Samsung Electronics (South
Korea: Information Technology), Samsung Biologics
(South Korea:
Health Care), Triveni Turbines (India: Industrials) and Wuxi Biologics. As
usual there is no theme or top-down allocation explaining these
purchases. The commonality is high quality companies that are well
positioned to contribute to, and benefit from, sustainable
development at attractive valuations.
Additions
The
comparative weakness in many Chinese company shares allowed us to
further add to Midea. We also added to Samsung Electronics, HDFC
Bank (India: Financials), Triveni
Turbines and Voltronic Power (Taiwan: Industrials).
Reductions
To control
country and company position size we reduced CG Power, Tube
Investments and Elgi Equipments (India: Industrials). We also reduced Syngene
(India: Health Care) over concerns
about franchise development.
Disposals
We
identified deteriorating quality and sold out of BRAC Bank
(Bangladesh: Financials), Foshan
Haitian Flavouring & Food (China: Consumer Staples), Public Bank
(Malaysia: Financials) and
Techtronic Industries (Hong Kong:
Industrials). For reasons of valuation, we sold out of Info Edge
(India: Communication Services).
We retain the greatest respect and admiration for Infosys
(India: Information Technology)
but we sold the position as we identified superior risk-adjusted
returns elsewhere. Finally, we sold Vinda International
(Hong Kong: Consumer Staples) due
to news of it being acquired.
ESG
Backlash
A quick
perusal of financial headlines suggests a dramatic fall from grace
for, so called, ‘environmental, social and governance’ investing.
Sayings like ‘the darling of Wall Street’4
have been
replaced by disapproving commentaries containing words like
‘backlash’, ‘unravelling’ or even ‘weaponised’. The latter
highlights the peculiar and unhelpful conflation of partisan
politics with investing, particularly in the US.
4 Kori Hale, Forbes Magazine. The
US$300m unravelling of ESG investing
on corporate diversity. November
2023.
‘Anti-ESG’
articles often mention vogue and politicised topics such as
‘culture wars’ and the ‘woke’. Depending on the author there is
often a hint of schadenfreude against ESG promoting fund groups or
funds which have seen falling sales in recent times. Part of the
cause for this dramatic shift in rhetoric rests with the investment
industry and the worrying prioritisation of asset accumulation over
a principled investment philosophy.
At Stewart
Investors we recall at all times the stricture:
“those
who stand for nothing, fall for anything”. Our
investment philosophy of investing in high quality companies that
contribute to, and benefit from, sustainable development is
sacrosanct. It takes precedence over fund sales and short-term
asset growth. In 2020, before the height of ESG enthusiasm we wrote
an article5
outlining
concerns about ESG driven marketing campaigns and convoluted
messaging designed to drive new sales. At first glance this seems
like a peculiar article for an investment group with a focus on
sustainable development to write. But there is no contradiction or
hypocrisy. This is because ESG and sustainability are connected but
distinct, with sustainability being a more holistic concept than
the ESG metrics supplied by misaligned third-party research
providers.
5 https://www.stewartinvestors.com/uk/en/private-investor/insights/challenging-the-greenwash.html
We define
sustainability as human development with minimal resource
depletion. This is a more encompassing concept than ESG because it
considers the utility and purpose of a company’s product or
services rather than just detailing the externalities of its
operations. The example of a tobacco company may help to clarify
the difference. The ESG report from a tobacco company is often very
appealing but omits that the product is harmful for people’s
health. This highlights the limitations of ESG as an analytical
tool, its inadequacy as an investment strategy and its
inappropriateness as the bedrock of a marketing
campaign.
In the
above-mentioned article, we urged savers to be aware of a cynical
industry using ESG enthusiasm as a theme to drive asset growth. We
raised the possibility of miss-selling. This was not prescience,
just a consideration of the misaligned incentives in the investment
industry that prioritises fund sales over investment discipline. It
is these misaligned incentives which perpetuate cycles in fund
sales that are inevitable but inconsequential to our investment
philosophy and process.
Against
this backdrop of greater scrutiny around greenwashing and wishing
to provide shareholders with more transparency on how their capital
is being deployed, in 2020 we developed an interactive online tool,
now known as Portfolio Explorer6.
For every investment held in the Company, users can learn about the
investment rationale, stewardship and contribution the company
makes to climate solutions and human development. Critically, it
provides a balanced view of the companies, not only highlighting
the positive contributions, but also the risks and areas to
improve. We believe this goes some way to demonstrate the Company’s
and Stewart Investors’ commitment to transparency and tells the
stories of the investee companies rather than merely attributing
quantitative ESG metrics as part of a broader marketing
campaign.
6
https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html
A more
comprehensive description of our investment philosophy and approach
to sustainable investing is set out on pages 21 to 24 of the Annual
Report.
Looking
Forward
Views on
investment opportunities in Asia
have not changed; on behalf of the Company we continue to look to
invest in high-quality companies that are aligned with sustainable
development. We seek stewards who are low profile, competent,
long-term decision makers, franchises free from political agendas
and financials that are resilient, not frail, with the aim to
protect and grow the Company’s capital over the long
term.
Stewart
Investors
Portfolio
Manager
29 April 2024
Sustainability
and ESG
The
Company’s Environmental, Social & Governance Policy
The Board
believes that consideration of environmental, social and governance
issues within the Company’s operations is of importance to
shareholders and other stakeholders, not least because long-term
returns are much more likely to be generated by companies that have
embedded corporate governance strengths, and which respect the
environment and the society in which they operate. The Board
believes that this investment approach is readily applicable in the
markets in Asia in which the
Company invests.
As the
Company delegates the management of the portfolio to Stewart
Investors, the Board has chosen to adopt and endorse their approach
to integrating sustainability into portfolio construction and
investee company engagement. Accordingly, the Company seeks to
achieve long-term capital appreciation by investing in companies
which both contribute to, and benefit from, sustainable
development, achieving positive social and environmental
sustainable outcomes.
Stewart
Investors’ approach is described in detail in the following
section. As part of this focus on sustainability, the Board expects
sustainability and ESG concerns to be a key topic of engagement
with investee companies. The Company expects to maintain, through
its Portfolio Manager, a continuous constructive dialogue with the
owners and the managers of the companies where it owns shares. Such
a relationship is enhanced by the long-term nature of the
investment inherent in the Portfolio Manager’s investment
approach.
In the
same way as the Board expects the Portfolio Manager to challenge
investee companies on their sustainability and ESG credentials, the
Board will also assess the Company’s principal service providers.
The Board asks for assurances that a service provider has taken the
necessary steps to mitigate any material negative environmental
impact their operations might have, to ensure that their internal
governance is compliant with expected high standards, and that they
strive to avoid negative social impacts resulting from their
activities.
Similarly,
the Board itself strives to uphold the highest ESG standards. The
Board’s operations mainly consist of governance-related matters,
where it is important to the Directors to be at the forefront of
best practice.
A
corporate governance report for the year, beginning on page 38,
forms part of the Annual Report. A description of how the Board has
taken the interests of key stakeholders into account in their
decision-making is included on pages 32 and 33 of the Annual
Report.
As best
practice, regulation and disclosure are constantly evolving in this
area both for the Company and for the companies in which it
invests, the Board regularly discusses sustainability, including
ESG policy and practice, with the Portfolio Manager, encouraging
where possible further enhancements in both the policy and in
reporting to shareholders.
On behalf
of the Board
Andrew Impey
Chair
29 April 2024
Stewart
Investors’ Approach to Sustainable Investing
Sustainability
is core to Stewart Investors’ investment philosophy and integrated
into our investment process. We do not have a separate team that
looks at sustainability – every investment team member analyses the
sustainability positioning of a business and is also responsible
for engaging and voting activities.
Stewart
Investors only invest in high-quality companies that contribute to,
and benefit from, sustainable development. We define development as
sustainable if it furthers human development and has an ecological
footprint that respects planetary boundaries. All members of the
investment team sign the Stewart Investors Hippocratic
Oath1,
pledging to uphold the principles of stewardship.
1
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/sustainable-investing/our-hippocratic-oath.html
We
approach sustainability as a means to mitigate risks and as a
driver of investment returns. Integrating sustainability into our
analysis is a natural extension of having a long-term investment
horizon; the sustainability headwinds and tailwinds that affect
companies are different from the shorter-term risks that businesses
face.
Our
consideration of sustainability is holistic; it includes ESG but is
more than ESG. We consider financial sustainability – conservatism
around the balance sheet, for example – and stewardship by
management – the treatment of all stakeholders through a crisis,
for example – to be as essential to the sustainability positioning
of a company as the product or service the company
sells.
When
assessing a company’s sustainability we ask ourselves the following
questions:
-
Products
and services – Do the
products and services make a valuable contribution to sustainable
development?
-
Context
– Can the
company benefit from sustainability tailwinds and navigate
headwinds?
-
Company
ethos – Do the
culture and values embody sustainability and continuous
improvement?
-
Operational
impact – Is the
company trying to reduce impacts from its operations?
In
addition, we assess the contribution of the Company’s investments
to positive social and environmental outcomes by reference to two
frameworks described below.
Positive
social outcomes – Human Development Pillars
Stewart
Investors assesses positive social outcomes by reference to the
below human development pillars. We have developed these human
development pillars by reference to, amongst other things, the UN
Human Development Index.
-
Health
and well-being – improved
access to and affordability of nutrition, healthcare and hygiene,
water and sanitation
-
Physical
infrastructure – improved
access to and affordability of energy and housing
-
Economic
welfare – safe
employment offering a living wage and opportunities for
advancement, access to finance and improved standards of
living
-
Opportunity
and empowerment – improved
access to and affordability of education and information
technology
Further
information about how we use the human development pillars is
available on our website2
2
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/our-approach/human-development-pillars.html
Positive
environmental outcomes – Project Drawdown climate
solutions
Stewart
Investors assesses positive environmental outcomes by reference to
the climate solutions developed by Project
Drawdown3,
a non-profit organisation that has mapped, measured and modelled
over 90 different climate solutions that it believes will
contribute to reaching drawdown – i.e. the point in the future when
emissions stop increasing and start to decline.
3 Any
reference to Project
Drawdown is to
describe the publicly available materials utilised by Stewart
Investors in formulating its sustainability analysis framework. It
is not intended to be, and should not be, read as constituting or
implying that Project Drawdown has reviewed or otherwise endorsed
the Stewart Investors framework. For the list of Project Drawdown
climate solutions please go to
https://drawdown.org/solutions/table-of-solutions.
Below is a
list of climate solutions together with corresponding examples we
believe lead to positive environmental outcomes:
-
Food
system –
sustainable farming, food production and distribution of
food-related products and services
-
Energy
– adoption
of renewable energy and other clean energy and related
technologies
-
Circular
economy and industries – improved
efficiency, reduced waste, and new business models for closing
resource loops in linear value chains and production
processes
-
Human
development –
advancement of human rights and education that drive environmental
conservation and sustainable use of resources
-
Transport
–
efficient transport technologies and growth in fossil fuel-free
transportation options
-
Buildings
– products
and services which reduce the environmental footprint of the built
environment, including energy efficiency, electrification, improved
design, and use of alternative materials
-
Water
– less
energy-intensive methods for treating, transporting and heating
water
-
Conservation
and restoration –
supporting deforestation-free and environmentally regenerative
supply chains, operations and end-of-life impacts
Further
information about how we use the Project Drawdown climate solutions
is available on our website4
4
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/our-approach/climate-solutions.html
Assessment
In
assessing whether a company “contributes to and benefits from”
sustainable development, we will consider whether:
-
there is
either a direct5
or
enabling6
link
between the activities of the company and the achievement of a
positive social or environmental outcome;
5 A
direct
link would arise
where the goods an entity produces or the services it provides are
the primary means through which the positive social or
environmental outcome can be achieved (e.g. solar panel
manufacturers or installers).
6 An
enabling
link would arise
if the goods a company produces or services it provides enable
other companies to contribute towards the achievement of the
positive social or environmental outcome (e.g. manufacturers of
critical components that are used as inputs in the manufacture of
solar panels).
-
any
contribution to positive social or environmental outcomes has
resulted from revenue or growth drivers inherent in the company’s
business model, strategic initiatives that are backed by research
and development or capital expenditure, or from the company’s
strong culture and sense of stewardship e.g. for equity and
diversity; and
-
the
company recognises potential negative social or environmental
outcomes associated with its product or services and works towards
minimising such outcomes, e.g. a company that sells affordable
nutritious food products in plastic packaging, but is investigating
alternative packaging options.
We avoid
companies that do not contribute to sustainable development and
engage with companies to improve sustainability
outcomes.
We have
established a materiality threshold for harmful or controversial
activities at 5% of revenues (0% for tobacco production and
controversial weapons). We explicitly seek to invest in companies
that are making a positive contribution to society. Full details of
the activities and practices we find inconsistent with our
investment philosophy are available on our
website7.
7
https://www.stewartinvestors.com/uk/en/private-investor/insights/our-position-on-harmful-and-controversial-products-and-services.html
Stewart
Investors employ the services of an external ESG research provider,
Sustainalytics, to provide a quarterly check on the Company to
ensure investee companies meet global norms for best practices and
raise no exceptions against our thresholds for harmful activities.
We also receive controversy reporting from RepRisk.
Issues
such as climate change, biodiversity and water, human rights and
modern slavery, and diversity and inclusion are integrated into our
investment selection and engagement and voting processes. Our
approach to climate change is explained in detail in our climate
statement8,
climate report9
and Annual
Stewardship Review10.
Our approach to biodiversity and water is reflected in our
selection of companies that mitigate their impact on the natural
environment or provide services/products that improve efficiencies.
We have engaged on a number of related issues such as palm oil,
deforestation, plastic waste and the use of harmful chemicals.
Human rights and modern slavery are a risk throughout the supply
chain of our investee companies. Our approach is to focus on
quality companies that treat their employees well and manage the
risks in their supply chain effectively. Where we identify
problems, we engage. Our recent collaborative engagement on
conflict minerals in the semi- conductor supply chain is a good
example of this. Our approach to diversity is explained in our
statement11
and we
provide an update on what we have done in our Annual Stewardship
Review. We will provide updates on these issues, amongst others, in
our quarterly shareholder updates.
8
https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
9
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/PASSET-Climate-2021.pdf
10
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/regulations-and-reports.html
11
https://www.stewartinvestors.com/uk/en/private-investor/insights/diversity-statement.html
Transparency
As part of
our focus on improved transparency, we have developed a Portfolio
Explorer tool12
which
provides the contribution that each investee company makes to
climate solutions and human development, as well as the investment
rationale, Sustainable Development Goals, key risks, and areas for
improvement. The company holdings information is updated on a
quarterly basis.
12
https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html?tabs-anchor=Pacific%20
Assets%25Trust&active-tab=Portfolio%20Explorer
Sustainable
Finance Disclosure Regulation
Our report
on how the Company has met its sustainable investment objective, in
accordance with the requirements of the SFDR, begins on page 85 of
the Annual Report.
Thematic
Engagement Example – Conflict Minerals
Stewart
Investors are progressing with a collaborative engagement
initiative on conflict minerals (tantalum, tin, tungsten, gold and
cobalt) in the semiconductor supply chain. These minerals are vital
materials for the semiconductor industry. Poor traceability along
complex supply chains can lead to the inadvertent financing of
armed conflict and the abuse of human rights.
The
initiative is supported by 160 investors representing US$6.6 trillion of assets under management. In
2022 Stewart Investors wrote to 29 companies encouraging them to
develop and invest in traceability technology, to increase
transparency/reporting from mine to product, to collaborate to
improve industry practices, to impose/ enforce harsher sanctions on
non-compliance and to reduce demand for new materials by improving
recycling.
-
As part of
the engagement, we have engaged with industry and civil bodies. We
attended the Responsible Minerals Initiative (“RMI”) annual
conference in 2022, and understand we are the first known investor
to have done so. In 2023, we were the first investor to speak at
the Responsible Business Alliance (“RBA”) and RMI’s Annual
Conference in Santa Clara,
California on the positive role of capital and we hosted a
closed-door workshop, endorsed by the RMI, with 16 leading
electronic companies. Stewart Investors commissioned Kumi
Consulting Ltd (Kumi) to deepen our knowledge, contacts and
engagements with companies, trade bodies and organisations like the
OECD and with their help developed engagement guidelines for
initiative supporters, and other investors, to improve their
interactions with companies.
Finally,
members of the RMI debated, over a number of months, whether they
should allow investors to join their trade body. There were some
initial reservations, however a number of company representatives
and steering committee members of the RMI and RBA Board Liaison
have been strong supporters. There is a growing feeling amongst RMI
members that investors could bring a new and constructive
perspective to help influence improvements along mineral supply
chains. Representatives of the companies and other RMI members
believe: “there is a big role for investors, they have a different
point of leverage”.
We are
delighted that the RMI has taken the significant step of allowing
investors to become members of their trade body which was one of
our main objectives in 2023. We became the inaugural investor
member in 2024 and are now seeking to establish an investor working
group.
Case Study
– Godrej
Website:
https://www.godrejcp.com/
Company
profile: Leading
emerging markets consumer goods company.
Stewardship:
Family.
Founded by Ardeshir Godrej in 1897.
The Godrej family are the controlling shareholder. Adi Godrej is Chair of the Godrej Group and
Nisa Godrej is Chair of Godrej
Consumer.
What
we like:
-
The
company is a leading supplier of affordable soap and household
insecticides, helping millions of people in tropical climates
curtail the spread of waterborne diseases, malaria and other
diseases.
-
The Godrej
family provide long-term stewardship and continue to be actively
involved in the business, which is run by a capable and
professional management team.
-
The
business culture is built on integrity and trust and the impressive
‘Godrej Good and Green’ strategy offers a vision for a more
inclusive and sustainable India.
-
The
franchise is highly cash-generative, ambitious and innovative.
Revenues are split evenly between India and international markets, with positive
growth momentum in Asia,
Africa and
Latin America.
Risks:
We believe
that risks for the company include product quality/safety issues
and succession challenges.
How
the company is contributing to social outcomes:
Godrej
Consumer Products is a consumer goods company which manufactures
and markets personal care and household products in India. They have over 1.2bn customers. Their
main soap and household insecticide products (c.75% of profits)
improve health outcomes in India
and wider. A lack of regular handwashing spreads diarrheal and
waterborne diseases in homes and communities. Poor sanitation has a
knock-on effect, hindering development as workers suffer from
illnesses, live shorter lives, produce and earn less and are unable
to afford education for their children. They also have a range of
brands focused on home care, personal care, hair care and baby
products. Godrej’s flagship social initiative, Salon-I, is a
vocational training programme for women. It is designed entirely
in-house to train young women in basic skills involving beauty,
skin, hair care, and mehndi application. In addition, life skills
and entrepreneurship development modules enable women to take up
jobs or pursue self-employment depending on their unique skill sets
and circumstances. The programme includes 500-hours of training
with audio-visual modules, life skills and entrepreneurship
training aimed at women between 18 and 30 years for employment or
entrepreneurship. The programme focuses on urban and peri-urban,
socio-economically weaker sections of society. Since 2012, more
than 220,000 women have been trained. Around 50% of trainees take
up some form of employment.
How
the company is contributing to environmental
outcomes
As part of
their strategic pillar for building an inclusive and greener world,
Godrej has a goal of zero waste to landfill, which they aim to
continue to achieve. As part of their extended producer
responsibility commitment, Godrej collects 100% post-consumer
plastic packaging waste. They have signed up to the India Plastics
Pact and are a plastic neutral company which means they take back
the equivalent amount of plastic (c. 20,000 metric tons) that they
send to consumers. The company is also reducing plastic use by
improving product packaging, developing new products and reducing
waste. The Goodknight coil bags made from Post-Consumer Recycled
plastic from their own solid waste had a successful trial and would
replace 600 tonnes of virgin plastic when implemented more widely.
Their ‘Magic’ hand and body wash ready-to-mix powders reduce
plastic usage. The body wash uses 16% plastic by weight and the
company plan to reduce this to 8% in the future.
Relevant
Sustainable Development Goals (“SDGs”):
SDG No. 3
– Good health and well being
Godrej’s
personal care products and household insecticides help curtail the
spread of malaria and diarrheal diseases plus other waterborne
diseases. They sell insecticide solutions for less than
one rupee. Since 2015, they have
commissioned projects in Madhya Pradesh, Uttar Pradesh and
Chhattisgarh to help eliminate mosquito borne endemic diseases, by
improving the knowledge and awareness of communities through
behaviour change campaigns. Malarial cases in Madhya Pradesh
dropped by 96% between 2016 and 2021 and the state is on the path
to meeting the goal of malaria elimination. By 2026 the three
projects aim to protect 30 million people against vector-borne
diseases.
SDG No. 12
– Responsible consumption and production
As a
signatory of the Indian Plastics Pact, they have ambitious goals to
reduce energy use, waste and address the issue of plastic
packaging. They are already plastic neutral and by 2025 aim to
reduce packaging consumption per unit of production by 20%; ensure
that 100% of their packaging material is recyclable, reusable,
recoverable or compostable and use at least 10% Post-Consumer
Recycled content in their plastic packaging.
Stewart
Investors
Portfolio
Manager
29 April 2024
Business
Review
The
Strategic Report, set out on pages 1 to 35 of the Annual Report,
contains a review of the Company’s business model and strategy, an
analysis of its performance during the financial year and its
future developments as well as details of the principal risks and
challenges it faces. Its purpose is to inform shareholders and help
them to assess how the Directors have performed their duty to
promote the success of the Company.
The
Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the
information available to them up to the time of their approval of
this report. Such statements should be treated with caution due to
the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking
information.
Business
Model
The
Company is an externally managed investment trust and its shares
are listed on the premium segment of the Official List and traded
on the main market of the London Stock Exchange.
The
purpose of the Company is to achieve long-term growth in its
shareholders’ capital by providing a vehicle for investors to gain
exposure to a portfolio of companies in the Asia Pacific region and the Indian
sub-continent (but excluding Japan, Australia and New
Zealand), through a single investment.
The
Company’s strategy is to create value for shareholders by
addressing its investment objective.
As an
externally managed investment trust, all of the Company’s
day-to-day management and administrative functions are outsourced
to service providers. As a result, the Company has no executive
directors, employees or internal operations.
The
Company employs Frostrow Capital LLP (“Frostrow”) as its
Alternative Investment Fund Manager (“AIFM”) and they provide
corporate management, risk management, company secretarial and
administrative services. The Company employs Stewart Investors as
its Portfolio Manager.
The Board
remains responsible for all aspects of the Company’s affairs,
including setting the parameters for monitoring the investment
strategy and the review of investment performance and policy. It
also has responsibility for all strategic policy issues, including
share issuance and buybacks, share price and discount/ premium
monitoring, corporate governance matters, dividends and
gearing.
Further
information on the Board’s role and the topics it discusses with
the Portfolio Manager is provided in the Corporate Governance
report.
Investment
Objective and Policy
The
Company 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.
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. No more than 45% of the Company’s
total assets (at the time of investment) may be invested in any
single jurisdiction.
If the
proportion of the Company’s total assets invested in a single
jurisdiction exceeds 49% at any time, the AIFM and the Portfolio
Manager should, as soon as reasonably practicable, seek to
re-balance the Company’s portfolio below this threshold.
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%.
When
deemed appropriate, the Company may borrow for investment purposes
up to the equivalent of 10% of the net asset value of the Company
at the time of drawdown of such borrowing.
The use of
derivatives is permitted with prior Board approval and within
agreed limits. However, Stewart Investors are unlikely to use
derivatives as they do not form part of their investment
strategy.
Performance
Measurement
The Board
measures Stewart Investors’ performance against a performance
objective, which is to provide shareholders with a net asset value
total return in excess of the UK Consumer Price Index (“CPI”) plus
6% (calculated on an annual basis) measured over three to five
years (the “Performance Objective”). The Board also monitors the
Company’s performance against its peer group. Please refer to the
Chair’s Statement and the Glossary for further
information.
Dividend
Policy
It is the
Company’s policy to pursue capital growth for shareholders with
income being a secondary consideration. This reflects that the
Portfolio Manager is frequently drawn to companies whose future
growth profile is more important than the generation of dividend
income for shareholders.
The
Company complies with the United Kingdom’s investment trust rules
which require investment trusts to retain no more than 15% of their
distributable income each year. The Company’s dividend policy is
that the Company will pay a dividend as a minimum to maintain
investment trust status.
The
Board
At the
date of this report, the Board of the Company comprises
Andrew Impey (Chair), Charlotta Ginman (Chair of the Audit Committee),
Sian Hansen (Chair of the Engagement
and Remuneration Committee), Robert
Talbut, (the Senior Independent Director) Edward Troughton (the Chair of the Sales,
Marketing and Communications Committee) and Nandita Sahgal. All of these Directors are
non-executive, independent Directors. They all served throughout
the year except for Nandita Sahgal
who joined the Board with effect from 1
January 2024.
Further
information on the Directors can be found on pages 36 and 37 of the
Annual Report and information on the Board’s diversity can be found
in the Corporate Governance Report.
Key
Performance Indicators (“KPIs”)
The Board
of Directors reviews performance against the following KPIs, which
are unchanged from the prior year.
-
NAV total
return against the Performance Objective*^
-
NAV per
share total return against the peer group*^
-
Average
discount/premium of share price to NAV per share over the
year^
-
Ongoing
charges ratio^
*
Calculated
on an annual basis and measured over three to five years
^
Alternative Performance Measure (see Glossary)
NAV
per share total return – Performance Objective
The
Directors regard the Company’s net asset value total return as
being the overall measure of value generated by the Portfolio
Manager over the long term. Total return reflects both the net
asset value growth of the Company and the dividends paid to
shareholders. The performance objective of the Company is inflation
(represented by the Consumer Price Index) plus 6%, measured over
three to five years. The 6% represents what the Board considers to
be a reasonable premium on investors’ capital, which investing in
the faster growing Asian economies ought to provide over time. The
Performance Objective is designed to reflect that the Portfolio
Manager’s approach does not consider index composition when
building and monitoring the portfolio.
During the
year under review, the NAV per share total return was (1.3)%
underperforming the Performance Objective by 11.7% (2023: NAV per
share total return of 5.7%, underperforming the Performance
Objective by 11.6%). Over the past three years, the annualised NAV
per share total return was 4.4%, underperforming the Performance
Objective by 8.6%. Over five years, the annualised NAV per share
total return was 7.6%, underperforming the Performance Objective by
3.2% per annum.
A full
description of performance during the year under review is
contained in the Portfolio Manager’s Review.
NAV
total return – peer group
The Board
also monitors the Company’s performance against its peer group of
four other investment trusts with similar investment mandates and
one exchange traded fund.
Over the
one, three and five years ended 31 January
2024, the Company ranked 1st, 1st and 3rd, respectively, in
its peer group. The Company’s performance is discussed in the
Chair’s Statement; further information can be found in the
Portfolio Manager’s Review.
Average
discount/premium of share price to NAV per
share
The Board
believes that the principal drivers of an investment trust’s share
price discount or premium over the long term are investment
performance and a proactive marketing strategy. However, there can
be volatility in the discount or premium during the year.
Therefore, the Board takes powers each year to buy back and issue
shares with a view to limiting the volatility of the share price
discount or premium, in normal market conditions.
During the
year under review no new shares were issued or bought back by the
Company. The Company’s share price discount to the NAV per share
was narrower this year, in comparison with last year, and usually
narrower than the peer group average. The Board keeps the level of
the discount under close review.
Average
discount of share price to NAV per share*^ during the year
ended
31 January 2024 31
January 2023
6.4% 10.1%
Peer group
average Peer
group average
discount
9.3% discount
8.9%
Ongoing
charges ratio
Ongoing
charges represent the costs that the Company can reasonably expect
to pay from one year to the next, under normal circumstances. The
Board continues to be conscious of expenses and seeks to maintain a
sensible balance between high quality service and costs.
The Board
therefore considers the ongoing charges ratio to be a KPI and
reviews the figure both in absolute terms and in relation to the
Company’s peers.
Ongoing
charges ratio^
31 January 2024 31
January 2023
1.1% 1.1%
Peer group
average 0.9% Peer
group average 0.9%
^
Alternative
Performance Measure (see Glossary).
The Board
believes that the Company’s relatively low turnover, and the
absence of any costs associated with gearing, will mean that the
Company’s overall running costs – should these costs be factored
into the calculation – are not necessarily as high as some other
investment vehicles. It should also be noted that the Company does
not have a performance fee. Performance fees are not included in
the peer group average ongoing charges ratio.
Risk
Management
The Board
is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established
procedures to manage risk, to review the Company’s internal control
framework and to establish the level and nature of the principal
risks the Company is prepared to accept in order to achieve its
long-term strategic objective. The Board, meeting as the Audit
Committee, has carried out a robust assessment of the principal and
emerging risks facing the Company with the assistance of the AIFM.
A process has been established to identify and assess risks, their
likelihood and the possible severity of their impact.
These
principal risks are set out below with a high-level summary of
their management through mitigation and status arrows to indicate
any change in assessment during the year. The risks faced by the
Company have been categorised under three headings as
follows:
-
Investment
and financial risks
-
Strategic
risks
-
Operational
risks
* Source:
Morningstar
^
Alternative
Performance Measure (see Glossary)
A summary
of these risks and their mitigation is set out below:
Principal
Risks and Uncertainties
|
Mitigation
|
Change
in risk assessment over the last financial year
|
|
Investment
and Financial Risks
|
|
|
|
Market and
Foreign Exchange Risk
|
|
Unchanged
|
|
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.
|
To an
extent, this risk is accepted as being inherent to the Company’s
activities. However, the Board has set limits in the investment
policy which ensure that the portfolio is diversified, reducing the
risks associated with individual stocks and markets. Compliance
with the investment objective and policy limits is monitored daily
by Frostrow and Stewart Investors and reported to the Board
monthly. Stewart Investors report at each Board meeting on the
performance of the Company’s portfolio, including the impact of
wider market trends and events.
As part of
its review of the 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), 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.
|
|
Investment
Performance
|
Unchanged
|
|
Investment
performance may not achieve the Company’s investment objective.
Stewart Investors’ investment strategy and approach is expected to
lead to performance that will deviate from that of both market
indices and other investment companies investing in the Asia
Pacific Region.
|
To manage
this risk, the Board:
-
reviews
and challenges reports from Stewart Investors, which cover
portfolio composition, asset allocation, concentration and
performance at each Board meeting;
-
reviews
investment performance over the long term against the Company’s
performance objective and peer group;
-
monitors
Stewart Investors’ performance against set KPIs;
-
formally
reviews Stewart Investors’ appointment, including their
performance, service levels and contractual arrangements, each
year.
|
|
Principal
Risks and Uncertainties
|
Mitigation
|
Change
in assessment
of
risk over the last financial year
|
Strategic
Risks
|
Geopolitical
Risk
|
Unchanged
|
Geopolitical
events may have an adverse impact on the Company’s performance by
causing exchange rate volatility, changes in tax or regulatory
environments, a reduced investment universe and/or a fall in market
prices.
|
The Board
regularly discusses global geopolitical issues and general economic
conditions and developments.
Political
changes in recent years, particularly in the US and Asia Pacific
region and more recently in the Middle East, as well as Ukraine and
Eastern Europe, have increased uncertainty and volatility in
financial markets. The Board discusses such developments and how
they may impact decision making with Stewart Investors.
The
Board’s discussions with the Portfolio Manager often focus on
geopolitical themes or trends that affect social and environmental
sustainability, in particular e.g. conflict minerals and water
scarcity. These are often subjects on which the Portfolio Manager
engages with investee companies.
|
Climate
Change Risk
|
Unchanged
|
The Board
is cognisant of risks arising from climate change and the impact
climate change events could have on portfolio companies and their
operations, as well as on service providers to the
Company.
|
The Board
regularly reviews global environmental, geopolitical and economic
developments with the Portfolio Manager and the implications of
these risks and events on portfolio construction and the Company’s
operations. Given Stewart Investors’ focus on sustainability, the
Board considers the portfolio to be relatively well positioned in
this regard.
|
Black Swan
Risk
|
Increased
|
A
significant unpredictable event (e.g. a pandemic/war/closure of a
major shipping route) could lead to increased market volatility,
and in a worst-case scenario, major global trade and supply chain
breakdown resulting in significant volatility/declines in market
prices. The Company’s service providers and their operational
systems may also be affected.
|
The Board
monitors emerging risks and the robustness of Stewart Investors’
and other service providers’ business continuity plans.
Stewart
Investors’ investment approach includes a focus on sustainability
and stewardship, which emphasises quality investments with strong
balance sheets, a proven track record in previous crises, and the
protection of shareholders’ funds, leaving them relatively well
positioned to deal with unforeseen events.
All of the
Company’s service providers are required to have business
continuity / disaster recovery policies and test them at least
annually. Service providers provide updates on contingency plans
for coping with major disruption to their operations.
In view of
the number of extraordinary and unpredictable events in recent
years, the Board considered that the likelihood of a Black Swan
event had increased.
|
Principal
Risks and Uncertainties
|
Mitigation
|
Change
in assessment
of
risk over the last financial year
|
Strategic
Risks
|
Portfolio
Management Key Persons Risk
|
Unchanged
|
There is a
risk that the team 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:
-
receiving
regular reports from the Portfolio Manager, including any
significant changes in the make-up of the portfolio management
team;
-
meeting
the wider team supporting the designated lead manager, at both
Board meetings and at the Portfolio Manager’s offices;
and
-
delegating
to the Engagement & Remuneration Committee responsibility to
perform an annual review of the service received from the Portfolio
Manager, including, inter
alia, the team
supporting the lead manager and their succession
planning.
|
Share
Price Risk
|
Unchanged
|
The
Company is exposed to the risk, particularly if the investment
strategy and approach are unsuccessful, that the Company
underperforms its peer group, fails to achieve its Performance
Objective and becomes unattractive to shareholders, resulting in a
widening of the share price discount to the NAV per
share.
|
In
managing this risk the Board:
-
reviews
the Company’s investment objective and policy, and Stewart
Investors’ investment approach, in relation to investment
performance, market and economic conditions and the performance 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 the NAV per share and considers ways in which share price
performance may be enhanced, including the effectiveness of
marketing, share issuance and share buybacks, where appropriate;
and
-
reviews an
analysis of the shareholder register at each Board meeting and is
kept informed of shareholder sentiment.
|
|
|
|
|
|
|
|
|
Principal
Risks and Uncertainties
|
Mitigation
|
Change
in risk assessment
over
the last financial year
|
Operational
Risk
|
|
Operational
Risk
|
Unchanged
|
As an
externally managed investment trust, the Company is reliant on the
systems of its service providers for dealing, trade processing,
administration, financial and other functions. If such systems were
to fail or be disrupted (including, for example, as a result of
cyber-crime or a pandemic) this could lead to a failure to comply
with applicable laws, regulations and governance requirements
and/or to a financial loss.
Credit
risk arising from the use of counterparties forms part of this
risk. If a counterparty were to fail, the Company could be
adversely affected through either delay in settlement or loss of
assets.
|
To manage
these risks the Board:
-
periodically
visits all key service providers to gain a better understanding of
their control environment, and the processes in place to mitigate
any disruptive events;
-
receives a
monthly report from Frostrow, which includes, inter
alia,
confirmation of compliance with applicable laws and
regulations;
-
reviews
internal control reports and key policies of its service providers,
including disaster recover procedures and business continuity
plans;
-
maintains
a risk matrix with details of the risks to which the Company is
exposed, the approach to managing those risks, the key controls
relied upon 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;
-
has
considered the increased risk of cyber-attacks and received reports
and assurance from its service providers regarding the information
security controls in place;
-
has
reviewed the arrangements (including sub-custodial arrangements)
and services provided by the Custodian to ensure that the security
of the Company’s custodial assets is maintained; and
-
reviews
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 credit risk and other financial risks can be found
in note 14.
|
|
|
|
|
Emerging
Risks
Emerging
risks are discussed as part of the risk review process and also
throughout the year to try to ensure that new (as well as known)
risks are identified and, so far as practicable, mitigated. Current
identified emerging risks are as follows:
-
Supply
chain disruptions have increased uncertainty over corporate
investment plans and may damage the growth prospects of companies
in the Asia Pacific Region.
-
As well as
offering investment opportunities, the development and exploitation
of technological breakthroughs, such as artificial intelligence,
may challenge and damage the addressable market, revenue and
operations of portfolio companies to the extent that they no longer
offer the promise of returns consistent with the Company’s
investment objective.
-
The risk
that increasing water scarcity will affect economic development,
potentially leading to mass migration and political conflict in the
Asia Pacific Region. This is a particular threat in India, where a high proportion of the
Company’s assets are invested, and which the UN identifies as one
of the most water-stressed countries in the world.
-
The rise
of ‘post-truth’ politics is characterised by rising concerns about
the perceived decay of political and social norms, the diminishing
role of generally accepted truth and reason, and the rise of
misinformation, much of it online. This trend appears to be
encouraging mistrust in democratic institutions and public
discourse and the rise in many countries of more extreme political
parties. Businesses and brands can be drawn into such debates which
may have uncertain direct or indirect consequences for portfolio
companies.
Going
Concern
The
Company’s portfolio, investment activity, the Company’s cash
balances and revenue forecasts, and the trends and factors likely
to affect the Company’s performance are reviewed and discussed at
each Board meeting. The Board has considered a detailed assessment
of the Company’s ability to meet its liabilities as they fall due,
including stress tests which modelled the effects of substantial
falls in portfolio valuations and liquidity constraints on the
Company’s NAV, cash flows and expenses. Further details of the
stress tests and scenarios considered can be found in the Audit
Committee Report and Notes 1 and 14 to the financial statements.
Based on the information available to the Directors at the date of
this report, the conclusions drawn in the Viability Statement
(including the results of the stress tests undertaken) below and
the Company’s cash balances, the Directors are satisfied that the
Company has adequate financial resources to continue in operation
for at least the next 12 months from the date of signing this
report and that, accordingly, it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements.
Viability
Statement
The
Directors have carefully assessed the Company’s financial position
and prospects as well as the principal risks facing the Company 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 Board has chosen a five
year horizon in view of the long-term outlook adopted by the
Portfolio Manager when making investment decisions.
To make
this assessment and in reaching this conclusion, the Audit
Committee has considered the Company’s financial position and its
ability to liquidate its portfolio and meet its liabilities as they
fall due and notes the following:
-
The
portfolio is comprised of investments traded on major international
stock exchanges. Based on historic analysis, it is estimated that
approximately 84% of the current portfolio could be liquidated
within two weeks (based on current market volumes with 20%
participation).
-
The Audit
Committee has considered the viability of the Company under various
scenarios, including periods of acute stock market and economic
volatility. In view of the results of these tests, the Board has
concluded that it would expect to be able to ensure the financial
stability of the Company through the benefits of having a
diversified portfolio of listed and realisable assets. Further
details of the stress tests can be found in Note 1 to the financial
statements;
-
With an
ongoing charges ratio of 1.1%, 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;
-
The Board
has considered the Company’s average cash balance over the past
three years and noted that the Company has consistently retained
levels of cash that are significantly higher than its annual
operating expenses;
-
The
Company has no employees, only non-executive Directors.
Consequently it does not have redundancy or other employment
related liabilities or responsibilities; and
-
The closed
ended nature of the Company means that, unlike open ended funds, it
does not need to realise investments when shareholders wish to sell
their shares.
The
Directors, as well as considering the potential impact of the
principal risks and various severe but plausible downside
scenarios, have also made the following assumptions in considering
the Company’s longer-term viability:
-
There will
continue to be demand for investment trusts;
-
The Board
and the Portfolio Manager will continue to adopt a long-term view
when making investments, and anticipated holding periods will be at
least five years;
-
The
Company invests in the securities of listed companies traded on
international stock exchanges to which investors will wish to
continue to have exposure;
-
Regulation
will not increase to a level that makes running the Company
uneconomical; and
-
The
performance of the Company will continue to be
satisfactory.
Stakeholder
Interests and Board Decision-Making (Section 172 of the Companies
Act 2006)
The
following disclosure, which is required by the Companies Act 2006
and the AIC Code of Corporate Governance, describes how the
Directors have had regard to the views of the Company’s
stakeholders in their decision-making.
STAKEHOLDER
GROUP
|
HOW
THE BOARD HAS ENGAGED WITH THE COMPANY’S
STAKEHOLDERS
|
Investors
|
The
Board’s key mechanisms of engagement with investors
include:
-
The Annual
General Meeting
-
The
Company’s website which hosts reports, articles and insights, and
monthly fact sheets
-
One-to-one
investor meetings
-
Group
meetings with professional investors
-
The Annual
and Half yearly Reports
The
Portfolio Manager and the Company’s broker, on behalf of the Board,
completed a programme of investor relations throughout the year,
reporting to the Board on the feedback received. In addition, the
Chair was (and remains) available to engage with the Company’s
shareholders.
|
Portfolio
Manager
|
The Board
met regularly with Stewart Investors (the Portfolio Manager)
throughout the year, both formally at quarterly Board meetings and
informally, as required. The Board engaged with the portfolio
management team, discussing the Company’s overall performance and
strategy, as well as developments in individual portfolio companies
and wider macroeconomic developments.
The Board
periodically visits different countries and investee companies in
Asia with the Portfolio Manager, to gain first-hand insight into
the Portfolio Manager’s investment process and engagement with
portfolio companies. The Board considers these visits to be an
important part of their oversight of the Portfolio Manager. For
environmental and cost reasons, this year the Board held a
conference in London with the Portfolio Manager, engaging with
representatives from portfolio companies and potential investee
companies in online meetings.
|
Service
Providers
|
The Board
met regularly with Frostrow (the AIFM), representatives of which
attend every quarterly Board meeting to provide updates on risk
management, accounting, administration, corporate governance and
regulatory matters.
The Board,
meeting as the Engagement and Remuneration Committee, reviewed the
performance of all the Company’s service providers, receiving
feedback from Frostrow in their capacity as AIFM and Company
Secretary. The AIFM, which is responsible for the day-to-day
operational management of the Company, meets and interacts with the
other service providers including the Depositary, Custodian and
Registrar, on behalf of the Board, on a daily basis. This can be
through email, one-to-one meetings and/or regular written
reporting.
The Audit
Committee met with BDO LLP to review the audit plan for the year,
agree their remuneration, review the outcome of the annual audit
and to assess the quality and effectiveness of the audit process.
Please refer to the Audit Committee Report for further
information.
|
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, including its Portfolio Manager. The need to
foster good business relationships with service providers and
maintain a reputation for high standards of business conduct are
central to the Directors’ decision-making as the Board of an
externally managed investment trust.
KEY
AREAS OF ENGAGEMENT
|
MAIN
DECISIONS AND ACTIONS TAKEN
|
Investors
-
Ongoing
dialogue with shareholders concerning the strategy of the Company,
performance and the portfolio.
-
Share
price performance.
-
The
Portfolio Manager’s approach to sustainable development and
investment.
|
The Board
and the Portfolio Manager provided updates on performance via RNS,
the Company’s website and the usual financial reports and monthly
fact sheets.
The Board
continued to monitor share price movements closely, both in
absolute terms and in relation to the Company’s peer group. As the
discount narrowed during the year, the Board did not initiate any
share buybacks. While recognising that buybacks can generate
shareholder value in the short term, the Board decided that
buybacks were not in the long-term interests of shareholders, as
they would reduce the size of the Company, increase the ongoing
charges ratio and reduce the liquidity of the Company’s
shares.
Instead,
the Board continued to take steps to improve the visibility of the
Company and the Portfolio Manager’s sustainability credentials, in
particular to retail investors. Further information is provided in
the Chair’s Statement.
|
Portfolio
Manager
-
Portfolio
composition, performance, outlook and business updates.
-
Matters
relating to sustainability, including the sustainability
credentials of the portfolio companies, and regulatory developments
affecting the Company itself.
-
The
promotion and marketing strategy of the Company.
|
The Board
agreed that high standards of research and decision-making have
been maintained and the Portfolio Manager’s strategy has been
implemented consistently, leading to good returns over the past
year and over longer periods. The Board concluded that it was in
the interests of shareholders for Stewart Investors to continue in
their role as Portfolio Manager on the same terms and
conditions.
The Board
continued its focus on improving the marketing strategy of the
Company, and established a new Sales, Marketing and Communications
Committee to oversee this process. Further information is provided
in the Chair’s Statement.
The
Board’s deliberations on the matter of new sustainability-related
regulation are described in the Chair’s Statement.
The Board
considered that the conference in London was successful. While it
will not always be possible or practical to engage with portfolio
companies remotely, in view of the environmental and cost benefits
associated with reduced long-distance travel, the Board agreed to
alternate their due diligence trips to Asia with future
London-based events.
|
Service
Providers
-
Regulatory
updates, in particular regarding the FCA’s Sustainability
Disclosure Rules.
-
The
quality of service provision and the terms and conditions under
which service providers are engaged.
-
The
assessment of the effectiveness of the audit and the Auditor’s
reappointment.
-
The terms
and conditions under which the Auditor is engaged.
|
The Board
concluded that it was in the interests of shareholders for Frostrow
to continue in their role as AIFM on the same terms and
conditions.
The Board
approved the Audit Committee’s recommendation to propose to
shareholders that BDO LLP be re-appointed as the Company’s auditor
for a further year. Please refer to the Audit Committee Report and
the Notice of AGM for further information.
|
Social,
Human Rights and Environmental Matters
As an
externally managed investment trust, the Company does not have any
employees or maintain any premises, nor does it undertake any
manufacturing or other physical operations itself. All its
operational functions are outsourced to third party service
providers. Therefore the Company has no material, direct impact on
the environment or any particular community and, as a result, the
Company itself has no environmental, human rights, social or
community policies.
The
Portfolio Manager engages with the Company’s underlying investee
companies in relation to their corporate governance practices and
the development of their policies on social, community and
environmental matters. The Portfolio Manager (under their parent,
legal entity name, First Sentier Investors) is a Tier 1 signatory
to the UN Principles of Responsible Investment, an investor
signatory of Climate Action 100+ and an investor member of the
Institutional Investors Group on Climate Change.
Integrity
and Business Ethics
The Board
is committed to carrying out the Company’s business in an honest
and fair manner with a zero-tolerance approach to bribery, tax
evasion and corruption. As such, policies and procedures are in
place to prevent this and can be found on the Company’s website. In
carrying out the Company’s activities, the Board aims to conduct
itself responsibly, ethically and fairly, including in relation to
social and human rights issues.
Taskforce
for Climate-Related Financial Disclosures (“TCFD”)
The
Company notes the TCFD recommendations on climate-related financial
disclosures. The Company is an investment trust and, as such, it is
exempt from the Listing Rules requirement to report against the
TCFD framework.
Stewart
Investors is committed to reporting annually on its progress
against its climate change objectives which are set out in its
climate change statement10.
This reporting is modelled on TCFD recommendations to the degree it
is relevant to their activities and to support shareholders with
their reporting requirements.
10
https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
Stewart
Investors have signed up to the Net Zero Asset Managers Initiative.
They published their first climate report11
in 2022
which provides details about their plan; this will be updated
annually. They are engaging with their investee companies to set
ambitious targets and have credible action plans to achieve net
zero by 2050. They are targeting outcomes that are aligned with
their commitment to the Net Zero Asset Managers Initiative and
prioritising engagement with companies that have inadequate
disclosures and targets, and/or rising emissions.
11
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate-
Report-2021.pdf
Climate
reporting, at both the Stewart Investors12
and
Pacific Asset Trust13
level, is
available via the Company’s website.
12
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate-Report-2021.pdf
13
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/PASSET-Climate-2021.pdf
Performance
and Future Developments
A review
of the Company’s performance over the year and the outlook for the
Company can be found in the Chair’s Statement and in the Portfolio
Manager’s Review.
The
Company’s overall strategy remains unchanged.
By order
of the Board
Frostrow
Capital LLP
Company
Secretary
29 April 2024
Statement
of Directors’ Responsibilities
The
Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and
regulations.
Company
law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the
financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice, including FRS 102 ‘The Financial
Reporting Standard applicable in the UK and the Republic of
Ireland’.
Under
company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
-
select
suitable accounting policies and then apply them
consistently;
-
make
judgements and accounting estimates that are reasonable and
prudent;
-
state
whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
-
prepare
the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in
business; and
-
prepare a
directors’ report, a strategic report and a directors’ remuneration
report which comply with the requirements of the Companies Act
2006.
The
Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are responsible
for ensuring that the Annual Report and financial statements, taken
as a whole, are fair, balanced, and understandable and provide the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
Under
applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement which comply
with that law and those regulations.
The
Directors are responsible for ensuring the Annual Report and the
financial statements are made available on the Company’s website,
which is maintained by the Portfolio Manager. Financial statements
are published on the Company’s website in accordance with
legislation in the United Kingdom
governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors. The Directors’ responsibility also
extends to the ongoing integrity of the financial statements
contained therein.
Disclosure
of Information to the Auditor
The
Directors who held office at the date of approval of this report
confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s auditor is unaware; and
each Director has taken all the steps that he/she might reasonably
be expected to have taken as a Director to make himself/ herself
aware of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
Responsibility
Statement of the Directors in respect of the Annual Financial
Report
We confirm
that to the best of our knowledge:
-
the
financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and the return of the
Company for the year ended 31 January
2024; and
-
the Annual
Report includes a fair review of the development and performance of
the business and the financial position of the Company, together
with a description of the principal risks and uncertainties that
they face.
We
consider the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s position and performance,
business model and strategy.
On behalf
of the Board
Andrew Impey
Chair
29 April 2024
Income
Statement
for the
year ended 31 January 2024
|
|
Year ended
31 January 2024
|
Year ended
31 January 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
(Losses)/gains
on investments
|
8
|
-
|
(2,018)
|
(2,018)
|
-
|
27,434
|
27,434
|
Exchange
differences
|
|
-
|
(642)
|
(642)
|
-
|
1,787
|
1,787
|
Income
|
2
|
7,861
|
-
|
7,861
|
5,541
|
-
|
5,541
|
Portfolio
management
|
|
|
|
|
|
|
|
and AIFM
fees
|
3
|
(1,123)
|
(3,369)
|
(4,492)
|
(1,095)
|
(3,283)
|
(4,378)
|
Other
expenses
|
4
|
(795)
|
-
|
(795)
|
(813)
|
-
|
(813)
|
Return/(loss)
before taxation
|
|
5,943
|
(6,029)
|
(86)
|
3,633
|
25,938
|
29,571
|
Taxation
|
5
|
(772)
|
(5,203)
|
(5,975)
|
(621)
|
(3,656)
|
(4,277)
|
Return/(loss)
after taxation
|
|
5,171
|
(11,232)
|
(6,061)
|
3,012
|
22,282
|
25,294
|
Return/(loss)
per share (p)
|
7
|
4.3
|
(9.3)
|
(5.0)
|
2.5
|
18.4
|
20.9
|
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.
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.
The
accompanying notes are an integral part of these
statements.
Statement
of Changes in Equity
for the
year ended 31 January 2024
|
|
Ordinary
|
|
Capital
|
|
|
|
|
|
|
Share
|
Share
|
Redemption
|
Special
|
Capital
|
Revenue
|
|
|
|
Capital
|
premium
|
reserve
|
reserve
|
reserve
|
reserve
|
Total
|
|
Note
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
At
31 January 2022
|
|
15,120
|
8,811
|
1,648
|
14,572
|
404,220
|
6,295
|
450,666
|
Return
after taxation
|
|
-
|
-
|
-
|
-
|
22,282
|
3,012
|
25,294
|
Ordinary
dividends paid
|
6
|
-
|
-
|
-
|
-
|
-
|
(2,298)
|
(2,298)
|
At
31 January 2023
|
|
15,120
|
8,811
|
1,648
|
14,572
|
426,502
|
7,009
|
473,662
|
(Loss)/return
after taxation
|
|
-
|
-
|
-
|
-
|
(11,232)
|
5,171
|
(6,061)
|
Ordinary
dividends paid
|
6
|
-
|
-
|
-
|
-
|
-
|
(2,782)
|
(2,782)
|
At
31 January 2024
|
|
15,120
|
8,811
|
1,648
|
14,572
|
415,270
|
9,398
|
464,819
|
The
accompanying notes are an integral part of these
statements.
Statement
of Financial Position
as at
31 January 2024
|
|
2024
|
2023
|
|
Notes
|
£’000
|
£’000
|
£’000
|
£’000
|
Fixed
assets
|
|
|
|
|
|
Investments
|
8
|
|
470,109
|
|
474,399
|
Current
assets
|
|
|
|
|
|
Debtors
|
9
|
1,032
|
|
333
|
|
Cash
|
|
6,191
|
|
10,535
|
|
|
|
7,223
|
|
10,868
|
|
Creditors
(amounts
falling due within one year)
|
10
|
(1,307)
|
|
(1,855)
|
|
Net
current assets
|
|
|
5,916
|
|
9,013
|
Total
assets less current liabilities
|
|
|
476,025
|
|
483,412
|
Non-current
liabilities
|
|
|
|
|
|
Provision
for liabilities
|
11
|
|
(11,206)
|
|
(9,750)
|
Net
assets
|
|
|
464,819
|
|
473,662
|
Capital
and reserves
|
|
|
|
|
|
Called up
share capital
|
12
|
|
15,120
|
|
15,120
|
Share
premium account
|
|
|
8,811
|
|
8,811
|
Capital
redemption reserve
|
15
|
|
1,648
|
|
1,648
|
Special
reserve
|
15
|
|
14,572
|
|
14,572
|
Capital
reserve
|
15
|
|
415,270
|
|
426,502
|
Revenue
reserve
|
15
|
|
9,398
|
|
7,009
|
Equity
shareholders’ funds
|
|
|
464,819
|
|
473,662
|
Net
asset value per Ordinary Share (p)
|
13
|
|
384.3p
|
|
391.6p
|
The
financial statements were approved and authorised for issue by the
Board of Directors on 29 April 2024
and signed on its behalf by:
Andrew Impey
Chair
The
accompanying notes are an integral part of these
statements.
Pacific
Assets Trust Public Limited Company – Company Registration Number:
SC091052 (Registered in Scotland)
Notes to
the Financial Statements
1.
Accounting Policies
A summary
of the principal accounting policies adopted is set out below or as
appropriate within the relevant note to the financial
statements.
(a) Basis
of Accounting
These
financial statements have been prepared under UK Company Law, FRS
102 ‘The Financial Reporting Standard applicable in the UK and
Ireland’, and in accordance with guidelines set out in the
Statement of Recommended Practice (“SORP”), published in
July 2022, for Investment Trust
Companies and Venture Capital Trusts issued by the Association of
Investment Companies, the historical cost convention, as modified
by the valuation of investments at fair value through profit
or loss.
The
Company has taken advantage of the exemption from preparing a Cash
Flow Statement under FRS 102, as it is an investment fund whose
investments are substantially highly liquid, carried at fair
(market) value and provides a statement of changes in
equity.
The Board
is of the opinion that the Company is engaged in a single segment
of business, namely investing in accordance with the Investment
Objective, and consequently no segmental analysis is
provided.
Going
concern
The
Directors are required to make an assessment of the Company’s
ability to continue as a going concern and have concluded that the
Company has adequate resources to continue in operational existence
for at least 12 months from the date these financial statements
were approved.
In making
this assessment, the Directors have considered a wide variety of
emerging and current risks to the Company, as well as the
mitigation strategies that are in place. The Board has also
reviewed stress-testing and scenario analyses prepared by the AIFM.
The stress tests and scenario analyses considered the effect of
various downturns, based on historic bear markets, on the asset
value and expenses of the Company. The tests modelled the impact of
decreases of up to and over 80% on the value of the investment
portfolio and decreases in current market liquidity of up to
80%.
These
tests are carried out as an arithmetic exercise, which can apply
equally to any set of circumstances in which asset value and income
are significantly impaired. It was concluded that even in an
extreme downside scenario, the Company would be able to continue to
meet its liabilities as they fell due. Whilst the economic future
is uncertain, the opinion of the Directors is that there is no
foreseeable downside scenario that would threaten the Company’s
ability to continue to meet its liabilities as they fall
due.
Based on
the information available to the Directors at the time of this
report, including the results of the stress tests and scenario
analyses, and having taken account of the liquidity of the
investment portfolio, the Company’s cash flow and borrowing
position (the Company is not currently geared), the Directors are
satisfied that the Company has adequate financial resources to
continue in operation for at least 12 months
from the date of signing these financial statements and that,
accordingly, it is appropriate to adopt the going concern
basis.
Significant
Judgement
There is
one significant judgement involved in the presentation of the
Company’s accounts, being the judgement on the functional currency
of the Company.
The
Company’s investments are made in foreign currencies, however the
Board considers the Company’s functional currency to be sterling.
In arriving at this conclusion, the Board considered that the
shares of the Company are listed on the London Stock Exchange, it
is incorporated in the United
Kingdom and pays dividends and expenses in sterling. All
values are rounded to the nearest thousand pounds (£’000) except
where otherwise indicated.
Presentation
of the Income Statement
In order
to reflect better the activities of an investment trust company and
in accordance with the SORP, supplementary information which
analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement.
The net revenue return is the measure the Directors believe
appropriate in assessing the Company’s compliance with certain
requirements set out in Section 1158 of the Corporation Tax Act
2010.
(b)
Foreign Currencies
Transactions
denominated in foreign currencies are translated into sterling at
the exchange rates on the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated at
the rate ruling at the date of the Statement of Financial Position.
Profits or losses on the translation of foreign currency balances,
whether realised or unrealised, are taken to the capital or revenue
column of the Income Statement, depending on whether the gain or
loss is of a capital or revenue
nature.
(c) Cash
and Cash Equivalents
Cash and
cash equivalents are defined as cash and demand deposits readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value.
2.
Income
|
2024
|
2023
|
|
£’000
|
£’000
|
Income
from investments
|
|
|
Overseas
dividends
|
7,701
|
5,504
|
Bank
interest
|
160
|
37
|
|
7,861
|
5,541
|
Dividends
receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the
Company’s right to receive payment is established. Foreign
dividends are gross of withholding tax.
Where the
Company has elected to receive its dividends in the form of
additional shares rather than cash the amount of cash foregone is
recognised in the revenue column with any excess above this
recognised in the capital column.
3.
Portfolio Management and AIFM Fees
|
|
2024
|
|
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Portfolio
management fee
|
|
|
|
|
|
|
–
Stewart Investors
|
996
|
2,989
|
3,985
|
968
|
2,904
|
3,872
|
AIFM fee –
Frostrow
|
127
|
380
|
507
|
127
|
379
|
506
|
|
1,123
|
3,369
|
4,492
|
1,095
|
3,283
|
4,378
|
Frostrow’s
AIFM fee is for risk management, corporate management, company
secretarial and administrative services. Further information
regarding Stewart Investors and Frostrow’s fees can be found on
pages 47 and 48 of the Annual Report.
All
expenses and interest are accounted for on an accruals basis.
Expenses and interest are charged to the Income Statement as
revenue items except where incurred in connection with the
maintenance or enhancement of the value of the Company’s assets and
taking account of the expected long-term returns, when they are
split as follows:
Portfolio
Management and AIFM fees payable have been allocated 25% to revenue
and 75% to capital.
Transaction
costs incurred on the purchase and sale of investments are taken to
the Income Statement as a capital item, within gains on investments
held at fair value through profit or loss.
4. Other
Expenses
|
2024
|
2023
|
|
£’000
|
£’000
|
Directors’
fees
|
189
|
183
|
Employers
NIC on directors’ remuneration
|
15
|
14
|
Auditor’s
remuneration for annual audit
|
46
|
44
|
Depository
fees
|
57
|
56
|
Custody
fees
|
175
|
190
|
Registrar
fees
|
25
|
25
|
Broker
retainer
|
38
|
32
|
Listing
fees
|
24
|
36
|
Legal and
professional fees
|
41
|
43
|
Other
expenses
|
185
|
190
|
Total
expenses
|
795
|
813
|
For
accounting policy, see note 3.
5.
Taxation
(a)
Analysis of Charge in the Year
|
|
2024
|
|
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Overseas
taxation
|
985
|
-
|
985
|
764
|
-
|
764
|
Indian
capital gains tax charge
|
(213)
|
5,203
|
4,990
|
(143)
|
3,656
|
3,513
|
|
772
|
5,203
|
5,975
|
621
|
3,656
|
4,277
|
Overseas
tax arose as a result of irrecoverable withholding tax on overseas
dividends and Indian capital gains tax.
As an
investment trust, the Company is generally not subject to UK tax on
capital gains. However, Indian capital gains tax arises on capital
gains on the sale of Indian securities at a rate of 15% on
short-term
capital gains (defined as those where the security was held for
less than a year) and 10% on long-term capital gains. £1,456,000
(2023: £1,355,000) of the charge arose on unrealised long-term
capital gains on securities still held and is included in deferred
taxation on unrealised capital gains on Indian securities as set
out in note 11. £3,534,000 (2023: £2,158,000) of the charge relates
to capital gains tax paid on disposals during the year.
(b)
Reconciliation of Tax Charge
The UK
corporation tax rate was 19% until 31 March 2023 and 25% from 1
April 2023, giving an effective rate of 24.0% for the year (2023:
19%). The tax assessed for the year is lower than the corporation
tax rate. The differences are explained below.
The
differences are explained below:
|
|
2024
|
|
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Total
return on ordinary activities
|
|
|
|
|
|
|
|
before
tax
|
5,943
|
(6,029)
|
(86)
|
3,633
|
25,938
|
29,571
|
Corporation
tax charged at 24.0%
|
|
|
|
|
|
|
|
(2023:
19.0%)
|
1,428
|
(1,449)
|
(21)
|
690
|
4,928
|
5,618
|
Effects
of:
|
|
|
|
|
|
|
(Losses)/gains
on investment not subject to UK
|
|
|
|
|
|
|
|
corporation
tax
|
-
|
485
|
485
|
-
|
(5,212)
|
(5,212)
|
Non-taxable
exchange differences
|
-
|
154
|
154
|
-
|
(340)
|
(340)
|
Unutilised
management expenses
|
422
|
810
|
1,232
|
356
|
624
|
980
|
Income not
subject to corporation tax
|
(1,851)
|
-
|
(1,851)
|
(1,046)
|
-
|
(1,046)
|
Indian
capital gains tax charge
|
|
|
|
|
|
|
|
(see note
5a)
|
(213)
|
5,203
|
4,990
|
(143)
|
3,656
|
3,513
|
Overseas
taxation
|
986
|
-
|
986
|
764
|
-
|
764
|
Tax
charge for the year
|
772
|
5,203
|
5,975
|
621
|
3,656
|
4,277
|
As at 31
January 2024 the Company had unutilised management expenses and
other reliefs for taxation purposes of £62,974,000 (2023:
£57,846,000). It is not anticipated that these will be utilised in
the foreseeable future and as such no related deferred tax asset
has been recognised.
In October
2022 it was confirmed that the main rate of corporation tax would
increase from 19% to 25% from April 2023. This rate has been
enacted as at the date of the Statement of Financial
Position.
The tax
effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue as set out in this note. The
standard rate of corporation tax is applied to taxable net revenue.
Any adjustment resulting from relief for overseas tax is allocated
to the revenue reserve.
Deferred
tax is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position
date where transactions or events that result in an obligation to
pay more, or right to pay less, tax in future have occurred at the
Statement of Financial Position date. This is subject to deferred
tax assets only being recognised if it is considered more likely
than not that there will be suitable profits from which the future
reversal of the underlying timing differences can be deducted.
Timing differences are differences arising between the Company’s
taxable profits and its results as stated in the accounts which are
capable of reversal in one or more subsequent periods. Deferred tax
is measured without discounting and based on enacted tax rates. Due
to the Company’s status as an investment trust, and the intention
to meet the conditions required to obtain approval under Section
1158 of the Corporation Tax Act 2010, the Company has not provided
for deferred UK tax on any capital gains and losses arising on the
revaluation or disposal of investments.
Deferred
tax has been provided for on capital gains arising on Indian
securities as noted in 5(a) above.
6.
Dividends
Amounts
recognised as distributable to shareholders for the year ended 31
January 2024, were as follows:
|
2024
|
2023
|
|
£’000
|
£’000
|
Final
dividend paid for the year ended 31 January 2023 of 2.3p per
share
|
2,782
|
-
|
Final
dividend paid for the year ended 31 January 2022 of 1.9p per
share
|
-
|
2,298
|
In respect
of the year ended 31 January 2024, a final dividend of 4.0p per
share has been proposed and will be reflected in the Annual Report
for the year ending 31 January 2025. Details of the
ex-dividend
and payment dates are provided on page 47 of the Annual
Report.
The
Board’s current policy is to pay dividends only out of revenue
reserves. Therefore the amount available for distribution as at 31
January 2024 is £9,398,000 (2023: £7,009,000).
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:
|
2024
|
2023
|
|
£’000
|
£’000
|
Revenue
available for distribution by way of dividend for the
year
|
5,171
|
3,012
|
Final
dividend of 4.0p per share (2023: final dividend of
2.3p)
|
(4,838)
|
(2,782)
|
Transfer
to revenue reserves
|
333
|
230
|
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:
|
|
2024
|
|
|
2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
pence
|
pence
|
pence
|
pence
|
pence
|
pence
|
Basic
|
4.3p
|
(9.3)p
|
(5.0)p
|
2.5p
|
18.4p
|
20.9p
|
The total
return per share is based on the total loss attributable to
shareholders of £6,061,000 (2023: return
of £25,294,000).
The
revenue return per share is based on the net revenue return
attributable to shareholders of £5,171,000 (2023:
£3,012,000).
The
capital loss per share is based on the net capital loss
attributable to shareholders of £11,232,000 (2023: return of
£22,282,000).
The total
return, revenue return and the capital return per share are based
on the weighted average number of shares in issue during the year
of 120,958,386 (2023: 120,958,386).
The
calculations of the returns per Ordinary Share have been carried
out in accordance with IAS 33 Earnings per Share.
8.
Investments
|
2024
|
2023
|
|
£’000
|
£’000
|
Investments
|
|
|
Cost at
start of year
|
320,883
|
290,337
|
Investment
holding gains at start of year
|
153,516
|
146,646
|
Valuation
at start of year
|
474,399
|
436,983
|
Purchases
at cost
|
84,889
|
77,305
|
Disposal
proceeds
|
(87,161)
|
(67,323)
|
(Losses)/gains
on investments
|
(2,018)
|
27,434
|
Valuation
at end of year
|
470,109
|
474,399
|
Cost at 31
January
|
352,944
|
320,883
|
Investment
holding gains at 31 January
|
117,165
|
153,516
|
Valuation
at 31 January
|
470,109
|
474,399
|
The
Company received £87,161,000 (2023: £67,323,000) from investments
sold in the year. The book cost of these investments when they were
purchased was £52,828,000 (2023: £46,759,000). 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
£110,000 (2023: £87,000) and transaction costs on sales of £169,000
(2023: £142,000).
Valuation
of Investments
Investments
are measured initially and at subsequent reporting dates at fair
value. Purchases and sales are recognised on the trade date when a
contract exists whose terms require delivery within the time frame
established by the market concerned. For quoted securities fair
value is either bid price or last traded price, depending on the
convention of the exchange on which the investment is listed.
Changes in fair value and gains or losses on disposal are included
in the Income Statement as a capital item.
In
addition, for financial reporting purposes, fair value measurements
are categorised into a fair value hierarchy based on the degree to
which the inputs to the fair value measurements are observable and
the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
Level 1 –
Quoted prices in active markets.
Level 2 –
Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data), either directly or
indirectly.
Level 3 –
Inputs are unobservable (i.e. for which market data is
unavailable).
All
investments are in equity shares and have been classified as Level
1 (2023: All Level 1).
9.
Debtors
|
2024
|
2023
|
|
£’000
|
£’000
|
Amounts
due from brokers
|
746
|
-
|
Accrued
income
|
279
|
323
|
Other
debtors
|
7
|
10
|
|
1,032
|
333
|
10.
Creditors: Amounts Falling Due Within One Year
|
2024
|
2023
|
|
£’000
|
£’000
|
Amounts
due to brokers
|
-
|
481
|
Portfolio
management fee – Stewart Investors
|
1,002
|
1,002
|
AIFM fee –
Frostrow
|
128
|
129
|
Other
creditors
|
177
|
243
|
|
1,307
|
1,855
|
11.
Provisions for Liabilities
|
2024
|
2023
|
|
£’000
|
£’000
|
Deferred
taxation on unrealised capital gains on Indian
securities
|
11,206
|
9,750
|
See note 5
for further details and accounting policy.
12. Share
Capital
|
2024
|
2023
|
|
£’000
|
£’000
|
Allotted
and fully paid:
|
|
|
120,958,386
Ordinary shares of 12.5p each (2023: 120,958,386)
|
15,120
|
15,120
|
During the
current and prior year, no Ordinary shares were issued or bought
back.
The
capital of the Company is managed in accordance with its investment
policy which is detailed in the Strategic Report.
The
Company does not have any externally imposed capital
requirements.
13. Net
Asset Value Per Share
The net
asset value per share of 384.3p (2023: 391.6p) is calculated on net
assets of £464,819,000 (2023: £473,662,000) divided by 120,958,386
(2023: 120,958,386) shares, being the number of shares in issue at
the year end.
14.
Financial Instruments
The
Company’s financial instruments comprise its investment portfolio,
cash balances, and debtors and creditors that arise directly from
its operations. As an investment trust, the Company holds an
investment portfolio of financial assets in pursuit of its
investment objective.
Fixed
asset investments (see note 8) are valued at fair value in
accordance with the Company’s accounting policies. The fair value
of all other financial assets and liabilities is represented by
their carrying value in the Statement of Financial
Position.
The main
risks that the Company faces arising from its financial instruments
are:
(i)
market
risk, including:
other
price risk, being the risk that the value of investments will
fluctuate as a result of changes in market prices;
interest
rate risk, being the risk that the future cash flows of a financial
instrument will fluctuate because of changes in interest
rates;
foreign
currency risk, being the risk that the value of financial assets
and liabilities will fluctuate because of movements in currency
rates;
(ii)
credit
risk, being the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has
entered into with the Company; and
(iii)
liquidity
risk, being the risk that the Company will not be able to meet its
liabilities when they fall due. This may arise should the Company
not be able to liquidate its investments. Under normal market
trading volumes, the majority of the investment portfolio could be
realised within a week.
Other
price risk
The
management of other price risk is part of the portfolio management
process and is typical of equity investment. The investment
portfolio is managed with an awareness of the effects of adverse
price movements through detailed and continuing analysis with an
objective of maximising overall returns to shareholders. Further
information on how the investment portfolio is managed is set out
on page 2 of the Annual Report. Although it is the Company’s
current policy not to use derivatives they may be used from time to
time, with prior Board approval, to hedge specific market risk or
gain exposure to a specific market.
If the
investment portfolio valuation rose or fell by 10% at 31 January,
the impact on the net asset value would have been £46.3 million
(2023: £46.7 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:
|
2024
|
2023
|
|
Investments
|
Cash
|
Debtors
|
Creditors/ Provisions
|
Investments
|
Cash
|
Debtors
|
Creditors/ Provisions
|
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
£’000
|
Chinese
renminbi
|
43,006
|
-
|
-
|
-
|
39,812
|
481
|
-
|
(481)
|
Indian
rupee
|
218,067
|
2,063
|
783
|
(11,206)
|
206,897
|
15
|
110
|
(9,750)
|
New
Taiwanese dollar
|
51,623
|
5
|
-
|
-
|
54,280
|
-
|
5
|
-
|
Hong Kong
dollar
|
13,173
|
-
|
-
|
-
|
33,134
|
-
|
-
|
-
|
Philippine
peso
|
4,688
|
-
|
-
|
-
|
4,835
|
-
|
-
|
-
|
Indonesian
rupiah
|
36,489
|
-
|
-
|
-
|
36,718
|
-
|
-
|
-
|
Japanese
yen
|
37,707
|
-
|
106
|
-
|
36,161
|
-
|
120
|
-
|
Bangladesh
taka
|
4,358
|
-
|
-
|
-
|
6,106
|
-
|
1
|
-
|
Thai
baht
|
9,471
|
-
|
-
|
-
|
12,001
|
-
|
-
|
-
|
Malaysian
ringgit
|
4,586
|
-
|
-
|
-
|
10,231
|
-
|
-
|
-
|
Singapore
dollar
|
21,562
|
688
|
-
|
-
|
23,085
|
2,898
|
-
|
-
|
US
dollar
|
-
|
464
|
-
|
-
|
-
|
3,100
|
-
|
-
|
Korean
won
|
25,379
|
-
|
95
|
-
|
11,139
|
-
|
67
|
-
|
Euro
|
-
|
2
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
470,109
|
3,222
|
984
|
(11,206)
|
474,399
|
6,494
|
303
|
(10,231)
|
At 31
January 2024 the Company had £2,969,000 of sterling cash balances
(2023: £4,041,000).
During the
year sterling strengthened by an average of 7.5% (2023: weakened by
1.6%) 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
£52.9 million (2023: negative £53.4 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 £43.3 million (2023: positive £43.7
million). The calculations are based on the investment portfolio
valuation and cash balances as at the year end and are not
necessarily representative of the year as a whole.
Credit
risk
Credit
risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered
into with the Company. The Portfolio Manager has in place a
monitoring procedure in respect of counterparty risk which is
reviewed on an ongoing basis. The carrying amounts of financial
assets best represents the maximum credit risk exposure at the
Statement of Financial Position date, and the main exposure to
credit risk is via the Custodian which is responsible for the
safeguarding of the Company’s investments and cash
balances.
At the
reporting date, the Company’s financial assets exposed to credit
risk amounted to the following:
|
2024
|
2023
|
|
£’000
|
£’000
|
Cash
|
6,191
|
10,535
|
Debtors
|
1,032
|
333
|
|
7,223
|
10,868
|
All the
assets of the Company which are traded on a recognised exchange are
held by J.P. Morgan Chase Bank, the Custodian. Bankruptcy or
insolvency of the Custodian may cause the Company’s rights with
respect to securities held by the Custodian to be delayed or
limited. The Board monitors the Company’s risk as described in the
Strategic Report.
The credit
risk on cash is controlled through the use of counterparties or
banks with high credit ratings (rated AA or higher), assigned by
international credit rating agencies. Cash is currently held at
JP Morgan
Chase Bank. Bankruptcy or insolvency of such financial institutions
may cause the Company’s ability to access cash placed on deposit to
be delayed, limited or lost.
Liquidity
risk
The
Company’s liquidity risk is managed on an ongoing basis by the
Portfolio Manager. Substantially all of the Company’s portfolio
would be realisable within one week, under normal market
conditions. There may be circumstances where market liquidity is
lower than normal. Stress tests have been performed to understand
how long the portfolio would take to realise in such situations.
The Board is comfortable that in such a situation the Company would
be able to meet its liabilities as they fall due.
Capital
management policies and procedures
The
Company’s capital management objectives are to ensure that it will
be able to continue as a going concern and to maximise the return
to its equity shareholders.
The
Company’s policy on gearing and leverage is set out on page 26 of
the Annual Report. The Company had no gearing or leverage during
the current or prior year.
The
capital structure of the Company consists of the equity share
capital, retained earnings and other reserves as shown in the
Statement of Financial Position.
The Board,
with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company’s capital on an
ongoing basis. This includes a review of:
-
the need
to buy back equity shares, either for cancellation or to hold in
treasury, in light of any share price discount to net asset value
per share in accordance with the Company’s share buy-back
policy;
-
the need
for new issues of equity shares, including issues from treasury;
and
-
the extent
to which revenue in excess of that which is required to be
distributed should be retained.
The
Company’s objectives, policies and processes for managing capital
are unchanged from the prior year.
15.
Reserves
Capital
redemption reserve
This
reserve arose when ordinary shares were redeemed by the Company and
subsequently cancelled, at which point the amount equal to the par
value of the ordinary share capital was transferred from the
ordinary share capital to the Capital Redemption
Reserve.
Special
reserve
The
Special Reserve arose following court approval in February 1999 to
transfer £24.2 million from the share premium account.
Capital
reserve
The
following are accounted for in this reserve: gains and losses on
the disposal of investments; changes in the fair value of
investments; and expenses and finance costs, together with the
related taxation effect, charged to capital in accordance with note
5. Any gains in the fair value of investments that are not readily
convertible to cash are treated as unrealised gains in the
capital reserve.
Revenue
reserve
The
Revenue Reserve reflects all income and expenses that are
recognised in the revenue column of the Income
Statement.
Distributable
reserves
The
Revenue, Special and Capital Reserves are distributable. It is the
Board’s current policy to pay dividends only from the revenue
reserve.
16.
Related Party Transactions and Transactions with the
Managers
The
following are considered to be related parties:
-
Frostrow
Capital LLP (under the Listing Rules only)
-
Stewart
Investors (under the Listing Rules only)
-
The
Directors of the Company
Details of
the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, are disclosed on pages 47 and 48 of the Annual
Report. During the year ended 31 January 2024, Frostrow earned
£507,000 (2023: £506,000) in respect of company management fees, of
which £128,000 (2022: £129,000) was outstanding at the year
end.
The
Company employs Stewart Investors as its Portfolio Manager. Details
of this arrangement are disclosed on page 47 of the Annual Report.
During the year ended 31 January 2024, Stewart Investors earned
£3,985,000 (2023: £3,872,000) in respect of portfolio management
fees, of which £1,002,000 (2023: £1,002,000) was outstanding at the
year end.
All
material related party transactions have been disclosed in notes 3
and 4. Details of the remuneration and the shareholdings of all
Directors can be found on page 59 of the Annual Report.
The
figures and financial information for 2023 are extracted from the
published Annual Report for the year ended 31 January 2023 and do
not constitute the statutory accounts for that year. The Annual
Report for the year ended 31 January 2023 has been delivered to the
Registrar of Companies and included the Independent Auditor’s
Report which was unqualified and did not contain a statement under
either section 498(2) or section 498(3) of the Companies Act
2006.
The
figures and financial information for 2024 are extracted from the
Annual Report and financial statements for the year ended 31
January 2024 and do not constitute the statutory accounts for the
year.
The
Annual Report for the year ended 31 January 2024 includes the
Independent Auditor’s Report which is unqualified and does not
contain a statement under either section 498(2) or section 498(3)
of the Companies Act 2006.
The
Annual Report and financial statements have not yet been delivered
to the Registrar of Companies.
Glossary
of Terms and Alternative Performance Measures
(unaudited)
Absolute
Performance
Absolute
performance is the percentage (%) rise or fall in the share price
of the investment over the stated period. Relative performance, on
the other hand, is the difference between the absolute return and
the performance of the market (or other similar investments), which
is gauged by a benchmark, or index such as the MSCI AC Asia ex
Japan Index.
AIFMD
The
Alternative Investment Fund Managers Directive (the ‘Directive’) is
a European Union Directive that entered into force on 22 July 2013.
The Directive, which was retained in UK law following the
withdrawal of the UK from the European Union, regulates fund
managers that manage alternative investment funds (including
investment trusts).
Where an
entity falls within the scope of the Directive, it must appoint a
single Alternative Investment Fund Manager (‘AIFM’). The core
functions of an AIFM are portfolio and risk management. An AIFM can
delegate one but not both of these functions. The entity must also
appoint an independent depositary whose duties include the
following: safeguarding and verification of the ownership of
assets; monitoring cashflows; and ensuring that appropriate
valuations are applied to the entity’s assets.
Average
Discount
The
average share price for the period divided by the average net asset
value for the period minus 1.
|
2024
|
2023
|
|
pence
|
pence
|
Average
share price for the year
|
363.1
|
335.9
|
Average
net asset value for the year
|
388.0
|
373.8
|
Average
Discount
|
6.4%
|
10.1%
|
Bottom-Up
Approach
An
investment approach that focuses on the analysis of individual
stocks rather than the significance of macroeconomic
factors.
Discount
or Premium
A
description of the difference between the share price and the net
asset value per share. The size of the discount or premium is
calculated by subtracting the share price from the net asset value
per share and is usually expressed as a percentage (%) of the net
asset value per share. If the share price is higher than the net
asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading
at a discount.
Gearing
The term
used to describe the process of borrowing money for investment
purposes. The expectation is that the returns on the investments
purchased will exceed the finance costs associated with those
borrowings.
There are
several methods of calculating gearing and the following has been
selected:
Total
assets less current liabilities (before deducting any prior
charges) minus cash/cash equivalents divided by shareholders’
funds, expressed as a percentage.
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 for and
supply of the shares.
NAV Per
Share Total Return
The total
return on an investment over a specified period assuming dividends
paid to shareholders were reinvested at net asset value per share
at the time the shares were quoted ex-dividend. This is a way of
measuring investment management performance of investment trusts
which is not affected by movements in discounts or
premiums.
|
31
January
|
31
January
|
|
2024
|
2023
|
NAV Total
Return
|
p
|
p
|
Opening
NAV
|
391.6
|
372.6
|
(Decrease)/increase
in NAV
|
(5.0)
|
20.9
|
Dividend
paid
|
(2.3)
|
(1.9)
|
Closing
NAV
|
384.3
|
391.6
|
(Decrease)/increase
in NAV
|
(1.3)%
|
5.6%
|
Impact of
reinvested dividends
|
0.0%
|
0.1%
|
NAV
Total Return
|
(1.3)%
|
5.7%
|
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
|
|
2024
|
2023
|
|
£’000
|
£’000
|
Operating
expenses1
|
5,287
|
5,190
|
Average
net assets during the year
|
469,515
|
452,081
|
Ongoing
charges
|
1.1%
|
1.1%
|
1 See notes
3 and 4.
Performance
Objective
The
Company’s performance objective, against which the Portfolio
Manager’s performance is measured, is to provide shareholders with
a net asset value total return in excess of the UK Consumer Price
Index (“CPI”) plus 6% (calculated on an annual basis) measured over
three to five years. The Consumer
Price Index is published by the UK Office for National Statistics
and represents inflation. The additional 6% is a fixed element to
represent what the Board considers to be a reasonable premium on
investors’ capital which investing in the faster-growing Asian
economies ought to provide over time. The performance objective is
designed to reflect that the Portfolio Manager’s approach does not
consider index composition when investing.
|
Total
Return (annualised)
|
|
Share
Price
|
NAV
|
CPI +
6%
|
|
(%)
|
(%)
|
(%)
|
One year
to 31 January 2024
|
(1.9)
|
(1.3)
|
10.4
|
Three
years to 31 January 2024
|
2.3
|
4.4
|
13.0
|
Five years
to 31 January 2024
|
5.9
|
7.6
|
10.8
|
Portfolio
Turnover
Portfolio
turnover is a measure of how quickly securities in a fund are
either bought or sold by the fund’s managers, over a given period
of time. The rate of turnover is important for potential investors
to consider, as funds that have a high rate will also have higher
fees to reflect the turnover costs.
It is
calculated as the average of the purchases and sales for the year
divided by the average net assets for the year.
Revenue
Return per Share
The
revenue return per share is calculated by taking the return on
ordinary activities after taxation and dividing it by the weighted
average number of shares in issue during the year (see note 7 for
further information).
Share
Price Total Return
The total
return on an investment over a specified period assuming dividends
paid to shareholders were reinvested in the Company’s shares at the
share price at the time the shares were quoted
ex-dividend.
|
31
January
|
31
January
|
|
2024
|
2023
|
Share
Price Total Return
|
p
|
p
|
Opening
share price
|
358.0
|
340.0
|
(Decrease)/increase
in share price
|
(6.7)
|
19.9
|
Dividend
paid
|
(2.3)
|
(1.9)
|
Closing
share price
|
349.0
|
358.0
|
(Decrease)/increase
in share price
|
(1.9)%
|
5.8%
|
Impact of
reinvested dividends
|
0.0%
|
0.1%
|
Share
Price Total Return
|
(1.9)%
|
5.9%
|
Volatility
A measure
of the range of possible returns for a given security or market
index.
Investment
Philosophy
The
graphic in the Portfolio Manager’s Review contains certain terms
which are defined/explained below. Each measure is calculated for a
representative Stewart Investors Asia Pacific sustainability
account (managed by the same portfolio management team as the
Company), unless otherwise stated.
-
Active
share is the
percentage of stock holdings in the
portfolio that differs from the MSCI AC Asia ex Japan Index,
sterling adjusted with income reinvested net of tax (the “Index”).
A higher percentage reflects a higher divergence from the
Index.
-
Average
age of holdings refers to
the average age of the
companies held in the portfolio.
-
Holdings
with net cash refers to
companies whose total cash
is greater than its total liabilities.
-
Holdings
with stewards refers to
companies primarily
owned/controlled by second or later generation of its founders,
companies primarily owned/controlled by its founder or founders and
companies primarily owned/controlled by an organisation, often
established by an individual, whose purpose is to support good
causes.
-
For
emissions (footprint) reporting
the Portfolio Manager
has used the Partnership for Carbon Accounting Financials (PCAF)
methodology which calculates a shareholder’s or lender’s share of
scope 1 and 2 emissions for each company it invests in. Scope 1
covers all direct greenhouse gas (GHG) emissions from sources that
are owned or controlled by the reporting entity. Scope 2 covers
indirect GHG emissions from the consumption of purchased
electricity, heat or steam. An investor’s share is based on the
amount invested over the Enterprise Value Including Cash (EVIC).
For example if a shareholder owns 10% of the company, it is
allocated 10% of the company’s emissions. For shareholders this is
sometimes called ‘financed’ or ‘equity share’ of emissions. To
calculate the benchmark comparisons for Stewart Investors’
strategies, they have used the same approach by assuming benchmarks
hold the same total value of investments as comparable strategies.
They provide the total footprint, which is influenced by the size
of the total value of the investment strategy (shown in 1000s of
tonnes of CO2-e) and on a ‘per $1 million invested’ basis, which is
useful for comparison purposes.
-
Outperformance
in down months shows
the proportion
of months where the Composite portfolio outperformed the Index,
expressed as a percentage of the total number of months where the
Index fell. An outperformance in down months of 80% indicates that
the portfolio outperformed in 8 out of 10 months where the Index
fell. This measure is calculated using the Composite.
Source for
Index: FactSet
-
Downside
capture is a
measure of the Composite portfolio’s
overall performance in a down market relative to the Index. A
down-market is defined as a period in which the market return is
less than 0. Downside capture reflects the portfolio’s cumulative
return when the Index was down, divided by the Index’s cumulative
return when it was down. A value of less than 100 indicates that
the portfolio has lost less than the Index during periods of
negative returns for the Index. This measure is calculated using
the Composite.
-
Average
name turnover is a
portfolio activity measure
indicating how many companies (stocks) have been sold and bought
over a given period. This is thus showing the turnover of the
portfolio in terms of stock mutation. Data shown is for the 10
years to 31 December 2023.
-
Composite
means the
Stewart Investors Asia ex-Japan
Sustainable Equity composite, a weighted average group of accounts
managed in a similar way by the same portfolio management team that
manages the Company’s portfolio. The Composite portfolio
performance is
calculated on a net basis by subtracting a model annual management
fee of 0.85% from the gross performance figures. No other expenses
or costs have been taken into account when calculating the net
performance. Income is reinvested and is included on a net of tax
basis. Performance and measures are from the Composite inception on
1 February 2006 to 31 December
2023.
ANNOUNCEMENT
ENDS
Neither
the contents of the Company's website nor the contents of any
website accessible from hyperlinks on the Company's website (or any
other website) is incorporated into, or forms part of, this
announcement.