TIDMPHI
RNS Number : 2543L
Pacific Horizon Investment Tst PLC
29 September 2016
Pacific Horizon Investment Trust PLC
Circular and Annual Financial Report
Pacific Horizon Investment Trust PLC ('the Company') has today
published a circular ('the Circular') containing notice of the
Annual General Meeting of the Company. In addition to the customary
business to be conducted at the Annual General Meeting the notice
also includes a resolution, as outlined in the Chairman's Statement
below, proposing to extend the life of the Company.
Full details of all the resolutions are set out in the Circular.
Copies of the Circular are available for inspection during normal
business hours on any weekday (Saturdays, Sundays and public
holidays excepted) at the offices of Baillie Gifford & Co,
Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.
Expected Timetable
Latest time and date for receipt 11.00 a.m. on 2 November
of forms of direction 2016
Latest time and date for receipt 11.00 a.m. on 7 November
of forms of proxy 2016
Annual General Meeting 11.00 a.m. on 9 November
2016
A copy of the Circular and the Annual Report and Financial
Statements for the year ended 31 July 2016 has been submitted
electronically to the National Storage Mechanism and will shortly
be available for inspection at
http://www.morningstar.co.uk/uk/NSM
The Circular and Annual Report and Financial Statements for the
year ended 31 July 2016 are also available on Pacific Horizon's
page of the Baillie Gifford website
at:http://www.pacifichorizon.co.uk
The unedited full text of those parts of the Annual Report and
Financial Statements for the year ended 31 July 2016 which require
to be published by DTR 4.1 are set out below.
Neither the contents of the Managers' website nor the contents
of any website accessible from hyperlinks on the Managers' website
(or any other website) is incorporated into, or forms part of, this
announcement.
Baillie Gifford & Co Limited
Company Secretaries
29 September 2016
Chairman's Statement
Performance
In the year to 31 July 2016, the Company's net asset value per
share (NAV) total return was 13.3%. During the same period the
Company's comparative index, the MSCI All Country Asia ex Japan
Index, total return was 16.2% in sterling terms. The share price
total return was 10.9%, and the discount widened from 8.2% to
10.1%. Over the five years to 31 July 2016 the Company's NAV and
share price returned 29.8% and 26.8% respectively; over the same
period the Company's comparative index, the MSCI All Country Asia
ex Japan Index, returned 30.3% in sterling terms.
The Managers' Review below provides a more detailed review of
the Company's performance along with comment on the various markets
in which the Company invests.
Earnings per share decreased from 0.35p to a deficit of 0.30p.
The Company's objective is to invest for capital growth rather than
income and all expenses, including borrowing costs, are charged to
revenue. The Company has revenue reserves and the Board is
recommending that a final dividend of 0.35p (2015 - 0.35p) be paid
on this occasion. Any dividend payable in future will be determined
as being the minimum permissible in order to maintain investment
trust status and be paid by way of one final payment per year. As
the Company's objective is to achieve capital growth, it is not
recommended that investors consider investing in this Company if
they require income from this investment.
The ongoing charges increased to 1.13% (2015 - 1.02%). Although
the Company's NAV per share increased over the financial year,
shareholders' funds averaged less than in the prior year partly as
a result of the bi-annual tender offers. Consequently, the fixed
administrative expenses accounted for a higher proportion of
shareholders' funds.
The Board and Managers believe that the long term stock picking
approach, focussing on growth companies in the Asia Pacific ex
Japan region and markets of the Indian Sub-continent, will generate
competitive positive long term returns. Although the Company can
invest in a broad spread of markets and sectors, it remains
differentiated from its peers at present not only through its
geographic exposure (being mainly China/Hong Kong, South Korea,
Taiwan, India and increasingly Vietnam), but also as a result of
its focus on asset light innovating companies. There continues to
be a bias to companies which have the potential to benefit
significantly from the growing wealth and sophistication of the
Asian consumer. The overlap between the Company's portfolio and
index was 19% as at 31 July 2016, meaning that the active share was
over 81%, again demonstrating a very distinct investment style.
Continuation of the Company
At this year's Annual General Meeting ('AGM') the Directors are
proposing, in accordance with the Articles, that the life of the
Company be extended for a further five years. Having conducted a
thorough review of the Managers' approach and resources, the Board
judges them to have the right team to manage a portfolio in what it
considers to be a region with superior long term prospects for
investment.
Your Directors therefore believe that it is desirable to extend
the Company's life and recommend that shareholders vote in favour
of the extension for a further period of five years. A fuller
outline of the proposal is set out in the circular containing the
Notice of the AGM accompanying this Report.
Tender Mechanism
At the Company's 2015 AGM, shareholders once again authorised
the implementation of bi-annual tender offers for up to 5% of the
Company's shares at a 2% discount to NAV, less costs. The decision
to implement the tender was at the Board's discretion in the event
that the discount averaged more than 9% during the six month
periods to 31 January and 31 July 2016. Over the six month periods
to 31 July 2015 and 31 January 2016 the Company's average discounts
were 9.6% and 10.3% respectively and consequently the Board
implemented tender offers in October 2015 and April 2016. The
Company's average discount for the six month period to 31 July 2016
was 11.9% and the Board has again decided to implement a 5% tender
offer, applicable to shareholders on the register on 9 August 2016.
Details of how to tender your shares in respect of this 5% tender
offer are contained within the Tender Offer Circular accompanying
this Report.
Through tender offers implemented on 31 July 2015 and 31 January
2016, the Company bought back a total of 6,170,662 ordinary shares,
representing 9.7% of the issued share capital as at 31 July 2015,
at a cost of GBP11,618,000.
Following consultation with a number of shareholders, the Board
is not proposing to seek authority for the existing bi-annual 5%
tender to be continued for a period of at least the next three
years. Some investors have commented that they require the Company
to have liquidity and scale and have found the existing size and/or
frequency of tenders unhelpful. In addition, they felt that the
trigger for tenders can be over influenced by market sentiment
towards the asset class, rather than by the Company's performance.
Instead, the Board is proposing a tender that will be triggered if
the Company's NAV, calculated at fair value cum-income, total
return fails to exceed the Company's comparative index by at least
1% per annum over a three year period to 31 July 2019 on a
cumulative basis. If this performance target is not met, it is the
intention that the Directors will propose a 25% tender of the
Company's issued share capital at the time of calculation. The
tender would be at a 2% discount to NAV less costs.
This would be subject to shareholders' approval of the tender
authority that will be put to shareholders at the 2018 AGM. If the
authority is obtained and the tender is subsequently triggered, a
separate circular and tender form will be sent to shareholders
which will set out the full terms and conditions of the tender
offer and the procedure for tendering shares.
Share Buy-backs
At the forthcoming AGM, the Board will be asking shareholders to
renew the mandate to repurchase up to 14.99% of the outstanding
shares on an ad hoc basis. The Board uses this authority
opportunistically, taking into account not only the level of the
discount but also the underlying liquidity and trading volumes in
the Company's shares. This approach allows the Board to seek to
address any imbalance between the supply and demand for the
Company's shares that results in a large discount to NAV whilst
being cognisant that current and potential shareholders require
continuing liquidity.
Gearing
The Board sets the gearing parameters within which the portfolio
managers are permitted to operate and these are reviewed at each
Board meeting. At present, the agreed range of equity gearing is
minus 15% to plus 10%. At the year end, equity gearing was
relatively low at 2.9%, having started the year at 7.9%. Gearing
ranged between a negative of 8.3% (i.e. holding net cash) and a
positive of 8.1%. Gearing is achieved through the use of bank
borrowings. At present the Company has a Royal Bank of Scotland
GBP10 million multi-currency revolving credit facility, of which
GBP5 million was drawn at 31 July 2016. In addition the Company
benefits from a GBP10 million one year uncommitted revolving credit
facility with The Bank of New York Mellon which was undrawn at 31
July 2016.
Annual General Meeting
This year's AGM will take place on 9 November 2016 at the
offices of Baillie Gifford & Co in Edinburgh at 11.00am. I
would encourage shareholders to arrive by 10.50am to allow time to
register. The Managers will make a presentation and, along with the
Directors, will answer any questions from shareholders. I hope to
see as many of you as possible there.
Outlook
Over the year, the performance of stockmarkets across Asia was
mixed. In local currency terms, the Chinese and Hong Kong markets
were weaker, whilst South Korea and India were largely unchanged,
albeit with some volatility during the year. These are the areas
where we have most of our exposure. The headline economic numbers
indicate reasonable growth potential and we believe that there are
good opportunities across the Asian markets to find entrepreneurial
companies on valuations which look reasonably priced. Our exposure
to technologies of differing types - such as internet search tools,
online services and biotechnology - offer us plenty of scope to
invest in growing businesses with the opportunity to take market
share from traditional businesses and benefit from the disruption
which is now occurring internationally.
Jean Matterson
Chairman
15 September 2016
Past performance is not a guide to future performance.
Managers' Review
Overview
Management of Pacific Horizon's portfolio is focussed on finding
and investing in attractive growth companies within Asia Ex-Japan
and the Indian Sub-continent. We believe that investing for the
long-term in companies that can deliver significantly faster growth
than the market will, over time, deliver rewards. We are looking to
invest in companies that have the potential to grow their revenue
and earnings at around 15% per annum for at least the next five
years and where we feel the growth prospects have not been fully
recognised. This investment approach can lead to significant
concentration in certain areas of the market.
Over the Company's financial year the NAV total return was 13.3%
compared with 16.2% for the comparative index in sterling terms. We
are disappointed with this relative performance, but we believe
that our investment stance will be vindicated over the longer-term.
As at the Company's year end we had equity gearing of 2.9% and we
would look to be adding investment exposure if there were to be any
significant weakness in markets or were we to find opportunities to
invest in new exciting companies with significant growth
potential.
The Portfolio
The weighting in technology companies increased from 47.9% to
50.9% following outperformance of the sector during the year and
additions to our Chinese holdings. The consumer internet names in
China now represent the largest concentration in our portfolio at
22%; we see significant upside from both earnings growth and a
potential re-rating of valuations in this sector, which have been
significantly de-rated over the last year due to fear of an overall
Chinese slowdown. We feel that the sector represents one of the
most compelling long-term investments within our region.
Tencent Holdings, which is the portfolio's largest holding at
just over 10%, significantly beat consensus earnings expectations
recently, growing its revenues by 52% and net profit by 47% year on
year, which is impressive for a $250bn company. With the second
largest user base in the world after Facebook, we see tremendous
opportunity for Tencent to monetise its network through games,
video, music and advertising. Alibaba accounts for 3% of the
portfolio and announced recent revenue growth of 59%. Five of the
Company's top six largest holdings and 25% of the portfolio as a
whole represent companies that profit from the supply of
information through their respective networks.
Our technology holdings, in China and elsewhere, helped our
overall performance, with Sunny Optical, Tencent and NAVER being
our top contributors to overall performance. On the other hand, not
holding sufficient positions in TSMC and Samsung Electronics and
severe weakness in some of our Chinese names: JD.com, Kingdee,
Kingsoft and Jumei International dampened portfolio returns.
Within China we bought China Harmony New Energy Auto, a leading
car dealer and after-market operator in China, which is investing
in a partnership with Tencent and Hon Hai to create a leading
electric vehicle. We bought the stock on a price earnings ratio of
8x and with potential three year earnings growth of 20% per
annum.
Korean investments represent some 30% of the portfolio and we
continue to find plenty of interesting innovative growth companies
in this market; this is at odds with the consensus judgement on the
country. We took a position in Finetex EnE which is one of the
world's leading companies in nano-materials. We believe the company
is in late stage negotiations to supply innovative materials to
Nike, improved performance facial masks in Korea and China, and has
the potential to revolutionise the membranes and materials used in
air conditioning systems.
We hold a number of smaller technology companies in Korea, where
we believe the growth potential is underappreciated; for example,
Koh Young, a $500m company where our holding represents 2.2% of the
portfolio, the world leader in automated 3D inspection equipment.
Koh Young's combination of leading algorithms and hardware has led
it to achieve a 49% market share in the Silicon Paste Inspection
industry and potential leadership in adjacent semiconductor
inspection markets.
Our Korean healthcare investments experienced a mixed year. We
hold 9.2% of the portfolio in a number of small biotech companies
in both Korea and Taiwan, all of which we believe are at or close
to the leading edge of their technology specialisation or have a
distinct technological manufacturing advantage. The volatility of
this sector and the size of the individual companies has meant that
they are under-researched and tend to have been overlooked by many
institutional investors. By taking a long-term approach and by
investing alongside management we believe we can add significant
value to the Company over time from these investments.
We repositioned our Indian exposure away from the IT services
sector where, after many years of positive performance, we became
worried that the longer-term growth outlook was slowing due to
changes in the outsourcing model and the need to invest in
digitalisation which favoured larger and western players.
Consequently, Tech Mahindra and HCL Technologies were sold and our
Indian weighting reduced from 21.3% to 14.3%. We purchased a
holding in Arvind Ltd, a leading textile and consumer brand company
in India. There appears to be a general economic trigger point of a
per capita income of $1,500 per annum when demand for apparel takes
off quite rapidly and we believe India is at this turning point. We
feel that the market may be underestimating the effect on margins
and asset turnover that this increase in demand can have and hence
improve profitability. We like the longer-term outlook for the
Indian market and will be looking for interesting companies on any
valuation pull-back.
We increased our Vietnamese market exposure from 1.3% to 4.8% of
the portfolio. We believe that Vietnam is at a very early stage of
becoming part of the global market. Given its large and educated
workforce and the geographical benefits of being near the centre of
Asia, we see probability of a very positive long-term outlook for
the country. The Vietnam Hanoi Index is currently cheap at a price
earnings ratio of around 11x and is under-researched by foreign
investors. We have an indirect holding via the Dragon Capital
Vietnam Enterprise Investments where we are impressed by the
domestic managers' ability to source interesting ideas; their
long-term active approach fits our philosophy. We have also
acquired holdings in two domestic companies, Military Commercial
Joint Stock Bank, the fourth largest bank and largest private
sector operator in the country, and Vingroup, a real-estate and
consumer conglomerate, which we believe has the potential to
increase its earnings significantly.
In Taiwan we added an innovative biotech manufacturing company
called TTY Biopharm to our portfolio. It is a leading global
manufacturer of liposomal products with a significant technological
edge that has allowed it to be the key licensed partner for Johnson
& Johnson's Doxil drug. With this technological manufacturing
know-how, we see significant market opportunities for a pipeline of
high margin drugs to deliver 20% plus earnings growth in the long
term.
Our largest country exposures are in China/Hong Kong, followed
by Korea and then Taiwan. With the exception of Vietnam we retain
little exposure to the smaller ASEAN markets. Our investment
philosophy means that we inevitably focus on technology and
currently 50.9% of the portfolio is invested in this sector. After
technology, consumer discretionary and financials make up the
largest sector investments.
We believe that the broader economic environment is driven by
cycles of innovation rather than being the creator of change. For
example, many of the structural issues affecting China and much of
Asia today are the result of a technological shift to a more
productive economic structure which is leaving investments in fixed
assets, heavy industry and other "old economy" assets in severe
overcapacity. Within this changing economic structure the affluent
Asian consumer stands out as a key beneficiary of rising wealth and
increased penetration of technology. Around 30% of the portfolio is
invested in consumer, outside of technology, companies that benefit
from the rise of the middle class in Asia.
We are also looking for companies that are innovating and moving
up their respective value chain. Geely Automotive, a leading
Chinese automotive manufacturer, has managed to upgrade its
manufacturing capability substantially following its acquisition of
Volvo and is launching new sports utility vehicle models, a segment
in the car market that is forecast to grow above 20% for the next
few years due to the rise in the affluent middle-class. Positive
shorter-term growth prospects are starting to be recognised by the
market; however, the company's strategic goal to make electric
vehicles 90% of its output by 2020 is still being under-appreciated
by investors.
Financials represent our third largest sector position although
we do not hold investments in banks in a number of the larger
countries, including China, Korea and Taiwan, where we feel returns
are likely to be challenged or depressed for many years. In line
with our investment approach, our holdings are focused on the
merits of the individual companies, for example, in India, where we
see the return of a structural growth story, and in Vietnam. We
find the insurance industry a more compelling investment
proposition. We hold significant positions in the Korean insurers,
Samsung Fire & Marine and Hyundai Marine & Fire, and in
Taiwan's China Life Insurance. These should all benefit from a
number of fundamental social and economic changes in the coming
years, such as demographics, increased financial sophistication and
increasing wealth; we are of the view that there will be
significant development of the insurance markets to provide
mitigation for the increased risks to which a more wealthy society
is exposed.
Investment Approach
The growth characteristics of the portfolio remain strong with
historic earnings growth at 11%, almost double the market's 5.7%,
and one year forecast earnings growth at 12.2%, double that for the
comparative index, the MSCI All Country Asia ex Japan Index. The
price earnings ratio of the Company is 19.2x on the current year,
versus 13x for the comparative index. Over the longer-term time
frame, we believe the higher growth potential of our holdings more
than justifies the additional multiple.
Our comparative index has changed materially over the year with
the average company size moving from around GBP35bn to GBP45bn
largely due to the inclusion of US-listed Chinese internet names,
several of which we own, and the outperformance of large
capitalisation stocks. Over 20% of our portfolio is invested in
companies with a market capitalisation below GBP1bn; a further 34%
is invested in companies with a market capitalisation less than
GBP10bn. This compares with 0.1% and 35% respectively for the
comparative index. The portfolio's active share has decreased
slightly, to 81%, largely due to the inclusion of the Chinese
US-listed internet companies within the comparative index.
We continue to implement our strategy of investing in companies
with good long-term growth prospects. The corporate characteristics
we look for include strong growth potential, sustainable
competitive advantage, attractive financials and sensible
management. In addition, we target stocks that we consider to have
very significant long-term opportunities to enhance future
profitability.
Environmental, Social and Governance Matters
As growth investors, we are looking for companies whose products
will benefit from strong future demand. These companies not only
have to produce better and cheaper products and services than their
competitors but also have to be alert to the changing nature and
views of the societies in which they exist. Companies who do not
change tend to fail either due to falling demand for their product
or as a result of government intervention. When we invest, we take
into account the potential positive and negative impact these
companies have on the world today and how their commercial
activities will be perceived in the future.
For our long-term investments to be successful the companies in
which we invest must add value to society. We see this being
achieved in a variety of ways: the regenerative biotech companies
we own, whose products may allow many people to gain otherwise
unachievable medical benefits, our internet companies which provide
goods and services to people at prices and quantities previously
unobtainable, and our technology holdings that are helping to
enable the greatest and most rapid increase in human connectivity
and information availability in human history.
Lastly, the interests of minority shareholders must be upheld;
we remain careful to make sure our investments are aligned with
those of majority shareholders and owners.
Outlook
It is our view that there is significant potential for positive
returns from the region over the coming years. Our focus remains on
investment in individual stocks which will benefit from the
economic, social and technological changes which are in evidence
across the region. After almost five years of slow GDP growth we
feel that the region may be gradually recovering. Cheap assets and
an improving growth profile may be all that is needed to generate
strong positive absolute returns to investors. We believe that our
philosophy, process and investment style will reward our
shareholders over the medium to long-term.
List of Investments as at 31
July 2016
=============================
% of
Value total
Name Country Business GBP'000 assets(++)
-------------------------- ----------- ------------------------------ ---------- ------------
Online gaming and
Tencent Holdings HK/China social networking 13,457 10.1
Online search and
NAVER Korea messaging 5,413 4.1
Baidu ADR HK/China Internet search engine 4,855 3.7
Online and mobile
Alibaba Group ADR HK/China commerce 4,012 3.0
Hon Hai Precision
Industries Taiwan Electronic manufacturing 3,849 2.9
JD.com HK/China Online mobile commerce 3,729 2.8
Dragon Capital Vietnam
Enterprise Vietnam investment
Investments Vietnam fund 3,707 2.8
Small optical lenses
Sunny Optical Technology HK/China manufacturer 3,368 2.5
Geely Automobile HK/China Automobile manufacturer 3,047 2.3
3D inspection machine
Koh Young Technology Korea manufacturer 2,952 2.2
China Life Insurance
(Taiwan) Taiwan Life insurance provider 2,760 2.1
Mahindra & Mahindra India Tractor and SUV manufacturer 2,688 2.0
Advantech Taiwan Computer manufacturer 2,636 2.0
Electronic component
and device
SK Hynix Korea manufacturer 2,609 2.0
Indian petrochemical
Reliance Industries India conglomerate 2,602 2.0
Taiwan Semiconductor
Manufacturing Taiwan Semiconductor foundry 2,383 1.8
Ctrip.com International Chinese online travel
ADR HK/China agency 2,332 1.8
Retail and corporate
ICICI Bank India bank 2,270 1.7
Commercial bank focusing
on consumer
Indusind Bank India lending 2,046 1.5
Samsung Fire & Marine Non-life insurance
Insurance Korea provider 2,006 1.5
Media and entertainment
creator and
CJ E&M Korea supplier 1,962 1.5
Memory, phones and
electronic
Samsung Electronics Korea components manufacturer 1,929 1.5
Techtronic Industries HK/China Power tool manufacturer 1,892 1.4
Pork processor and
WH Group HK/China distributor 1,872 1.4
Drug researcher and
Bioneer Korea development 1,861 1.4
Himax Technologies
ADR Taiwan Markets semiconductors 1,683 1.3
Global biopharmaceutical
Medy-Tox Korea company 1,674 1.3
Infosys India Software development 1,632 1.2
Container Corporation Transportation services
of India India provider 1,565 1.2
In vitro diagnostic
Seegene Korea screening producer 1,549 1.2
Samsung C&T Korea Korean conglomerate 1,544 1.2
Integrated circuit
MediaTek Taiwan design house 1,526 1.1
Laser equipment manufacturer
and
EO Technics Korea distributor 1,493 1.1
Nano-technology material
Finetax EnE Korea manufacturer 1,492 1.1
Therapeutic vaccine
researcher and
Genexine Korea developer 1,479 1.1
Vingroup Vietnam Property developer 1,451 1.1
NCSOFT Korea Online games developer 1,426 1.1
Designer and manufacturer
of flash
Phison Electronics Taiwan memory controllers 1,411 1.1
Mindtree India IT services provider 1,356 1.0
Eclat Textile Taiwan Textile manufacturer 1,322 1.0
China Harmony New
Energy Auto HK/China Luxury car dealership 1,300 1.0
Power supplies and
video display product
Delta Electronics Taiwan manufacturer 1,292 1.0
Outsourced software
Persistent Systems India product developer 1,280 1.0
Jobseekers, housing
sales and restaurant
Info Edge India online review provider 1,254 0.9
Military Commercial Retail and corporate
Joint Stock Bank Vietnam bank 1,245 0.9
Orion Corp Korea Consumer conglomerate 1,231 0.9
Antibiotics drug
Intron Biotechnology Korea researcher 1,226 0.9
Enterprise resource
planning software
Duzonbizon Korea developer 1,194 0.9
Consumer textile
brand owner and
Arvind India manufacturer 1,186 0.9
SK Telecom Korea Telecoms operator 1,171 0.9
Enterprise management
Kingdee International software
Software HK/China distributor 1,130 0.8
Mahindra CIE Automotive India Truck parts manufacturer 1,092 0.8
Washing machine and
Haier Electronics water heater
Group HK/China manufacturer 1,035 0.8
Electrical components
Hansol Technics Korea manufacturer 937 0.7
Diamond grading measurement
systems
Sarine Technologies Singapore developer 921 0.7
Electron beam inspection
Hermes Microvision Taiwan tool manufacturer 892 0.7
Smartphone and virtual
reality
HTC Taiwan manufacturer 844 0.6
Internet-based shopping
Interpark Korea mall 835 0.6
Johnson Electric
Holding HK/China Electric motor manufacturer 802 0.6
Gaming, cloud and
Kingsoft HK/China digital advertiser 796 0.6
Antibiotics and cancer
Qurient Korea drug researcher 693 0.5
Genetics researcher
Theragen Etex Korea and developer 674 0.5
Manufacturer of specialist
TTY Biopharm Taiwan genetics 656 0.5
Manufacturer of specialist
pharmaceutical
ST Pharm Korea ingredients 652 0.5
Drug developer of
Viromed Korea recombinant DNA 613 0.5
JHL Biotech Taiwan Biologics manufacturer 565 0.4
Proteomic drug discovery
Crystalgenomics Korea investigator 557 0.4
Hyundai Marine and Non-life insurance
Fire Insurance Korea provider 504 0.4
Philtown Properties* Philippines Property developer 0 0.0
Total Investments 131,417 99.0
Net Current Assets 1,285 1.0
======================================================================= ======== ======
Total Assets 132,702 100.0
======================================================================= ======== ======
HK/China denotes Hong Kong and China
++ Total assets less current liabilities, before deduction of borrowings.
* Denotes unlisted investment.
Distribution of Portfolio
Geographical Analysis
At 31 At 31
July July
2016 2015
% %
=========== ===================== ====== ======
Equities: Hong Kong and China 32.9 35.6
Korea 29.9 23.1
Taiwan 16.4 15.0
India 14.3 21.3
Vietnam 4.8 1.3
Singapore 0.7 0.8
Total equities 99.0 97.1
Net current assets 1.0 2.9
================================== ====== ======
Total assets(++) 100.0 100.0
================================== ====== ======
Sectoral Analysis
At 31 July At 31 July
2016 2015
% %
========== =========================== ========== ==========
Equities: Energy 2.0 -
Consumer Discretionary 16.9 17.3
Consumer Staples 2.3 2.2
Financials 12.0 14.8
Health Care 9.2 7.9
Industrials 4.8 6.0
Information Technology 50.9 47.9
Telecommunication Services 0.9 0.9
Utilities - 0.1
====================================== ========== ==========
Total equities 99.0 97.1
Net current assets 1.0 2.9
======================================= ========== ==========
Total assets 100.0 100.0
======================================= ========== ==========
++ Total assets less current liabilities, before deduction of borrowings.
Key Performance Indicators
The key performance indicators (KPIs) used to measure the
progress and performance of the Company over time are established
industry measures and are as follows:
3/4 the movement in net asset value per ordinary share;
3/4 the movement in the share price;
3/4 the premium/(discount) of the share price to the net asset
value per share;
3/4 the movement in the comparative index (MSCI All Country Asia
ex Japan Index (in sterling terms)); and
3/4 the ongoing charges.
The one, five and ten year records for the KPIs can be found on
pages 4, 5 and 6 of the Annual Report and Financial Statements
respectively.
Future Developments of the Company
The outlook for the Company is set out in the Chairman's
Statement and the Managers' Review.
Buy-backs, Issuances and Share Tenders
The Company currently has powers to buy back up to 14.99% of its
own ordinary shares for cancellation at a discount to net asset
value per share (NAV) on an ad hoc basis as well as to issue shares
at a premium to NAV. During the year to 31 July 2016 no shares were
bought back under the buy-back authority and no shares were issued.
At 31 July 2016 the Company had authority to buy back a further
9,012,649 ordinary shares. At the forthcoming Annual General
Meeting, the Directors are seeking to renew these authorities,
details of these resolutions are contained in the Circular sent to
shareholders with the Annual Report and Financial Statements.
The Company also has authority to implement, at the Board's
discretion, bi-annual tender offers for up to 5% of its shares at a
2% discount to net asset value, less costs, in the event that the
discount averaged more than 9% during the six month periods to 31
January and 31 July in the years 2014, 2015 and 2016. The Board
implemented a 5% tender offer in October 2015 and April 2016 in
respect of the tender periods to 31 July 2015 and 31 January 2016.
Through the exercise of both of these tenders the Company bought
back a total of 6,170,662 (2015 - 6,837,299) ordinary shares at a
total cost of GBP11,618,000 (2015 - GBP14,336,000). The nominal
value of these shares was GBP617,000 and represented 9.75% of the
issued share capital at 31 July 2015. The Board is not proposing to
seek shareholder authority for the existing bi-annual 5% tender to
be continued for a period of at least the next three years but it
is the intention that the Directors will propose a 25% tender to be
triggered if the Company's NAV, calculated at fair value
cum-income, total return fails to exceed the Company's comparative
index by at least 1% per annum over a three year period to 31 July
2019 on a cumulative basis. Details of this are contained in the
Circular sent to shareholders with the Annual Report and Financial
Statements.
Related Party Transactions
Details of the management contract are set out in the Directors'
Report on page 18 of the Annual Report and Financial Statements.
The management fee payable to the Manager by the Company for the
year, as disclosed in note 3 of the Annual Report and Financial
Statements, was GBP899,000 (2015 - GBP1,032,000) of which
GBP245,000 (2015 - GBP241,000) was outstanding at the year end, as
disclosed in note 11 of the Annual Report and Financial
Statements.
The Directors' fees for the year are detailed in the Directors'
Remuneration Report on page 26 of the Annual Report and Financial
Statements. No Director has a contract of service with the Company.
During the year no Director was interested in any contract or other
matter requiring disclosure under section 412 of the Companies Act
2006.
Management Fee Arrangements
Details of the Investment Management Agreement are set out on
page 18 of the Annual Report and Financial Statements. The annual
management fee is 0.95% on the first GBP50m of net assets and 0.65%
on the balance. Management fees are calculated and payable on a
quarterly basis.
2016 2015
GBP'000 GBP'000
=========================== ====================== =========
Investment management fee 899 1,032
=========================== ====================== =========
Principal Risks
As explained on pages 22 and 23 of the Annual Report and
Financial Statements there is an ongoing process for identifying,
evaluating and managing the risks faced by the Company. The
Directors have carried out a robust assessment of the principal
risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity. A
description of these risks and how they are being managed or
mitigated is set out below:
Financial Risk - the Company's assets consist mainly of listed
securities and its principal financial risks are therefore market
related and include market risk (comprising currency risk, interest
rate risk and other price risk), liquidity risk and credit risk. An
explanation of those risks and how they are managed is contained in
note 16 to the Financial Statements on pages 41 to 45 of the Annual
Report and Financial Statements. As oversight of this risk, the
Board considers at each meeting various metrics including regional
and industrial sector weightings, top and bottom stock contributors
to performance along with sales and purchases of investments.
Individual investments are discussed with the portfolio managers
together with their general views on the various investment markets
and sectors. A strategy review is held annually.
Regulatory Risk - failure to comply with applicable legal and
regulatory requirements such as the tax rules for investment trust
companies, the UKLA Listing Rules and the Companies Act could lead
to the Company being subject to tax on capital gains, suspension of
the Company's Stock Exchange Listing, financial penalties or a
qualified audit report. To mitigate this risk, Baillie Gifford's
Business Risk, Internal Audit and Compliance Departments provide
regular reports to the Audit Committee on Baillie Gifford's
monitoring programmes. Major regulatory change could impose
disproportionate compliance burdens on the Company. In such
circumstances representation is made to ensure that the special
circumstances of investment trusts are recognised. Shareholder
documents and announcements, including the Company's published
Interim and Annual Report and Financial Statements, are subject to
stringent review processes and procedures are in place to ensure
adherence to the Transparency Directive with reference to inside
information.
Custody and Depositary Risk - safe custody of the Company's
assets may be compromised as a result of control failures by the
Depositary, including cyber hacking. To monitor potential risk, the
Board receives six monthly reports from the Depositary confirming
safe custody of the Company's assets. Cash and portfolio holdings
are independently reconciled to the Custodian's records by the
Managers. The Custodian's audited internal controls reports are
reviewed by Baillie Gifford's Internal Audit Department and a
summary of the key points is reported to the Audit Committee and
any concerns investigated. In addition, the existence of assets is
subject to annual external audit.
Operational Risk - failure of Baillie Gifford's systems or those
of other third party service providers could lead to an inability
to provide accurate reporting and monitoring or a misappropriation
of assets. To mitigate this risk, Baillie Gifford has a
comprehensive business continuity plan which facilitates continued
operation of the business in the event of a service disruption or
major disaster. The Board reviews Baillie Gifford's Report on
Internal Controls and the reports by other third party providers
are reviewed by Baillie Gifford on behalf of the Board.
Discount/Premium Volatility - the discount/premium at which the
Company's shares trade can widen. The Board monitors the level of
discount/premium and the Company has authority to buy back its own
shares, as well as to issue shares at a premium, when deemed to be
in the best interest of all of its shareholders.
Leverage Risk - the Company may borrow money for investment
purposes. If the investments fall in value, any borrowings will
magnify the extent of this loss. If borrowing facilities are not
renewed, the Company may have to sell investments to repay
borrowings. The Company can also make use of derivative contracts.
All borrowings require the prior approval of the Board and leverage
levels are discussed by the Board and Managers at every meeting.
The majority of the Company's investments are in quoted securities
that are readily realisable. Further information on leverage can be
found in note 17 on page 45 of the Annual Report and Financial
Statements and the Glossary of Terms on page 51 of the Annual
Report and Financial Statements.
Political and Associated Economic Risk - the Board is of the
view that political change in areas in which the Company invests or
may invest may have practical consequences for the Company.
Political developments are closely monitored and considered by the
Board. The Board has noted the results of the UK referendum on
continuing membership of the European Union. Whilst there is
considerable uncertainty at present, the Board will continue to
monitor developments as they occur and assess the potential
consequences for the Company's future activities.
Viability Statement
Notwithstanding that the continuation of the Company is subject
to approval of shareholders every five years, with the next vote at
the Annual General Meeting in November 2016, the Directors have, in
accordance with provision C.2.2 of the UK Corporate Governance
Code, published by the Financial Reporting Council in September
2014, assessed the prospects of the Company over a three year
period. The Directors believe this period to be appropriate as it
is reflective of the Company's investment approach. In the absence
of any adverse change to the regulatory environment and the
favourable tax treatment afforded to UK investment trusts, such a
period is one over which they do not expect there to be any
significant change to the current principal risks and to the
adequacy of the mitigating controls in place. The Directors do not
envisage any change in the Company's strategy or objectives nor do
they foresee any events that would prevent the Company from
continuing in existence over that period.
In making this assessment, the Directors have taken into account
the Company's current position and have conducted a robust
assessment of the Company's principal risks and uncertainties (as
detailed above), in particular the impact of market risk where a
significant fall in the Asia-Pacific (excluding Japan) and the
Indian Sub-continent equity markets would adversely impact the
value of the investment portfolio. The Directors have also
considered the Company's investment objective and policy, the level
of demand for the Company's shares, the nature of its assets, its
liabilities and its projected income and expenditure. The vast
majority of the Company's investments are readily realisable and
can be sold to meet its liabilities as they fall due, the main
liability currently being the short term bank borrowings. In
addition, substantially all of the essential services required by
the Company are outsourced to third party service providers; this
allows key service providers to be replaced at relatively short
notice where necessary.
Based on the Company's processes for monitoring revenue
projections, share price discount/premium, the Managers' compliance
with the investment objective, asset allocation, the portfolio risk
profile, leverage, counterparty exposure, liquidity risk and
financial controls, the Directors have concluded that there is a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next
three years.
Going Concern
In accordance with the Financial Reporting Council's guidance on
going concern and liquidity risk, the Directors have undertaken a
rigorous review of the Company's ability to continue as a going
concern. The Company's principal risks are market related and
include market risk, liquidity risk and credit risk. An explanation
of these risks and how they are managed is contained above.
The Company's assets, the majority of which are investments in
quoted securities which are readily realisable, exceed its
liabilities significantly. All borrowings require the prior
approval of the Board. The Board approves borrowing and gearing
limits and reviews regularly the amounts of any borrowing and the
level of gearing as well as compliance with borrowing covenants. In
accordance with the Company's Articles of Association, shareholders
have the right to vote on the continuation of the Company every
five years, the next vote being on 9 November 2016. The Directors
have no reason to believe that the continuation resolution will not
be passed this year. After making enquiries and considering the
future prospects of the Company and notwithstanding the above, the
Financial Statements have been prepared on the going concern basis
as it is the Directors' opinion that the Company will continue in
operational existence for a period of at least twelve months from
the date of approval of these Financial Statements.
If the continuation resolution is not passed, the Articles
provide that the Directors shall convene an Extraordinary General
Meeting at which a resolution will be proposed to wind up the
Company voluntarily.
Financial Instruments
As an Investment Trust, the Company invests in equities and
makes other investments so as to achieve its investment objective
of maximising capital appreciation from a focused and actively
managed portfolio of investments from the Asia-Pacific region
including the Indian Sub-continent. In pursuing its investment
objective, the Company is exposed to various types of risk that are
associated with the financial instruments and markets in which it
invests.
These risks are categorised here as market risk (comprising
currency risk, interest rate risk and other price risk), liquidity
risk and credit risk. The Board monitors closely the Company's
exposures to these risks but does so in order to reduce the
likelihood of a permanent loss of capital rather than to minimise
short term volatility. Risk provides the potential for both losses
and gains. In assessing risk, the Board encourages the Managers to
exploit the opportunities that risk affords.
The risk management policies and procedures outlined in this
note have not changed substantially from the previous accounting
period.
Market Risk
The fair value or future cash flows of a financial instrument or
other investment held by the Company may fluctuate because of
changes in market prices. This market risk comprises three elements
- currency risk, interest rate risk and other price risk. The Board
of Directors reviews and agrees policies for managing these risks
and the Company's Investment Managers both assess the exposure to
market risk when making individual investment decisions and monitor
the overall level of market risk across the investment portfolio on
an ongoing basis.
Details of the Company's investment portfolios are shown in note
9 of the Annual Report and Financial Statements. The Company may,
from time to time, enter into derivative transactions to hedge
specific market, currency or interest rate risk. During the years
to 31 July 2015 and 31 July 2016 no such transactions were entered
into.
The Company's Managers may not enter into derivative
transactions without the prior approval of the Board.
Currency Risk
The majority of the Company's assets, liabilities and income are
denominated in currencies other than sterling (the Company's
functional currency and that in which it reports its results).
Consequently, movements in exchange rates may affect the sterling
value of those items.
The Managers monitor the Company's exposure to foreign
currencies and report to the Board on a regular basis. The Managers
assess the risk to the Company of the foreign currency exposure by
considering the effect on the Company's net asset value and income
of a movement in the rates of exchange to which the Company's
assets, liabilities, income and expenses are exposed. However, the
country in which a company is listed is not necessarily where it
earns its profits. The movement in exchange rates on overseas
earnings may have a more significant impact upon a company's
valuation than a simple translation of the currency in which the
company is quoted.
Foreign currency borrowings can limit the Company's exposure to
anticipated future changes in exchange rates which might otherwise
adversely affect the value of the portfolio of investments.
Exposure to currency risk through asset allocation, which is
calculated by reference to the currency in which the asset or
liability is quoted, is shown below.
Cash Other
Investments and Loans debtors Net exposure
At 31 July 2016 GBP'000 deposits GBP'000 and creditors* GBP'000
GBP'000 GBP'000
=================== ============== =========== ========== ================= ===============
Korean won 39,676 - - 5 39,681
Hong Kong dollar 28,699 83 - (59) 28,723
Taiwan dollar 20,136 - - 260 20,396
Indian rupee 18,971 - - 31 19,002
US dollar 16,611 1,220 - 12 17,843
Vietnam dong 2,696 - - - 2,696
Singapore dollar 921 - - - 921
Total exposure
to currency
risk 127,710 1,303 - 249 129,262
Sterling 3,707 20 (5,000) (287) (1,560)
=================== ============== =========== ========== ================= ===============
131,417 1,323 (5,000) (38) 127,702
=================== ============== =========== ========== ================= ===============
* Includes net non-monetary assets of GBP14,000.
Cash Other
Investments and Loans debtors Net exposure
At 31 July 2015 GBP'000 deposits GBP'000 and creditors* GBP'000
GBP'000 GBP'000
=================== ============== =========== ========== ================= ===============
Korean won 32,112 - - 5 32,117
Hong Kong dollar 32,357 13 - 21 32,391
Taiwan dollar 19,536 - - 133 19,669
Indian rupee 29,812 - - 89 29,901
US dollar 20,278 4,032 (3,497) 4 20,817
Vietnam dong - - - - -
Singapore dollar 1,038 - - - 1,038
Total exposure
to currency
risk 135,133 4,045 (3,497) 252 135,933
Sterling - 16 (10,500) (279) (10,763)
=================== ============== =========== ========== ================= ===============
135,133 4,061 (13,997) (27) 125,170
=================== ============== =========== ========== ================= ===============
* Includes net non-monetary assets of GBP13,000.
Currency Risk Sensitivity
At 31 July 2016, if sterling had strengthened by 5% in relation
to all currencies, with all other variables held constant, total
net assets and total return on ordinary activities would have
decreased by the amounts shown below. A 5% weakening of sterling
against all currencies, with all other variables held constant,
would have had an equal but opposite effect on the financial
statement amounts. The analysis is performed on the same basis for
2015.
2016 2015
GBP'000 GBP'000
================== ========= =========
Korean won 1,984 1,606
Hong Kong dollar 1,436 1,620
Taiwan dollar 1,020 983
Indian rupee 950 1,495
US dollar 892 1,041
Vietnam dong 135 -
Singapore dollar 46 52
6,463 6,797
================== ========= =========
Interest Rate Risk
Interest rate movements may affect directly:
3/4 the fair value of any investments in fixed interest rate
securities;
3/4 the level of income receivable on cash deposits;
3/4 the fair value of any fixed-rate borrowings; and
3/4 the interest payable on any variable rate borrowings.
Interest rate movements may also impact upon the market value of
investments outwith fixed income securities. The effect of interest
rate movements upon the earnings of a company may have a
significant impact upon the valuation of that company's equity. The
possible effects on fair value and cash flows that could arise as a
result of changes in interest rates are taken into account when
making investment decisions and when entering borrowing agreements.
The Board reviews on a regular basis the amount of investments in
cash and fixed income securities and the income receivable on cash
deposits, floating rate notes and other similar investments.
The Company may finance part of its activities through
borrowings at approved levels. The amount of any such borrowings
and the approved levels are monitored and reviewed regularly by the
Board. Movements in interest rates, to the extent that they affect
the market value of the Company's fixed rate borrowings, may also
affect the amount by which the Company's share price is at a
discount or a premium to the net asset value (assuming that the
Company's share price is unaffected by movements in interest
rates).
The interest rate risk profile of the Company's financial assets
and liabilities at 31 July is shown below.
Financial Assets
The Company's interest rate risk exposure on its financial
assets at 31 July 2016 amounted to GBP1,323,000 (2015 -
GBP4,061,000), comprising of its cash and short term deposits.
The cash deposits generally comprise call or short term money
market deposits of less than one month which are repayable on
demand. The benchmark rate which determines the interest payments
received on cash balances is the bank base rate.
Financial Liabilities
The interest rate risk profile of the Company's financial
liabilities and the maturity profile of the undiscounted future
cash flows in respect of the Company's contractual financial
liabilities at 31 July are shown below.
Interest Rate Risk Profile
2016 2015
GBP'000 GBP'000
=========================== ========= =========
Floating rate bank loan -
sterling denominated 5,000 10,500
- US$ denominated - 3,497
=========================== ========= =========
5,000 13,997
=========================== ========= =========
Maturity Profile
2016 2015
Within 1 Within
year 1 year
GBP'000 GBP'000
==================== ========== =========
Repayment of loans 5,000 13,997
Interest on loans 56 111
==================== ========== =========
5,056 14,108
==================== ========== =========
Interest Rate Risk Sensitivity
The sensitivity analysis below has been determined based on the
exposure to interest rates at the Balance Sheet date and with the
stipulated change taking place at the beginning of the financial
year and held constant throughout the reporting period in the case
of instruments that have floating rates.
An increase of 100 basis points in interest rates, with all
other variables being held constant, would have decreased the
Company's total net assets and total return on ordinary activities
for the year ended 31 July 2016 by GBP99,000 (2015 - decrease of
GBP29,000). This is mainly due to the Company's exposure to
interest rates on its floating rate bank loan and cash balances. A
decrease of 100 basis points would have had an equal but opposite
effect.
Other Price Risk
Changes in market prices other than those arising from interest
rate risk or currency risk may also affect the value of the
Company's net assets. The Board manages the market price risks
inherent in the investment portfolio by ensuring full and timely
access to relevant information from the Managers. The Board meets
regularly and at each meeting reviews investment performance, the
investment portfolio and the rationale for the current investment
positioning to ensure consistency with the Company's objectives and
investment policies. The portfolio does not seek to reproduce the
index. Investments are selected based upon the merit of individual
companies and therefore performance may well diverge from the
comparative index.
Other Price Risk Sensitivity
Fixed asset investments are valued at bid prices which equate to
their fair value. A full list of the Company's investments is given
above. In addition, a geographical analysis of the portfolio and an
analysis of the investment portfolio by broad industrial or
commercial sector are contained in the Strategic Report of the
Annual Report and Financial Statements.
102.9% (2015 - 108.0%) of the Company's net assets are invested
in quoted equities. A 5% (2015 - 5%) increase in quoted equity
valuations at 31 July 2016 would have increased total assets and
total return on ordinary activities by GBP6,571,000 (2015 -
GBP6,757,000). A decrease of 5% would have had an equal but
opposite effect.
Liquidity Risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Liquidity risk is not significant as the majority of the Company's
assets are investments in quoted securities that are readily
realisable. The Board provides guidance to the Managers as to the
maximum exposure to any one holding and to the maximum aggregate
exposure to substantial holdings.
The Company has the power to take out borrowings, which give it
access to additional funding when required. The Company's current
borrowing facility is detailed in note 11 of the Annual Report and
Financial Statements and the maturity profile of its borrowings are
set out above. Under the terms of the borrowing facility,
borrowings are repayable on demand at their current carrying
value.
Borrowings Falling Due Within One Year
2016 2015
GBP'000 GBP'000
=========== ========= =========
Bank loan 5,000 13,997
=========== ========= =========
Borrowing Facilities
The Company has a one year GBP10 million multi-currency
revolving credit facility with The Royal Bank of Scotland Plc (2015
- one year GBP14 million multi-currency revolving credit facility
with The Royal Bank of Scotland Plc) and a GBP10 million one year
uncommitted, unsecured floating rate revolving credit facility with
The Bank of New York Mellon (2015 - GBP20 million one year
uncommitted, unsecured floating rate revolving credit facility with
The Bank of New York Mellon). At 31 July 2016 there were
outstanding drawings of GBP5,000,000 at an interest rate of
1.02906% (2015 - GBP10,500,000 and US$5,456,850 at interest rates
of 0.97188% and 0.68625% per annum respectively) under The Royal
Bank of Scotland Plc facility. There were no drawings under The
Bank of New York Mellon facility at either date. The main covenant
relating to the loan is that borrowings should not exceed 20% of
the Company's net asset value. There were no breaches in the loan
covenants during the year.
Credit Risk
This is the risk that a failure of a counterparty to a
transaction to discharge its obligations under that transaction
could result in the Company suffering a loss.
This risk is managed as follows:
3/4 where the Managers make an investment in a bond or other
security with credit risk, that credit risk is assessed and then
compared to the prospective investment return of the security in
question;
3/4 the Depositary is liable for the loss of financial
instruments held in custody. The Depositary will ensure that any
delegate segregates the assets of the Company. The Depositary has
delegated the custody function to Bank of New York Mellon SA/NV
London Branch. Bankruptcy or insolvency of the custodian may cause
the Company's rights with respect to securities held by the
custodian to be delayed. The Managers monitor the Company's risk by
reviewing the custodian's internal control reports and reporting
its findings to the Board;
3/4 investment transactions are carried out with a large number
of brokers whose creditworthiness is reviewed by the Managers.
Transactions are ordinarily undertaken on a delivery versus payment
basis whereby the Company's custodian bank ensures that the
counterparty to any transaction entered into by the Company has
delivered on its obligations before any transfer of cash or
securities away from the Company is completed;
3/4 the creditworthiness of the counterparty to transactions
involving derivatives, structured notes and other arrangements,
wherein the creditworthiness of the entity acting as broker or
counterparty to the transaction is likely to be of sustained
interest, are subject to rigorous assessment by the Managers;
and
3/4 cash is only held at banks that are regularly reviewed by
the Managers.
Credit Risk Exposure
The exposure to credit risk at 31 July was:
2016 2015
GBP'000 GBP'000
============================== ========= =========
Cash and short term deposits 1,323 4,061
Debtors and prepayments 359 276
============================== ========= =========
1,682 4,337
============================== ========= =========
The maximum exposure in cash during the year was GBP23,434,000
(2015 - GBP9,615,000) and the minimum GBP1,323,000 (2015 -
GBP150,000). None of the Company's financial assets are past due or
impaired (2015 - none).
Fair Value of Financial Assets and Financial Liabilities
The Directors are of the opinion that the carrying amount of
financial assets and liabilities in the Balance Sheet approximates
their fair value.
Capital Management
The capital of the Company is its share capital and reserves as
set out in note 13 of the Annual Report and Financial Statements
together with its borrowings (see note 11 of the Annual Report and
Financial Statements). The objective of the Company is to invest in
the Asia-Pacific region (excluding Japan) and in the Indian
Sub-continent in order to achieve capital growth. The Company's
investment policy is set out on page 7 of the Annual Report and
Financial Statements. In pursuit of the Company's objective, the
Board has a responsibility for ensuring the Company's ability to
continue as a going concern and details of the related risks and
how they are managed are set out on page 19, pages 7 and 8 and
pages 21 and 22, respectively, of the Annual Report and Financial
Statements. The Company has the ability to buy back its shares (see
page 19 of the Annual Report and Financial Statements) and changes
to the share capital during the year are set out in note 12 of the
Annual Report and Financial Statements. The Company does not have
any externally imposed capital requirements other than the
covenants on its loan which are detailed in note 11 of the Annual
Report and Financial Statements.
Investments
Level Level 2 Level 3 Total
As at 31 July 1 GBP'000 GBP'000 GBP'000
2016 GBP'000
==================== ========= ========= ========= =========
Listed equities 131,417 - - 131,417
==================== ========= ========= ========= =========
Total financial
asset investments 131,417 - - 131,417
==================== ========= ========= ========= =========
Level Level 2 Level 3 Total
As at 31 July 1 GBP'000 GBP'000 GBP'000
2015 GBP'000
==================== ========= ========= ========= =========
Listed equities 135,133 - - 135,133
Total financial
asset investments 135,133 - - 135,133
==================== ========= ========= ========= =========
Investments in securities are financial assets held at fair
value through profit or loss. In accordance with Financial
Reporting Standard 102, the tables above provide an analysis of
these investments based on the fair value hierarchy described
below, which reflects the reliability and significance of the
information used to measure their fair value.
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of
financial assets is described below. The levels are determined by
the lowest (that is the least reliable or least independently
observable) level of input that is significant to the fair value
measurement for the individual investment in its entirety as
follows:
Level 1 - using unadjusted quoted prices for identical
instruments in an active market;
Level 2 - using inputs, other than quoted prices included within
Level 1, that are directly or indirectly
observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market
data is unavailable).
Alternative Investment Fund Managers (AIFM) Directive
In accordance with the Alternative Investment Fund Managers
Directive, information in relation to the Company's leverage and
the remuneration of the Company's AIFM, Baillie Gifford & Co
Limited, is required to be made available to investors. In
accordance with the Directive, the AIFM's remuneration policy is
available at www.bailliegifford.com on request and the numerical
remuneration disclosures in respect of the AIFM's first relevant
reporting period (year ended 31 March 2016) are also available at
www.bailliegifford.com.
The Company's maximum and actual leverage (see Glossary of Terms
on page 52 of the Annual Report and Financial Statements) levels at
31 July 2016 are shown below:
Leverage Exposure
Gross Commitment
Method Method
=============== ======== ===========
Maximum limit 2.50:1 2.00:1
Actual 1.04:1 1.04:1
=============== ======== ===========
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report,
the Directors' Remuneration Report and the Financial Statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law the Directors
have elected to prepare the Financial Statements in accordance with
applicable law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice) including FRS 102
'The Financial Reporting Standard applicable in the UK and Republic
of Ireland'. Under company law the Directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
these Financial Statements, the Directors are required to:
3/4 select suitable accounting policies and then apply them
consistently;
3/4 make judgements and accounting estimates that are reasonable
and prudent;
3/4 state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
3/4 prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable laws and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report, a
Directors' Remuneration Report and a Corporate Governance Statement
that comply with that law and those regulations.
The Directors have delegated responsibility to the Managers for
the maintenance and integrity of the Company's page of the
Managers' website. Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ
from legislation in other jurisdictions.
The work carried out by the Auditor does not involve any
consideration of these matters and, accordingly, the Auditor
accepts no responsibility for any changes that may have occurred to
the Financial Statements since they were initially presented on the
website.
Each of the Directors, whose names and functions are listed
within the Directors and Managers section confirm that, to the best
of their knowledge:
3/4 the Financial Statements, which have been prepared in
accordance with applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice)
including FRS 102 'The Financial Reporting Standard applicable in
the UK and Republic of Ireland' give a true and fair view of the
assets, liabilities, financial position and net return of the
Company;
3/4 the Annual Report and Financial Statements taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy; and
3/4 the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
By order of the Board
Jean Matterson
Chairman
15 September 2016
Income Statement
For the year ended For the year ended
31 July 2016 31 July 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ========= ========= ========= ========= ========= =========
Gains/(losses)
on investments - 13,414 13,414 - (338) (338)
Currency gains/(losses) - 1,140 1,140 - (322) (322)
Income (note
2) 1,331 - 1,331 1,886 - 1,886
Investment management
fee (note 3) (899) - (899) (1,032) - (1,032)
Other administrative
expenses (389) - (389) (397) - (397)
========================= ========= ========= ========= ========= ========= =========
Net return before
finance costs
and taxation 43 14,554 14,597 457 (660) (203)
========================= ========= ========= ========= ========= ========= =========
Finance costs
of borrowing (127) - (127) (93) - (93)
========================= ========= ========= ========= ========= ========= =========
Net return on
ordinary activities
before taxation (84) 14,554 14,470 364 (660) (296)
========================= ========= ========= ========= ========= ========= =========
Tax on ordinary
activities (98) - (98) (133) - (133)
========================= ========= ========= ========= ========= ========= =========
Net return on
ordinary activities
after taxation (182) 14,554 14,372 231 (660) (429)
========================= ========= ========= ========= ========= ========= =========
Net return per
ordinary share
(note 4) (0.30p) 24.25p 23.95p 0.35p (0.99p) (0.64p)
========================= ========= ========= ========= ========= ========= =========
The total column of this statement is the profit and loss
account of the Company. The supplementary revenue and capital
columns are prepared under guidance published by the Association of
Investment Companies.
All revenue and capital items in this statement derive from
continuing operations.
A Statement of Comprehensive Income is not required as there is
no other comprehensive income.
Balance Sheet
At 31 July At 31 July
2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
============================== =========== =========== ========= ========
Fixed assets
Investments held at fair
value through profit or
loss 131,417 135,133
Current assets
Debtors 359 276
Cash and cash equivalents 1,323 4,061
============================== =========== =========== ========= ========
1,682 4,337
============================== =========== =========== ========= ========
Creditors
Amounts falling due within
one year (note 6) (5,397) (14,300)
============================== =========== =========== ========= ========
Net current liabilities (3,715) (9,963)
============================== =========== =========== ========= ========
Net assets 127,702 125,170
============================== =========== =========== ========= ========
Capital and reserves
Called up share capital 5,712 6,329
Share premium 3,166 3,166
Capital redemption reserve 20,081 19,464
Capital reserve 94,377 91,441
Revenue reserve 4,366 4,770
============================== =========== =========== ========= ========
Shareholders' funds 127,702 125,170
============================== =========== =========== ========= ========
Net asset value per ordinary
share 223.58p 197.78p
============================== =========== =========== ========= ========
Ordinary shares in issue
(note 7) 57,118,191 63,288,853
============================== =========== =========== ========= ========
Statement of Changes in Equity
For the year ended 31 July 2016
Called
up Capital
share Share redemption Capital Revenue Shareholders'
capital premium reserve reserve reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== ========= ========= ============ ========= ========= ==============
Shareholders' funds
at 1 August 2015 6,329 3,166 19,464 91,441 4,770 125,170
Net return on ordinary
activities after
taxation - - - 14,554 (182) 14,372
Shares purchased
for cancellation
(note 7) (617) - 617 (11,618) - (11,618)
Dividends paid during
the year (note 5) - - - - (222) (222)
======================== ========= ========= ============ ========= ========= ==============
Shareholders' funds
at 31 July 2016 5,712 3,166 20,081 94,377 4,366 127,702
------------------------ --------- --------- ------------ --------- --------- --------------
For the year ended 31 July 2015
Called up Capital
share Share redemption Capital Shareholders'
capital premium reserve reserve Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================ ============== ======== ============== ============== =============== =============
Shareholders'
funds at 1
August 2014 7,013 3,166 18,780 106,437 5,521 140,917
Net return on
ordinary
activities
after
taxation - - - (660) 231 (429)
Shares
purchased for
cancellation
(note 7) (684) - 684 (14,336) - (14,336)
Dividends paid
during the
year (note 5) - - - - (982) (982)
=============== ============== ======== ============== ============== =============== =============
Shareholders'
funds at 31
July 2015 6,329 3,166 19,464 91,441 4,770 125,170
--------------- -------------- -------- -------------- -------------- --------------- -------------
Cash Flow Statement
For the year ended For the year ended
31 July 2016 31 July 2015
GBP'000 GBP'000 GBP'000 GBP'000
===================================================== ========= ========= ========== ========
Cash flows from operating activities
Net return on ordinary activities before taxation ++ 14,470 (296)
Net (gains)/losses on investments (13,414) 338
Currency (gains)/losses (1,140) 322
Finance costs of borrowings 127 93
Overseas tax incurred (84) (150)
Changes in debtors and creditors (86) 155
===================================================== ========= ========= ========== ========
Cash from operations (127) 462
Interest paid (134) (84)
===================================================== ========= ========= ========== ========
Net cash (outflow)/inflow from operating activities (261) 378
===================================================== ========= ========= ========== ========
Cash flows from investing activities
Acquisitions of investments (29,853) (70,065)
Disposals of investments 47,072 78,263
===================================================== ========= ========= ========== ========
Net cash inflow from investing activities 17,219 8,198
===================================================== ========= ========= ========== ========
Cash flows from financing activities
Equity dividends paid (note 5) (222) (982)
Shares purchased for cancellation (note 7) (11,618) (14,336)
Borrowings (repaid)/drawn down (9,369) 9,518
===================================================== ========= ========= ========== ========
Net cash outflow from financing activities (21,209) (5,800)
===================================================== ========= ========= ========== ========
(Decrease)/increase in cash and cash equivalents (4,251) 2,776
Exchange movements 1,513 11
Cash and cash equivalents at 1 August 4,061 1,274
===================================================== ========= ========= ========== ========
Cash and cash equivalents at 31 July 1,323 4,061
===================================================== ========= ========= ========== ========
Notes to the Financial Statements
1. The Financial Statements for the year to 31
July 2016 have been prepared in accordance with
The Financial Reporting Standard applicable
in the UK and Republic of Ireland ('FRS 102')
which the Company must adopt for its financial
year ending 31 July 2016. Following the application
of the new reporting standard and the AIC's
issued Statement of Recommended Practice, there
has been no change in the Company's Income Statement,
Balance Sheet or Statement of Changes in Equity
(previously called the Reconciliation of Movements
in Shareholders' Funds) from the period previously
reported. The Cash Flow Statement reflects the
presentational requirements of FRS 102, which
are different to FRS 1. In addition, the Cash
Flow Statement reconciles to cash and cash equivalents
whereas under previous UK GAAP the Cash Flow
Statement reconciled to net funds/debt. The
Company has already adopted the amendments to
Section 34 of FRS 102 regarding fair value hierarchy
disclosures.
The Directors consider the Company's functional
currency to be sterling as the Company's shareholders
are predominantly based in the UK and the Company
is subject to the UK's regulatory environment.
========================================================================================
31 July 31 July
2016 2015
GBP'000 GBP'000
===================================================== ========= ======================
2. Income from financial assets
designated at fair value through
profit or loss
Listed overseas dividends 1,331 1,886
========================================================== ========= ======================
Total income 1,331 1,866
========================================================== ========= ======================
31 July 2016 31 July
GBP'000 2015
GBP'000
====================================== ======================== ======================
3. Net return per ordinary
share
Revenue return on ordinary
activities after taxation (182) 231
Capital return on ordinary
activities after taxation 14,554 (660)
=========================================== ======================== ======================
Total return 14,372 (429)
=========================================== ======================== ======================
Weighted average number
of ordinary shares in
issue 60,007,258 66,526,663
------------------------------------------- ------------------------ ----------------------
The figures for net return per ordinary share
are based on the above totals for revenue and
capital and the weighted average number of ordinary
shares in issue during the year.
There are no dilutive or potentially dilutive
shares in issue.
31 July 31 July 31 July 31 July
2016 2015 2016 2015
GBP'000 GBP'000
====================================== ============= ========= ========= ===========
4. Ordinary Dividends
Amounts recognised as
distributions in the
year:
Previous year's final
(paid 11 November 2015) 0.35p 1.40p 222 982
=========================================== ============= ========= ========= ===========
Also set out below are the total dividends paid
and proposed in respect of the financial year,
which is the basis on which the requirements
of section 1158 of the Corporation Tax Act 2010
are considered. There is no revenue available
for distribution by way of dividend for the
year (31 July 2016 - revenue loss of GBP182,000;
2015 - revenue gain of GBP231,000).
========================================================================================
31 July 31 July 31 July 31 July
2016 2015 2016 2015
GBP'000 GBP'000
============= ========= ========= ===========
Amounts paid and proposed
in respect of the financial
year:
Proposed final dividend
per ordinary share (payable
11 November 2016) 0.35p 0.35p 200 222
=========================================== ============= ========= ========= ===========
If approved, the recommended final dividend
of 0.35p per ordinary share for the year ended
31 July 2016 will be paid on 11 November 2016
to shareholders on the register at the close
of business on 14 October 2016. The ex-dividend
date is 13 October 2016. The Company's Registrar
offers a Dividend Reinvestment Plan and the
final date for elections for this dividend is
21 October 2016.
5. The Company has authority to buy back up to
14.99% of its shares on an ad hoc basis and
to implement, at the Board's discretion, bi-annual
tender offers for up to 5% of its shares at
a 2% discount to net asset value, less costs,
in the event that the discount averaged more
than 9% during the six month period to 31 January
and 31 July in the years 2014, 2015 and 2016.
The Board implemented a 5% tender offer in October
2015 and April 2016 in respect of the tender
periods to 31 July 2015 and 31 January 2016.
Through the exercise of both of these tenders
during the year, the Company bought back a total
of 6,170,662 (2015 - 6,837,299) ordinary shares
at a total cost of GBP11,618,000 (2015 - GBP14,336,000).
The nominal value of these shares was GBP617,000
and represented 9.75% of the issued share capital
at 31 July 2015. At 31 July 2016 the Company
had authority to buy back a further 9,012,649
ordinary shares.
The Company also has authority to allot shares
under section 551 of the Companies Act 2006.
In the years to 31 July 2015 and 31 July 2016
no shares were issued.
6. The Company incurred transaction costs on purchases
of GBP46,000 (2015 - GBP157,000) and on sales
of GBP133,000 (2015 - GBP239,000), being GBP179,000
(2015 - GBP396,000) in total.
None of the views expressed in this document should be construed
as advice to buy or sell a particular investment.
- ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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