TIDMWPC
RNS Number : 4731D
Witan Pacific Investment Trust PLC
27 April 2017
WITAN PACIFIC INVESTMENT TRUST PLC
(the "Company")
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 JANUARY 2017
Witan Pacific Investment Trust plc announces that its 2017
Annual Report and Accounts has been published. The full report can
be accessed via the Company's website at www.witanpacific.com and
will be circulated to shareholders shortly.
The Annual General Meeting of the Company will be held on 14
June 2017 at 3.00pm at the City of London Club, 19 Old Broad
Street, London EC2N 1DS.
The Directors have proposed the payment of a final dividend of
2.55p per Ordinary share which, if approved by shareholders at the
forthcoming Annual General Meeting, will be payable on 19 June 2017
to shareholders whose names appear on the register at the close of
business on 19 May 2017 (ex-dividend 18 May 2017).
This announcement includes certain extracts from the 2017 Annual
Report and Accounts. Any references to page numbers or sections in
the following text are references to pages and sections in that
report.
STRATEGIC REPORT
FINANCIAL SUMMARY
for the year ended 31 January 2017
Key data
2017 2016 % change
-------------- ------- ------- --------
NAV per share 333.87p 259.27p +28.8%
Share price 286.00p 231.00p +23.8%
Discount 14.3% 10.9%
-------------- ------- ------- --------
Total returns
2017 2016
----------------- ----- -----
NAV per share(1) 30.7% -5.6%
Share price(1) 26.1% -3.5%
Benchmark(2) 35.3% -5.9%
----------------- ----- -----
Income
2017 2016 % change
------------------- ----- ----- --------
Revenue per share 4.41p 4.31p +2.3%
Dividend per share 4.75p 4.65p +2.2%
------------------- ----- ----- --------
Ongoing charges(3)
2017 2016
---------------------- ----- -----
Excluding performance
fees 1.03% 1.05%
Including performance
fees 1.03% 1.05%
---------------------- ----- -----
(1) Source: Morningstar/Witan Investment Services. The movement
in the NAV per share adjusted to include the reinvestment of each
dividend paid by the Company during the respective period's
calculation.
(2) Source: Morningstar. The benchmark for Witan Pacific
Investment Trust plc is the MSCI AC Asia Pacific Index.
(3) Recurring operating and management costs expressed as a
percentage of average net assets.
LONG-TERM PERFORMANCE ANALYSIS
for the year ended 31 January 2017
Total returns since inception of multi-manager structure
Cumulative return since inception Annualised return since
of the multi-manager structure the inception of the
31/05/2005 multi-manager structure
31/05/2005
----------------- --------------------------------- -----------------------------
NAV per share(1) 195.8% 9.7%
Share price(2) 189.0% 9.5%
Benchmark(2) 183.1% 9.3%
----------------- --------------------------------- -----------------------------
Total returns over each of the past five financial years (twelve
months to 31 January)
Cumulative
5 year return 2017 2016 2015 2014 2013
----------------- ------------- ----- ----- ----- ----- -----
NAV per share(1) 55.3% 30.7% -5.6% 17.6% -6.5% 14.7%
Share price(2) 64.4% 26.1% -3.5% 16.6% -5.2% 22.1%
Benchmark(2) 66.1% 35.3% -5.9% 17.1% 0.2% 11.1%
----------------- ------------- ----- ----- ----- ----- -----
(1) Source: Morningstar/Witan Investment Services. Total returns
include dividends reinvested.
(2) Source: Morningstar.
CHAIR'S STATEMENT
SUMMARY
-- NAV total return of 30.7% for the year, compared with benchmark 35.3%
-- Share price total return of 26.1%
-- Final dividend of 2.55p, making 4.75p for the year (+2.2%)
-- NAV total return of 195.8% since 2005, compared with benchmark 183.1%
-- Net assets GBP217 million (2016: GBP170 million)
Introduction and market background
This has been a particularly startling year for investors, even
in the context of the long-term history of Witan Pacific. According
to the physicist Niels Bohr, prediction is very difficult,
especially about the future. The odds available for successfully
predicting the combination of the result of the Brexit referendum,
Leicester City Football Club winning the Premiership and Trump
winning the US election were very long. Even if such a prediction
had been successful, translating those results reliably into market
moves would have presented a further challenge.
The unexpected happened, and the absolute returns to
shareholders in Witan Pacific were spectacular, at least in the
short term. The NAV total return was approximately 30.7%, and the
share price total return was 26.1%. The NAV per share at the end of
the year was 333.87p, an all-time high.
A significant part of that return was determined by the weakness
of sterling. The Japanese yen, Australian dollar, Indonesian
rupiah, Korean won and Taiwanese dollar all rose by around 20%
against sterling. Thus the assets of your Company denominated in
those currencies rose by roughly those amounts. The combination of
those currency returns with considerable strength in local markets
resulted in some spectacular returns around the region. Chinese
shares recovered sharply from the turbulence at the beginning of
the year, as did shares in Taiwan and Hong Kong. Japanese shares
provided a return of around 30% in sterling terms, whereas
Australian shares rose by a notable 40% translated back to the UK.
Singapore rose a relatively sedate 18% in contrast.
So in absolute terms, the assets of your Company have risen
significantly.
Performance
The Company's NAV did less well than the benchmark over the year
under review, which is disappointing, particularly as the managers
were doing much better than the benchmark until the end of the
first half. Since the inception of the multi-manager structure, the
NAV has outperformed that benchmark. Both Aberdeen and Matthews
have outperformed since they were appointed. The last six months of
the year have been very turbulent, however, with major sentiment
driven "top down" themes seemingly overwhelming some less exuberant
management styles following the election of Donald Trump. In a
brief period in the last few months of the year, there were some
very dramatic moves in basic materials, oil and gas stocks and in
financials, which do seem now to be calming down. In the period
since the year end, the Company's assets have outperformed the
benchmark. Healthcare stocks, which were the only group to rise in
absolute terms in the previous year, fell in 2016/17, again
probably as a result of the US President's comments. It would be
unwise to panic in the middle of such uncertainty but we do keep a
very close eye on the ways in which our managers are reacting to
the circumstances in which they find themselves.
Over the year, it was pleasing to see Aberdeen do better than
the market as a whole, after some years of underperformance. We are
pleased to see their reactions to the last few years and believe
there are useful changes underway, but we do note the recent
announcement of the expected merger between Aberdeen and Standard
Life and are monitoring this development closely. Matthews had a
more difficult year after several strong years, largely as
individual consumer-based stocks in China/Hong Kong suffered from
fears of a trade war (and the share prices of those companies are,
it seems, recovering). Gavekal found the market turbulence
difficult to navigate and their growth oriented stocks seem to have
been particularly affected by Trump-related fears.
Further details of the portfolio managers' activity and
performance are set out in the Investment Review, which forms a
part of this overall Strategic Report.
Dividend
Following the interim dividend of 2.20p per share paid in
October 2016, the Board is proposing a final dividend of 2.55p per
share for this half-year period, making a total dividend of 4.75p
per share, a rise of 2.2% on last year, which meets the Company's
aim to grow the dividend in real terms over the long term.
Subject to shareholder approval, the final dividend will be paid
on 19 June 2017 to shareholders on the register at the close of
business on 19 May 2017 (ex-dividend 18 May 2017).
The impact of currency moves on our income account is slightly
more complicated than for the assets. Dividends received by the
Company are translated when received, so what matters most is the
rate of exchange at that point. Our income account was less
supported by currency moves and indeed, the weakness of the yen in
the latter part of 2016 adversely affected the income we received
in the second part of the year.
Nevertheless, revenue earnings per share improved by 2% over the
year, and we do believe that the region will continue to provide
good dividend growth. Our managers' expectations for the next few
years provide us with the confidence to increase our final
dividend.
Discount
We do watch our discount very carefully. As indicated at the
last year end, it had narrowed a little during the 2015/16 period.
For most of the year, it traded more or less in line with many of
the other Asian and Japanese investment trusts but slipped just at
the end of the period. We have increased the rate of our buybacks.
We are also continuing to focus our marketing efforts on private
individuals, financial advisers who are interested in investment
trusts and wealth managers. The feedback from these shareholders
has been positive during the year but we keep working to improve
our communications. A new website has recently been launched.
We also consider the value we add to our shareholders at each
Board meeting and formally at our annual strategy meeting. We
believe we can offer shareholders a wide and interesting exposure
to the region through our multi-manager structure and the
opportunity we have to continue to find interesting managers and
investment approaches for shareholders.
Outlook
As I said at the beginning of this statement, prediction is
difficult. There are certainly a number of geopolitical concerns
which might affect the region, either directly or indirectly.
Towards the end of the last financial year, markets seemed to be
driven even more than usual by flows of money seeking to follow the
latest Twitter pronouncement.
What is perhaps most important for the longer term is the way
that portfolio managers appointed by the Company are able to access
the opportunities provided by the region particularly when adverse
sentiment provides a good entry point. Over the last year, the set
back in the China A Share market has provided an opportunity to
access that market and we have begun to invest there, albeit in a
rather limited way at the moment. Likewise, the setback in Samsung
shares has allowed your portfolio managers to increase holdings.
The Board's recent trip to the region and meetings with your
managers and other investors supported our view of the long-term
trends and more recent changes which provide attractive
opportunities. Examples of some of the areas which featured in
discussions were the growth of the middle classes across Asia,
changes in Japanese corporate behaviour (and the strength of
Japanese companies' positions in the US), the radical actions taken
by the Indian Government to take large notes out of circulation and
the opening up of Vietnamese investment opportunities.
In the Board's view, the breadth of access which Witan Pacific
offers continues to provide a range of exciting investment
opportunities. No doubt there will be turbulence along the way, but
the strengths of the region persist.
As this is the last statement I shall be writing for Witan
Pacific, I would like to thank my fellow Board members for their
continued commitment, challenge and support. I hand over with great
confidence to Susan Platts-Martin and look forward to following the
future of the Company.
Sarah Bates
Chair
26 April 2017
Company Secretary contact details:
Capita Company Secretarial Services Limited
1st Floor, 40 Dukes Place, London EC2A 7NH
email: WitanPacificInvestmentTrustplc@capita.co.uk
INVESTMENT REVIEW
for the year ended 31 January 2017
Performance summary
The period under review began in inauspicious circumstances with
investors fearing a global economic slowdown, collapsing commodity
prices and uncertainty surrounding Chinese economic policy. The
negative sentiment abated as these concerns evaporated without
incident, allowing equity investors to enjoy a prolonged period of
significant gains. All major equity markets recorded positive
returns which were, for UK based investors, flattered by the
contribution made by a weaker pound following the Brexit vote.
Markets rose further following the election of President Trump as
his promise of stimulative economic policy was seen as outweighing
the potential negative impact of any protectionist rhetoric.
Economic growth was weaker than expected early in 2016 and
central banks (particularly in Europe and Japan) reacted by pushing
rates into negative territory. Global bond markets reacted to this
stimulus and reached extraordinary valuations by the summer of
2016, as negative official rates and uncertainty surrounding Brexit
caused over a quarter of the world's government bonds to offer
negative yields at one point. This abnormality began to recede as
the year progressed and accelerated following the US presidential
election. This coincided with an improvement in growth expectations
partly because of, and partly leading to, a stabilisation in
commodity prices. This, in turn, allowed for a recovery in
corporate earnings expectations and hence an improved environment
for equity markets. Another notable factor last year was a
significant shift in the relative fortunes of equity sectors with
the more cyclical, value style (financials, commodities and energy)
stocks outperforming those more dependable, steady earners such as
consumer staples, which had been some of the best performing stocks
over previous years due to their relatively predictable
characteristics.
There were a number of bright spots appearing across Asian
markets by the end of the year. Japanese economic indicators point
to a tightening of the labour market and a pick-up in manufacturing
activity, with the export market showing particular strength.
Domestic consumption, however, remains stubbornly subdued. Economic
activity in India appears to be recovering from the negative impact
of Prime Minister Modi's anti-corruption drive and shock caused by
the associated withdrawal of higher value bank notes. China,
meanwhile, continues to evolve at a steady pace, with the
high-quality service economy now contributing to over 50% of GDP.
The economy continues to grow at a solid 6% p.a. rate, with
investment and retail sales growth rates far outstripping developed
markets and regional peers. There may, of course, be political
bumps along the road as President Trump flexes his policy muscles
and the 19th National Congress of the Communist Party of China
approaches in late 2017. This, our managers believe, may present
opportunities to buy high-quality companies at attractive prices.
Elsewhere in Asia, investors continue to benefit from a relatively
stable political environment, favourable demographics, sound
monetary policies and high savings rates. The rise of the middle
classes and increasing domestic consumption continue to lend weight
to the argument that Asia is an attractive long-term investment
proposition whose prospects are becoming more domestically driven
and regionally interdependent.
Portfolio manager performance for the year ended 31 January 2017
and from appointment to 31 January 2017
Details of the portfolio manager structure in place at the end
of January 2017 are set out in the following table, showing the
proportion of Witan Pacific's assets each managed and the
performance they achieved:
Managed assets(1) Performance Annualised performance(2)
Appointment date Manager Benchmark Manager Benchmark
GBPm % % % % %
Aberdeen 31 May 2005 94.0 43.4 +39.2 +35.3 +11.4 +9.3
Matthews 30 April 2012 100.5 46.4 +28.4 +35.3 +13.3 +11.3
GaveKal(3) 24 April 2012 22.2 10.2 +22.3 +35.3 +10.1 +11.5
------------ ------------------ ---------- -------- -------- ---------- ------------ --------------
Source: BNP Paribas. All performance figures are disclosed on a
pre-fee basis.
Notes:
(1) Excluding cash balances held centrally by the Company.
(2) Since appointment.
(3) Sourced from BNP Paribas and adjusted for 1.5% management
fee, of which 0.75% is rebated to the Company directly, outside the
fund.
Investors will be aware that many equity markets are at, or
close to, all-time highs. Despite a sell-off in the second half of
2016, government bonds remain exceedingly expensive and equities
exhibit comparatively attractive properties. Companies in Asia are
reporting positive earnings and dividend growth and an improvement
in the corporate governance landscape appears to be taking hold.
The fears of deflation in the developed markets (including Japan)
are receding to a point where mild inflation is starting to lead to
talk of a return to less accommodative monetary policy. This
removal of monetary stimulus, far from being perceived as a
negative, may be viewed as a return to a more normal environment.
Obviously, there are known risks in the form of political
uncertainty in Europe (including the commencement of Brexit
negotiations) and any lack of progress by the new White House
administration, presenting potential clouds on the horizon.
We consider the second half of 2016 to be an extremely unusual
period for investors and for active investors in particular. We are
at a crossroads in economic policy, with an increasing number of
countries around the world questioning the use of near-zero or even
negative interest rates and some adopting, or considering, a range
of fiscal options. Whether these take the form of tax breaks or
infrastructure spending (or a combination) investors are clearly
seeing 2016 as the year when deflationary fears peaked.
Our appointed managers, who tend to focus on the specific
attributes of individual companies rather than on macroeconomic and
political developments, found life increasingly difficult as last
year wore on even though the absolute level of return was
exceptionally good. There were a number of factors at play here,
including being underweight Japan and Australia (two of the
strongest markets following the Brexit vote), underweight cyclical
stocks, which performed particularly well following the US
election, and a small number of stock specific headwinds (such as
Japan Tobacco, LG Chemical and BGF Retail) which the managers see
as temporary setbacks. Indeed, BGF Retail has already recovered
much of the ground lost, whilst the others remain at depressed
levels. Evidence suggests that Witan Pacific's managers were not
alone in suffering relative underperformance in 2016. A survey of
UK active managers shows that just 20% outperformed their
benchmarks last year and further evidence would suggest that global
managers fared little better. This is certainly food for thought
but, true or not, it is likelier that a roster of good active
managers will produce good returns over the long run than that the
experience of 2016 will be repeated in years to come. Our managers
all construct portfolios on the basis of relative merits of their
selected companies rather than the weight that those companies have
in the benchmark. As such, performance may well vary quite
considerably from that of the index over the short term but it is
expected, as has been the case since inception, that their combined
stock picking skills will prevail and that the multi-manager
structure will deliver this outperformance with less volatility
than a single manager might suffer. We consider such a 'bottom-up'
strategy to be increasingly valuable in a world where uncertainty
is high and the increased prevalence of index products (such as
ETFs) means that fewer people are taking active investment
decisions and opportunities for patient investors, such as our
managers, should therefore be increasing.
The appointed managers remained unchanged over the year,
although the percentage managed by each of the three has altered
due to variations in relative performance. Matthews and Aberdeen
manage 46.4% and 43.4% respectively, while Gavekal is responsible
for 10.2% of the portfolio.
In the year to 31 January 2016, Matthews and Gavekal
outperformed the benchmark while Aberdeen underperformed. In the
year to 31 January 2017, Matthews and Gavekal underperformed the
benchmark while Aberdeen outperformed. Further details are shown on
page 7. The lion's share of this underperformance, particularly for
Matthews, occurred in the second half of the year. This is a sharp
turnaround in fortunes from the interim stage when the combined
portfolio was ahead of its benchmark. There were several factors
which contributed to this disappointing short-term performance.
First, it should be remembered that Matthews has generated
significant outperformance since appointment in 2012. Their
portfolio is heavily populated by Chinese and Hong Kong domiciled
consumer stocks at the expense of Australian financials and
commodity plays. This was a short-term headwind as some positions
were impacted by a fear of US protectionism and others (which were
not owned) enjoyed some stellar returns last year. We remain
confident that their portfolio is of the highest quality and should
continue to produce good relative returns as the headwinds subside.
Since appointment, Matthews has produced returns of 13.3% per
annum, which is significantly ahead of the 11.3% achieved by the
benchmark.
Gavekal suffered a particularly difficult year as their
geographic positioning and growth-oriented portfolio both detracted
from relative performance. In addition, they tend to run with a
significant fixed interest or cash position to help dampen
volatility and this hindered relative performance in a strong year
for equity markets.
Aberdeen, in contrast, enjoyed a return to a more productive
environment following a number of fallow years. It appears that
they have 'sharpened up' their process (without changing their
research based investment style) and we are encouraged by the
progress they have made this year. Returns were particularly good
in the first half and, whilst performance lagged the benchmark in
the second half, the net result was a positive one in both absolute
and relative terms. Aberdeen has been one of our appointed managers
since the adoption of the multi-manager strategy in 2005 and, over
that period, they have outperformed the benchmark with an
annualised total return of 11.4% compared with 9.3% for the
index.
Combined portfolio composition
As previously explained, the Company's managers make no attempt
to replicate (or track) the benchmark when constructing their
portfolios. 'Active share' is a commonly used measure of how
different from the benchmark any particular portfolio is, with 0%
being identical to the benchmark and 100% implying that a portfolio
contains none of the stocks in the benchmark. Active managers seek
to have a high active share as this should facilitate, though by no
means guarantee, outperformance of the benchmark. Our managers'
portfolios have individual active share of between 82% and 87% and
the Company's overall active share, whilst a little lower than last
year, remains relatively high at 73%.
As Executive Manager, Witan Investment Services ("WIS") monitors
the performance of the individual manager portfolios and the
Company's combined portfolio. This analysis provides a wealth of
information on portfolio characteristics, asset allocation (both
geographic and sectoral) and risk data. The reports serve as the
basis for discussion concerning the ongoing manager roster and
resulting asset allocation (both absolute and relative to the
benchmark) at regular Board meetings as well as on an ad-hoc
basis.
The characteristics of the portfolio have, as we would expect,
changed little over the year. Exposure to South Korea and Singapore
has increased by approximately 2% each as the managers perceive
there to be better prospects for some companies domiciled in these
markets. Australia and Japan remain the most significant
underweight positions in geographic terms. Financial stocks
(particularly banks) dominate these two markets and our managers
are only attracted to a limited number of these companies. That
said, the changing nature of the global economic environment and
the outlook for some of these sectors and markets has led our
managers to increase exposure over the last few months.
The portfolio as a whole continues to have a bias away from many
of the region's very largest companies. The benchmark is made up of
over 1,000 companies, with the 20 largest representing 22.8% of the
total market capitalisation. The portfolio, by contrast has a 13.4%
weight in these 'mega-cap' stocks. Indeed, of those 20 stocks, the
aggregate of the manager portfolios is only at or above benchmark
weight in six companies, whilst none of the managers owned shares
in five of the top 20 stocks. The aggregated portfolio had a
weighting of 16.7% to the smallest companies by market
capitalisation (which only account for 10% of the benchmark
weight). The most overweight positions were HSBC, Minth Group
(neither stock is in the benchmark), Seven & I, Japan Tobacco
and Shenzhou International. The largest underweight positions
include Tencent, Toyota, Alibaba, Commonwealth Bank of Australia
and Softbank. The most significant portfolio development during the
year under review was a notable increase in exposure to Samsung
Electronics (from 1.5% to 3.4%). Samsung is a global company with a
leading position in many product segments. It has experienced a
number of well publicised issues in recent months which our
managers consider to be disappointing but not significant. All
three managers now own shares in Samsung, with two having taken
advantage of share price weakness to initiate a holding in this
well-resourced and globally dominant business, at an attractive
valuation.
In last year's Strategic Report, we highlighted that the Company
did not hold domestic Chinese A shares but would continue to keep
this policy under review. During the year, the Board reconsidered
this position and, after weighing up the relative risks and
potential benefits of such investment, resolved to allow both
Aberdeen and Matthews to invest in this market as and when they
found attractive opportunities. Aberdeen have made a small
investment via their China A Share Fund whilst Matthews will use
the HK Shanghai Connect system. Both managers consider this market
to offer a small number of attractive companies so exposure is
likely to grow, but not rapidly.
Continued appointment of portfolio managers
As at the date of this Report, the Directors are of the opinion
that the continuing appointment of the three portfolio managers, on
the terms agreed, is in the interests of shareholders as a whole.
The Board, in conjunction with WIS and consultants, as appropriate,
considers the performance of, the allocations to and the
appointments of each of the portfolio managers on a regular basis
and may alter either allocations or appointments if considered to
be in the Company's interests.
In addition, periodically, the Board travels to the region to
visit the managers in their offices to carry out due diligence. The
Board also takes the opportunity to meet with other managers while
it is in Asia. As noted above, Aberdeen appears to have reacted to
a period of underperformance and has implemented some minor changes
to their process without changing their investment management
style. Whilst we are encouraged by these signs of progress, the
Board notes the proposed merger of Aberdeen with Standard Life. It
will monitor developments closely, and in particular any impact on
the management teams and processes in the Asia Pacific region. The
Board remains confident in Matthews, in spite of some short-term
performance issues and was reassured by their strong process, focus
on quality companies which produce solid dividend growth, as well
as their robust operational structure. Shareholders will note from
comments above, that Gavekal has not enjoyed a successful year. The
Board discussed this underperformance with Gavekal during its visit
to the region in February 2017 and its, and the other managers',
ongoing performance will continue to be monitored regularly as part
of the Company's objective to outperform the regional equity index
over the long term.
PORTFOLIO MANAGER INFORMATION
Aberdeen Asset Managers Limited ("Aberdeen")
Aberdeen, which has delegated management of the Company's assets
to Aberdeen Asset Management Asia Limited, a wholly-owned
subsidiary of Aberdeen Asset Management PLC, was established in
Asia in 1992 and at 31 December 2016 was managing GBP57bn of assets
in Asia. The 46 fund managers in the equity team follow a
fundamental investment style emphasising the identification of good
quality companies on low valuations relative to their growth
potential.
Strategy
Aberdeen follows a stock-picking approach of investing in good
quality, well-managed and soundly financed companies trading at
attractive valuations, with the expectation of holding them for
extended periods in order to benefit from the compounding of those
companies' growth. Corporate governance and the alignment of
management with shareholders' interests are additional important
factors.
Performance
Aberdeen is one of the original portfolio managers appointed
when the Company's multi-manager approach was adopted in 2005 and
manages 43.4% of the Company's assets. During the year under
review, it achieved a total portfolio return (before fees) of
39.2%, compared with 35.3% for the benchmark. Since appointment in
2005, it has achieved a total portfolio return of 11.4% p.a.
compared with 9.3% p.a. for the benchmark, representing
outperformance of 2.1% p.a. before fees.
Gavekal Capital Limited ("Gavekal")
Gavekal acts as advisor to several investment clients with
combined assets of US$1.78bn (GBP1.44bn) as at 31 December 2016.
The Gavekal Asian Opportunities UCITS is the largest and oldest
single fund under management.
Strategy
The Gavekal Asian Opportunities UCITS in which the Company has
invested, employs no leverage, except on a short-term basis, and
does not "short" stocks. The portfolio is managed by Louis-Vincent
Gave, a co-founder of Gavekal, and Alfred Ho, ex CIO of Invesco
Asia. They are supported by two analysts. They vary the asset
allocation between equities, bonds and cash according to their
top-down view of economic prospects. The equity portfolio is
invested in growth-oriented companies, focusing on earnings growth
and valuation. Within the equity portfolio, weightings are driven
by company-specific attractions not index weightings.
Performance
Gavekal was appointed as one of the Company's portfolio managers
in April 2012 and manages 10.2% of the Company's assets. During the
year under review, the Gavekal Asian Opportunities UCITS achieved a
total portfolio return (before fees) of 20.8%, compared with 35.3%
for the benchmark. Since inception, the fund has returned 8.6%,
compared to 11.5% for the benchmark, representing an
underperformance of 2.9% p.a. before fees.
Matthews International Capital Management LLC ("Matthews
Asia")
Based in San Francisco, Matthews Asia is an independent,
privately owned firm, and the largest dedicated Asia investment
specialist in the United States. As at 31 December 2016, Matthews
Asia had US$24.6bn (GBP19.9bn) in assets under management.
Strategy
The Company is invested in a segregated portfolio that is
managed according to the Matthews Asia Dividend Strategy; the Lead
Portfolio Managers are Yu Zhang, CFA, and Robert Horrocks, PhD. The
Asia Dividend Strategy employs a fundamental, bottom-up investment
process to select dividend paying companies with sustainable
long-term growth prospects, strong business models, quality
management teams, and reasonable valuations. The Asia Dividend
Strategy is a total-return strategy focused on a balance between
stable dividend yielding companies and companies with attractive
dividend growth prospects, in order to provide both capital growth
and a sustainable dividend yield. The strategy invests in companies
of all sizes and has significant exposure to small and mid-cap
stocks.
Performance
Matthews Asia was appointed as one of the Company's portfolio
managers in April 2012 and manages 46.4% of the Company's assets.
During the year under review, it achieved a total portfolio return
(before fees) of 28.4%, compared with 35.3% for the benchmark.
Since appointment in 2012, it has achieved a total portfolio return
of 13.3% p.a. compared with 11.3% p.a. for the benchmark,
representing outperformance of 2.0% p.a. before fees.
TOP TWENTY INVESTMENTS
as at 31 January 2017
This Last % of total Value
period period(1) Company Country investments GBP'000
Gavekal Asian Opportunities UCITS
A UCITS fund investing in a growth-oriented
Asian equity portfolio, Asian bonds
and cash. The manager will vary
the asset allocation in response
1 (1) to market conditions. Asia Pacific 10.5 22,221
2 (2) Aberdeen Global Indian Equity UCITS India 3.5 7,315
A UCITS fund, whose objective is
to invest in the equity of companies
which are incorporated in India
or which derive significant revenue
or profit from India. This is a
cost effective way of investing
in India and does not affect Aberdeen's
overall remuneration.
3 (14) Samsung Electronics South Korea 3.4 7,158
A South Korean consumer, domestic
and industrial electronics company.
Samsung is a market leader in semiconductor
manufacturing, mobile phones, televisions
and OLED panels for monitors and
mobile devices. It is also a major
player in the home appliances market.
4 (5) Taiwan Semiconductor Manufacturing Taiwan 2.5 5,269
The world's largest dedicated semiconductor
foundry, TSMC provides wafer manufacturing,
wafer probing, assembly and testing,
mask production and design services.
HSBC
As one of the world's largest banks,
HSBC provides a wide variety of
international banking and financial
services with the majority of its
revenues originating in Asia and China/
5 (-) Europe but with operations worldwide. Hong Kong 2.5 5,179
6 (19) Seven & I Holdings Japan 2.1 4,412
With headquarters in Japan, Seven
& I's 56,000 store network extends
worldwide to include the 7-Eleven
brand in Japan, China and North
America. The group also includes
superstores, supermarkets, department
stores, restaurants and other operations.
7 (3) Japan Tobacco Japan 2.0 4,306
A global tobacco company with operations
in 120 countries producing a wide
range of tobacco products. It was
originally formed from the non-US
operations of R.J. Reynolds in
1999 and has since grown through
acquisition.
8 (4) AIA Group China/ 2.0 4,284
The leading life insurance provider Hong Kong
in the Asia Pacific region. It
provides insurance and wealth management
services to individuals and businesses.
Minth Group
Chinese auto-parts business supplying
many of the world's leading carmakers
from factories in China, USA, Thailand
and Mexico. Minth has over 130
clients for its structural body,
trim and decorative auto-parts,
including Toyota, GM, Honda and
BMW. With 30 production facilities
in China alone, Minth is an integral
part of the burgeoning Chinese China/
9 (-) automobile industry. Hong Kong 1.9 3,921
China Mobile
China's largest mobile telephone
operator. It operates the world's
largest mobile network and, with
806 million customers, it has the
largest mobile customer base. The
company is developing a fast growing
4G telecoms network and has added
over 100 million 4G customers in China/
10 (6) the past year. Hong Kong 1.8 3,803
United Overseas Bank
Singaporean multinational banking
organisation with over 500 offices
across 19 countries. Core markets
include Singapore, Thailand and
Indonesia with a strong presence
in 12 other Asian countries and
branches in all major world financial
11 (-) centres. Singapore 1.7 3,575
Itochu Corp
A Japanese trading firm with core
strength in textiles as well as
interests in aerospace, machinery,
metals/mining, food distribution,
building products and real estate.
Itochu's strategic alliances with
CITIC (China) and Charoen Pokhand
Group (Thailand) give it a Pan-Asian
12 (-) dimension. Japan 1.7 3,480
Shenzhou International
One of China's largest textile
companies, Shenzhou principally
produces and finishes knitwear
for the global branded sports and
casualwear market. Customers include China/
13 (9) Nike, Adidas, Puma and Uniqlo. Hong Kong 1.6 3,293
Mitsubishi Ufj Financial Group
Japan's largest financial services
company with operations in retail
& business banking, corporate &
investment banking as well as asset
management, investor services and
14 (-) real estate. Japan 1.5 3,250
Singapore Technologies Engineering
Global integrated engineering group
spanning aerospace, electronics,
marine and land systems sectors.
It is the world's largest commercial
15 (15) aircraft maintenance operator. Singapore 1.5 3,219
16 (-) Sumitomo Mitsui Financial Group Japan 1.5 3,184
SMFG is the holding company for
Sumitomo Mitsui Banking which,
with over 400 Japanese and 40 global
branches, is one of the market
leaders in the Japanese banking
industry. SMFG also has interests
in consumer finance, leasing, securities
trading and asset management.
Shin-Etsu Chemical
A leading manufacturer of polyvinyl
chloride, silicon and silicon wafers
17 (18) for semiconductors. Japan 1.4 2,884
18 (-) Aberdeen Global China A Equity China/ 1.3 2,771
UCITS Hong Kong
A UCITS fund, whose objective is
to invest in the equity of companies
which are incorporated in China
and traded on the Chinese Stock
Exchanges. This is a cost effective
way of investing in China and does
not affect Aberdeen's overall remuneration.
19 (12) LG Chemical South Korea 1.3 2,768
LG Chem Ltd produces petrochemicals,
plastic resins and engineering
plastics. LG Chem is also one of
the world's largest producers of
materials used in TV screens, computer
monitors, smartphone and tablet
displays. It is also at the cutting-edge
of lithium-ion mobile battery technology.
Rio Tinto
An Anglo-Australian metals and
mining corporation with global
operations in copper, aluminium,
energy, diamonds, iron ore and
20 (-) other metals. Australia 1.3 2,754
Totals 47.0 99,045
------- ---------- --------------------------------------------- ------------- ------------ --------
The value of the twenty largest holdings represents 47.0% (31
January 2016: 46.5%) of the Company's total investments. The full
portfolio listing is published monthly (with a three-month lag) on
the Company's website.
(1) The figures in brackets denote their position within the top
20 at the previous year end. The country shown is the country of
incorporation.
CORPORATE REVIEW
Witan Pacific is an investment trust, which was founded in 1907
and has been listed on the London Stock Exchange since its
foundation. It operates an outsourced business model, under the
direction and supervision of the Board of Directors.
Strategic Report
The Strategic Report on pages 2 to 25 of the Annual Report and
Accounts has been prepared in accordance with the requirements of
Section 414 of the Companies Act 2006 and best practice. Its
purpose is to provide information to the shareholders of the
Company and help them to assess how the Directors have performed
their duty to promote the success of the Company, in accordance
with Section 172 of the Companies Act 2006.
Strategy and investment policy
Investment policy
The Company's investment objective is to provide shareholders
with capital and income growth from a diversified portfolio of
investments in the Asia Pacific region designed to outperform the
MSCI AC Asia Pacific Index in sterling terms.
Since 2005, the Company has followed a multi-manager approach,
using a blend of active portfolio managers with the aim of
outperforming the benchmark. The investment policy includes
investments in a wide range of regional markets, including the main
Southeast Asian and North Asian markets as well as Japan, India and
Australia. The range of investment opportunities for the portfolio
managers is not limited to the constituents of the benchmark or
benchmark weightings. This means that Witan Pacific's portfolio is
likely to differ from the benchmark. Witan Pacific invests
primarily in equities: in normal circumstances the Board expects
the portfolio's equity exposure to be a minimum of 90% of net
assets. Therefore, the overall performance of regional equity and
currency markets and the operating performance of specific
companies selected by the managers is likely to have the most
significant impact on the performance of the Company's net asset
value.
The Board actively investigates alternative assets and new
investment techniques and will use them if, in the Board's view,
they provide the potential to enhance shareholder returns.
Investment risk is managed through:
-- the selection of at least two portfolio managers. Details of
the proportion of assets managed by them and the portfolios managed
by them are set out on pages 12 and 13;
-- the portfolio managers are required to spread their
investments over a number of securities within the region;
-- monitoring of portfolio manager performance and portfolios.
Portfolio manager performance against the benchmark is set out on
page 7; and
-- monitoring of sector and country allocation, currency
exposures and gearing levels.
Implementation of the investment policy in the year
During the year, the Company invested its assets with a view to
spreading investment risk and, in accordance with the investment
objective set out above, maintained a diversified portfolio, the
analysis of which is shown on pages 8, 12 and 13.
The Directors receive regular reports on investment activity and
portfolio construction at meetings of the Board, as well as
periodically outside of these meetings.
The Board holds an annual strategy meeting. The Directors use
the strategy day to consider, amongst other things, the relevance
of the investment mandate, the multi-manager approach, the
marketing of the Company and the discount. The Board continues to
believe that the Company's offering of a broad Asia Pacific
mandate, implemented through a carefully selected group of
managers, is an attractive and distinct proposition for
shareholders. It further believes that, if superior returns are
achieved over the long term, the discount should narrow. In the
meantime, the Company will maintain its marketing programme and
buy-back policy.
The Company sponsors an ongoing marketing programme provided by
WIS. This programme communicates with private investors and their
financial advisers, as well as professional investors, to help them
make informed decisions about whether investing in the Company's
shares can help them to meet their investment objectives.
The unbundling of investment management from the Company's other
necessary services has provided transparency of the Company's cost
base as well as flexibility in case it becomes desirable to change
the service provider in a particular area. The Board takes care to
ensure strict monitoring and control of costs and expenses.
Please also see the Chair's Statement and the Investment Reivew
for further commentaries on the year.
Business model
The Company is an investment trust and aims to provide
shareholders with capital and income growth from a diversified
portfolio of investments in the Asia Pacific region. The Board
achieves this through:
-- the selection of suitable portfolio managers;
-- the choice of investment benchmark;
-- investment guidelines and limits;
-- the appointment of providers for other services required by
the Company; and
-- the maintenance of an effective system of oversight, risk
management and corporate governance.
The Board's role in investment management
Although the Board retains overall risk and portfolio management
responsibility, it appointed the portfolio managers after a
disciplined selection process focused on their scope to add value
and their fit with the overall balance of the portfolio. The
selection of individual investments is delegated to these external
portfolio managers, subject to investment limits and guidelines
which reflect the particular mandate and the specific investment
approach which the Company has selected (e.g. quality, growth in
dividend).
Approximately 90% of the portfolio is managed in two segregated
accounts, held at the Company's custodian. The balance of the
portfolio is held in a Dublin UCITS open-ended investment company,
for which holdings information is regularly available. This enables
the Company to view the portfolio as a whole and to analyse its
risks and opportunities as well as those at the level of each
portfolio manager's portfolio.
Information regarding the proportion of Witan Pacific's assets
managed by each and of their performance during the year is set out
on page 7.
Our selected benchmark
The Company's benchmark is a reference point for a comparison of
results from an investment in Witan Pacific. The benchmark is the
MSCI AC Asia Pacific Index in sterling terms, with gross dividends
reinvested ("MSCI Index" or "benchmark").
The benchmark is a widely diversified regional index which
includes the principal countries in the Asia Pacific region.
The portfolio managers select stocks which they consider
attractive, wherever they are located in the region. As a result,
the geographical location of the holdings differs from the
benchmark. The geographical distribution of the portfolio and of
the benchmark are set out in the map and table on page 11.
Priorities for the year ahead
For the year ending 31 January 2018, the key priorities for
Witan Pacific include:
-- Investment. Monitor and manage the portfolio managers with
the objective of delivering good returns to shareholders whilst
assessing the risk approach of each portfolio manager.
-- Marketing and Communications. Communicate Witan Pacific's
active multi-manager approach, highlight the distinct pan-Asian
investment remit to existing and potential shareholders and raise
the profile for retail investors. The marketing programme, in
combination with the buy-back policy, aims to reduce the Company's
discount over time.
-- Governance. Ensure effective oversight of all service
providers and compliance with all applicable rules and guidelines,
and monitor supplier risk including cyber-risk.
-- Costs. Monitor and manage costs carefully, with a view to
achieving an ongoing charges ratio in line with the Company's
target of less than 1% per annum.
Dividend Policy
As indicated in the Chair's Statement, the Company aims to grow
its dividend in real terms over the long term. The Company has
substantial levels of revenue reserves available to smooth the
effect of temporary fluctuations in dividends from investments,
where this is viewed as prudent and beneficial for shareholders.
Shareholders agreed at the 2013 AGM to amend the Articles of
Association ("Articles") to permit the distribution of Capital
Reserves as dividends. The Company has stated that this is to
confer flexibility in pursuing its investment objectives and that
it would be the norm for dividend payments to be funded from
revenue over the cycle.
The Company paid a final dividend for the previous year of 2.50p
in June 2016 and an interim dividend of 2.20p in October 2016 for
the year under review. The latter payment compared to a 2.15p
interim dividend the year before. The Company has proposed a final
dividend for 2016/17 of 2.55p, making a total payment for the year
of 4.75p per share. This is an increase of 2.2% on the previous
year, which compares with a 1.8% rise in the Consumer Price Index
("CPI") during the year.
Revenue earnings per share during the year amounted to 4.41p per
share. This is an increase of 2.1% on the previous year.
Key performance indicators
The Board monitors success in implementing the Company's
strategy against a range of Key Performance Indicators ("KPIs")
which are viewed as significant measures of success over the longer
term. Although performance relative to the KPIs is also monitored
over shorter periods, it is success over the long term that is
viewed as more important, given the inherent volatility of
short-term investment returns. The principal KPIs are set out
below, with a record (in italics) of the Company's performance
against them during the year.
NAV total return and total shareholder return.
Long-term outperformance of the combined portfolios compared
with the benchmark is a key objective.
The NAV total return was 30.7%, underperforming the benchmark
total return of 35.3%, while the shareholder total return was
26.1%. Since the adoption of the multi-manager strategy in 2005,
the NAV total return was 195.8%, outperforming the benchmark return
of 183.1%. The shareholder total return was 189.0%.
Investment performance by the individual portfolio managers.
Long-term outperformance relative to the benchmark is
sought.
Over the year, Aberdeen outperformed the benchmark, whilst
Matthews and Gavekal underperformed. Aberdeen and Matthews have
outperformed the benchmark since appointment, whilst Gavekal has
underperformed. Details are shown in the table on page 7.
Annual growth in the dividend.
The Company's aim is to deliver increases in real terms, ahead
of UK inflation.
The dividend for the year ended 31 January 2017 rose (subject to
shareholder approval) by 2.2%, compared with an inflation rate of
1.8% during the year. Since the adoption of the multi-manager
strategy, dividends have grown at an annualised rate of 14.3%
compared with an annualised inflation rate of 2.3%.
Discount to NAV.
The objective is to avoid excessive fluctuations in the discount
and avoid a discount which is anomalously wide compared with other
trusts investing in the region by the use of share buy-backs,
subject to market conditions.
The discount ended the financial year at 14.3% compared with
10.9% a year earlier. The average discount of the Company over the
year was 14.4% (2016: 12.5%).
The level of ongoing charges.
Costs are managed with the objective of delivering an ongoing
charges figure of less than 1% (excluding performance fees). Where
higher charges arise, these are carefully evaluated to ensure there
is a net benefit for shareholders.
The ongoing charges figure was 1.03% (2016: 1.05%).
Gearing and the use of derivatives
Borrowings and gearing
The Company has the power under its Articles to borrow up to
100% of the adjusted total of capital and reserves. However, in
accordance with the Alternative Investment Fund Managers' Directive
("AIFMD"), the Company was registered by the FCA as a Small
Registered UK Alternative Investment Fund Manager ("AIFM") with
effect from 1 April 2014. To retain its Small Registered UK AIFM
status, the Company is unable to employ gearing. It is therefore
the Company's approach not to employ gearing, subject to periodic
review of the costs and benefits of full AIFM authorisation. This
was a matter of discussion at the Board Strategy day in January
2017.
The Company's segregated portfolio managers are not permitted to
borrow within their portfolios, but may hold cash if deemed
appropriate.
Use of derivatives
Aberdeen and Matthews are not permitted to use derivatives or to
gear their portfolios, nor does the Company use derivatives
itself.
The Company has a 10.2% investment in a Dublin-domiciled
open-ended investment company (Gavekal Asian Opportunities UCITS)
whose articles of association allow the use of currency and equity
derivatives. The fund is regulated under UCITS rules and does not
employ leverage, other than within the terms of its prospectus.
Market liquidity and discount
The Board believes that it is in shareholders' interests to
buy-back the Company's shares when they are standing at a
substantial and anomalous discount to the Company's NAV. The
objective is to avoid excessive fluctuations in the discount and
avoid a discount which is anomalously wide compared with other
trusts investing in the region by the use of buy-backs, subject to
market conditions. The purchase of shares priced at a discount to
NAV per share will, all other things being equal, increase the
Company's NAV per share and benefit the Company's share price.
During the year, the Company bought back 713,979 shares into
treasury, at times when supply and demand in the market were out of
balance and the discount was particularly wide. This added 0.47p to
NAV per Ordinary share.
Since the year end, the Company has repurchased a further
1,517,571 Ordinary shares, which have been placed into treasury.
Treasury shares may only be reissued at a premium to the prevailing
NAV.
Witan Pacific is an investment trust, so the purpose of
"marketing" is to provide effective communication of developments
at the Company to existing and potential shareholders to help
sustain a liquid market in the Company's shares. Clear
communication of the Company's investment objective and its success
in executing its strategy make it easier for investors to decide
how Witan Pacific fits in with their own investment objectives.
Other things being equal, this should help the shares to trade at a
narrower discount, from which all shareholders would clearly
benefit.
In view of these potential benefits, the Company has felt for
many years that it is beneficial to incur the limited costs of
operating a marketing programme (through WIS) in order to
disseminate information about our investment strategy and
performance more widely. This programme communicates with private
and professional investors, financial advisers and intermediaries
using a range of media (including direct meetings, press interviews
and advertising through traditional media and the internet). The
Company also provides an informative and easy to use website
(www.witanpacific.com) to enable investors to make informed
decisions about including Witan Pacific shares in their investment
portfolios.
Corporate and operational structure
Investment management arrangements
Each of the portfolio managers, Aberdeen, Gavekal and Matthews,
is entitled to a base management fee, levied on the assets under
management. In addition, one portfolio manager (Aberdeen) is
entitled to a performance fee, calculated according to investment
performance relative to the benchmark. The agreements with Aberdeen
and Matthews can be terminated on one month's notice. Units in
Gavekal's UCITS Fund can be sold at any time. Further details on
fee arrangements are set out on pages 28 and 29.
The Company's external portfolio managers may use certain
services which are paid for, or provided by, various brokers. In
return, they may place business, including transactions relating to
the Company, with those brokers.
Operational management arrangements
In addition to the appointment of external managers, Witan
Pacific contracts with third parties for the supporting services it
requires, including:
-- WIS for Executive Management services; WIS has experience of
the issues arising in operating a multi-manager structure, and
manages and monitors the outsourced structure and relationships,
provides commentary on investment issues and provides marketing
services including the management and administration of a share
savings plan. The Executive Manager reports to the Board on key
aspects at all Board meetings as well as drawing attention as
required to matters requiring non-routine review by the Board.
-- BNP Paribas Securities Services for investment accounting and
administration;
-- JP Morgan Chase Bank, N.A. for investment custody
services;
-- Capita Registrars Limited for company secretarial services
(through Capita Company Secretarial Services Limited); and
-- the Company also takes specialist advice on regulatory and
compliance issues and, as required, procures legal, investment
consulting, financial and tax advice.
As with investment management, the contracts governing the
provision of these services are formulated with legal advice and
stipulate clear objectives and guidelines for the level of service
required.
Premises and staffing
Witan Pacific has no premises nor employees.
Environmental, human rights, employee, social and community
issues
The Company has no employees and its core activities are
undertaken by WIS, Aberdeen, Gavekal and Matthews, which consider
policies relating to environmental and social matters as part of
their investment process. The Company has therefore not reported on
these, or community or human rights issues. However, it reviews its
portfolio managers' reports on their policies relating to
environmental, social and corporate governance issues and discusses
the managers' approaches with them. The portfolio managers are also
prepared to use their votes in these areas as part of the proper
management of the investments made on the Company's behalf and the
Board periodically reviews their approaches with them.
The Board of Directors consists of three female and two male
non-executive Directors. It is the Directors' policy to appoint
individuals on merit whilst taking into account the balance of
skills and experience required by the Board.
Cost analysis
The Company exercises strict scrutiny and control over costs.
Any negotiated savings in investment management or other fees will
directly reduce the costs for shareholders. The information on
costs is collated in a single table below. This indicates the main
cost headings in money terms and as a percentage of net assets.
Year ended 31 January 2017 Year ended 31 January 2016
--------------------------------------------
Category of costs(1) GBPm % of average net assets GBPm % of average net assets
-------------------------------------------- ------- ------------------------ ------- ------------------------
Management fees(2) 1.30 0.65 1.12 0.62
-------------------------------------------- ------- ------------------------ ------- ------------------------
Other expenses 0.76 0.39 0.81 0.45
-------------------------------------------- ------- ------------------------ ------- ------------------------
Non-recurring expenses (0.01) (0.01) (0.03) (0.02)
-------------------------------------------- ------- ------------------------ ------- ------------------------
Ongoing charges excluding performance fees 2.05 1.03 1.90 1.05
-------------------------------------------- ------- ------------------------ ------- ------------------------
Ongoing charges including performance fees 2.05 1.03 1.90 1.05
-------------------------------------------- ------- ------------------------ ------- ------------------------
Portfolio transaction costs 0.20 0.10 0.16 0.09
-------------------------------------------- ------- ------------------------ ------- ------------------------
(1) For a full breakdown of costs, see notes 3 and 4 on pages 61
and 62.
(2) Figures inclusive of fees paid to WIS and fees paid to
Gavekal of which GBP0.31m (2016: GBP0.29m) is charged to capital
and therefore not included in the amounts charged to revenue in
note 3 on page 61.
Principal risks and uncertainties
The Audit Committee regularly (at least annually) reviews the
risks facing the Company by maintaining a detailed record of the
identified risks in the form of a Risk Matrix which assesses the
likelihood of such risks occurring and the severity of the
potential impact of such risks. This enables the Board to take
action and develop strategies in order to mitigate the effect of
such risks to the extent possible. An analysis of financial risks
can be found in note 16 to the financial statements on pages 67 to
73.
A robust assessment of the principal risks has been carried out,
including a review of those risks which would threaten the
Company's business model, future performance, solvency or
liquidity.
Information about the Company's internal control and risk
management procedures can be found in the Audit Committee Report on
page 42.
The Board has identified the following as being the principal
risks and uncertainties facing the Company:
Risk Mitigation
-------------------------------------------- ---------------------------------------------
Inappropriate business strategy and/or The Board reviews its strategy at an
changes in the financial services market annual strategy meeting. It considers
leads to lack of demand for the Company's investor feedback, consults with its
shares and to an increase in the discount broker and reviews its marketing strategy.
of the share price to the NAV. It regularly reviews its discount control
policy. The strategy is considered
in the context of developments in the
wider financial services industry.
-------------------------------------------- ---------------------------------------------
Adverse market conditions, particularly The Company's exposure to equity market
in equities and currencies, lead to risk and foreign currency risk is an
a fall in NAV. integral part of its investment strategy.
Adverse markets may be caused by a
range of factors including economic
conditions and political change. Volatility
in markets from such factors can be
higher in less developed markets. Market
risk is mitigated to a degree by careful
selection of portfolio managers and
appropriate portfolio diversification.
-------------------------------------------- ---------------------------------------------
Poor investment performance, including The performance of the portfolio managers
through inappropriate asset allocation, is reviewed at each Board meeting,
leads to value loss for shareholders and compared against the benchmark,
in comparison to the benchmark or the and similar investment opportunities.
peer group. Exposures against companies and countries
are reviewed against benchmark exposure
to identify the highest risk exposures.
In a multi-manager structure, different
portfolio construction styles can mitigate
under performance. The Board reviews
the investment strategies of the managers
at least annually.
-------------------------------------------- ---------------------------------------------
A reduction in income received from The Board reviews forecast income at
the companies in which it invests, each Board meeting, and also receives
from adverse currency movements, or longer term views on income from the
from portfolio reallocation could lead portfolio managers. The Company has
either to lower dividends being paid substantial revenue reserves which
by the Company or to dividends being can be utilised without requiring the
paid out of reserves. use of other reserves.
-------------------------------------------- ---------------------------------------------
Operational failure leads to reputational The Audit Committee reviews the controls
damage and potential shareholder loss. at the service providers and requires
Operational issues could include: errors, appropriate reports. Separate records
control failures, cyber-attack or business of investments are maintained by the
discontinuity at service providers. portfolio managers, custodian and fund
accountants, and are reconciled. The
Executive Manager also monitors the
performance and controls of third party
providers.
-------------------------------------------- ---------------------------------------------
Tax and regulatory change or breach Compliance with investment trust status
leads to the loss of investment trust regulations is reviewed at each Board
status and, as a consequence, the loss meeting. The Board reviews compliance
of the exemption from taxation of capital with other regulatory, tax and legal
gains. Change in tax, regulation or requirements and is kept informed of
laws could make the activities of the forthcoming regulatory changes.
Company more complicated, more costly
or even not possible. Other regulatory
breaches (including breaching the listing
rules, market abuse regulations and
AIFMD) could result in reputational
damage and costs. Regulatory change
can also increase the costs of operating
the Company.
-------------------------------------------- ---------------------------------------------
Leaving the EU. The Board has also considered the potential
implications for the Company (to the extent identifiable) of the UK
no longer being a member of the EU. Given the Company is invested
in the Asia Pacific region, the greatest impact has been, and may
continue to be, the movement of sterling against international
currencies. Because the value of the Company's investments, and
income received, is denominated substantially in overseas
currencies, any further fall in sterling will increase the value of
those investments, and income received, in sterling terms.
Conversely, any rise in sterling will decrease the value of those
investments, and income received, in sterling terms.
Viability
In accordance with the provisions of the UK Corporate Governance
Code, the Board has assessed the viability of the Company, and
selected a period of five years for the assessment.
The Board considers five years to be a reasonable period for its
assessment. The Board views the Company as a long-term investment
vehicle, with strong financials and good liquidity in its
portfolio. In selecting a five year period, the Board has balanced
that view against the inherent uncertainties in equity markets.
In conducting the assessment, the Board has taken account of the
following:
-- The Company is an investment trust founded in 1907, whose
investment portfolio is invested in readily realisable listed
securities. The portfolio is well diversified in terms of both
sector and geography within its Asia Pacific remit.
-- The Company currently has no borrowings.
-- The expenses of the Company are reasonably predictable,
modest in comparison to the assets and adequately covered by
investment income.
The Board has also taken account of its strategy and investment
policy set out on page 17, and the principal risks and
uncertainties set out on pages 24 and 25. The Company operates a
robust risk control framework to manage those risks and
uncertainties.
The Board's assessment assumes that there is continuing demand
amongst shareholders for the investment trust structure and the
mandates which the Board gives its managers.
Based on the above, the Board confirms that it has a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the five year period
of this assessment.
Approval
This Strategic Report has been approved by the Board and signed
on its behalf by
Sarah Bates
Chair
26 April 2017
BOARD OF DIRECTORS
Sarah Bates - Chair
Dermot McMeekin - Senior Independent Director, Nomination and
Remuneration Committee Chairman
Susan Platts-Martin
Andrew Robson - Audit Committee Chairman
Diane Seymour-Williams
All the Directors are members of the Audit Committee and of the
Nomination and Remuneration Committee.
EXTRACTS FROM THE DIRECTORS' REPORT
Share capital
At 31 January 2017, there were 65,944,000 Ordinary shares of 25p
each in issue (2016: 65,944,000 Ordinary shares), of which 938,957
were held in treasury. At the 2016 AGM, the Directors were granted
authority to buy back up to a maximum of 9,817,593 Ordinary shares;
such authority will expire at the conclusion of the 2017 AGM when
the Directors will seek a renewal of the authority.
During the year to 31 January 2017, the Company repurchased a
total of 713,979 Ordinary shares to hold in treasury. At 31 January
2017, the unused authority to buy back Ordinary shares as granted
by shareholders at the Company's 2016 AGM, was 9,459,952 Ordinary
shares. The nominal value of Ordinary shares repurchased during the
period was GBP178,495. The total consideration for these
repurchases was GBP1,820,000.
Following the year end, the Company has repurchased a further
1,517,571 Ordinary shares to hold in treasury (as at 26 April
2017), with a nominal value of GBP379,393. The total consideration
for these repurchases was GBP4,544,675.
At 26 April 2017, there were 65,944,000 Ordinary shares of 25p
each in issue. 2,456,528 Ordinary shares were held in treasury,
representing 3.7% of the issued Ordinary share capital as at 31
January 2017. Each Ordinary share carries one vote, therefore, the
total votes in issue were 63,487,472.
The share purchases described here were performed in accordance
with the Company's stated policy of buying back shares when the
Company's shares are standing at a substantial and anomalous
discount to their NAV.
The impact to the NAV as a result of the buy-back activity for
the year ended 31 January 2017 was an enhancement of GBP305,099 or
0.47p per Ordinary share.
Results and dividend
Revenue return after taxation GBP'000
----------------------------------------- --------
Net revenue return after taxation 2,880
----------------------------------------- --------
Dividends paid/payable:
Interim dividend of 2.20p per share (1,433)
Final dividend of 2.55p per share (1,619)
----------------------------------------- --------
Residual revenue return after dividends (172)
----------------------------------------- --------
At 31 January 2017
Revenue reserve(1) 10,697
----------------------------------------- --------
(1) Revenue reserve excludes the final proposed dividend for the
year ended 31 January 2017 of GBP1,619,000, payable on 19 June
2017.
Going concern
The activities of the Company, together with the factors likely
to affect its future development, performance, financial position,
its cash flows and liquidity position are described in the
Strategic Report.
In addition, the Company's policies and processes for managing
its key financial risks are described in note 16 on pages 67 to
73.
The assets of the Company consist mainly of securities which are
readily realisable, and, as at 31 January 2017, the Company's total
assets less current liabilities were in excess of GBP217 million.
As a consequence, the Directors believe that the Company continues
to be well placed to manage its business risks successfully. After
making enquiries, the Directors have a reasonable expectation that
the Company has adequate resources to continue in operational
existence for the next year. Accordingly, they continue to adopt
the going concern basis in preparing this Annual Report and
Accounts.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
in respect of the Annual Report and financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors
have prepared the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), 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 net return or loss of the Company for that year. 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; and
-- 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 law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations, and for ensuring
that the Annual Report includes information required by the Listing
Rules of the Financial Conduct Authority.
The financial statements are published on www.witanpacific.com,
which is a website maintained by the Company's Executive Manager,
Witan Investment Services Limited. The Directors are responsible
for the maintenance and integrity of the Company's website. The
work carried out by the Independent Auditors does not involve
consideration of the maintenance and integrity of the website and
accordingly, the Independent Auditors accept no responsibility for
any changes that have occurred to the Annual Report and Accounts
since they were initially presented on the website. Legislation in
the United Kingdom governing the preparation and dissemination of
the financial statements may differ from legislation in other
jurisdictions.
The Directors consider that the Annual Report and Accounts as a
whole, are fair, balanced and understandable and provide the
necessary information for shareholders to assess the Company's
position and performance, business model and strategy.
Declaration
Each of the Directors, whose names and functions are listed on
pages 26 and 27, confirm that, to the best of their knowledge:
-- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and net return of the Company;
-- 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.
On behalf of the Board
Sarah Bates
Chair
26 April 2017
INCOME STATEMENT
for the year ended 31 January 2017
Year ended 31 January 2017 Year ended 31 January
2016
Revenue Capital Revenue Capital
Revenue Capital return return Total return return Total
note note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses) on investments
held at fair value
through profit or loss 8 - 48,841 48,841 - (13,038) (13,038)
Exchange losses 14 - (142) (142) - (123) (123)
Investment income 2 5,004 - 5,004 4,782 - 4,782
Management fees 3 (994) - (994) (834) - (834)
Other expenses 4 14 (754) (43) (797) (807) (35) (842)
------------------------------- ------- ------- ------- -------- -------- ------- -------- --------
Net return/(loss) on
ordinary activities
before taxation 3,256 (48,656) (51,912) 3,141 (13,196) (10,055)
Taxation on ordinary
activities 5 5 (376) - (376) (305) - (305)
------------------------------- ------- ------- ------- -------- -------- ------- -------- --------
Net return/(loss) on
ordinary activities
after taxation 2,880 48,656 51,536 2,836 (13,196) (10,360)
------------------------------- ------- ------- ------- -------- -------- ------- -------- --------
Basic and diluted return
per ordinary share
- pence 6 6 4.41 74.50 78.91 4.31 (20.03) (15.72)
------------------------------- ------- ------- ------- -------- -------- ------- -------- --------
All revenue and capital items in the above statement derive from
continuing operations. The total columns of this statement
represent the Income Statement of the Company. The revenue return
and capital return columns are supplementary to this and are
prepared under guidance published by the Association of Investment
Companies.
The Company had no other comprehensive income, recognised gains
or losses other than those disclosed in this statement.
There is no material difference between the net return/(loss) on
ordinary activities before taxation and the net return/(loss) for
the financial year stated above and their historical costs
equivalents.
The notes on pages 58 to 73 form an integral part of these
financial statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 January 2017
Called Share Capital
up share premium redemption Capital Revenue Shareholders'
capital account reserve reserves reserve funds
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
Year ended 31 January 2017
At 1 February
2016 16,486 5 41,085 101,926 10,886 170,388
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
Net return
on ordinary
activities
after taxation
and total comprehensive
income - - - 48,656 2,880 51,536
Purchase of
own shares 12 - - - (1,820) - (1,820)
Dividends paid 7 - - - - (3,069) (3,069)
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
At 31 January
2017 16,486 5 41,085 148,762 10,697 217,035
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
Year ended 31 January 2016
At 1 February
2015 16,486 5 41,085 115,636 11,068 184,280
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
Net return
on ordinary
activities
after taxation
and total comprehensive
income - - - (13,196) 2,836 (10,360)
Purchase of
own shares 12 - - - (514) - (514)
Dividends paid 7 - - - - (3,018) (3,018)
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
At 31 January
2016 16,486 5 41,085 101,926 10,886 170,388
-------------------------- ----- ---------- --------- ------------ ---------- --------- --------------
The notes on pages 58 to 73 form an integral part of these
financial statements.
BALANCE SHEET
as at 31 January 2017
2017 2016
Note GBP'000 GBP'000
------------------------------------ ----- --------- ---------
Fixed assets
Investments held at fair value
through profit or loss 8 210,745 166,251
------------------------------------ ----- --------- ---------
Current assets
Debtors 9 1,813 737
Cash at bank and in hand 5,983 5,412
------------------------------------ ----- --------- ---------
7,796 6,149
------------------------------------ ----- --------- ---------
Creditors
Amounts falling due within
one year 10 (1,506) (2,012)
------------------------------------ ----- --------- ---------
(1,506) (2,012)
------------------------------------ ----- --------- ---------
Net current assets 6,290 4,137
------------------------------------ ----- --------- ---------
Net assets 217,035 170,388
------------------------------------ ----- --------- ---------
Capital and reserves
Called up share capital 12 16,486 16,486
Share premium account 5 5
Capital redemption reserve 13 41,085 41,085
Capital reserves 14 148,762 101,926
Revenue reserve 14 10,697 10,886
------------------------------------ ----- --------- ---------
Total shareholders' funds 217,035 170,388
------------------------------------ ----- --------- ---------
Net asset value per Ordinary
share - pence (basic and diluted) 15 333.87 259.27
------------------------------------ ----- --------- ---------
The financial statements on pages 55 to 73 were authorised and
approved by the Board of Directors on 26 April 2017 and signed on
its behalf by:
Sarah Bates, Chair
The notes on pages 58 to 73 form an integral part of these
financial statements.
Company Registration Number 91798
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 January 2017
1 Significant accounting policies
(a) Basis of accounting
The financial statements have been prepared in accordance with
Generally Accepted Accounting Practice in the UK (UK GAAP),
including the Companies Act 2006, Financial Reporting Standard 102
("FRS 102") and with the Statement of Recommended Practice
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts'. They have also been prepared on a going concern
basis and on the assumption that approval as an investment trust
will continue to be granted. The accounting policies have been
applied consistently throughout the year.
The financial statements have been prepared under the historical
cost basis except for the measurement of fair value of investments.
In applying FRS 102, financial instruments have been accounted for
in accordance with Sections 11 and 12 of the standard. All of the
Company's operations are of a continuing nature.
As an investment fund, the Company has the option, which it has
taken, not to present a cash flow statement. A cash flow statement
is not required when an investment fund meets all the following
conditions: substantially all of the entity's investments are
highly liquid and are carried at market value; and where a
Statement of Changes in Equity is provided.
(b) Valuation of investments
All investments have been designated upon initial recognition as
fair value through profit or loss. This is done because all
investments are considered to form part of a group of financial
assets which is evaluated on a fair value basis, in accordance with
the Company's documented investment strategy, and information about
the grouping is provided internally on that basis.
Investments are recognised and de-recognised at trade date where
a purchase or sale is under a contract whose terms require delivery
within the timeframe established by the market concerned, and are
measured initially at fair value. Subsequent to initial
recognition, investments are valued at fair value through profit or
loss.
Listed investments have been designated by the Board as held at
fair value through profit or loss and accordingly are valued at
fair value, deemed to be bid market prices for quoted investments.
Investments included in Level 2 under the Fair Value Hierarchy
disclosures in note 16(g) consist of unlisted reportable funds
within the portfolio, these being Gavekal Asian Opportunities
UCITS, Aberdeen Global Indian Equity UCITS and Aberdeen Global
China A Equity UCITS. These are priced daily using their net asset
value, which is the fair value.
Changes in the fair value of investments held at fair value
through profit or loss and gains and losses on disposal are
recognised in the Income Statement as "Gains or losses on
investments held at fair value through profit or loss". Also
included within this caption are transaction costs in relation to
the purchase or sale of investments, including the difference
between the purchase price of an investment and its bid price at
the date of purchase. All purchases and sales are accounted for on
a trade date basis.
(c) Foreign currency
The results and financial position of the Company are expressed
in pounds sterling, which is the functional and presentation
currency of the Company and rounded to the nearest GBP'000.
The Directors, having regard to the currency of the Company's
share capital and the predominant currency in which the Company
operates, have determined the functional currency to be pounds
sterling. The results and financial position of the Company are
therefore expressed in pounds sterling.
Transactions recorded in foreign currencies during the year are
translated into sterling at the appropriate daily exchange rates.
Monetary assets and liabilities denominated in overseas currencies
(including equity investments) at the year end date are translated
into sterling at the exchange rates ruling at that date.
Any gains or losses on the translation of foreign currency
balances, whether realised or unrealised, are taken to the capital
or revenue return of the Income Statement, depending on whether the
gain or loss is of a capital or revenue nature.
(d) Income
Income from equity shares is brought into the revenue return of
the Income Statement (except where, in the opinion of the
Directors, its nature indicates it should be recognised as capital
return) on the ex-dividend date, or where no ex-dividend date is
quoted, when the Company's right to receive payment is
established.
Dividends receivable are accounted for on the basis of gross
income actually receivable, without adjustment for the tax credit
attaching to the dividends.
Where the Company has elected to receive its dividends in the
form of additional shares rather than in cash, the amount of cash
dividend foregone is recognised as income. Any excess in the value
of the shares received over the amount of the cash dividend is
recognised in the capital reserve.
Any bank interest or underwriting commission is accounted for on
an accruals basis.
(e) Expenses including finance costs
Finance costs are accounted for on an accruals basis. Finance
costs are fully allocated to revenue.
Management fee rebates of the fee on Gavekal Asian Opportunities
UCITS are credited against management fees paid.
All expenses are charged to the revenue return of the Income
Statement, with the exception of the following which are charged to
the capital return of the Income Statement:
-- performance fees/repayments insofar as they relate to capital performance;
-- expenses incurred buying back the Company's own shares; and
-- expenses incidental to the acquisition or disposal of investments.
All expenses are accounted for on an accruals basis.
(f) Taxation
The tax effect of different items of expenditure is allocated
between capital and revenue on the marginal basis using the
Company's effective rate of corporation taxation for the accounting
period.
Deferred taxation is provided on all timing differences that
have originated but not been reversed by the year end date other
than those differences regarded as permanent. 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
reversal of timing differences can be deducted. Any liability to
deferred tax is provided at the average rate of tax expected to
apply. Deferred tax assets and liabilities are not discounted to
reflect the time value of money.
(g) Bank borrowings
During 2015, the Company became authorised as a Small Registered
UK AIFM which requires there to be no gearing as long as it remains
subject to this part of the regulatory regime.
(h) Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business being investment business.
(i) Repurchase of Ordinary shares
The cost of repurchasing Ordinary shares including related stamp
duty and transaction costs is taken directly to equity and dealt
with in the Statement of Changes in Equity. Share repurchase
transactions are accounted for on a trade date basis.
(j) Capital reserves
Capital reserve arising on investments sold
The following transactions are accounted for in this
reserve:
-- gains and losses on the realisation of fixed asset investments;
-- realised exchange differences of a capital nature;
-- costs of professional advice, including irrecoverable VAT,
relating to the capital structure of the Company;
-- other capital charges and credits charged or credited to this
account in accordance with the above policies; and
-- cost of purchasing Ordinary share capital.
Capital reserve arising on investments held
The following transactions are accounted for in this
reserve:
-- increase and decrease in the valuation of investments held at year end; and
-- unrealised exchange differences of a capital nature.
(k) Dividends payable
In accordance with FRS 102, final dividends are not accrued in
the financial statements unless they have been approved by
shareholders before the year end date. Interim dividends are
recorded in the financial statements when they are paid. Dividends
payable to equity shareholders are recognised in the Statement of
Changes in Equity when they have been approved by shareholders in
the case of a final dividend, or paid in the case of an interim
dividend and become a liability of the Company.
(l) Critical accounting estimates
The preparation of financial statements requires the Directors
to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources.
The critical estimates and assumptions relate, in particular, to
the calculation of performance fees, as summarised in note 3.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
2 Investment income
2017 2016
GBP'000 GBP'000
-------------------------------------- --------- ---------
Income from investments held at
fair value through profit and loss:
Overseas dividends 4,564 4,076
UK dividends 209 363
Scrip dividends 230 334
-------------------------------------- --------- ---------
Total dividend income 5,003 4,773
-------------------------------------- --------- ---------
Other income:
Bank interest 1 6
Underwriting commission - 3
-------------------------------------- --------- ---------
Total other income 1 9
-------------------------------------- --------- ---------
Total income 5,004 4,782
-------------------------------------- --------- ---------
3 Management and performance fees
2017 2016
GBP'000 GBP'000
-------------------------------- --------- --------
Charged to the revenue return:
Management fees(1) 1,150 980
Management fee rebates(2) (156) (146)
-------------------------------- --------- --------
Total management fees 994 834
-------------------------------- --------- --------
Charged to the capital return:
Performance fees - -
-------------------------------- --------- --------
(1) The management fees stated above include fees paid to Witan
Investment Services Limited of GBP250,000 (2016: GBP224,000).
(2) This figure relates to a rebate of management fees
associated with the Gavekal Asian Opportunities UCITS.
Further details of management fees can be found in note 17.
4 Other expenses
2017 2016
GBP'000 GBP'000
--------------------------------------------- ------- -------
Auditors' remuneration:
- for audit services 32 31
- for non-audit services - tax(1) 14 5
Custody fees 81 65
Directors' emoluments: fees for services
to the Company 136 143
Directors' expenses and travel(2) 1 67
Marketing(3) 174 202
Printing and postage 38 50
Secretarial and Administration fees(4) 138 131
Directors' and Officers' liability insurance 7 7
Registrars' fees 26 25
Sundry expenses 107 81
--------------------------------------------- ------- -------
754 807
--------------------------------------------- ------- -------
(1) Charges for other services provided by the Independent
Auditors in the year ended 31 January 2017 relate to a review of
the 2015 tax computation and withholding taxes suffered on overseas
dividend income between 1 February 2010 and 31 January 2017.
(2) Costs in 2016 relate primarily to the costs of a Board visit
to the Asia-Pacific region, which is conducted every two to three
years to meet our portfolio managers and other industry
participants.
(3) The marketing expense stated above includes fees paid to
Witan Investment Services Limited of GBP75,000 (2016:
GBP75,000).
(4) Secretarial fees includes iXBRL filing by Capita.
Additional information concerning transactions with Directors
and Directors' fees can be found in the Directors' Remuneration
Report on pages 45 to 48.
5 Taxation on ordinary activities
a) Analysis of tax charge for the year
2017 2017 2017 2016 2016 2016
Revenue Capital Total Revenue Capital Total
return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------- ------- ------- ------- ------- -------
Overseas taxation 376 - 376 305 - 305
--------------------- ------- ------- ------- ------- ------- -------
Taxation on ordinary
activities 376 - 376 305 - 305
--------------------- ------- ------- ------- ------- ------- -------
(b) Factors affecting the current tax charge for the year
The UK corporation tax rate is 20% (2016 - effective rate of
20.167%). The tax charge for the year is lower than the corporation
tax rate. The differences are explained below:
2017 2017 2017 2016 2016 2016
Revenue Capital Total Revenue Capital Total
return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------- ------- ------- ------- -------- --------
Return/(loss) on ordinary
activities before tax 3,256 48,656 51,912 3,141 (13,196) (10,055)
-------------------------------- ------- ------- ------- ------- -------- --------
Corporation tax at 20.00%
(2016: 20.17%) 651 9,731 10,382 634 (2,662) (2,028)
Effects of:
Non-taxable overseas dividends (895) - (895) (862) - (862)
Non-taxable UK dividends (56) - (56) (73) - (73)
Overseas taxation 376 - 376 305 - 305
Disallowed expenses 14 - 14 7 7 14
Income taxable in different
years (16) - (16) - - -
Tax effect of expenses double
taxation relief (3) - (3) - - -
Excess management expenses
and finance costs 305 - 305 294 25 319
Net capital returns not subject
to tax(1) - (9,731) (9,731) - 2,630 2,630
-------------------------------- ------- ------- ------- ------- -------- --------
Current tax charge for the
year 376 - 376 305 - 305
-------------------------------- ------- ------- ------- ------- -------- --------
(1) These items are not subject to corporation tax within an
investment trust company provided the Company obtains approval from
HM Revenue & Customs ("HMRC") that the requirements of Sections
1158 - 1159 of the Corporation Tax Act 2010 have been met.
(c) Deferred taxation
The Company has not recognised a deferred tax asset of
GBP2,244,000 (2016: GBP2,330,000) arising as a result of excess
management expenses and interest paid. These expenses will only be
utilised if the Company has profits chargeable to corporation tax
in the future. It is unlikely that the Company will generate
sufficient taxable profits in the future to utilise these expenses
and deficits and therefore no deferred tax asset has been
recognised
(d) Protective claim
Witan Pacific has filed protective claims with HMRC and the UK
High Court in order to seek recovery of potentially overpaid taxes
from HMRC in relation to the UK's pre-2009 dividend tax rules. The
claims cover historic periods in which Witan Pacific paid UK tax
under Schedule D Case V. In such periods, Witan Pacific is seeking
recovery of the tax paid together with interest on a compound
basis. No tax or related interest recovery has been accrued or
recognised as a contingent asset, as the outcome of lead cases in
this area is expected to remain uncertain for some time.
6 Return/(loss) per Ordinary share
The total return per Ordinary share is based on the net gain
attributable to the Ordinary shares of GBP51,531,000 (2016: loss of
GBP10,360,000) and on 65,308,210 Ordinary shares (2016: 65,891,245)
being the weighted average number of shares in issue during the
year.
The total return can be further analysed as follows:
2017 2016
GBP'000 GBP'000
------------------------------------ ---------- ----------
Revenue return 2,880 2,836
Capital return 48,656 (13,196)
------------------------------------ ---------- ----------
Total return 51,536 (10,360)
------------------------------------ ---------- ----------
Weighted average number of Ordinary
shares 65,308,210 65,891,245
Revenue return per Ordinary share
- pence 4.41 4.31
Capital return per Ordinary share
- pence 74.50 (20.03)
------------------------------------ ---------- ----------
Total return per Ordinary share -
pence 78.91 (15.72)
------------------------------------ ---------- ----------
The Company does not have any dilutive securities.
7 Dividends
2017 2016
Dividends on Ordinary shares Record date Payment date GBP'000 GBP'000
-------------------------------- ---------------- ----------------- ------- -------
Final dividend (2.45p) for
the year ended
31 January 2015 22 May 2015 19 June 2015 - 1,615
Interim dividend (2.15p) for
the year ended 31 January 2016 9 October 2015 19 October 2015 - 1,416
Final dividend (2.50p) for
the year ended
31 January 2016 20 May 2016 17 June 2016 1,636 -
Interim dividend (2.20p) for 14 October
the year ended 31 January 2017 2016 24 October 2016 1,433 -
Refund of unclaimed dividends - (13)
--------------------------------------------------------------------- ------- -------
3,069 3,018
------------------------------------------------------------------- ------- -------
The proposed final dividend for the year ended 31 January 2017
is subject to approval by shareholders at the AGM and has not been
included as a liability in these financial statements.
The total dividend payable in respect of the financial year
which meets the requirements of Section 1158 of the Corporation Tax
Act 2010 is set out below.
2017 2016
GBP'000 GBP'000
------------------------------------------------------ ------- -------
Revenue available for distribution by way of dividend
for the year 2,880 2,836
Interim dividend 2.20p (2016: 2.15p) for the year
ended 31 January 2017 (1,433) (1,416)
Proposed final dividend of 2.55p (2016: 2.50p) for
the year ended 31 January 2017
(based on 63,487,472 Ordinary shares in issue at
26 April 2017) (1,619) (1,637)
Refund of unclaimed dividends - 13
------------------------------------------------------ ------- -------
Shortfall for the year (172) (204)
------------------------------------------------------ ------- -------
All current year income has been distributed, the shortfall of
GBP172,000 has been transferred from the revenue reserve.
8 Investments held at fair value through profit or loss
2017 2016
GBP'000 GBP'000
------------------------------------------------ -------- --------
Cost at 31 January 2016 137,263 132,637
Investment holding gains at 31 January 2016 28,988 45,983
------------------------------------------------ -------- --------
Valuation at 31 January 2016 166,251 178,620
------------------------------------------------ -------- --------
Movements in the year:
Purchases at cost 52,336 37,285
Sales - proceeds (56,683) (36,616)
- gains on sales 11,451 3,957
Increase/(decrease) in investment holding gains 37,390 (16,995)
------------------------------------------------ -------- --------
Valuation at 31 January 2017 210,745 166,251
------------------------------------------------ -------- --------
Cost at 31 January 2017 144,367 137,263
Investment holding gains at 31 January 2017 66,378 28,988
------------------------------------------------ -------- --------
210,745 166,251
------------------------------------------------ -------- --------
Purchase transaction costs for the year ended 31 January 2017
were GBP75,000 (2016: GBP64,000). Sale transaction costs for the
year ended 31 January 2017 were GBP82,000 (2016: GBP56,000). These
comprise mainly stamp duties and commission.
Gains on investments
2017 2016
GBP'000 GBP'000
--------------------------------------------------- ------- --------
Gains on investments sold based on historical
cost 11,451 3,957
Less: amounts recognised as unrealised in previous
years (3,465) (6,434)
--------------------------------------------------- ------- --------
Gains/(losses) based on carrying value at previous
balance sheet date 7,986 (2,477)
Net movement in investment holding gains in the
year 40,855 (10,561)
--------------------------------------------------- ------- --------
Gains/(losses) on investments held at fair value
through profit or loss 48,841 (13,038)
--------------------------------------------------- ------- --------
Substantial interests
At 31 January 2017, the Company held more than 3% of one class
of the share capital of one of the undertakings held as investments
(2016: one).
This consisted of the holding in the Gavekal Asian Opportunities
UCITS and was 7.50% at 31 January 2017 (31 January 2016:
4.97%).
All investments are quoted on recognised stock exchanges or are
UCITS Funds with published net asset values.
9 Debtors
2017 2016
GBP'000 GBP'000
------------------------------- ------- -------
Sales for future settlement 1,303 352
Other debtors 73 27
Prepayments and accrued income 437 358
1,813 737
------------------------------- ------- -------
10 Creditors: amounts falling due within one year
2017 2016
Other GBP'000 GBP'000
-------------------------------- ------- -------
Purchases for future settlement 1,006 1,517
Accruals 500 495
-------------------------------- ------- -------
1,506 2,012
-------------------------------- ------- -------
11 Provisions for liabilities and charges
At the year end, a provision of GBPnil (2016: GBPnil) has been
made for performance fees payable to Aberdeen Asset Managers
Limited ("Aberdeen").
The above represent the estimated performance fees payable for
the three-year performance fee periods ending 31 May 2017, 31 May
2018 and 31 May 2019. Any accrual is based on actual performance to
31 January 2017 and the assumption that Aberdeen performs in line
with the benchmark from 31 January 2017 to the end of each fee
period. Changes in the level of accrual for future performance
periods could arise for one of the three principal reasons: a
change in the degree of relative performance, the time elapsed
(since this would increase the proportion of the rolling three-year
performance period to which the performance calculation would be
applied) or the termination of Aberdeen's contract.
12 Called up share capital
2017 2017 2016 2016
Equity share capital Number GBP'000 Number GBP'000
----------------------------- ---------- ------- ---------- -------
Ordinary shares of 25p each:
Issued and fully paid 65,005,043 16,251 65,719,022 16,430
Held in treasury 938,957 235 224,978 56
----------------------------- ---------- ------- ---------- -------
65,944,000 16,486 65,944,000 16,486
----------------------------- ---------- ------- ---------- -------
In the year ended 31 January 2017, 713,979 Ordinary shares were
purchased to be held in treasury at a cost of GBP1,820,000. In the
year ended 31 January 2016, there were 224,978 shares purchased to
be held in treasury at a total cost of GBP514,000.
13 Capital redemption reserve
2017 2016
GBP'000 GBP'000
------------------------ ------- -------
Balance brought forward 41,085 41,085
Balance carried forward 41,085 41,085
------------------------ ------- -------
14 Reserves
Capital reserve
Capital reserve arising on Revenue
arising on investments investments Capital reserve reserve*
sold* held total total
GBP'000 GBP'000 GBP'000 GBP'000
Balance brought forward 72,934 28,992 101,926 10,886
Movement during the year:
Gains on investments sold 7,986 - 7,986 -
Transfer on disposal of investments 3,465 (3,465) - -
Increase in investment holding
gains - 40,855 40,855 -
Exchange losses (142) - (142) -
Other capital charges (43) - (43) -
Purchase of own shares (1,820) - (1,820) -
Revenue return for the year - - - 2,880
Dividends paid - - - (3,069)
------------------------------------ ----------------------- --------------- --------------- ---------
Balance carried forward 82,380 66,382 148,762 10,697
------------------------------------ ----------------------- --------------- --------------- ---------
* Distributable reserve.
Under the terms of the Company's Articles of Association, sums
standing to the credit of Capital Reserves are available for
distribution only by way of redemption, purchase of any of the
Company's own shares or by way of dividend. The Company may only
distribute accumulated "realised" profits.
15 Net asset value per Ordinary share
Net asset values are based on net assets of GBP217,035,000
(2016: GBP170,388,000) and on 65,005,043 (2016: 65,719,022)
Ordinary shares in issue at the year end excluding shares held in
treasury.
16 Risk management policies and procedures
As an investment trust, the Company invests in equities and
other investments for the long term so as to achieve its objective
as stated on page 1. In pursuing its investment objective, the
Company is exposed to a variety of financial risks that could
result in either a reduction in the Company's net assets or a
reduction in the revenue available for distribution by way of
dividends.
These financial risks: market risk (comprising market price
risk, currency risk and interest rate risk), liquidity risk and
credit risk, and the Directors' approach to the management of these
risks, are set out below. The Board of Directors and the Executive
Manager coordinate the Company's risk management. The overall risk
management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the
Company's financial performance.
The Board determines the objectives, policies and processes for
managing the risk that are set out below, under the relevant risk
category. The policies for the management of each risk have not
changed from the previous accounting period.
(a) Market Risk
The fair value of an instrument held by the Company may
fluctuate due to changes in market prices. Market risk comprises -
market price risk (see note 16(b)), currency risk (see note 16(c))
and interest rate risk (see note 16(d)). The portfolio managers
assess the exposure to market risk when making each investment
decision, and monitor the overall level of market risk on the whole
of the investment portfolio on an ongoing basis.
(b) Market price risk
Market price risks (i.e. changes in market prices other than
those arising from interest rate or currency risk) may affect the
value of the quoted investments.
Management of the risk
The Board of Directors manages the risks inherent in the
investment portfolios by ensuring full and timely access to
relevant information from the portfolio managers and through
diversification at the stock level and of management style. The
Board meets regularly and at each meeting reviews investment
performance. The Board monitors the portfolio managers' compliance
with the Company's objectives, and is directly responsible for
oversight of the investment strategy and asset allocation.
The market value of quoted investments at 31 January 2017 was
GBP210,745,000 (2016: GBP166,251,000).
Concentration of exposure to market price risk
A geographical analysis of the Company's investment portfolio is
shown on page 11. This shows the significant amounts invested in
China/Hong Kong, Japan, South Korea and Singapore. Accordingly,
there is a concentration of exposure to those countries, though it
is recognised that an investment's country of domicile or of
listing does not necessarily equate to its exposure to the economic
conditions in that country.
Market price risk sensitivity
The following table illustrates the sensitivity of the return
after taxation for the year and the equity to an increase or
decrease of 25% (2016: 25%) in the fair value of the Company's
investments. This level of change is considered to be reasonably
possible based on observation of current market conditions. The
sensitivity analysis is based on the Company's investments at each
year end date and the investment management fees for the year ended
31 January 2017, with all other variables held constant.
2017 2017 2016 2016
Increase Decrease Increase Decrease
in fair in fair in fair in fair
value value value value
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ---------- ---------- ---------- ----------
Income Statement - return after
tax
Revenue return (255) 255 (206) 206
Capital return 52,686 (52,686) 41,563 (41,563)
---------------------------------- ---------- ---------- ---------- ----------
Impact on total return after tax
for the year and net assets 52,431 (52,431) 41,357 (41,357)
---------------------------------- ---------- ---------- ---------- ----------
(c) Currency risk
Most of the Company's assets, liabilities and income are
denominated in currencies other than sterling (the Company's
functional currency, and in which it reports its results). As a
result, movements in exchange rates may affect the sterling value
of those items.
Management of the risk
The portfolio managers monitor the Company's exposure to foreign
currencies and report to the Board on a regular basis. The
Executive Manager monitors 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 exchange rates to which
the Company's assets, liabilities, income and expenses are
exposed.
Foreign currency exposure
The table below shows, by currency, the split of the Company's
non-sterling monetary assets and investments that are denominated
in currencies other than sterling. The exposure is shown on a
direct basis and not on a look-through basis.
AUS$ HK$ Yen SG$ Other
2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ------- ------- ------- ------- -------
Debtors (due from brokers, dividends
and other income receivable) - 117 311 959 322
Cash at bank and in hand - - - - 52
Creditors (due to brokers, accruals
and other creditors) - (704) (98) - (204)
----------------------------------------- ------- ------- ------- ------- -------
Total foreign currency exposure on
net monetary items - (587) 213 959 170
Investments at fair value through profit
or loss 3,023 44,921 57,912 19,200 59,121
----------------------------------------- ------- ------- ------- ------- -------
Total net foreign currency exposure 3,023 44,334 58,125 20,159 59,291
----------------------------------------- ------- ------- ------- ------- -------
AUS$ HK$ Yen SG$ Other
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ------- ------- ------- ------- -------
Debtors (due from brokers, dividends
and other income receivable) - 43 232 - 406
Cash at bank and in hand - - - - 5
Creditors (due to brokers, accruals
and other creditors) - (14) (1,503) - -
----------------------------------------- ------- ------- ------- ------- -------
Total foreign currency exposure on
net monetary items - 29 (1,271) - 411
Investments at fair value through profit
or loss 4,252 34,350 46,090 14,493 46,101
----------------------------------------- ------- ------- ------- ------- -------
Total net foreign currency exposure 4,252 34,379 44,819 14,493 46,512
----------------------------------------- ------- ------- ------- ------- -------
Foreign currency sensitivity
The sensitivity of the total return after tax for the year and
the net assets in regard to the movements in the Company's foreign
currency financial assets and financial liabilities and the
exchange rates for the top four risk currencies are set out in the
table below:
It assumes the following changes in exchange rates:
GBP/US$ +/- 15% (2016: 15%)
GBP/HK$ +/- 15% (2016: 15%)
GBP/Yen +/- 15% (2016: 15%)
GBP/SG$ +/- 15% (2016: 15%)
GBP/Other +/- 15% (2016: 15%)
These percentages have been determined based on the average
market volatility in exchange rates in the previous five years and
using the Company's foreign currency financial assets and financial
liabilities held at each year end date.
If sterling had strengthened against the currencies shown, this
would have had the following effect:
2017
US$ HK$ Yen SG$ Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------- ------- ------- ------- -------
Income Statement - return
after tax
Revenue return (58) (116) (100) (65) (130)
Capital return (2,304) (5,859) (7,554) (2,504) (5,802)
-------------------------- ------- ------- ------- ------- -------
Impact on total return
after tax for the year
and net assets (2,362) (5,975) (7,654) (2,569) (5,932)
-------------------------- ------- ------- ------- ------- -------
2016
US$ HK$ Yen SG$ Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------- ------- ------- ------- -------
Income Statement - return
after tax
Revenue return (83) (104) (84) (70) (130)
Capital return (2,147) (4,480) (6,012) (1,890) (4,421)
-------------------------- ------- ------- ------- ------- -------
Impact on total return
after tax for the year
and net assets (2,230) (4,584) (6,096) (1,960) (4,551)
-------------------------- ------- ------- ------- ------- -------
If sterling had weakened against the currencies shown, this
would have had the following effect:
2017
US$ HK$ Yen SG$ Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------- ------- ------- ------- -------
Income Statement - return
after tax
Revenue return 79 156 135 89 175
Capital return 3,118 7,927 10,220 3,388 7,849
-------------------------- ------- ------- ------- ------- -------
Impact on total return
after tax for the year
and net assets 3,197 8,083 10,355 3,477 8,024
-------------------------- ------- ------- ------- ------- -------
2016
US$ HK$ Yen SG$ Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------- ------- ------- ------- -------
Income Statement - return
after tax
Revenue return 112 141 114 95 175
Capital return 2,905 6,062 8,134 2,558 5,980
-------------------------- ------- ------- ------- ------- -------
Impact on total return
after tax for the year
and net assets 3,017 6,203 8,248 2,653 6,155
-------------------------- ------- ------- ------- ------- -------
In the opinion of the Directors, the above sensitivity analyses
are not representative of the year as a whole, since the level of
exposure changes frequently.
(d) Interest rate risk
Interest rate movements may affect the interest payable on the
Company's variable rate borrowings where applicable.
Management of the risk
The majority of the Company's financial assets are non-interest
bearing. As a result, the Company's financial assets are not
subject to significant amounts of risk due to fluctuations in the
prevailing levels of market interest rates.
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.
Interest rate exposure
The exposure at 31 January of financial assets and financial
liabilities to interest rate risk is shown by reference to floating
interest rates - when the interest rate is due to be reset.
2017 2016
Within 2017 Within 2016
one year Total one year Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- ------- -------- -------
Exposure to floating interest
rates:
Cash at bank and in hand 5,983 5,983 5,412 5,412
------------------------------ -------- ------- -------- -------
Total net exposure to
interest rates 5,983 5,983 5,412 5,412
------------------------------ -------- ------- -------- -------
The Company does not have any fixed interest rate exposure at 31
January 2017 (2016: nil). Interest receivable, and finance costs
are at the following rates:
-- Interest received on cash balances, or paid on bank
overdrafts, is at a margin under LIBOR or its foreign currency
equivalent (2016: same).
Interest rate sensitivity
The Company is not materially, directly exposed to changes in
interest rates as the majority of financial assets are equity
shares which do not pay interest. Therefore, the Company's total
return and net assets are not materially affected by changes in
interest rates.
(e) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the
Company's assets are investments in quoted equities that are
readily realisable.
The Board gives guidance to the portfolio managers as to the
maximum amount of the Company's resources that should be invested
in one company.
Liquidity risk exposure
The remaining contractual maturities of the financial
liabilities at 31 January 2017, based on the earliest date on which
payment can be required are as follows:
More than More than
3 months, 3 months,
not more not more
3 months than one More than 2017 3 months than one More than 2016
or less year one year Total or less year one year Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- ---------- --------- ------- -------- ---------- --------- -------
Creditors: amounts
falling due within
one year
Amounts due to brokers
and accruals 1,511 - - 1,511 2,012 - - 2,012
----------------------- -------- ---------- --------- ------- -------- ---------- --------- -------
1,511 - - 1,511 2,012 - - 2,012
----------------------- -------- ---------- --------- ------- -------- ---------- --------- -------
(f) Credit risk
The failure of the counterparty to a transaction to discharge
its obligations under that transaction could result in the Company
suffering a loss.
Management of the risk
The risk is not significant, and is managed as follows:
-- investment transactions are carried out with a large number
of brokers, whose credit-standing is reviewed periodically by the
portfolio managers;
-- Cash at bank and in hand are held only with the Company's
custodian, JP Morgan. None of the Company's financial assets have
been pledged as collateral.
(g) Fair values of financial assets and financial
liabilities
Investments are held at fair value through profit or loss. All
liabilities are held in the Balance Sheet at a reasonable
approximation of fair value.
Financial assets and financial liabilities are either carried in
the Balance Sheet at their fair value (investments) or the Balance
Sheet amount is a reasonable approximation of fair value (due from
brokers, dividends and interest receivable, due to brokers,
accruals, and cash at bank).
Fair value hierarchy disclosures
FRS 104 requires an entity to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The Company has early
adopted Amendments to FRS 102 - Fair value hierarchy disclosures
issued by the Financial Reporting Council in March 2016. The fair
value hierarchy shall have the following classifications:
-- Level 1: The unadjusted quoted prices in an active market for
identical assets or liabilities that the entity can access at the
measurement date.
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable (i.e. developed using market data) for
the asset.
-- Level 3: Inputs are unobservable (i.e. for which market data
is unavailable) for the asset or liability.
The financial assets and liabilities measured at fair value in
the Balance Sheet are grouped into the fair value hierarchy at the
reporting date as follows:
Financial assets and financial
liabilities at fair value Level 1 Level 2 Level 3 Total
through profit or loss GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- --------
At 31 January 2017
------------------------------- -------- -------- -------- --------
Equity investments 178,438 32,307 - 210,745
------------------------------- -------- -------- -------- --------
Total 178,438 32,307 - 210,745
------------------------------- -------- -------- -------- --------
Financial assets and financial
liabilities at fair value Level 1 Level 2 Level 3 Total
through profit or loss GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- --------
At 31 January 2016
------------------------------- -------- -------- -------- --------
Equity investments 141,375 24,876 - 166,251
------------------------------- -------- -------- -------- --------
Total 141,375 24,876 - 166,251
------------------------------- -------- -------- -------- --------
The valuation techniques used by the Company are explained in
the accounting policies in note 1(b).
There were no transfers during the year between Level 1 and
Level 2.
Investments classified as Level 2 are Gavekal Asian
Opportunities UCITS, Aberdeen Global Indian Equity UCITS and
Aberdeen Global China A Equity UCITS (2016: Gavekal Asian
Opportunities UCITS and Aberdeen Global Indian Equity UCITS).
(h) 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 income and capital return to its equity shareholders.
The Company's capital at 31 January 2017 comprises its equity
share capital and reserves that are shown in the Balance Sheet at a
total of GBP217,035,000 (2016: GBP170,388,000).
The Board with assistance of the Executive Manager monitors and
reviews the broad structure of the Company's capital on an ongoing
basis.
This review includes:
-- the need to buy back equity shares, either for cancellation
or to hold in treasury, which takes account of the difference
between the net asset value per share and the share price (i.e. the
level of share price discount or premium);
-- 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 preceding accounting period. The
Company is subject to several externally imposed capital
requirements:
-- as a public company, the Company has a minimum share capital of GBP50,000; and
-- in order to be able to pay dividends out of profits available
for distribution by way of dividends, the Company has to be able to
meet one of the two capital restriction tests imposed on investment
companies by company law. These requirements are unchanged since
last year, and the Company has complied with them.
17 Transactions with the managers
On 27 May 2005, the Company appointed Witan Investment Services
Limited as Executive Manager and Aberdeen Asset Managers Limited
and Nomura Asset Management U.K. Limited as portfolio managers. In
April 2012, the Company appointed Matthews International Capital
Management LLC and Gavekal Capital Limited to replace Nomura. Each
Management Agreement can be terminated at one month's notice in
writing. Each portfolio manager is entitled to a base management
fee, at rates between 0.20% and 0.75% per annum, calculated
according to the value of the assets under their management.
During the year ended 31 January 2017, portfolio management fees
paid, net of management fee rebates of GBP156,000 (2016:
GBP146,000), amounted to GBP994,000 (2016: GBP834,000). At the year
end, GBP253,000 (2016: GBP239,000) was due to the portfolio
managers, net of management fee rebates of GBP14,000 (2016:
GBP12,000).
Aberdeen is also entitled to a performance fee based on relative
outperformance against the MSCI AC Asia Pacific Index (sterling
adjusted total return). The performance fee is calculated according
to investment performance over a three year rolling period and is
payable at a rate of 15% of the calculated outperformance relative
to the benchmark (subject to a cap).
Any provisions included in the Income Statement at 31 January
2017, are calculated on the actual performance of Aberdeen relative
to the benchmark index. The provision assumes that both the
benchmark index remains unchanged and that Aberdeen's assets under
management perform in line with the benchmark index to 31 May 2017,
being the date the next performance period ends. In addition,
provisions have been made for the performance periods ending 31 May
2018 and 31 May 2019, on the assumption that Aberdeen performs in
line with the benchmark to each period end. The total of these
provisions amounts to GBPnil (2016: GBPnil).
18 Subsequent events
Since the year end the Company has bought back 1,517,571
Ordinary shares at a cost of GBP4,544,675.
NON-STATUTORY ACCOUNTS
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 January 2017 but
is derived from those accounts. Statutory accounts for the year
ended 31 January 2017 will be delivered to the Registrar of
Companies in due course. The Auditors have reported on those
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditors drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditors' report can be found in the
Company's full Annual Report and Accounts on the Company's website
at www.witanpacific.com.
The audited annual financial report will be available to
shareholders shortly. Copies may be obtained during normal business
hours from the Company's registered office via the Company
Secretary, Capita Company Secretarial Services Limited, 1(st)
Floor, 40 Dukes Place, London EC3A 7NH and are available on the
Company's website at www.witanpacific.com.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection at the NSM, which is situated at
www.morningstar.co.uk/uk/nsm
The content of the Company's web pages and the content of any
website or pages which may be accessed through hyperlinks on the
Company's web pages or this announcement is neither incorporated
into nor forms part of the above announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEFFAMFWSESL
(END) Dow Jones Newswires
April 27, 2017 02:01 ET (06:01 GMT)
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