Annual Financial Report
LONDON STOCK EXCHANGE ANNOUNCEMENT
Pacific Assets Trust plc
Audited Results for the Year Ended 31 January 2014
The Company's annual report will be posted to shareholders on 22 April 2014.
Members of the public may obtain copies from Frostrow Capital LLP. 25
Southampton Buildings, London WC2A 1AL or from the Company's website at:
www.pacific-assets.co.uk
The Company's annual report for the year ended 31 January 2014 has been
submitted to the UK Listing Authority, and will shortly be available for
inspection on the National Storage Mechanism (NSM):
www.hemscott.com/nsm.do
(Documents will usually be available for inspection within two business days of
this notice being given)
Mark Pope, Frostrow Capital LLP, Company Secretary - 0203 008 4913
14 April 2014
Strategic Report / Company Performance
Financial Highlights
31 Jan 31 Jan
2014 2013
Share price total return* +0.3% +30.9%
Net asset value per share total return* +0.9% +24.8%
MSCI All Country Asia ex Japan Index (total return, -6.8% +12.1%
sterling adjusted)*
Dividend per share 2.6p 2.6p
Discount of share price to net asset value per share 8.7% 8.2%
* Source: Morningstar
Performance Summary
As at As at
31 31
January January
2014 2013 % Change
Shareholders' funds £186.3m £187.6m -0.7
Market capitalisation £170.1m £172.4m -1.3
Discount of share price to net asset value per 8.7% 8.2% -
share
One year One year
to to
31 31
January January
Total Return 2014 2013
Share price (total return) +0.3% +30.9% n/a
Net asset value per share (total return) +0.9% +24.8% n/a
MSCI All Country Asia ex Japan Index (total -6.8% +12.1% n/a
return, sterling adjusted)
Revenue and Dividend
Revenue return per share 2.5p 2.6p -3.8
Dividend per share 2.6p 2.6p -
Ongoing Charges Ratio
Ongoing charges ratio (excluding performance fee) 1.3% 1.3% n/a
*â€
Performance fee 0.7% 0.4% n/a
Ongoing charges ratio (including performance fee) 2.0% 1.7% n/a
Peer group average ongoing charges ratio (ex 1.1% 1.2% n/a
performance fee)*
* Source: Morningstar
†See glossary
Year's Highs/Lows High Low
Net asset value per share 174.6p 150.9p
Share price 167.1p 143.0p
Premium/(discount) of share price to net asset 4.5% (10.7)%
value per share‡
‡ Discount high - Narrowest discount/highest premium in year; Discount low -
Widest discount in year
Source: Morningstar
Ten Year Record
Discount
of
share
price
to net Dividend
asset
funds value per Share value per per Ongoing
31 January £'000 share price share share charges
2004 83,939 68.5p 62.0p 9.5% 0.60p 1.8%
2005 87,402 71.4p 64.0p 10.3% 1.02p 1.6%
2006 113,049 92.3p 86.0p 6.8% 1.05p 1.5%
2007 123,616 104.0p 93.5p 10.1% 1.12p 1.4%
2008 152,105 128.5p 115.5p 10.1% 1.12p 1.5%
2009 87,760 74.2p 68.3p 8.0% 1.29p 1.6%
2010 135,254 114.3p 104.3p 8.8% 1.29p 1.6%
2011 160,086 137.0p 131.5p 4.0% 1.29p 1.6%*
2012 153,870 131.7p 115.3p 12.5% 2.60p 1.4%
2013 187,602 160.6p 147.5p 8.2% 2.60p 1.3%â€
2014 186,287 159.4p 145.6p 8.7% 2.60p 1.3%â€
* Excludes the costs attributable to the change in management arrangements
amounting to £380,000.
†Excludes performance fee payable of £1,358,000 (2013: £627,000)
Strategic Report / Chairman's Statement
"The sustainable investment approach adopted by First State has made a
significant contribution to the quality of the companies selected for
investment and hence these results."
My statement this year is the first written under the newly introduced
`narrative reporting' framework in the UK, which includes the requirement to
provide a Strategic Report by reference to prescribed content.
Performance
The environment for investors in Asia has been difficult this year, as
demonstrated by the Company's benchmark which delivered a negative total return
of -6.8%. Against this background, the Company's share price total return was
+0.3% and the net asset value total return +0.9%. Although these are modest
numbers, this is a creditable result at a time such as this. I am also pleased
that it places the Company first in its peer group over the three years to 31
January 2014.
Since 1 July 2010, when First State was appointed as the Company's Investment
Manager, to 9 April 2014 the latest practicable date prior to the publication
of this Annual Report, the Company's share price total return was +45.8% and
the net asset value total return +39.7% both significantly outperforming the
benchmark which delivered a total return of +18.9%. The sustainable investment
approach adopted by First State has made a significant contribution to the
quality of the companies selected for investment and hence these results.
This continued outperformance has triggered a performance fee, which is
measured over a rolling three year period, of £1,358,000 and amounts to 0.7% of
net assets. This has been charged to the Company's capital account.
The share price discount to net asset value per share as at 31 January 2014 was
8.7% which compares to 8.2% as at 31 January 2013.
Revenue and Dividend
The Company generated earnings per share of 2.5p during the year which compares
to 2.6p for the previous year. The Board is recommending an unchanged dividend
payment of 2.6p per share, utilising £163,000 of the brought forward
accumulated revenue reserves. This dividend will be paid on 27 June 2014 to
shareholders on the register at 30 May 2014. The associated ex-dividend date
will be 28 May 2014.
The Board reminds shareholders that it remains the Company's policy to pursue
capital growth for shareholders with income being a secondary consideration.
The Board
As announced this time last year, Stuart Leckie retired from the Board at the
2013 Annual General Meeting. The Board subsequently appointed James Williams as
a Director with effect from 1 October 2013. The Board is delighted to have
attracted an individual of James's calibre and his contribution has already
been significant.
Richard Horlick has decided to retire from the Board at this year's Annual
General Meeting. Richard has been on the Board since 2005 and he has
contributed greatly to its deliberations over his time as a Director. We are
sorry to see him leave and wish him well. The Board is currently searching for
a new Director and an announcement will be made in due course.
Alternative Investment Fund Management Directive (`AIFMD')
The Board, with the help of its advisers, has been keeping the AIFMD under
close review. In order to gain access to a lighter touch regulatory regime, it
has been decided to register your Company as a small UK Alternative Investment
Fund Manager with the Financial Conduct Authority ("FCA"). The main benefit of
this course of action is that a depositary will not be required which will save
shareholders approximately £40,000 per annum.
A consequence of this is that your Company will not be able to utilise gearing
at any time. The Board does not believe that this will have a material impact
on your Company's investment strategy in view of the fact that gearing is not
currently a part of First State's approach. However, should First State wish to
reinstate gearing the Board may then reconsider the Company's position with
respect to AIFMD.
In adopting this approach to AIFMD, which remains subject to FCA approval, the
Board will retain responsibility for risk management and First State will
continue to be responsible for managing your Company's investment portfolio.
Scottish Independence
Shareholders will be aware your Company is incorporated in Scotland where there
is a referendum on independence in September. It is impossible to predict at
this juncture what the consequences might be for your Company, however the
Board will keep this situation under review.
Annual General Meeting
The Annual General Meeting will be held at Skinners' Hall, 8 Dowgate Hill,
London EC4R 2SP on Tuesday, 24 June 2014 at 10.00 a.m. The Board is to keen to
encourage an informal and useful dialogue between shareholders, the Directors
and the Investment Manager at this meeting and looks forward to seeing as many
shareholders as possible.
Shareholders who are unable to attend are encouraged to return their forms of
proxy to ensure their votes are represented.
Outlook
The outlook for Asian markets is uncertain at present due, in part, to concerns
over economic growth in China. Your Board, however, believes that the
sustainable investment approach adopted by your Investment Manager will
continue to provide satisfactory returns for the long-term investor.
David Nichol
Chairman
14 April 2014
Strategic Report / Overview of Strategy
Investment Objective
Aim
To achieve long term capital growth through investment in selected companies in
the Asia Pacific region and the Indian sub-continent, but excluding Japan,
Australia and New Zealand (the `Asia Pacific Region'). Up to a maximum of 20%
of the Company's total assets (at the time of investment) may be invested in
companies incorporated and/or listed outside the Asia Pacific Region, including
Japan, Australia and New Zealand, but whose economic activities are
predominantly within the Asia Pacific Region.
Investment Approach
The Company's assets are managed by First State.
First State invests in companies which it believes will deliver long-term
growth to shareholders.
In delivering this strategy, First State uses a sustainable approach in its
management of the Company's investment portfolio. First State seeks to generate
attractive long-term, risk-adjusted returns by investing in the shares of those
companies which are particularly well-positioned to benefit from, and
contribute to, the sustainable development of the countries in which they
operate.
This investment approach can be summarised as follows:
• First State looks to invest clients' capital in quality companies that have
sound growth prospects, then actively engages with them over the long-term;
• Determining the quality of a company involves assessing the management, the
franchise and the financials; it also entails assessing the sustainability
performance and positioning of a company;
• Sustainability is the degree to which a company will benefit from and
contribute to achieving higher levels of human development by using the fewest
possible resources;
• First State has a strong conviction that the sustainability of companies
defines their quality and plays an important role in determining their future
growth.
Investment Strategy and Business Model
Key Performance Indicators
The Company's Board of Directors meets regularly and at each meeting reviews
performance against a number of key measures, as follows:
• Net asset value total return against the MSCI All Country Asia ex Japan Index
(total return, sterling adjusted).
• Net asset value total return against the peer group.
• Discount of share price to net asset value per share.
• Ongoing charges ratio.
Net asset value total return - benchmark
The Directors regard the Company's net asset value total return as being the
overall measure of value delivered to shareholders over the long-term. Total
return reflects both net asset value growth of the Company and also the
dividend paid to shareholders. First State's investment style is such that
performance is likely to deviate materially from that of the benchmark index.
The Board considers the most important comparator to be the MSCI All Country
Asia ex Japan Index.
During the year under review the net asset value per share showed a total
return of +0.9% outperforming the benchmark by 7.7%.
A full description of performance during the year under review and the
investment portfolio is contained in the Investment Manager's Review commencing
on page 15 of this annual report.
Net asset value total return - peer group
The Company exists in a competitive environment and aims to be a leader in its
peer group, defined by being consistently within the top third of that group
measured by net asset value total return. The Company is committed to building
a long-term investment record and will assess itself by reference to its peers
on a rolling three-year basis.
For the three years ended 31 January 2014 the Company ranked first out of its
peer group of the Company and seven other investment trusts with a similar
investment objective as that of the Company.
Discount of share price to net asset value per share
The Board believes that an important driver of an investment trust's discount
or premium over the long-term is investment performance together with a
proactive marketing strategy. However, there can be volatility in the discount
or premium during the year. Therefore, the Board takes powers each year to buy
back and issue shares with a view to limiting the volatility of the share price
discount or premium.
During the year under review no shares were issued or bought back by the
Company and the Company's share price discount to net asset value per share was
consistently narrower than the peer group average. As at 31 January 2014 the
discount of the Company's share price to the net asset value per share was
8.7%.
Ongoing charges ratio
The Board continues to be conscious of expenses and works hard to maintain a
sensible balance between strong service and costs.
As at 31 January 2014 the ongoing charges ratio was 1.3% which was unchanged
from the percentage for the previous year. This ongoing charges ratio compares
to the average of the Company's peer group for the year of 1.1%.
Ongoing charges ratio
1.3%*
Excludes performance fee payable of £1,358,000 ;ongoing charge ratio including
performance fee payable 2.0%. (2013: ongoing charge ratio excluding performance
fee payable of £627,000 1.3%; including performance fee payable 1.7%)
Peer group average: 1.1%*
* Source: Morningstar
Winner
Investment Week, Investment Trust of the Year Awards 2013
Category: Asia
Risk Management
The Board is responsible for the management of the risks faced by the Company
and the Board regularly reviews these risks and how risk is mitigated. The
Board has categorised the risks faced by the Company under five headings as
follows:
• Investment activity and strategy
• Financial
• Shareholder relations and corporate governance
• Operational
• Accounting, legal and regulatory.
A summary of these risks and their mitigation is described below:
Principal Risks and Mitigation
Uncertainties
Investment Activity and The Board regularly reviews the Company's
Strategy investment mandate and its long-term investment
strategy in relation to market and economic
An unsuccessful conditions, and the operation of the Company's
investment strategy, peers, thereby monitoring whether the Company
including asset should continue in its present form. First State
allocation may lead to provides an explanation of stock selection
underperformance against decisions and an overall rationale for the make-up
the Company's benchmark of the investment portfolio. First State discusses
index and peer companies, current and potential investment holdings with the
and may result in a Board on a regular basis in addition to new
widening of the Company's initiatives, which may enhance shareholder
share price discount to returns. The Board sets appropriate investment
net asset value per restrictions and guidelines which are monitored
share. and reported on by Frostrow. Each month the Board
receives a monthly review report which monitors
the Company's investment performance (both on an
absolute basis and against the benchmark and peer
group) and its compliance with the investment
guidelines. Additional reports and presentations
are made regularly to investors by Frostrow, First
State and also by Canaccord Genuity Limited, the
Company's Corporate Stockbroker.
In consultation with its advisers, including the
Company's Corporate Stockbroker, the Board also
undertakes a regular review of the level of
discount/premium and consideration is given to
ways in which share price performance may be
enhanced, including the effectiveness of
marketing, share issuance and share buy-backs,
where appropriate
Financial First State is responsible for undertaking reviews
of the creditworthiness of the counterparties that
The financial risks it uses. The Board regularly reviews First State's
associated with the approved list of counterparties.
Company include market
risk including The Company's assets mainly comprise readily
counter-party risk, realisable liquid securities, which can be sold to
interest rate risk, meet funding requirements if necessary.
liquidity risk, foreign
exchange risk and credit Interest rate risk is reduced as the Company has
risk. no gearing.
The Company's assets are invested in securities
denominated in foreign currencies. As the
Company's shares are denominated and traded in
sterling, the return to shareholders will be
affected by changes in the value of sterling
relative to those foreign currencies. The Company
does not at present hedge against currency
exposure, however, any significant cash balances
are held in sterling. The Board keeps this
position under review.
Further information on financial instruments and
risk, as required by FRS 29, can be found in note
16 to the financial statements beginning on page
51.
Shareholder Relations and The Board receives regular reports on shareholder
Corporate Governance activity and is kept informed of shareholder
sentiment. Regular contact is maintained with
Shareholder concern could major shareholders. Details of the Company's
arise if there is poor compliance with corporate governance best
adherence to best practice, including information on relations with
practice in corporate shareholders, are set out in the Corporate
governance resulting in Governance Statement beginning on page 27.
reputational damage to
the Company.
Operational The Board reviews both the internal control and
the disaster recovery procedures put in place by
Disruption to, or failure its principal service providers on a regular
of, accounting, dealing basis.
or payments systems in
place at the Company's
service providers,
including custodian and
appointed sub-custodians
could prevent accurate
reporting and monitoring
of the Company's
financial position.
Accounting, Legal and The Board relies on the services of Frostrow and
Regulatory also external advisers to ensure compliance with
applicable law and regulations including the
Failure to comply with Companies Act, the Corporation Tax Act and the
appropriate law and UKLA Listing Rules. The Board is aware of changes
regulations could expose to the regulatory environment in the year ahead.
the Company to serious In particular the Company continues to prepare
financial loss and itself for implementation of the Alternative
reputational damage. Investment Fund Managers Directive (AIFMD) and the
Foreign Account Tax Compliance Act (FATCA).
Director, Social, Economic and Environmental Matters and Looking to the Future
Directors
The Directors of the Company, who served during the year, are shown below.
Further information on the Directors can be found on pages 20 and 21.
David Nichol (Chairman)
Richard Horlick
Stuart Leckie (retired on 25 June 2013)
Terence Mahony
Nigel Rich
James Williams (appointed on 1 October 2013)
Board Diversity
The Company is supportive of the recommendations of Lord Davies' Report that
the performance of corporate boards can be improved by encouraging the
appointment of the best people from a range of differing perspectives and
backgrounds. The Company recognises the benefits of diversity on the Board,
including gender, and takes this into account in its Board appointments. The
Company is committed to ensuring that any Director search process actively
seeks persons with the right qualifications so that appointments can be made,
on the basis of merit, against objective criteria from a diverse selection of
candidates. Richard Horlick will not be seeking re-election at this year's
Annual General Meeting. The Board is currently in the process of identifying a
suitable replacement.
Social, Economic and Environmental Matters
The Directors, through the Company's Investment Manager, encourage companies in
which investments are made to adhere to best practice with regard to Corporate
Governance. In light of the nature of the Company's business there are no
relevant human rights issues and the Company does not have a human rights
policy.
The Company recognises that social and environmental issues can have an effect
on some of its investee companies and this is reflected by the sustainable
approach taken by First State.
The Company is an investment trust and so its own direct environmental impact
is minimal.
Looking to the Future
The Board concentrates its attention on the Company's investment performance
and First State's investment approach and on factors that may have an effect on
this approach. Marketing reports are given to the Board at each Board meeting
by both First State and Frostow, which include how the Company will be promoted
and details of planned communications with existing and potential shareholders.
The Board is regularly updated by Frostrow on wider investment trust industry
issues and discussions are held at each Board meeting concerning the Company's
future development and strategy.
The Company's overall strategy remains unchanged.
Strategic Report / Investment Portfolio
Investment as at 31 January 2014
% of
Market total Country
assets
Valuation less of
current
Company Sector* £'000 liabilities incorporation
Tech Mahindra Information 11,763 6.3 India
Technology
Marico Consumer Staples 9,777 5.3 India
Standard Foods Consumer Staples 7,462 4.0 Taiwan
Taiwan Semiconductor
Manufacturing Company Information 7,054 3.8 Taiwan
Technology
Towngas China Utilities 6,547 3.5 Cayman
Islands
Dabur India Consumer Staples 6,484 3.5 India
Public Bank Financials 6,184 3.3 Malaysia
Samsung Fire & Marine Financials 6,032 3.3 South Korea
Insurance
Delta Electronics Information 5,990 3.2 Thailand
(Thailand) Technology
E.Sun Financial Financials 5,836 3.1 Taiwan
Holdings
Ten largest 73,129 39.3
investments
Kasikornbank Financials 5,527 3.0 Thailand
DBS Group Financials 5,367 2.9 Singapore
Idea Cellular Telecom Services 5,188 2.8 India
DGB Financial Financials 5,098 2.7 South Korea
Dr. Reddy's Health Care 4,907 2.6 India
Laboratories
Globe Telecom Telecom Services 4,743 2.5 Philippines
AmorePacific Consumer Staples 4,550 2.5 South Korea
Chroma ATE Information 4,272 2.3 Taiwan
Technology
Manila Water Utilities 3,954 2.1 Philippines
Axiata Telecom Services 3,422 1.8 Malaysia
Twenty largest 120,157 64.5
investments
SembCorp Industries Industrials 3,301 1.8 Singapore
Uni-President Consumer Staples 3,287 1.8 Taiwan
Enterprise
XL Axiata Telecom Services 3,251 1.7 Indonesia
Infosys Information 3,202 1.7 India
Technology
Delta Electronics Information 3,070 1.6 Taiwan
(Taiwan) Technology
Singapore Post Industrials 2,919 1.6 Singapore
Bank of the Philippine Financials 2,631 1.4 Philippines
Islands
Singapore Telecom Services 2,560 1.4 Singapore
Telecommunications
Linde India Industrials 2,449 1.3 India
Weifu High-Technology Consumer 2,392 1.3 China
Group Discretionary
Thirty largest 149,219 80.1
investments
China Mengniu Dairy†Consumer Staples 2,207 1.2 Cayman
Islands
ENN Energy†Utilities 2,192 1.2 Cayman
Islands
MTR Industrials 2,097 1.1 Hong Kong
Sheng Siong Consumer Staples 2,041 1.1 Singapore
Sabana Shari'ah Financials 1,919 1.0 Singapore
Compliant REIT
Ayala Corporation Financials 1,780 1.0 Philippines
Tube Investments of Industrials 1,741 0.9 India
India
Giant Manufacturing Consumer 1,454 0.8 Taiwan
Discretionary
Uni-President China†Consumer Staples 1,368 0.7 Cayman
Islands
Kotak Mahindra Bank Financials 1,193 0.6 India
Forty largest 167,211 89.7
investments
* MSCI sector classifications
†Economic activity takes place principally in China
% of
Market total Country
assets
Valuation less of
current
Company Sector* £'000 liabilities incorporation
Pidilite Industries Materials 1,117 0.6 India
Marico Bangladesh Consumer Staples 1,081 0.6 Bangladesh
AirTac International^ Industrials 1,033 0.6 Cayman
Islands
Nations Trust Bank Financials 982 0.5 Sri Lanka
Vitasoy International Consumer Staples 926 0.5 Hong Kong
Holdings
Cholamandalam
Investment
& Finance Financials 663 0.4 India
Hemas Holdings Industrials 592 0.3 Sri Lanka
Mahindra Lifespace Industrials 538 0.3 India
Developers
EID Parry (India) Materials 474 0.3 India
Swire Properties Financials 430 0.2 Hong Kong
Fifty largest 175,047 94.0
investments
Godrej Consumer Consumer Staples 399 0.2 India
Products
Bank OCBC NISP Financials 86 0.0 Indonesia
Total portfolio 175,532 94.2
Cash 13,052 7.0
Net current (2,297) (1.2)
liabilities
Total net current 10,755 5.8
assets
Total assets less 186,287 100.0
current liabilities
* MSCI sector classifications
^ Economic activity takes place principally in Taiwan
Strategic Report / Investment Manager's Review
Overview of First State's Investment philosophy
First State, which has been the Company's Investment Manager since 1 July 2010,
adopts a sustainable investment strategy in selecting the investments that make
up the Company's investment portfolio.
Definition of Sustainable Investment
By sustainable investment, First State is not referring to `green', `clean
tech' or `ethical' investing. Their emphasis is on sustainable development.
They are simply setting out to invest in those companies they believe are
particularly well-positioned to deliver long-term returns in the face of the
huge development challenges facing all countries today.
The root causes of these development challenges are numerous and complex. They
include population pressure, land and water scarcity and degradation, resource
constraints, income inequality, ethnic and gender inequalities and extreme
levels of poverty. It is becoming increasingly clear that in order to tackle
these development challenges, both developed and developing countries will be
required to reinvent their development trajectories and shift away from the
current resource intensive, consumption intensive, overly debt-dependent
development models towards a more genuinely sustainable path of economic
development.
Sustainable investment has always been an integral part of the First State
team's investment philosophy and stock-picking process. At the heart of this
philosophy is the principle of stewardship.
They believe their job is to invest their clients' capital in good quality
companies with strong management teams and sound long-term growth prospects.
Each investment is a decision to purchase, not a piece of paper or an
electronic Bloomberg ticker, but part of a real business with all the rights
and responsibilities that go with this `share' of the ownership of the company.
They take these rights and responsibilities seriously. They also believe the
way they behave as investment professionals and the role they play in the
broader industry are important for their own sustainability.
All the First State investment strategies strive to integrate environmental,
social and governance (ESG) considerations into every investment decision.
Their sustainability strategies take this one step further by focusing on
long-term sustainability themes as a key driver of the investment process.
Sustainable Investment Aim
To generate attractive long-term, risk-adjusted returns by investing in the
shares of those companies which are particularly well-positioned to benefit
from, and contribute to, the sustainable development of the countries in which
they operate.
Investment Philosophy
First State seeks to invest only in good quality companies. Quality is measured
through the lenses of management's financial and franchise quality. By
analysing the sustainability performance and positioning of companies they can
better measure less-tangible elements of quality and identify hidden risks.
First State are long-term investors. They strive to make investment decisions
with a five-year time horizon.
They have an absolute return mindset. That is, they define risk as losing money
for their clients, rather than in terms of deviation from any benchmark index.
They focus as much on the potential downside of their investment decisions as
on the anticipated upside. The identification of long-term sustainability risks
thus becomes an extremely important way of managing risk. In addition, their
willingness to differ substantially from index weightings, both country and
company, means they are not obliged to be invested anywhere where they have
particular sustainability concerns.
They also recognise there is no such thing as a perfect company. They are
active owners and stewards of the companies they own. A summary of First
State's investment approach can be found on page 7.
"...we believe good quality companies with strong sustainability positioning
are more likely to deliver attractive long-term returns. Sustainability is a
key driver of our expected returns rather than a constraint."
Air Pollution
In Scotland, the hotels hand out umbrellas to guests. In China, they now hand
out pollution masks, along with detailed pollution forecasts.
Asia's air pollution crisis continues to worsen. Li Keqiang, China's Premier,
recently admitted that `the first thing people do in the morning is check the
PM2.5 figure*.' Only three of China's largest 74 cities met national air
quality standards last year. Beijing's concentration of PM2.5 particles now
regularly exceeds 500 micrograms per cubic metre. The World Health Organisation
recommends a safe level of 25. According to Chen Zhu, China's former health
minister, the country's air pollution is leading to between 350,000 and 500,000
premature deaths in the country each year, while a recent report by the
Shanghai Academy for Social Sciences, declared that Beijing is now almost
`uninhabitable for human beings'. Scientists have also noticed that air
pollution is having a direct impact on the process of photosynthesis itself in
a manner similar to that predicted during a `nuclear winter.' Panasonic, the
Japanese electronics company, recently announced it would pay its workers in
China a `pollution premium' on top of their standard pay to compensate for the
danger of working in such a polluted environment. The reasons behind such
extreme air pollution levels are complex but well understood. They include the
inability of the `market' to price environmental externalities satisfactorily,
poor environmental regulation, poor governance, the emergence of densely
populated `mega cities', the burning of low quality fossil fuels,
over-industrialisation and broader environmental degradation.
The problem is not confined to China. Indeed, according to the World Health
Organisation, no Chinese city makes it onto a list of the top ten most polluted
cities in the Asia, as measured by PM10 particles per cubic metre*. By this
measure, India has five cities in the top ten; Ludhiana, Kanpur, Delhi, Lucknow
and Indore, all of whom average more than 170 PM10 micrograms per cubic metre*.
This compares to an average of 29 for London and 21 for New York.
For long-term investors in Asia, air pollution has become a critical investment
issue, alongside other Asian sustainable development challenges such as water
scarcity, water pollution, inequality and top soil depletion. It is one of many
reasons why Asian economies are slowly but surely shifting towards a more
sustainable development path. Li Keqiang recently declared `war against
pollution', describing it as not `a war against nature, but a war against our
own inefficient and unsustainable model of growth and way of life'.
The implications for poorly positioned companies are serious. Smaller companies
have already been targeted. Last year Hebei Province alone shut down 8,347
small high-polluting firms according to the Ministry of Environmental
Protection. Large, inefficient, heavily polluting companies are now coming
increasingly under the spotlight. The Government recently announced plans to
cut steel production by 27 million tonnes and cement production by 42 million
tonnes. Companies with environmentally inefficient factories on their balance
sheets, or those selling environmentally inefficient products, are facing an
increasingly uncertain future.
There are also, in theory, many companies well-positioned to help contribute
towards cleaner air in the region. Our greatest investment challenge is not toidentify these companies, but rather to try and sift out from this list the 99%
of them which ultimately fail our investment quality requirements. There are,
for example, hundreds of listed companies in Asia with the words solar, clean
or green in their company name! We have yet to invest in any of them. Among
them is the solar company which dumped tonnes of toxic waste materials
illegally into the river system. The wind company that proudly claimed to have
hired a `bigger politician' than their competitor along the road. The clean
energy company which allegedly had a policy whereby all staff lost their bonus
if there was more than one pregnancy per department per year. The solar company
that set up fictional subsidiaries to generate fictional sales. More generally
fraud, tax evasion and huge related party transactions seem to be prevalent in
the sector.
*See glossary on page 57
Fortunately, outside this `cleantech' sector, good quality companies are more
commonplace. Around 12% of the Company's assets are currently invested in
companies who are directly beneficiaries of a move towards cleaner air in
China. Towngas China is well-positioned to benefit from the transition away
from low quality diesel and coal towards cleaner gas. While still a fossil
fuel, piped gas has significantly lower particulate emissions than other fossil
fuels as well as much lower carbon intensity. As such it is a vital transition
fuel for China. Hong Kong-based MTR is playing an important role in the
expansion of public transport metro systems in China. Its metro lines in
Beijing, Shenzhen and Hangzhou now carry around two million passengers each
week. Delta Electronics and its sister company Delta Electronics Thailand are
global leaders in energy efficient power and thermal management solutions. They
are steadily expanding their core business into related areas such as the power
management for solar systems, electric and hybrid electric vehicles and LED
lighting. A joint venture partner of the highly regarded Bosch, Weifu Hi-Tech
is a leading provider of energy efficient components for the car and the truck
market in China. Finally, the Company is also a shareholder of Giant, the
world's largest manufacturer of affordable, good quality bicycles. A brief trip
to any European city is a useful reminder of the role bicycles can play in
getting people to and from work each day. It is estimated that around 40% of
all commuters in Copenhagen commute to work by bike. It has even been claimed
that there are more bike commuters in Copenhagen than the whole of the United
States. Whether this is true or not, it highlights the point that Asia's cities
will be unable to copy the US model of city planning, characterised by urban
sprawl and design around the pre-eminence of the automobile, rather than
citizens. There is simply not room. The larger Asia's cities become, the more
they will have to lean on public transport and pedal power as the primary means
of moving inhabitants around.
What is the trade-off?
We continue to meet investors who would like to know how much financial return
they will have to sacrifice to invest sustainably. We believe the opposite is
true. We invest the Company's assets in the aforementioned companies simply
because we believe good quality companies with strong sustainability
positioning are more likely to deliver attractive long-term returns.
Sustainability is a key driver of our expected returns rather than a
constraint.
Mistakes
We believe the best way to become better investors is to examine and learn from
our investment mistakes and this belief forms a key part of our day-to-day
investment process. In addition, there are three formal parts to our investment
process which focus on mistakes and what we can learn from them. Firstly, we
regularly review as a team the worst performing investments we have made over
the past twelve months for each sustainability portfolio the team manages. What
begins as a very stock specific conversation usually evolves into a much
broader discussion which then links in to what improvements we can make to our
investment process. For example, we recently made a poor investment in a
Mexican house builder for our Emerging Markets Sustainability Fund. The two key
lessons learnt were around the difficulty for land developers of ever
generating free cash flows and the risks associated with politically designed
funding schemes for low income mortgages. As a result, we took the decision to
sell the Company's holding in Ayala Land as well as re-examine the investment
case for some of Asia's better quality low-income housing developers that were
until then on our radar screen.
Secondly, we periodically undertake a much broader analysis of the type of
investment mistakes we make, to see if we can group them into specific
categories ranging from corporate governance mistakes, valuation mistakes and
quality of franchise mistakes to the failure to properly analyse environmental
and social externalities mistakes. By far the most frequent mistake we make for
our sustainability funds is to overestimate the quality of company franchises
in our search for strong sustainability positioning. This understanding has led
us to search for better ways to assess franchise quality including renewed
efforts to understand the profitability of our companies in relation to unit
measurements of scarce resources including water, energy and greenhouse gases.
Thirdly, none of the companies in which we invest are perfect, and we make a
considerable effort to try and go back as far as possible in history to analyse
the mistakes made during times of stress. For Asian companies, at a minimum,
this means going back to the Asian Crisis of 1997. A surprising number of our
favourite companies have learnt very hard lessons during such periods,
particularly family-controlled companies who nearly lost their family
businesses. Often this results in a particularly strong approach to risk which
tends not to be displayed by younger companies yet to go through such a period
of stress.
The table below shows the principal detractors from performance in the
Company's investment portfolio over the past year.
Principal detractors from performance over the year
Contribution
to
Company performance
Manila Water -1.76%
Marico -1.45%
Kasikornbank -0.92%
AmorePacific -0.60%
Idea Cellular -0.39%
Uni-President China -0.32%
Bank of the Philippine Islands -0.30%
Tube Investments of India -0.30%
MTR -0.20%
XL Axiata -0.19%
Source: First State
Some of the companies, such as Marico, MTR, Kasikornbank and Bank of the
Philippine Islands are on the list due to the vagaries of short-term share
price movements. Others reflect genuine investment mistakes on our part. For
example, in the case of Manila Water, with the benefit of hindsight we
overestimated the quality of a business franchise that is vulnerable to
regulatory shifts and uncertainties. Despite having won a bid to acquire a new
water project in Jakarta, the company subsequently had the bid annulled by the
local authorities during the course of last year. Closer to home, the regulator
is currently reviewing the concession agreement in Manila itself, which has
created some uncertainty around the outlook for earnings in the short and
medium term. In the long-run, we continue to believe that the company's license
to operate will come not from the regulator but from the society it serves and
in this regard we remain convinced that it remains well positioned as a global
leader in the provision of clean, affordable water to low income households in
Emerging Markets.
Elsewhere, we have arguably overestimated the sustainability positioning of
AmorePacific and Uni-President China. Both have large consumer businesses that
we optimistically hoped were being transitioned towards a more sustainable
resting place with an emphasis on "LOHAS" (lifestyle of health and
sustainability). In hindsight, the LOHAS re-positioning remains too far towards
the fringes of their product portfolios and there is insufficient movement
within the core of their business. In our view, this risks damaging their
long-term prospects when consumer preferences are shifting so quickly across
the Region. Tube Investments of India was simply a case of poor timing. Our
enthusiasm for the controlling family led us to invest too early into what
remains a highly cyclical business. We remain committed to the two telecoms
companies on the list, Idea Cellular and XL Axiata, while acknowledging that,
like Manila Water, they are ultimately regulated businesses that are not
entirely in control of their own destiny. While we don't expect them to be
required to undertake national service, there is always the chance that rule
around licenses and connection fees can be changed overnight.
Casino Capitalism
Arguably the greatest attribute of investment trusts is their ability to take a
long-term investment horizon when allocating shareholders' capital. As
financial markets in Asia continue their steady metamorphosis into financial
casinos this attribute is becoming ever more important. The arrival of high
frequency trading, the circular listing of stock exchanges on themselves and
the dramatic growth in passive exchange traded funds have all contributed to a
pervasive climate of short-termism across Asian financial markets in which
capital is circulated in an increasingly blind, rapid manner.
Arguably, active managers are responsible for their own downfall. Short-term
incentives, the prioritisation of asset growth over performance and closet
indexing have all driven clients towards exchange traded funds, multi-asset
managers and smart beta indices across the Region. The natural reticence of
managers to speak out in defence of their profession has not helped the cause.
Does it matter? Species come and go all the time.
The answer depends on whether fund managers have any role to play outside the
casino? Historically, they were regarded as sober allocators of capital,
charged with aggregating peoples' savings and investing them productively for
the future benefit of individuals and society. Today, society is increasingly
allocating its savings to the corporate sector by means of an electronic
lottery, held on average every seven months. Consequently, a company's access
to capital is determined more by its market capitalisation or membership of
arbitrary indices, rather than any underlying business fundamentals.
As long-term, active investors ourselves, it is a difficult question for us to
try and answer without looking as though we are talking up our own book,
although in reality the opposite is true. In the world of investment, the last
thing any investor should want is to have the same investment strategy as
everyone else. The dramatic collapse in investment time horizons has arguably
meant there has never been a better time to be a long-term investor in Asia!
Nonetheless, we passionately believe that the demise of long-term active
investing and the rise of short-term casino capitalism is a problem for Asia
for one key reason: it makes it much harder for countries to move away from
current unsustainable economic development models. Somehow, society needs to
find a way of allocating capital to Asian companies who will be part of the
solution and avoid allocating capital to Asian companies who will always remain
part of the problem. By definition, smart beta, ETFs and index investing are
not able to achieve this.
The challenge is less about the rise of short-term and passive investing and
more about the worrying demise of long-term active investing. Active investors
have a critical role to play in allocating society's capital to help countries
move towards a truly sustainable development model, but only if they can first
avoid extinction over the coming years.
Outlook
Unfortunately, we have little to offer by way of a market outlook. We spend
most of our time looking at the past and thinking about how much of the
Company's money we risk losing when the next Asian crisis comes. This is one
reason why, as managers, we are nervous about gearing. We continue to believe
our greatest challenge when investing in Asia is not to try and generate
returns during the good times, but to hold on to as much of those returns as
possible when things go wrong again. Investing in reasonably valued, good
quality companies with strong sustainability positioning is the best way we can
think of to minimise this downside risk. This approach is not for everyone. For
those investors keen to try and time Asian equity markets, our investment
approach is not suitable. We are unlikely to deliver top performing returns
when Asian stock markets rise strongly. Alternatively, for investors interested
in making a long-term investment in the Region, we believe the focus on capital
preservation as well as capital growth will generate attractive returns over
the long-run.
David Gait
Senior Investment Manager
First State Investment Management (UK) Limited
14 April 2014
Governance / Board of Directors
David Nichol, FCA
Chairman
was appointed as a Director in January 1985 and Chairman in May 2004. He is
Chairman of the Nominations and Engagement & Remuneration Committees. He is a
former partner of Rossie House Investment Management, a firm which he founded
in 1993. Prior to that he was with Ivory & Sime for 20 years and was Managing
Director of Ivory & Sime Asia Ltd. in Hong Kong from 1989 to 1991.
Richard Horlick
was appointed as a Director in December 2005. He was, from 2002 until 2005, a
director of Schroders plc, where he was Head of Investments and a member of the
General Management Committee. Between 2001 and 2002 he was Chairman, Chief
Executive Officer and President of Fidelity Management Trust Company, where he
was responsible for institutional business in the U.S. Between 1994 and 2001 he
was President, Institutional Business, of Fidelity International, where he was
responsible for investments and the development of institutional assets.
Terence Mahony
was appointed as a Director in February 2004. He is Managing Director of TFM
Management Limited, a firm of investment consultants based in Hong Kong. He has
over 35 years' investment experience, the last 25 of which have been gained in
Asia. He is also non-executive Co-Chairman of Vina Capital Group and a
non-executive Director of Tau Capital plc and Advance Developing Markets Fund
Limited.
The table below sets out the number of scheduled Board and Committee meetings
held during the year ended 31 January 2014 and the number of meetings attended
by each Director.
Engagement &
Board of Remuneration Nomination
Directors Audit Committee Committee Committee
Held Attended Held Attended Held Attended Held Attended
D B Nichol 4 4 2 2 1 1 1 1
R M A Horlick 4 4 2 2 1 1 1 1
S H Leckie* 4 2 2 1 1 1 1 1
T F Mahony 4 4 2 1 1 1 1 1
N M S Rich 4 4 2 2 1 1 1 1
J P Williams* 4 1 2 - 1 - 1 -
*
* Retired on 25 June 2013
** Appointed on 1 October 2013
Other ad hoc meetings of the Board and committees are held in connection with
specific events as and when necessary. All the Directors attended the Annual
General Meeting held on 25 June 2013.
All Directors are members of the Audit,
Engagement & Remuneration and
Nomination Committees.
Nigel Rich, CBE, FCA
Senior Independent Director and Chairman of the Audit Committee was appointed
as a Director in January 1997. He is Chairman of Segro plc and a non-executive
Director of British Empire Securities and General Trust plc, Bank of the
Philippine Islands (Europe) plc and Matheson & Co Limited. He is also
Co-Chairman of the Philippine British Business Council. From 1974-1994 he was
with Jardine Matheson Group and was the Group Managing Director from 1989-1994
based in Hong Kong. He is also a member of the Takeover Panel.
James Williams
was appointed as a Director in October 2013. He is currently a non-executive
Director of Investors Capital Trust PLC and JPMorgan American Investment Trust
Plc. He was formerly the Chief Investment Officer of Baring Asset Management,
and prior to that a founder of Henderson Baring in Asia. He has worked in
investment management for over 40 years.
Directors' (and other Senior Individuals') Interests
The interests in the Company of the Directors who held office at the end of the
year and also of senior individuals at First State with responsibility for
managing the Company's portfolio were as set out below:
Number of Number of
shares shares
held as at held as at
31 January 31 January
2014 2013
David Nichol* Beneficial 75,000 40,000
Trustee 100,000 100,000
Richard Horlick Beneficial Nil Nil
Terence Mahony Beneficial Nil Nil
Nigel Rich†Beneficial 45,000 25,000
Trustee 9,650 8,200
James Williams** Beneficial 20,000 -
249,650 173,200
Senior Individuals at First State 1,017,290 864,250
Total 1,266,940 1,037,450
* Includes 35,000 ordinary shares held by Mrs Judith Nichol
†Includes 20,000 ordinary shares held by Mrs Cynthia Rich
** appointed 1 October 2013
There have been no changes in the interests of the Directors in the shares of
the Company between 31 January and 14 April 2014.
During 2013, the Board introduced a policy to encourage Directors to own shares
in the Company to the value of at least 1.5 times their annual fee, this to be
achieved over the following three years for existing Directors and within three
years of appointment for new Directors.
Governance / Report of the Directors
The Directors present this Annual Report on the affairs of the Company together
with the audited financial statements and the Independent Auditor's Report for
the year ended 31 January 2014.
Business and Status of the Company
The Company is registered as a public limited company in Scotland (Registered
Number SC091052) and is an investment company within the terms of Section 833
of the Companies Act 2006. Its shares are listed on the Official List of the UK
Listing Authority and quoted on the main market of the London Stock Exchange.
The Company has applied for and been accepted as an approved investment trust
under sections 1158 and 1159 of the Corporation Taxes Act 2010 and Part 2
Chapter 1 of Statutory Instrument 2011/2999. This approval relates to
accounting periods commencing on or after 1 February 2012. The Directors are of
the opinion that the Company has conducted its affairs so as to be able to
retain such approval.
It is the Directors' intention that the Company should continue to manage its
affairs so as to be a qualifying investment for inclusion in the stocks and
shares components of an Individual Savings Account (`ISA') and Junior ISA.
The Company is required to comply with company law, the rules of the UK Listing
Authority, UK Financial Reporting Standards, and its Articles of Association.
The Company is a member of the Association of Investment Companies (`AIC').
Investment Objective
To achieve long-term capital growth through investment in selected companies in
the Asia Pacific region and the Indian sub-continent, but excluding Japan,
Australia and New Zealand (the `Asia Pacific Region'). Up to a maximum of 20%
of the Company's total assets (at the time of investment) may be invested in
companies incorporated and/or listed outside the Asia Pacific Region, including
Japan, Australia and New Zealand, but whose economic activities are
predominantly within the Asia Pacific Region.
Investment Policy
The Company invests in companies which First State believes will be able to
generate long-term growth for shareholders.
The Company invests principally in listed equities although its policy enables
it to invest in other securities, including preference shares, debt
instruments, convertible securities and warrants. In addition, the Company may
invest in open and closed-ended investment funds and companies.
The Company is only able to invest in unlisted securities with the Board's
prior approval. It is the current intention that such investments are limited
to those which are expected to be listed on a stock exchange or which cease to
be listed and the Company decides to continue to hold or is required to do so.
Risk is diversified by investing in different countries, sectors and stocks
within the Asia Pacific Region. There are no defined limits on countries or
sectors but no single investment may exceed 7.5% of the Company's total assets
at the time of investment. This limit is reviewed from time to time by the
Board and may be revised as appropriate.
No more than 10% of the Company's total assets may be invested in other listed
closed-ended investment companies unless such investment companies themselves
have published investment policies to invest no more than 15% of their total
assets in other closed-ended investment companies, in which case the limit is
15%.
The Board in conjunction with First State, continue to keep the possibility of
gearing under review, however, First State do not envisage the use of gearing
except in exceptional circumstances.
The use of derivatives is permitted with prior Board approval and within agreed
limits. However, First State are unlikely to use derivatives.
Results and Dividend
The results attributable to shareholders for the year are shown on page 41.
Details of the Company's dividend record can be found on page 4.
Fixed Asset Investments
The fair value of the Company's investments at 31 January 2014 was £175,532,000
(2013: £173,990,000) showing a gain since acquisition of £31,657,000 (2013:
gain £39,420,000). Taking these investments at this valuation, the net assets
attributable to each share at 31 January 2014 amounted to 159.4p (2013:
160.6p).
Capital Structure
As at 31 January 2014 there were 116,848,386 shares of 12.5p each in issue
(2013: 116,848,386). All shares rank equally for dividends and distributions.
Each shareholder is entitled to one vote on a show of hands and, on a poll, to
one vote for every share held. Details of the substantial shareholders in the
Company are listed on page 24.
The giving of powers to issue or buy-back the Company's shares requires the
relevant resolution to be passed by shareholders. Proposals for the renewal of
the Board's current powers to issue and buy-back shares are detailed on pages
63 and 64.
There are no restrictions concerning the transfer of securities in the Company;
no special rights with regard to control attached to securities; no
restrictions on voting rights; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements which the
Company is party to that might affect its control following a successful
takeover bid.
Company Management
Investment Manager
The Company's investment portfolio is managed by First State which had
approximately £33 billion in assets under management as at 31 January 2014.
First State have been engaged under the terms of an Investment Management
Agreement (the "IMA") effective from 1 July 2010. The IMA is terminable by six
months' notice. The Investment Manager has complied with the terms of the IMA
throughout the year to 31 January 2014. A management fee of 0.75% per annum of
net assets is payable. In addition there is a performance fee of 12.5% of
returns in excess of the MSCI All Country Asia ex Japan Index plus a hurdle of
1.75% per annum, measured over a rolling three year period. The Board has
capped the total of the management fees and the performance fee at 1.75% of the
average asset value per annum. As at 31 January 2014 a performance fee of £
1,358,000 became payable under the terms of the performance fee arrangements as
described on below (31 January 2013: £627,000).
Manager
Frostrow acts as the Company's Manager, Company Secretary and Administrator.
Frostrow is an independent provider of services to the investment companies
sector and currently has five other investment trust clients whose assets
totaled approximately £4.1 billion as at 31 January 2014.
Frostrow provides company management, company secretarial, administrative, and
marketing services to the Company under the terms of a Management
Administrative and Secretarial Services Agreement effective from 1 July 2010. A
fee of 0.2% per annum (plus VAT) of market capitalisation is payable for these
services. Frostrow's appointment can be terminated by either party by giving
six months' notice.
Further details of the fees payable to First State and Frostrow are set out in
note 3 to the accounts on page 46.
Investment Manager and Manager Evaluation and Re-Appointment
The review of the performance of First State as Investment Manager and Frostrow
as Manager is a continuous process carried out by the Board with a formal
evaluation being undertaken each year. As part of this process the Board
monitors the services provided by the Investment Manager and the Manager and
receives regular reports and views from them. The Board also receives
comprehensive performance measurement reports to enable it to determine whether
or not the performance objective set by the Board has been met.
The Board believes the continuing appointment of First State and Frostrow,
under the terms described above, is in the interests of shareholders as a
whole. In coming to this decision the Board also took into consideration the
following additional reasons:
- the quality and depth of experience of First State and the level of
performance of the portfolio in absolute terms and also by reference to the
MSCI All Country Asia ex Japan Index (total return, sterling adjusted) and the
Company's peer group; and
- the quality and depth of experience of the management, administrative,
company secretarial and marketing team that Frostrow allocates to the Company.
Directors
Directors' and Officers' Liability Insurance Cover
Directors' and Officers' liability insurance cover was maintained by the Board
during the year ended 31 January 2014. It is intended that this policy will
continue for the year ended 31 January 2015 and subsequent years.
Directors' Indemnities
As at the date of this report, a deed of indemnity has been entered into by the
Company and each of its Directors under which the Company has agreed to
indemnify each Director, to the extent permitted by law, in respect of certain
liabilities incurred as a result of carrying out his role as a Director of the
Company. Each Director is indemnified against the costs of defending any
criminal or civil proceedings or any claim by the Company or a regulator as
they are incurred provided that where the defence is unsuccessful the Director
must repay those defence costs to the Company. The indemnities are qualifying
third party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the offices of
Frostrow during normal business hours and will be available for inspection at
the Annual General Meeting.
Substantial Interests in Share Capital
As at 14 April 2014, being the latest practicable date before publication of
the Annual Report, the Company was aware of the following substantial interests
in the voting rights of the Company:
Number of
shares Percentage
held held
Lazard Asset Management 23,469,162 20.1
Brewin Dolphin 9,190,736 7.9
Henderson Global Investors 6,823,501 5.8
Speirs & Jeffrey Stockbrokers 5,653,907 4.8
Charles Stanley Stockbrokers 4,532,009 3.9
Alliance Trust Savings 4,324,008 3.7
Investec Wealth & Investment 3,513,832 3.0
Smith & Williamson 3,522,927 3.0
Beneficial Owners of Shares - Information Rights
The beneficial owners of shares who have been nominated by the registered
holder of those shares to receive information rights under Section 146 of the
Companies Act 2006 are required to direct all communications to the registered
holder of their shares rather than to the Company's registrar, Equiniti, or to
the Company directly.
Electronic Proxy Voting
Legislation is in force which permits shareholders to submit proxy forms
electronically.
To submit a proxy form via the internet, an internet-enabled PC with Internet
Explorer 4 or Netscape 4 or above will be required. Shareholders will also need
their shareholder reference number (SRN) and Personal Identification Number
(PIN), which can be found on the personalised proxy form which accompanies this
report, to access this service. Before a proxy can be appointed, shareholders
will be asked to agree to the terms and conditions for electronic proxy
appointment. The use of the electronic proxy appointment service offered
through Equiniti Limited, the Company's registrars, is entirely voluntary.
Shareholders can continue to submit their proxy form by post if they wish.
Individual Savings Accounts
The Company's shares are eligible to be held in the stocks and shares component
of an ISA or Junior ISA, subject to applicable annual subscription limits (£
11,880 for an ISA and £3,840 for a Junior ISA for the 2014/2015 tax year).
Investments held in ISAs or Junior ISAs will be free of UK tax on both capital
gains and income. The opportunity to invest in shares through an ISA is
restricted to certain UK resident individuals aged 18 or over. Junior ISAs are
available for UK resident children aged under 18 and born before 1 September
2002 or after 2 January 2011. Sums received by a shareholder on a disposal of
shares held within an ISA or Junior ISA will not count towards the
shareholder's annual limit. Individuals wishing to invest in shares through an
ISA should contact their professional advisers regarding their eligibility as
should individuals wishing to invest through a Junior ISA for children under 18
years old.
The government has announced that with effect from 1 July 2014 ISAs will be
replaced with a new simpler product, the New ISA ("NISA") with equal limits for
cash and stocks and shares.
The overall NISA limits for 2014/15 will be £15,000 which offers the option to
save in cash, stocks and shares or any combination of the two.
Retail Investors advised by IFAs
The Company currently conducts its affairs so that its shares can be
recommended by Independent Financial Advisers ("IFAs") in the UK to ordinary
retail investors in accordance with the Financial Conduct Authority ("FCA")
rules in relation to non-mainstream investment products and intends to continue
to do so. The shares are excluded from the FCA's restrictions which apply to
non-mainstream investment products because they are shares in an authorised
investment trust.
Auditor
The Company's Auditor, KPMG Audit Plc, has indicated its willingness to
continue in office. The Auditor is currently engaged as KPMG Audit Plc. However
the Auditor has proposed that the parent entity, KPMG LLP, should be
recommended to the shareholders to become the Auditor in the future.
Resolutions for the appointment of KPMG LLP and to authorise the Board to
determine its remuneration will be proposed at the Annual General Meeting.
During the year the Company continued to obtain non-audit advice from tax
specialists within KPMG Taiwan in connection with the reclamation of tax
withheld on income arising from investments in Taiwan. The fees due in respect
of this work have exceeded the statutory audit fee. The Audit Committee has
considered whether this has had an effect on the independence and objectivity
of the external auditor including having obtained an assurance from the audit
partner on this matter, and have concluded that it has not. Non-audit fees due
to the Company's independent auditor, KPMG Audit Plc, for the year ended 31
January 2014 amounted to £26,000 (2013: £35,000). (See note 4 on page 47).
Financial Instruments
The Company's financial instruments comprise its investment portfolio, cash
balances, debtors and creditors that arise directly from its operations, such
as sales and purchases awaiting settlement and accrued income. The financial
risk management and policies arising from its financial instruments are
disclosed in notes 16 to 21 to the accounts.
Anti-Bribery and Corruption Policy
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit for
themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company.
A copy of the Company's anti-bribery and corruption policy can be found on its
website at www.pacific-assets.co.uk. The policy is reviewed regularly by the
Audit Committee.
Political Donations
The Company has not in the past and does not intend in the future to make any
political donations.
Creditor Payment Policy
The Company follows the Manager's payment policy which is to settle investment
transactions in accordance with market practice and to ensure settlement of
supplier invoices in accordance with stated terms. The Company did not have any
trade creditors at the year end.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
Large and Medium sized Companies and Groups (Accounts and Reports) Regulations
2008 (as amended), (including those within our underlying investment
portfolio).
By order of the Board
Frostrow Capital LLP
Company Secretary
14 April 2014
Governance / Statement of Directors' Responsibilities
Company law in the United Kingdom requires the Directors to prepare financial
statements for each financial year. The Directors are responsible for preparing
the Financial Statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors have:
• selected suitable accounting policies and applied them consistently;
• made judgments and estimates that are reasonable and prudent;
• followed applicable UK accounting standards; and
• prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Report of the Directors and
other information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the Listing Rules of the
Financial Conduct Authority.
The financial statements are published on the Company's website (
www.pacific-assets.co.uk) and via Frostrow's website (www.frostrow.com). The
maintenance and integrity of these websites, so far as it relates to the
Company, is the responsibility of Frostrow. The work carried out by the Auditor
does not involve consideration of the maintenance and integrity of these
websites and, accordingly, the Auditor accepts no responsibility for any
changes that have occurred to the financial statements since they were
initially presented on these websites. Visitors to the websites need to be
aware that legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in their
jurisdiction.
Going Concern
The Directors, having made relevant enquiries, are satisfied that it is
appropriate to prepare financial statements on the going concern basis as the
net assets of the Company consist of liquid securities.
Disclosure of Information to the Auditor
So far as the Directors are aware, there is no relevant information of which
the Auditor is unaware. The Directors have taken all steps they ought to have
taken to make themselves aware of any relevant audit information and to
establish that the Auditor is aware of such information.
Responsibility Statement of the Directors in respect of the annual financial
report
The Directors, whose details can be found on pages 20 and 21, confirm to the
best of their knowledge that:
• the Financial Statements, within this Annual Report, have been prepared in
accordance with applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and the return for the year ended
31 January 2014;
• the Chairman's Statement, Strategic Report and the Report of the Directors
include a fair review of the information required by 4.1.8R to 4.1.11R of the
FCA's Disclosure and Transparency Rules; and
• the annual report and financial statements taken as a whole are fair,
balanced and understandable and provide the information necessary to assess the
Company's performance, business model and strategy.
On behalf of the Board
David Nichol
Chairman
14 April 2014
Governance / Corporate Governance
Committees of the Board
Throughout the year a number of committees have been in operation, namely the
Audit Committee, the Engagement & Remuneration Committee and the Nomination
Committee. Each of these committees operates within clearly defined written
terms of reference which are available upon request from the Company Secretary.
The Audit Committee is chaired by Nigel Rich. The Directors believe that Nigel
Rich, a Chartered Accountant, has relevant financial knowledge and experience
to enable him to chair this Committee effectively. Both the Engagement &
Remuneration and Nomination Committees are chaired by David Nichol. All
Directors of the Company, including the Chairman, are members of all three
committees to enable them to be kept fully informed of any issues that may
arise.
The Audit Committee
The Company's Audit Committee met on two occasions during the year. The duties
of the Audit Committee in discharging its responsibilities include: reviewing
the annual and half-year accounts; the system of internal controls employed by
First State and Frostrow and the terms of appointment of the external auditor
together with its remuneration. It is also the forum through which the external
auditor reports to the Board of Directors. The objectivity of the external
auditor is reviewed by the Audit Committee which also reviews the terms under
which it is appointed to perform non-audit services. The Audit Committee
reviews the scope and results of the audit, its cost effectiveness and the
independence and objectivity of the external auditor, with particular regard to
non-audit fees. See page 25 for further details.
The Engagement and Remuneration Committee
The Company's Engagement & Remuneration Committee met on one occasion during
the year and its purpose is to review the appropriateness of the continuing
appointment of the Investment Manager and the Manager together with the terms
and conditions thereof on a regular basis.
The level of Directors' fees is also reviewed on a regular basis relative to
other comparable investment companies and in the light of Directors'
responsibilities.
The Directors Remuneration Report on pages 36 and 37 details the fees paid to
the Company's Directors for the years to 31 January 2013 and 31 January 2014.
The Nomination Committee
The Nomination Committee met on one occasion during the year and is convened
for the purposes of reviewing the re-election of Directors and considering the
appointment of additional Directors as and when considered appropriate. In
considering appointments to the Board, the Nomination Committee takes into
account the ongoing requirements of the Company and the need to have a balance
of skills and experience within the Board.
Individual Directors may, at the expense of the Company, seek independent
professional advice on any matter that concerns them in the furtherance of
their duties. The Company maintains appropriate Directors' and Officers'
liability insurance.
Risk Management
As part of the Board's role as Alternative Investment Fund Manager, under the
Alternative Investment Fund Management Directive, it has added a specific risk
management item to the agenda for each quarterly Board meeting. In addition, an
extra risk focused Board meeting has been added to its calendar of meetings.
Additional Board meetings will also be convened as required to consider any
issues that may arise.
Proxy Voting and Stewardship
The Board has instructed First State to take into account the published
corporate governance policy and the environmental practices and policies of the
companies in which they invest on behalf of the Company. The Company has
delegated responsibility for voting to First State.
The Board has considered First State's Stewardship Code and Proxy Voting Policy
and it reports to the Board, on the application of the Stewardship Code and
Voting Policy. First State's Stewardship Code and Voting Policy can be found on
its website in the Policies section.
Nominee Share Code
Where shares are held in a nominee company name, where the beneficial owner of
the shares is unable to vote in person, the Company nevertheless undertakes:
- to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
- to allow investors holding shares through a nominee company to attend general
meetings, provided the correct authority from the nominee company is available.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company's general meetings.
The Principles of the AIC Code
The AIC Code is made up of twenty-one principles split into three sections
covering:
- The Board
- Board Meetings and relations with First State and Frostrow
- Shareholder Communications
The Board
AIC Code Principle Compliance Statement
1. The Chairman should be The Chairman, David Nichol, continues to be
independent. independent of First State. There is a clear
division of responsibility between the Chairman,
the Directors, First State, Frostrow and the
Company's other third party service providers.
The Chairman is responsible for the leadership
of the Board and for ensuring its effectiveness
in all aspects of its role.
2. A majority of the Board The Board consists of five non-executive
should be independent of Directors, each of whom is independent of First
the manager. State. No member of the Board is a Director of
another investment company managed by First
State, nor has any Board member been an employee
of the Company, First State or any of its
service providers.
3. Directors should be All Directors will submit themselves for annual
submitted for re-election re-election by shareholders.
at regular intervals.
Nomination for re-election The individual performance of each Director
should not be assumed but standing for re-election is evaluated annually
be based on disclosed by the remaining members of the Board and, if
procedures and continued considered appropriate, a recommendation is made
satisfactory performance. that shareholders vote in favour of their
re-election at the Annual General Meeting.
4. The Board should have a The Board, meeting as the Nomination Committee,
policy on tenure, which is considers the structure of the Board and
disclosed in the annual recognises the need for progressive refreshing
report. of the Board.
The Board subscribes to the view expressed
within the AIC Code that long-serving Directors
should not be prevented from forming part of an
independent majority. It does not consider that
a Director's tenure necessarily reduces his
ability to act independently and, following
formal performance evaluations, believes that
each of the Directors is independent in
character and judgment and that there are no
relationships or circumstances which are likely
to affect their judgment. The Board's policy on
tenure is that continuity and experience are
considered to add significantly to the strength
of the Board and, as such, no limit on the
overall length of service of any of the
Company's Directors, including the Chairman, has
been imposed. In view of its non-executive
nature, the Board considers that it is not
appropriate for the Directors to be appointed
for a specified term, although new Directors are
appointed with the expectation that they will
serve for a minimum period of three years
subject to shareholder approval.
The terms and conditions of the Directors'
appointments are set out in letters of
engagement which are available for inspection on
request at the office of Frostrow and at the
Annual General Meeting.
5. There should be full The Directors' biographical details, set out on
disclosure of information pages 20 and 21 of this Report, demonstrate the
about the Board. wide range of skills and experience that they
bring to the Board.
Details of the Board's Committees and their
composition are set out on page 27 of this
Report.
The Audit Committee membership comprises all of
the Directors, all of whom are considered
independent. The Chairman of the Company is a
member of the Audit Committee, but does not
chair it. His membership of the Audit Committee
is considered appropriate given the Chairman's
extensive knowledge of the financial services
industry.
The Engagement & Remuneration Committee is
comprised of the whole Board, all Directors are
considered independent. The Chairman of the
Company acts as Chairman of this Committee in
light of the remit of the Committee.
6. The Board should aim to The Nomination Committee considers annually the
have a balance of skills, skills possessed by the Board and identifies any
experience, length of skill shortages to be filled by new Directors.
service and knowledge of
the company. When considering new appointments, the Board
reviews the skills of the Directors and seeks to
add persons with complementary skills or who
possess the skills and experience which fill any
gaps in the Board's knowledge or experience and
who can devote sufficient time to the Company to
carry out their duties effectively.
The experience of the current Directors is
detailed in their biographies set out on pages
20 and 21 of this Report.
The Company is committed to ensuring that any
vacancies arising are filled by the most
qualified candidates and recognises the value of
diversity in the composition of the Board. When
Board positions become available as a result of
retirement or resignation, the Company will
ensure that a diverse group of candidates is
considered.
7. The Board should During the year the performance of the Board,
undertake a formal and its committees and individual Directors
rigorous annual evaluation (including each Director's independence) was
of its own performance and evaluated through a formal assessment process
that of its committees and led by the Chairman. This involved the
individual directors. circulation of a Board effectiveness checklist,
tailored to suit the nature of the Company,
followed by discussions between the Chairman and
each of the Directors. The performance of the
Chairman was evaluated by the other Directors
under the leadership of Nigel Rich as the Senior
Independent Director. The review concluded that
the Board was working well.
During 2011 an independent review of the Board
was undertaken, the results of which were
considered by the Board. The Board has agreed
that a further such review will be commissioned
in 2014.
The Board is satisfied that the structure, mix
of skills and operation of the Board continue to
be effective and relevant for the Company.
8. Director remuneration The Engagement & Remuneration Committee
should reflect their periodically reviews the fees paid to the
duties, responsibilities Directors and compares these with the fees paid
and the value of their time by the Company's peer group and the investment
spent. trust industry generally, taking into account
the level of commitment and responsibility of
each Board member. Details on the remuneration
arrangements for the Directors of the Company
can be found in the Directors' Remuneration
Policy Report and Directors' Remuneration Report
on pages 36 to 38 and in note 4 to the Accounts.
As all of the Directors are non-executive, the
Board considers that it is acceptable for the
Chairman of the Company to chair meetings when
discussing Directors' fees. The Chairman takes
no part in discussions regarding his own
remuneration. The Board periodically takes
advice from external independent advisers on
Directors' remuneration.
9. The Independent The Nomination Committee is comprised of the
Directors should take the whole Board, all Directors being independent.
lead in the appointment of Subject to there being no conflicts of interest,
new Directors and the all members of the Committee are entitled to
process should be disclosed vote on candidates for the appointment of new
in the annual report. Directors and on recommending for shareholders'
approval the Directors seeking re-election at
the Annual General Meeting.
10. Directors should be New appointees to the Board are provided with a
offered relevant training full induction programme. The programme covers
and induction. the Company's investment strategy, policies and
practices. The Directors are also given key
information on the Company's regulatory and
statutory requirements as they arise including
information on the role of the Board, matters
reserved for its decision, the terms of
reference for the Board Committees, the
Company's corporate governance practices and
procedures and the latest financial information.
It is the Chairman's responsibility to ensure
that the Directors have sufficient knowledge to
fulfil their role and Directors are encouraged
to participate in training courses where
appropriate.
The Directors have access to the advice and
services of a Company Secretary through its
appointed representative which is responsible to
the Board for ensuring that Board procedures are
followed and that applicable rules and
regulations are complied with. The Company
Secretary is also responsible for ensuring good
information flows between all parties.
11. The Chairman (and the Principle 11 applies to the launch of new
Board) should be brought investment companies and is therefore not
into the process of applicable to the Company.
structuring a new launch at
an early stage.
Board Meetings and relations with First State and Frostrow
12. Boards and managers The Board meets regularly throughout the year
should operate in a and a representative of First State and Frostrow
supportive, co-operative is in attendance at each meeting and Committee
and open environment. meetings. The Chairman encourages open debate to
foster a supportive and co-operative approach
for all participants.
13. The primary focus at The Board has agreed a schedule of matters
regular Board meetings specifically reserved for decision by the Board.
should be a review of This includes establishing the investment
investment performance and objectives, strategy and benchmarks, the
associated matters, such as permitted types or categories of investments,
gearing, asset allocation, the markets in which transactions may be
marketing/investor undertaken, the amount or proportion of the
relations, peer group assets that may be invested in any category of
information and industry investment or in any one investment, and the
issues. Company's share issuance and share buy-back
policies.
The Board, at its regular meetings, undertakes
reviews of key investment and financial data,
revenue projections and expenses, analyses of
asset allocation, transactions and performance
comparisons, share price and net asset value
performance, marketing and shareholder
communication strategies, the risks associated
with pursuing the investment strategy, peer
group information and industry issues.
The Audit and Engagement & Remuneration
Committees respectively, review the Company's
risk matrix and the performance and cost of the
Company's third party service providers.
14. Boards should give The Board is responsible for strategy and has
sufficient attention to established an annual programme of agenda items
overall strategy. under which it reviews the objectives and
strategy for the Company at each meeting.
15. The Board should The Engagement & Remuneration Committee meets at
regularly review both the least once a year. It reviews annually the
performance of, and performance of First State and Frostrow. The
contractual arrangements Committee considers the quality, cost and
with, the investment remuneration method (including the performance
manager and the manager (or fee) of the service provided by First State and
executives of a Frostrow against their contractual obligations
self-managed company). and the Board receives regular reports on
compliance with the Investment Restrictions
which it has set. It also considers the
performance analysis provided by First State and
Frostrow.
The Audit Committee reviews the compliance and
control systems of both First State and Frostrow
in operation insofar as they relate to the
affairs of the Company and the Board undertakes
periodic reviews of the arrangements with and
the services provided by the Custodian, to
ensure that the safeguarding of the Company's
assets and security of the shareholders'
investment is being maintained.
16. The Board should agree The Investment Management Agreement between the
policies with the Company and First State sets out the limits of
investment manager and the First State's authority, beyond which Board
manager covering key approval is required. The Board has also agreed
operational issues. detailed investment guidelines with First State,
which are considered at each Board meeting.
A representative of the First State and Frostrow
attends each meeting of the Board to address
questions on specific matters and to seek
approval for specific transactions which First
State is required to refer to the Board.
The Board has delegated discretion to First
State to exercise voting powers on its behalf,
other than for contentious or sensitive matters
which are to be referred to the Board for
consideration.
The Board has reviewed First State's Stewardship
Policy, which includes its Corporate Governance
and Voting Guidelines, and which is published on
First State's website: www.firststate.co.uk
Reports on commissions paid by First State are
submitted to the Board regularly.
17. Boards should monitor The Board considers any imbalances in the supply
the level of the share of and the demand for the Company's shares in
price discount or premium the market and takes appropriate action when
(if any) and, if desirable, considered necessary.
take action to reduce it.
The Board considers the discount or premium to
net asset value of the Company's share price at
each Board meeting and reviews the changes in
the level of discount or premium and in the
share price since the previous Board meeting and
over the previous twelve months.
At each meeting the Board reviews reports from
both First State and Frostrow on marketing and
shareholder communication strategies. It also
considers their effectiveness as well as
measures of investor sentiment and any
recommendations on share buy-backs.
18. The Board should The Engagement & Remuneration Committee reviews,
monitor and evaluate other at least annually, the performance of all the
service providers. Company's third party service providers,
including the level and structure of fees
payable and the length of the notice period, to
ensure that they remain competitive and in the
best interests of shareholders.
The Audit Committee reviews reports from the
principal service providers on compliance and
the internal and financial control systems in
operation and relevant independent audit reports
thereon, as well as reviewing service providers'
anti-bribery and corruption policies to address
the provisions of the Bribery Act 2010.
Shareholder Communications
19. The Board should A detailed analysis of the substantial
regularly monitor the shareholders of the Company is provided to the
shareholder profile of the Directors at each Board meeting. Representatives
company and put in place a of First State and Frostrow regularly meet with
system for canvassing institutional shareholders and private client
shareholder views and for asset managers to discuss strategy and to
communicating the Board's understand their issues and concerns and, if
views to shareholders. applicable, to discuss corporate governance
issues. The results of such meetings are
reported at the following Board meeting.
Regular reports from the Company's Corporate
Stockbroker are submitted to the Board on
investor sentiment and industry issues.
Shareholders wishing to communicate with the
Chairman, or any other member of the Board, may
do so by writing to the Company, for the
attention of the Company Secretary at the
offices of Frostrow. All shareholders are
encouraged to attend the Annual General Meeting,
where they are given the opportunity to question
the Chairman, the Board and representatives of
First State. First State will make a
presentation to shareholders covering the
investment performance and strategy of the
Company at the forthcoming Annual General
Meeting. The Directors welcome the views of all
shareholders and place considerable importance
on communications with them.
20. The Board should All substantive communications regarding any
normally take major corporate issues are discussed by the
responsibility for, and Board taking into account representations from
have a direct involvement First State, Frostrow, the Auditor, legal
in, the content of advisers and corporate stockbroker.
communications regarding
major corporate issues even
if the manager is asked to
act as spokesman.
21. The Board should ensure The Company places great importance on
that shareholders are communication with shareholders and aims to
provided with sufficient provide them with a full understanding of the
information for them to Company's investment objective, policy and
understand the risk/reward activities, its performance and the principal
balance to which they are investment risks by means of informative Annual
exposed by holding the and Half Year reports and Interim Management
shares. Statements. This is supplemented by the daily
publication, through the London Stock Exchange,
of the net asset value of the Company's shares.
The Annual Report provides information on First
State's investment performance, portfolio risk
and operational and compliance issues. Further
details on the risk/reward balance are set out
in the Strategic Report under Investment Risk on
pages 9 and 10 and in note 16 to the Accounts.
The investment portfolio is listed on pages 12
and 13.
The Company's website, www.pacific-assets.co.uk,
is regularly updated with monthly factsheets and
provides useful information about the Company
including the Company's financial reports and
announcements.
By order of the Board
Frostrow Capital LLP
Company Secretary
14 April 2014
Governance / Audit Committee Report
for the year ended 31 January 2014
Meetings and business
The Committee, which comprises the whole Board, met twice during the year.
Attendance by each Director is shown in the table on page 20.
Responsibilities
The Committee's main responsibilities during the year were:
1. To review the Company's half-year and annual financial statements together
with announcements and other filings relating to the financial performance of
the Company and issues of the Company's shares. In particular, the Committee
considered whether the annual financial statements are fair, balanced and
understandable, allowing shareholders to more easily assess the Company's
strategy, investment policy, business model and financial performance.
2. To review the risk management and internal control processes of the Company
and its key service providers. As part of this review the Committee again
reviewed the appropriateness of the Company's anti-bribery and corruption
policy.
3. To recommend the appointment of an external auditor, and agreeing the scope
of its work and its remuneration, reviewing its independence and the
effectiveness of the audit process.
4. To consider any non-audit work to be carried out by the auditors. During the
year the Company continued to obtain non-audit advice from the external auditor
in connection with the reclamation of tax withheld on income arising from
investments in Taiwan. The fees due in respect of this work have exceeded the
statutory audit fee. The Audit Committee have considered whether this has had
an effect on the independence and objectivity of the independent auditor and
have concluded that it has not.
5. To consider the need for an internal audit function. Since the Company
delegates its day-to-day operations to third parties and has no employees, the
Committee has determined there is no requirement for such a function.
The Committee's terms of reference are available for review on the Company's
website at www.pacific-assets.co.uk.
Financial Statements
The financial statements, and the annual report as a whole, are the
responsibility of the Board. The Directors' Responsibility Statement is
contained on page 26. The Board looks to the Audit Committee to advise them in
relation to the financial statements both as regards their form and content,
issues which might arise and on any specific areas requiring judgment.
Significant Reporting Matters
During the year the Committee considered key accounting issues, matters and
judgments in relation to the Company's financial statements and disclosures
relating to:
Investments
The Committee approached and dealt with this area of risk by:
- reconfirming its understanding of the processes in place to record investment
transactions and to value the investment portfolio;
- gaining an overall understanding of the performance of the investment
portfolio both in capital and revenue terms through comparison to a suitable
benchmark; and
- Ensuring that all investment holdings and cash/deposit balances have been
agreed to an independent confirmation from the custodian or relevant bank.
Taxation
The Committee approached and dealt with the area of risk, surrounding
compliance with section 1158 of the Corporation Tax Act 2010, by:
- seeking confirmation that the Company meets the eligibility conditions as
outlined in section 1158;
- by obtaining written confirmation from HMRC, evidencing the approval of the
Company as an investment trust under the regime; and
- understanding the consequences if the Company breaches this approval in
future years.
External auditor
Meetings:
This year the nature and scope of the audit together with KPMG Audit Plc's
audit plan were considered by the Committee on 20 September 2013 without the
auditor being present.
As Chairman of the Committee, I spoke with the audit partner, Gareth Horner, on
19 March 2014 to discuss the outcome of the audit and the draft 2014 annual
report and accounts. The Committee then met KPMG Audit Plc on 1 April 2014 to
review the outcome of the audit and to discuss the limited issues that arose.
Given the changes to narrative reporting which are incorporated in the annual
report for the first time, we have also discussed the presentation of the
annual report with the auditor and sought their perspective.
Independence and Effectiveness:
In order to fulfil the Committee's responsibility regarding the independence of
the auditor, we reviewed:
- the senior audit personnel in the audit plan for the year,
- the auditor's arrangements concerning any conflicts of interest,
- the extent of any non-audit services, and
- the statement by the auditor that they remain independent within the meaning
of the regulations and their professional standards.
- auditor independence
In order to consider the effectiveness of the audit process, we reviewed:
- the auditor's fulfilment of the agreed audit plan,
- the report arising from the audit itself,
- feedback from the Manager, and
- a report from the FRC's Audit Quality Review Team.
The Committee is satisfied with the auditor's independence and the
effectiveness of the audit process, together with the degree of diligence and
professional scepticism brought to bear.
Nigel Rich, FCA
Chairman of the Audit Committee
14 April 2014
Governance / Directors' Remuneration Report
for the year ended 31 January 2014
Statement from the Chairman
I am pleased to present the Directors' Remuneration Report to shareholders.
This report has been prepared in accordance with the requirements of Section
421 of the Companies Act 2006 and the Enterprise and Regulatory Reform Act
2013. An Ordinary Resolution for the approval of this report will be put to
shareholders at the Company's forthcoming Annual General Meeting. The
Directors' Remuneration Policy Report, which is separate to this report, can be
found on page 38.
The law requires the Company's auditors to audit certain of the disclosures
provided in this report. Where disclosures have been audited, they are
indicated as such and the auditor's audit opinion is included in its report to
shareholders on pages 39 and 40. The Remuneration Policy Report on page 38
forms part of this report.
The Engagement & Remuneration Committee considers the framework for the
remuneration of the Directors on an annual basis. It reviews the ongoing
appropriateness of the Company's remuneration policy and the individual
remuneration of Directors by reference to the activities of the Company and
comparison with other companies of a similar structure and size. This is
in-line with the AIC Code.
At the most recent review held on 1 April 2014, it was agreed that there was to
be no increase to fees paid to the Directors during the year. Myself, as
Chairman of the Company and Nigel Rich as Chairman of the Audit Committee and
Senior Independent Director receive an annual fee of £28,000 and £24,000
respectively. Richard Horlick, Terence Mahony and James Williams each receive
an annual fee of £21,000. The last increase in Directors' fees took effect on 1
April 2012.
Directors' Fees
The Directors, as at the date of this report, and who (save for Stuart Leckie
and James Williams) all served throughout the year, received the fees listed in
the table above. These exclude any employers' national insurance contributions,
if applicable. No other forms of remuneration were received by the Directors
and so fees represent the total remuneration of each Director.
Directors' Emoluments for the Year (audited information)
The Directors who served in the year received the following emoluments in the
form of fees:
Date of Fees Fees
Appointment
to the Board 2014 2013
David Nichol (Chairman) 4 January 1985 28,000 27,333
Richard Horlick 1 December 2005 21,000 20,500
Stuart Leckie* 13 March 2001 8,448 20,500
Terence Mahony 1 February 2004 21,000 20,500
Nigel Rich** 1 January 1997 24,000 23,333
James Williams+ 1 October 2013 7,000 -
109,448 112,166
* Retired on 25 June 2013
** Chairman of the Audit Committee and Senior Independent Director
+ Appointed 1 October 2013
A non-binding Ordinary Resolution proposing adoption of the Remuneration Report
was put to shareholders at the Annual General Meeting of the Company held on 25
June 2013, and was passed by 98.0% of shareholders voting on the Resolution.
Other Benefits
Taxable Benefits - Article 117 of the Company's Articles of Association
provides that Directors are entitled to be reimbursed for reasonable expenses
incurred by them in connection with the performance of their duties and
attendance at Board and General Meetings.
Pensions related benefits - Article 118 permits the Company to provide pension
or similar benefits for Directors and employees of the Company. However, no
pension schemes or other similar arrangements have been established and no
Director is entitled to any pension or similar benefits.
Loss of Office
Directors do not have service contracts with the Company but are engaged under
Letters of Appointment. These specifically exclude any entitlement to
compensation upon leaving office for whatever reason.
The bar chart below shows the comparative cost of Directors' fees compared with
the level of dividend distribution for 2013 and 2014.
Relative Cost of Directors' Remuneration
As noted in the Strategic Report, all of the Directors are non-executive and
therefore there is no Chief Executive Officer. The Company does not have any
employees. There is therefore no CEO or employee information to disclose.
Directors' Interest in Shares
The Directors interests in the share capital of the Company are shown in the
table below:
Number of shares
held
31 31
January January
2014 2013
David Nichol Beneficial 75,000 40,000
Trustee 100,000 100,000
Richard Horlick Beneficial Nil Nil
Stuart Leckie* - 100,000
Terence Mahony Beneficial Nil Nil
Nigel Rich Beneficial 45,000 25,000
Trustee 9,650 8,200
James Williams†Beneficial 20,000 -
Total 249,650 273,200
* Retired on 25 June 2013
†appointed 1 October 2013
None of the Directors has any contract (including service contracts) with the
Company.
Share Price Total Return
The Company's benchmark is the MSCI All Country Asia ex Japan Index on a total
return, sterling adjusted basis. The Board has adopted this index as a measure
for both the Company's performance and that of First State, the Company's
Investment Manager. In accordance with statutory reporting purposes this report
is required to compare the Company's share price total return to that of the
benchmark index. The chart below provides this comparison.
Annual Statement
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large
and Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013. I confirm that the Remuneration Policy, set out on page 38,
and Remuneration Report summarises, as applicable, for the year to 31 January
2014:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration made during the
year; and
(c) the context in which the changes occurred and decisions have been taken.
David Nichol
Chairman
Governance / Directors' Remuneration Policy Report
The Company's remuneration policy provides that fees payable to the Directors
should reflect the time spent by the Board on the Company's affairs and the
responsibilities borne by the Directors and should be sufficient to enable
candidates of high calibre to be recruited. Directors are remunerated in the
form of fees payable monthly in arrears, paid to the Director personally or to
a specified third party. There are no long term incentive schemes, share option
schemes or pension arrangements and the fees are not specifically related to
the Directors' performance, either individually or collectively. Directors'
remuneration comprises solely Directors' fees. The current and projected
Directors' fees for 2014 and 2015 are shown in the table below. The Company
does not have any employees.
Directors' Fees Current and Projected
Projected
fees Fees paid
payable
year year
ending ended
31 31
January January
2015 2014
David Nichol 28,000 28,000
Richard Horlick* 8,381 21,000
Terence Mahony 21,000 21,000
Nigel Rich* 24,000 24,000
James Williams†21,000 7,000
* Mr Horlick will retire from the Board on 24 June 2014
** Chairman of the Audit Committee and Senior Independent Director.
†appointed 1 October 2013.
No change is expected to the current level of Directors' fees until 1 February
2015.
None of the Directors has a service contract. The terms of their appointment
provide that Directors shall retire and be subject to election at the first
annual general meeting after their appointment and to re-election annually
thereafter. The terms also provide that a Director may be removed without
notice and that compensation will not be due on leaving office.
No communications have been received from shareholders regarding Directors'
remuneration.
The remuneration for the non-executive Directors is determined within the
limits set out in the Company's Articles of Association. The present limit is £
200,000 in aggregate per annum.
It is the Board's intention that the remuneration policy will be considered by
shareholders at the Annual General Meeting at least once every three years.
An Ordinary Resolution for the approval of this policy will be considered by
shareholders at the forthcoming Annual General Meeting.
Financial Statements / Independent Auditor's Report to the Members of Pacific
Assets Trust plc
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Pacific Assets Trust plc for the
year ended 31 January 2014 set out on pages 41 to 55. In our opinion the
financial statements:
• give a true and fair view of the state of the company's affairs as at 31
January 2014 and of its profit for the year then ended;
• have been properly prepared in accordance with UK accounting standards; and
• have been prepared in accordance with the requirements of the Companies Act
2006.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the risk of
material misstatement that had the greatest effect on our audit was as follows:
Carrying amount of Quoted Investments:
Refer to pages 34 to 35 (Audit Committee report), pages 44 to 45 (accounting
policy) and page 49 (financial disclosures).
• The risk - The Company's portfolio investments make up 94% of the Total
Assets and are considered to be the key driver of operations and performance
results. We do not consider investments to be at high risk of significant
misstatement, or requiring a significant level of judgment, because they are
comprised of liquid, quoted investments. However, due to their materiality in
the context of the financial statements as a whole, they are considered to be
the area which had the greatest effect on our overall audit strategy and
allocation of resources in planning and completing our audit.
• Our response - Our procedures over the existence, completeness and valuation
of the Company's investment portfolio included, but were not limited to:
- documenting and assessing the processes in place to record investment
transactions and to value the portfolio;
- agreeing the valuation of portfolio investments to externally quoted prices;
and
- agreeing portfolio investment holdings to independently received third party
confirmations.
3. Our application of materiality and an overview of the scope of our audit
The materiality for the financial statements as a whole was set at £1.9m. This
has been determined with reference to a benchmark of Total Assets, of which it
represents 1%. Total Assets, which is primarily composed of the Company's
investment portfolio, is considered the key driver of the company's capital and
revenue performance and, as such, we believe that it is the principal
consideration for members of the Company in assessing financial performance.
We agreed with the Audit Committee to report to it all corrected and
uncorrected misstatements we identified through our audit with a value in
excess of £0.07m, in addition to other audit misstatements below that threshold
that we believe warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above and was performed at the Administrator, Frostrow Capital LLP in London.
4. Our opinion on other matters prescribed by the Companies Act 2006 is
unmodified
In our opinion:
• the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006;
• the information given in the Strategic Report and the Directors' Report for
the financial year for which the financial statements are prepared is
consistent with the financial statements; and
• the information given in the Corporate Governance Statement set out on pages
27 to 33 with respect to internal control and risk management systems in
relation to financial reporting processes and about share capital structures is
consistent with the financial statements.
5. We have nothing to report in respect of the matters on which we are required
to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based on the
knowledge we acquired during our audit, we have identified other information in
the annual report that contains a material inconsistency with either that
knowledge or the financial statements, a material misstatement of fact, or that
is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired
during our audit and the directors' statement that they consider that the
annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the company's performance, business model and strategy; or
• the Audit Committee Report does not appropriately address matters
communicated by us to by the Audit Committee.
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
• adequate accounting records have not been kept by the company, or returns
adequate for our audit have not been received from branches not visited by us;
or
• the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit; or
• a Corporate Governance Statement has not been prepared by the company.
Under the Listing Rules we are required to review:
• the Directors' statement, set out on page 26, in relation to going concern;
and
• the part of the Corporate Governance Statement on pages 27 to 33 relating to
the company's compliance with the nine provisions of the UK Corporate
Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the Directors' Responsibilities Statement, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. A description of the
scope of an audit of accounts is provided on the Financial Reporting Council's
website at www.frc.org.uk/auditscopeukprivate. This report is made solely to
the Company's members as a body and subject to important explanations and
disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are incorporated into this report as
if set out in full and should be read to provide an understanding of the
purpose of this report, the work we have undertaken and the basis of our
opinions.
Gareth Horner (Senior Statutory Auditor)
for and on behalf of KPMG Audit plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
14 April 2014
Financial Statements / Income Statement
for the year ended 31 January 2014
2014 2013
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held 8 - 1,792 1,792 - 35,724 35,724
at fair value through
profit or loss
Exchange differences - (204) (204) - (97) (97)
Income 2 4,195 - 4,195 4,168 - 4,168
Investment management, 3 (455) (2,711) (3,166) (395) (1,811) (2,206)
management and
performance fees
Other expenses 4 (567) (29) (596) (538) (19) (557)
Return on ordinary 3,173 (1,152) 2,021 3,235 33,797 37,032
activities before
taxation
Taxation on ordinary 5 (298) - (298) (262) - (262)
activities
Return/(loss) after 2,875 (1,152) 1,723 2,973 33,797 36,770
taxation attributable to
equity shareholders
Return/(loss) per 7 2.5 (1.0) 1.5 2.6 28.9 31.5
Ordinary Share (p)
The Total column of this statement represents the Company's Income Statement.
The Revenue and Capital columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies (AIC).
All revenue and capital items in the Income Statement derive from continuing
operations.
The Company had no recognised gains or losses other than those declared in the
Income Statement.
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2014
2014 2013
Notes £'000 £'000
Opening shareholders' funds 187,602 153,870
Return for the year 1,723 36,770
Dividend paid 6 (3,038) (3,038)
Closing shareholders' funds 186,287 187,602
The accompanying notes are an integral part of these statements.
Financial Statements / Balance Sheet
as at 31 January 2014
2014 2013
Notes £'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value 8 175,532 173,990
through profit or loss
Current assets
Debtors 9 561 518
Cash at bank 13,052 15,124
13,613 15,642
Creditors (amounts falling due within 10 (2,858) (2,030)
one year)
Net current assets 10,755 13,612
Net assets 186,287 187,602
Capital and reserves
Share capital 11 14,606 14,606
Share premium account 12 4 4
Capital redemption reserve 12 1,648 1,648
Special reserve 12 14,572 14,572
Capital reserve 12 149,336 150,488
Revenue reserve 12 6,121 6,284
Equity shareholders' funds 13 186,287 187,602
Net asset value per Ordinary Share 13 159.4 160.6
(p)
The accounts on pages 41 to 55 were approved and authorised for issue by the
Board of Directors on 14 April 2014 and signed on its behalf by:
David Nichol
Chairman
The accompanying notes are an integral part of this statement.
Pacific Assets Trust plc - Company Registration Number: SC091052 (Registered in
Scotland)
Financial Statements / Cash Flow Statement
for the year ended 31 January 2014
2014 2013
Notes £'000 £'000 £'000 £'000
Operating activities
Investment income received 3,921 4,020
Investment management and management (2,422) (1,494)
fees paid
Other cash payments (910) (622)
Net cash inflow from operating 14 589 1,904
activities
Capital expenditure and financial
investment
Purchase of investments (47,009) (40,030)
Disposal of investments 47,590 49,277
Net cash inflow from investing 581 9,247
activities
Equity dividends paid (3,038) (3,038)
Net cash (outflow)/inflow before (1,868) 8,113
financing
(Decrease)/increase in cash 15 (1,868) 8,113
Reconciliation of net cash flow to
movement in net funds
(Decrease)/increase in cash in the (1,868) 8,113
year
Change in net funds resulting from (1,868) 8,113
cash flows
Currency losses (204) (97)
Movement in net funds (2,072) 8,016
Net funds at 1 February 15,124 7,108
Net funds at 31 January 15 13,052 15,124
The accompanying notes are an integral part of this statement.
Financial Statements / Notes to the Accounts
1. Accounting Policies
A summary of the principal accounting policies adopted is set out below.
(a) Basis of accounting
These financial statements have been prepared under UK Generally Accepted
Accounting Practice (`UK GAAP') and in accordance with guidelines set out in
the Statement of Recommended Practice (`SORP'), dated January 2009, for
investment trust companies and Venture Capital Trusts issued by the Association
of Investment Companies (`AIC').
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in
accordance with the SORP, supplementary information which analyses the Income
Statement between items of a revenue and capital nature has been presented
alongside the Income Statement. The net revenue return is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Sections 1158 and 1159 of the Corporation Tax
Act 2010.
(b) Valuation of investments
Investments are classified as fair value through profit or loss and are
recognised and de-recognised at trade date where a purchase or sale is under a
contract whose terms require delivery within the time frame established by the
market concerned. Financial assets designated as fair value through profit or
loss on initial recognition are measured initially and at subsequent reporting
dates at fair value. For listed securities this is either bid price or last
traded price, depending on the convention of the exchange on which the
investment is listed. Changes in fair value are included in the Income
Statement as a capital item.
(c) Income
Dividends receivable on equity shares are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when the
Company's right to receive payment is established. Foreign dividends are
grossed up at the appropriate rate of withholding tax.
Deposit interest is recognised on an accruals basis.
Special dividends of a revenue nature are recognised through the revenue column
of the Income Statement. Special dividends of a capital nature are recognised
through the capital column of the Income Statement.
Where the Company has elected to receive its dividends in the form of
additional shares rather than cash the amount of the stock dividend is
recognised as income.
(d) Expenses and interest
All expenses and interest are accounted for on an accruals basis. Expenses and
interest are charged to the Income Statement as a revenue item except where
incurred in connection with the maintenance or enhancement of the value of the
Company's assets and taking account of the expected long-term returns, when
they are split as follows:
- Investment Management and Management fees payable have been allocated 25% to
revenue and 75% to capital.
- Performance fees are charged 100% to capital.
- Transaction costs incurred on the purchase and sale of investments are taken
to the Income Statement as a capital item.
(e) Taxation
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue as set out in note 5 to the financial
statements. The standard rate of corporation tax is applied to taxable net
revenue. Any adjustment resulting from relief for overseas tax is allocated to
the revenue reserve.
(f) Deferred taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Balance Sheet date where transactions or
events that result in an obligation to pay more, or right to pay less, tax in
future have occurred at the Balance Sheet date. This is subject to deferred tax
assets only being recognised if it is considered more likely than not that
there will be suitable profits from which the future reversal of the underlying
timing differences can be deducted. Timing differences are differences arising
between the Company's taxable profits and its results as stated in the accounts
which are capable of reversal in one or more subsequent periods. Deferred tax
is measured without discounting and based on enacted tax rates. Due to the
Company's status as an investment trust, and the intention to meet the
conditions required to obtain approval under Sections 1158 and 1159 of the
Corporation Tax Act 2010 the Company has not provided for deferred tax on any
capital gains and losses arising on the revaluation or disposal of investments.
(g) Foreign currencies
Transactions denominated in foreign currencies are recorded in the local
currency at actual exchange rates at the date of the transaction. Overseas
assets and liabilities are translated at the rate ruling at the Balance Sheet
date. Profits or losses on the retranslation of investments at the year end are
included within unrealised appreciation/depreciation of investments and are
taken to the capital reserve. Exchange gains and losses of a revenue nature are
taken to the revenue account. The functional currency of the Company, being its
statutory reporting currency, is sterling.
Rates of exchange at 31 January 2014 2013
Bangladesh Taka 127.66 125.66
Hong Kong Dollar 12.76 12.30
Indian Rupee 102.97 84.33
Indonesian Rupiah 20,067 15,442
Japanese Yen 167.61 144.69
Korean Won 1,759 1,726
Malaysian Ringgit 5.50 4.93
New Taiwanese Dollar 49.79 46.81
Philippine Peso 74.48 64.50
Singaporean Dollar 2.10 1.96
Sri Lankan Rupee 214.88 200.32
Thai Baht 54.25 47.28
U.S. Dollar 1.64 1.59
(h) Capital reserve
The following are accounted for in this reserve:
- gains and losses on the realisation of investments;
- increases and decreases in the valuation of investments held at year end;
- realised and unrealised exchange differences of a capital nature;
- expenses and finance costs, together with the related taxation effect,
charged to this reserve in accordance with note (d) on the previous page;
- realised gains and losses on transactions undertaken to hedge an exposure of
a capital nature; and
- other receipts and payments of a capital nature.
2. Income
2014 2013
£'000 £'000
Dividend income from investmentsâ€
Listed overseas 4,195 4,168
Other income‡
Deposit interest - -
Total income 4,195 4,168
†All investments have been designated as fair value through profit or loss on
initial recognition, therefore all investment income arises on investments at
fair value through profit or loss.
‡ Other income on financial assets not designated as fair value through profit
or loss.
3. Investment Management, Management and Performance Fees
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee - 364 1,090 1,454 318 952 1,270
First State
Investment management - 1,346 1,346 - 627 627
performance fee - First State
Management fee - Frostrow 91 275 366 77 232 309
455 2,711 3,166 395 1,811 2,206
First State Investment Management (UK) Limited are entitled to an investment
management fee of 0.75% per annum of net assets. In addition there is a
performance fee of 12.5% of returns in excess of the MSCI All Country Asia ex
Japan Index plus a hurdle of 1.75% per annum, measured over a rolling three
year period. The Board has capped the total of the investment management fee
and the performance fee at 1.75% of the average asset value per annum.
Frostrow Capital LLP are entitled to a management fee of 0.2% per annum (plus
VAT) of market capitalisation.
4. Other Expenses
2014 2013
£'000 £'000
Directors' fees 109 112
Auditor's remuneration for:
- annual audit 20 19
- tax compliance services 6 6
- other services relating to taxation* 20 29
Savings scheme costs 6 5
Marketing costs 20 17
Custody fees 117 92
Other expenses 269 258
Revenue expenses 567 538
Capital expenses 29 19
Total expenses 596 557
* includes costs in relation to the recovery of Taiwanese withholding tax for
the period 2005 to 2011, and the provision of Taiwanese tax guarantor services.
(See the Report of the Directors on page 25 for further details).
5(a). Tax on Ordinary Activities
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Overseas taxation 344 - 344 297 - 297
Overseas tax recoverable (46) - (46) (35) - (35)
298 - 298 262 - 262
Overseas tax arose as a result of irrecoverable withholding tax on foreign
dividends.
(b) Reconciliation of tax charge
The revenue account tax charge for the year is lower than the standard rate of
corporation tax in the UK for an investment company 23.17% (2013: 24.35%). The
differences are explained below:
2014 2013
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Total return/(loss) on 3,173 (1,152) 2,021 3,235 33,797 37,032
ordinary activities before tax
Corporation tax charged at 735 (267) 468 788 8,229 9,017
23.17%* (2013: 24.35%)
(Gains) on investments that - (415) (415) - (8,699) (8,699)
are not taxable held at fair
value through profit or loss
Exchange differences - 47 47 - 24 24
Unutilised management expenses 197 628 825 226 446 672
Disallowed expenses 1 7 8 1 - 1
Income not subject to (933) - (933) (1,015) - (1,015)
corporation tax
Overseas taxation 344 - 344 297 - 297
Overseas tax recoverable (46) - (46) (35) - (35)
(Taiwan)
Tax charge for the year 298 - 298 262 - 262
* An average rate of 23.17% was applicable for the year ended 31 January 2014
due to the corporation tax rate being reduced to 23% from 24% on 1 April 2013.
As at 31 January 2014 the Company had unutilised management expenses and other
reliefs for taxation purposes of £20,987,000 (2013: £17,430,000). It is not
anticipated that these will have value in the foreseeable future.
6. Dividends
Under UK GAAP, final dividends are not recognised and paid until they are
approved by shareholders. Amounts recognised as distributable to shareholders
for the year ended 31 January 2014, were as follows:
2014 2013
£'000 £'000
- final dividend paid for the year ended 31 January 2013 of 3,038
2.60p per share
- final dividend paid for the year ended 31 January 2012 of 3,038
2.60p per share
In respect of the year ended 31 January 2014, a dividend of 2.60p has been
proposed, to be approved at the forthcoming Company's Annual General Meeting
(AGM) which will take place on Tuesday, 24 June 2014.
In accordance with FRS 21 this dividend will be reflected in the half-year
accounts for the period ending 31 July 2014.
The dividends payable in respect of both the current and the previous financial
year, which meet the requirements of Section 1158-1159 CTA 2010, are set out
below:
2014 2013
£'000 £'000
Revenue available for distribution by way of dividend for the 2,875 2,973
year
Proposed dividend of 2.60p (to be approved at the AGM) (3,038) (3,038)
(163) (65)
7. Return/(loss) per share
The Return/(loss) per share is as follows:
2014 2013
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Basic and diluted 2.5 (1.0) 1.5 2.6 28.9 31.5
The total return per share is based on the total return attributable to
shareholders of £1,723,000 (2013: £36,770,000).
The revenue return per share is based on the net revenue return attributable to
shareholders of £2,875,000 (2013: £2,973,000).
The capital return per share is based on the net capital loss attributable to
shareholders of £1,152,000 (2013: return of £33,797,000).
The total return, revenue return and the capital loss per share are based on
the weighted average number of shares in issue during the year of 116,848,386
(2013: 116,848,386).
8. Investments
All investments are designated as fair value through profit or loss on initial
recognition, therefore all gains and losses arise on investments designated as
fair value through profit or loss.
As at 31 January 2014, all investments have been classified as level 1 (2013:
level 1). See note 16 beginning on page 31 for further details.
2014 2013
£'000 £'000
Investments held at fair value through profit of loss
Investments listed on recognised investment exchanges 175,532 173,990
Valuation at start of year 173,990 146,882
Less: valuation gains at start of year (39,420) (5,246)
Cost at start of year 134,570 141,636
Purchases at cost 47,083 40,915
Disposals proceeds (47,333) (49,531)
Realised gains on disposals 9,555 1,550
Cost at end of year 143,875 134,570
Add valuation gains at end of year 31,657 39,420
Valuation at end of year 175,532 173,990
2014 2013
£'000 £'000
Realised gains on sales 9,555 1,550
Of which previously recognised as fair value adjustment (8,946) 319
Realised gains for the year 609 1,869
Movement in fair value 1,183 33,855
Gains on investments 1,792 35,724
During the year the Company incurred transaction costs on purchases of £126,898
(2013: £119,544) and transaction costs on sales of £183,780 (2013: £190,437).
9. Debtors
2014 2013
£'000 £'000
Amounts due from brokers - 257
Accrued income 88 59
Overseas tax recoverable (Taiwan) 110 163
Other debtors 363 39
561 518
10. Creditors: amounts falling due within one year
2014 2013
£'000 £'000
Amounts due to brokers 964 890
Investment management fee 357 343
Investment management performance fee 1,358 627
Management fee 85 86
Other creditors 94 84
2,858 2,030
11. Share capital
2014 2013
£'000 £'000
Allotted and fully paid:
116,848,386 Ordinary Shares of 12.5p each (2013: 116,848,386) 14,606 14,606
The capital of the Company is managed in accordance with its investment policy,
in pursuit of its investment objective, both of which are detailed in the
Report of the Directors on page 22.
The Company does not have any externally imposed capital requirements.
12. Reserves
Share Capital
premium redemption Special Capital Revenue
account reserve reserve reserve reserve
£'000 £'000 £'000 £'000 £'000
At 31 January 2013 4 1,648 14,572 150,488 6,284
Net gain on realisation of - - - 9,555 -
investments
Increase in fair value adjustment on - - - (7,763) -
investments
Exchange differences - - - (204) -
Investment management, management - - - (2,711) -
and performance fees charged to
capital
Retained net revenue return for the - - - - 2,875
year
Other expenses - - - (29) -
Dividends paid - - - - (3,038)
At 31 January 2014 4 1,648 14,572 149,336 6,121
As at 31 January 2014 capital reserves relating to the revaluation of
investments held at the reporting date amounted to an unrealised gain of £
31,657,000 (2013: unrealised gain of £39,420,000).
13. Net asset value per Ordinary Share
The net asset value per Ordinary Share and the net asset value attributable to
the Ordinary Shares at the year end are calculated as follows:
Net asset value Net asset
values
per share attributable
attributable
2014 2013 2014 2013
pence pence £'000 £'000
159.4 160.6 186,287 187,602
The net asset value per share is calculated on net assets of £186,287,000
(2013: £187,602,000), divided by 116,848,386 (2013: 116,848,386) shares, being
the number of shares in issue at the year end.
14. Reconciliation of net return/(loss) before finance costs and taxation to
net cash inflow from operating activities
2014 2013
£'000 £'000
Net return before finance costs and taxation 2,021 37,032
Gains on investments (1,792) (35,724)
Exchange differences 204 97
(Increase)/decrease in accrued income (38) 147
Increase in prepayments and other debtors (324) (20)
Increase in other creditors 754 666
Irrecoverable withholding tax on investment income (236) (294)
Net cash inflow from operating activities 589 1,904
15. Analysis of changes in net funds
Cash at Cash at
bank bank
2014 2013
£'000 £'000
At 1 February 15,124 7,108
Cash flow (1,868) 8,113
Currency movements (204) (97)
At 31 January 13,052 15,124
16. Financial instruments
The Company's financial instruments comprise its investment portfolio, cash
balances and debtors and creditors that arise directly from its operations. As
an investment trust the Company holds a portfolio of financial assets in
pursuit of its investment objective.
Listed fixed asset investments held (see note 8 on page 49) are valued at fair
value. For listed securities this is either bid price or the last traded price
depending on the convention of the exchange on which the investment is listed.
Unlisted investments are valued by the Directors on the basis of all the
information available to them at the time of valuation. The fair value of all
other financial assets and liabilities is represented by their carrying value
in the Balance Sheet shown on page 42.
The main risks that the Company faces arising from its financial instruments
are:
(i) market price risk, being the risk that the value of investment holdings
will fluctuate as a result of changes in market prices caused by factors other
than interest rate or currency rate movements;
(ii) interest rate risk, being the risk that the future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates;
(iii) foreign currency risk, being the risk that the value of investment
holdings, investment purchases, investment sales and income will fluctuate
because of movements in currency rates;
(iv) credit risk, being the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered into
with the Company; and
(v) liquidity risk, being the risk that the Company will not be able to meet
its liabilities when they fall due. This may arise should the Company not be
able to liquidate its investments. It is believed that the investment portfolio
of £175.5 million is realisable in full within a week.
Investments are financial assets designated at fair value through profit or
loss on initial recognition. In accordance with Financial Reporting Standard 29
`Financial Instruments : Disclosures', investments are classified based on the
fair value hierarchy described below and which reflects the reliability and
significance of the information used to measure their fair value.
As at 31 January 2014, all of the financial instruments held by the Company are
classified as level 1 and there are no level 2 or level 3 instruments (2013:
all financial instruments classified as level 1).
The levels are determined by the lowest (that is the least reliable or least
independently observable) level of impact that is significant to the fair value
measurement for the individual investment in its entirety as follows:
Level 1 reflects financial instruments quoted in an active market.
Level 2 reflects financial instruments whose fair value is evidenced by
comparison with other observable current market transactions in the same
instrument or based on a valuation technique whose variables includes only data
from observable markets.
Level 3 reflects financial instruments whose fair value is determined in whole
or in part using a valuation technique based on assumptions that are not
supported by prices from observable market transactions in the same instrument
and not based on available observable market data.
17. Market price risk
The management of market price risk is part of the investment management
process and is typical of equity investment. The portfolio is managed with an
awareness of the effects of adverse price movements through detailed and
continuing analysis with an objective of maximising overall returns to
shareholders. Further information on the investment portfolio is set out on
pages 12 and 13. Derivatives may be used from time to time, with prior Board
approval, to hedge specific market risk or gain exposure to a specific market
although it is the Company's current policy not to use derivatives.
During the year ended 31 January 2014, there were no derivative contracts
entered into.
If the investment portfolio valuation fell by 10% at 31 January 2014 (31
January 2013: 10%), the impact on the profit or loss and the net asset value
would have been negative £17.6 million (2013: negative £17.4 million). If the
portfolio valuation rose by 10% at 31 January 2014 (31 January 2013: 10%), the
impact on the profit or loss and the net asset value would have been positive £
17.6 million (2013: positive £17.4 million). The calculations are based on the
portfolio valuation as at the respective Balance Sheet dates and are not
representative of the year as a whole.
18. Interest rate risk
Floating rate
When the Company retains cash balances the majority of the cash is held in
overnight deposit accounts. The benchmark rate which determines the interest
payments received on cash balances is the bank base rate for the relevant
currency for each deposit.
Fixed rate
The Company does not hold any fixed interest investments and accordingly no
sensitivity analysis has been presented.
19. Foreign currency risk
The Company invests in overseas securities and holds foreign currency cash
balances which give rise to currency risks. It is not the Company's policy to
hedge this risk on a continuing basis but it may do so from time to time.
Foreign currency exposure:
2014 2013
Short- Short- Short- Short-
term term term term
Investments Cash Debtors Creditors Investments Cash Debtors Creditors
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Bangladesh 1,081 - - - 369 - - -
Taka
Hong Kong 18,159 - - - 18,502 97 - -
Dollar
Indian Rupee 49,895 20 320 322 34,691 23 2 (739)
Indonesian 3,337 - - 642 912 - - -
Rupiah
Japanese Yen - - - - 183 - 80 -
Korean Won 15,680 - 52 - 21,286 - 11 -
Malaysian 9,606 - - - 10,781 - - -
Ringgit
New Taiwanese 33,468 73 110 - 26,160 1,793 163 (151)
Dollar
Philippine 13,108 - - - 18,627 - 6 -
Peso
Singaporean 18,107 - 36 - 27,456 - 219 -
Dollar
Sri Lankan 1,574 - - - 424 - - -
Rupee
Thai Baht 11,517 - - - 10,140 - - -
U.S. Dollar - 1 - - 4,459 39 - -
Total 175,532 94 518 964 173,990 1,952 481 (890)
At 31 January 2014 the Company had £12,958,000 of sterling cash balances (2013:
£13,172,000).
If the value of sterling had weakened against each of the currencies in the
portfolio by 5%, the impact on the profit or loss and the net asset value would
have been positive £8.8 million (2013: positive £8.8 million). If the value of
sterling had strengthened against each of the currencies in the portfolio by
5%, the impact on the profit or loss and the net asset value would have been
negative £8.8 million (2013: negative £8.8 million). The calculations are based
on the portfolio valuation and cash balances as at the respective Balance Sheet
dates and are not representative of the year as a whole.
20. Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail
to discharge an obligation or commitment that it has entered into with the
Company. The investment manager has in place a monitoring procedure in respect
of counterparty risk which is reviewed on an ongoing basis. The carrying
amounts of financial assets best represents the maximum credit risk exposure at
the balance sheet date.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
2014 2013
£'000 £'000
Cash and cash equivalents 13,052 15,124
Amounts due from brokers - 257
Interest, dividends and other receivables 561 261
13,613 15,642
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to
be small due to the short settlement period involved and the high credit
quality of the brokers used. The Investment Manager monitors the quality of
service provided by the brokers used to further mitigate this risk.
All the assets of the Company which are traded on a recognised exchange are
held by JPMorgan Chase Bank the Company's custodian. Bankruptcy or insolvency
of the custodian may cause the Company's rights with respect to securities held
by the custodian to be delayed or limited. The Board monitors the Company's
risk by reviewing the custodian's internal control reports as described in the
Report of the Directors on page 10.
The credit risk on liquid funds and derivative financial instruments is
controlled because the counterparties are banks with high credit ratings, rated
AA or higher, assigned by international credit rating agencies. Bankruptcy or
insolvency of such financial institutions may cause the Company's ability to
access cash placed on deposit to be delayed, limited or lost.
No individual investment exceeded 6.3% of the total assets less current
liabilities attributable to the Company's shareholders at 31 January 2014
(2013: 5.7%).
21. Liquidity risk
The Company's listed securities are considered to be readily realisable within
one week.
The Company's liquidity risk is managed on an ongoing basis by the Investment
Manager. The Company's overall liquidity risks are monitored on a quarterly
basis by the Board.
The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses.
22. Related party transactions
The following are considered to be related parties:
• First State
• The Directors of the Company
The Company employs First State Investments (UK) Limited as its investment
manager. During the year ended 31 January 2014, First State Investments (UK)
Limited earned £1,454,000 in respect of Investment Management fees, of which £
357,000 was outstanding at the year end. A performance fee of £1,358,000 became
payable at 31 January 2014 and was outstanding at the year end. All material
related party transactions have been disclosed on pages 21, 36 and 37 and in
notes 3 and 4 on pages 46 and 47. Details of the remuneration of all Directors
can be found on page 36.
23. Contingent assets
In 2010 the Company submitted a claim for approximately £580,000 of Taiwanese
withholding tax that had been suffered in excess of the agreed treaty rate
between 2005 and 2009.
To date, £338,000 has been successfully recovered with £46,000 recovered in the
year to 31 January 2014 (2013:£35,000). The remaining outstanding claim of £
242,000 has been approved by the Taipei region and is expected to be received
in due course.
The Company has engaged KPMG to recover the tax withheld and in the event that
the tax is recovered in full a fee of £60,000 (plus vat) will become payable to
KPMG. Fees totalling £31,000 have been paid to KPMG in relation to this
engagement with £5,000 accrued at 31 January 2014.
As the likelihood, timing and the quantum of the recoverable amount continues
to remain uncertain, no further amounts receivable have been recorded in the
Company's accounts, therefore leaving an estimated contingent asset net of KPMG
fees of £218,000 at 31 January 2014.
2005 to
2009
Claim period £
Estimated recoverable TWD tax 580,000
Amounts recovered to date (338,000)
Estimated recoverable amount 242,000
Maximum fees payable to KPMG in relation to claim 60,000
Fees earned to date (36,000)
Potential outstanding fees payable 24,000
Contingent asset net of KPMG fees 218,000
Further Information / Notice of the Annual General Meeting
Notice is hereby given that the twenty-ninth Annual General Meeting of Pacific
Assets Trust Public Limited Company will be held at Skinners' Hall, 8 Dowgate
Hill, London EC4R 2SP on Tuesday, 24 June 2014 at 10.00 a.m. for the following
purposes:
Ordinary Business
To consider and, if thought fit, pass the following as Ordinary Resolutions:
1. That the Report of the Directors and Accounts for the financial year ended
31 January 2014 together with the Report of the Auditors thereon be received.
2. To receive and approve the Directors' Remuneration Report for the financial
year ended 31 January 2014.
3. To receive and approve the Remuneration Policy.
4. That a final dividend for the financial year ended 31 January 2014 of 2.6p
per share be declared.
5. That Mr T F Mahony, be re-elected as a Director.
6. That Mr D B Nichol, be re-elected as a Director.
7. That Mr N M S Rich, be re-elected as a Director.
8. That Mr J P Williams be elected as a Director.
9. That KPMG LLP be appointed as Auditor to hold office from the conclusion of
the meeting to the conclusion of the next Annual General Meeting at which
accounts are laid.
10. That the Directors be authorised to determine KPMG LLP's remuneration.
Special Business
To consider and, if thought fit, pass the following resolutions, of which
resolutions 12, 13 and 14 will be proposed as Special Resolutions.
11. That, the Board of Directors of the Company (the `Board') be and it is
hereby generally and unconditionally authorised pursuant to and in accordance
with section 551 of the Companies Act 2006 to exercise all the powers of the
Company to allot shares in the Company and to grant rights to subscribe for or
to convert any security into shares in the Company up to an aggregate nominal
amount of £1,460,605 provided that this authority shall expire at the
conclusion of the Annual General Meeting of the Company to be held in 2015 or
15 months from the date of passing this resolution, whichever is the earlier,
unless previously revoked, varied or renewed by the Company in general meeting
and provided that the Company may before such expiry make an offer or enter
into an agreement which would or might require shares to be allotted, or rights
to subscribe for or to convert securities into shares to be granted, after such
expiry and the Board may allot shares or grant such rights in pursuance of such
an offer or agreement as if the authority conferred hereby had not expired.
12. That, subject to the passing of resolution 11 proposed at the Annual
General Meeting of the Company convened for 24 June 2014 (`Resolution 11'), the
Board of Directors of the Company (the `Board') be and it is hereby generally
empowered pursuant to sections 570 and 573 of the Companies Act 2006 (the
`Act') to allot equity securities (within the meaning of section 560 of the
Act) (including the grant of rights to subscribe for, or to convert any
securities into, ordinary shares of 12.5 pence each in the capital of the
Company (`Ordinary Shares')) for cash either pursuant to the authority
conferred on them by such Resolution 11 as if section 561(1) of the Act did not
apply to any such allotment, provided that this power shall be limited to:
the allotment of equity securities up to an aggregate nominal amount of £
1,460,605, and shall expire (unless previously renewed, varied or revoked by
the Company in general meeting) at the conclusion of the Annual General Meeting
of the Company to be held in 2015 or 15 months from the date of passing this
resolution, whichever is the earlier, unless previously revoked, varied or
renewed by the Company in general meeting and provided that the Company may
before such expiry make an offer or enter into an agreement which would or
might require equity securities to be allotted after such expiry and the Board
may allot equity securities in pursuance of such an offer or agreement as if
the authority conferred hereby had not expired.
13. That, the Company be and is hereby generally and unconditionally authorised
for the purposes of section 701 of the Companies Act 2006 (the `Act') to make
one or more market purchases (as defined in section 693(4) of the Act) of
ordinary shares of 12.5 pence each in the capital of the Company (`Ordinary
Shares') for cancellation on such terms and in such manner as the board of
directors may determine provided that:
(i) the maximum aggregate number of Ordinary Shares which may be purchased is
14.99% of the number of Ordinary Shares in issue immediately prior to the
passing of this resolution;
(ii) the minimum price which may be paid for an Ordinary Share is 12.5 pence
(exclusive of associated expenses);
(iii) the maximum price which may be paid for an Ordinary Share (exclusive of
associated expenses) shall not be more than the higher of: (a) an amount equal
to 105% of the average of the middle market quotations for an Ordinary Share as
derived from the London Stock Exchange Daily Official List for the five dealing
days immediately preceding the day on which the Ordinary Share is purchased;
and (b) the higher of the last independent trade and the highest current
independent bid on the London Stock Exchange for an Ordinary Share; and
(iv) unless previously renewed, varied or revoked, this authority shall expire
at the conclusion of the Annual General Meeting of the Company to be held in
2015 or 15 months from the date of passing this resolution, whichever is the
earlier, unless previously revoked, varied or renewed by the Company in general
meeting and provided that the Company may before such expiry enter into a
contract to purchase Ordinary Shares which will or may be completed wholly or
partly after such expiry and a purchase of Ordinary Shares may be made pursuant
to any such contract.
General Meetings
14. That as permitted by the EU Shareholders' Rights Directive (2007/36/EC) any
General Meeting of the Company (other than the Annual General Meeting of the
Company) shall be called by notice of at least 14 clear days in accordance with
the provisions of the Articles of Association of the Company provided that the
authority shall expire on the conclusion of the next Annual General Meeting of
the Company, or, if earlier, on the expiry 15 months from the date of the
passing of this resolution.
By order of the Board Registered office
16 Charlotte Square
Frostrow Capital LLP Edinburgh
Company Secretary EH2 4DF
14 April 2014
Notes
1. If you wish to attend the Annual General Meeting in person, you should
arrive at the venue for the Annual General Meeting in good time to allow your
attendance to be registered. It is advisable to have some form of
identification with you as you may be asked to provide evidence of your
identity to the Company's registrar, Equiniti Limited (the `Registrar'), prior
to being admitted to the Annual General Meeting.
2. Members are entitled to appoint one or more proxies to exercise all or any
of their rights to attend, speak and vote at the Annual General Meeting. A
proxy need not be a member of the Company but must attend the Annual General
Meeting to represent a member. To be validly appointed a proxy must be
appointed using the procedures set out in these notes and in the notes to the
accompanying proxy form.
If members wish their proxy to speak on their behalf at the meeting, members
will need to appoint their own choice of proxy (not the chairman of the Annual
General Meeting) and give their instructions directly to them.
Members can only appoint more than one proxy where each proxy is appointed to
exercise rights attached to different shares. Members cannot appoint more than
one proxy to exercise the rights attached to the same share(s). If a member
wishes to appoint more than one proxy, they should contact the Registrar on
0871 384 2466. Calls to this number cost 8p per minute plus network extras.
Lines are open between 8.30 am and 5.30 pm, Monday to Friday, the Registrars'
overseas helpline number is +44 121 415 7047.
A member may instruct their proxy to abstain from voting on any resolution to
be considered at the meeting by marking the abstain option when appointing
their proxy. It should be noted that an abstention is not a vote in law and
will not be counted in the calculation of the proportion of votes "for" or
"against" the resolution.
The appointment of a proxy will not prevent a member from attending the Annual
General Meeting and voting in person if he or she wishes.
A person who is not a member of the Company but who has been nominated by a
member to enjoy information rights does not have a right to appoint any proxies
under the procedures set out in these notes and should read note 8 below.
3. A proxy form for use in connection with the Annual General Meeting is
enclosed. To be valid any proxy form or other instrument appointing a proxy,
together with any power of attorney or other authority under which it is signed
or a certified copy thereof, must be received by post or (during normal
business hours only) by hand by the Registrar at Equiniti Limited, Aspect
House, Spencer Road, Lancing, West Sussex BN99 6DA no later than 48 hours
(excluding non-working days) before the time of the Annual General Meeting or
any adjournment of that meeting.
If you do not have a proxy form and believe that you should have one, or you
require additional proxy forms, please contact the Registrar on 0871 384 2466.
Calls to this number cost 8p per minute from a BT landline. Other service
providers' costs may vary. Lines are open between 8.30 am and 5.30 pm, Monday
to Friday, The Registrars' overseas helpline number is +44 121 415 7047.
4. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual and by logging on to the following website:
www.euroclear.com/CREST. CREST personal members or other CREST sponsored
members, and those CREST members who have appointed (a) voting service provider
(s), should refer to their CREST sponsor or voting service provider(s) who will
be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to
be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be
properly authenticated in accordance with Euroclear UK & Ireland Limited's
specifications, and must contain the information required for such instruction,
as described in the CREST Manual. The message, regardless of whether it
constitutes the appointment of a proxy or is an amendment to the instruction
given to a previously appointed proxy, must in order to be valid, be
transmitted so as to be received by the Registrar (ID RA19) no later 48 hours
(excluding non-working days) before the time of the Annual General Meeting or
any adjournment of that meeting. For this purpose, the time of receipt will be
taken to be the time (as determined by the timestamp applied to the message by
the CREST Application Host) from which the Registrar is able to retrieve the
message by enquiry to CREST in the manner prescribed by CREST. After this time
any change of instructions to proxies appointed through CREST should be
communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service
provider(s) should note that Euroclear UK & Ireland Limited does not make
available special procedures in CREST for any particular message. Normal system
timings and limitations will, therefore, apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal member, or
sponsored member, or has appointed (a) voting service provider(s), to procure
that his CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting system providers are referred,
in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances
set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations
2001.
5. In the case of joint holders, where more than one of the joint holders
purports to appoint one or more proxies, only the purported appointment
submitted by the most senior holder will be accepted. Seniority is determined
by the order in which the names of the joint holders appear in the Company's
register of members in respect of the joint holding (the first named being the
most senior).
6. Any corporation which is a member can appoint one or more corporate
representatives. Members can only appoint more than one corporate
representative where each corporate representative is appointed to exercise
rights attached to different shares. Members cannot appoint more than one
corporate representative to exercise the rights attached to the same share(s).
7. To be entitled to attend and vote at the Annual General Meeting (and for the
purpose of determining the votes they may cast), members must be registered in
the Company's register of members at 6.00 p.m. on 20 June 2014 (or, if the
Annual General Meeting is adjourned, at 6.00 p.m. on the day two working days
prior to the adjourned meeting). Changes to the register of members after the
relevant deadline will be disregarded in determining the rights of any person
to attend and vote at the Annual General Meeting.
8. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 (the "2006 Act") to enjoy information
rights (a "Nominated Person") may, under an agreement between him/her and the
member by whom he/she was nominated, have a right to be appointed (or to have
someone else appointed) as a proxy for the Annual General Meeting. If a
Nominated Person has no such proxy appointment right or does not wish to
exercise it, he/she may, under any such agreement, have a right to give
instructions to the member as to the exercise of voting rights.
9. Information regarding the Annual General Meeting, including information
required by section 311A of the 2006 Act, and a copy of this notice of Annual
General Meeting is available from www.pacific-assets.co.uk.
10. Members should note that it is possible that, pursuant to requests made by
members of the Company under section 527 of the 2006 Act, the Company may be
required to publish on a website a statement setting out any matter relating
to: (a) the audit of the Company's accounts (including the auditor's report and
the conduct of the audit) that are to be laid before the Annual General
Meeting; or (b) any circumstance connected with an auditor of the Company
ceasing to hold office since the previous meeting at which annual accounts and
reports were laid in accordance with section 437 of the 2006 Act. The Company
may not require the members requesting any such website publication to pay its
expenses in complying with sections 527 or 528 of the 2006 Act. Where the
Company is required to place a statement on a website under section 527 of the
2006 Act, it must forward the statement to the Company's auditor not later than
the time when it makes the statement available on the website. The business
which may be dealt with at the Annual General Meeting includes any statement
that the Company has been required under section 527 of the 2006 Act to publish
on a website.
11. As at 14 April 2014 (being the latest practicable date prior to the
publication of this notice) the Company's issued share capital consisted of
116,848,386 ordinary shares carrying one vote each. Accordingly, the total
voting rights in the Company at 14 April 2014 were 116,848,386 votes.
12. Any person holding 3% or more of the total voting rights of the Company who
appoints a person other than the chairman of the Annual General Meeting as his
proxy will need to ensure that both he, and his proxy, comply with their
respective disclosure obligations under the UK Disclosure and Transparency
Rules.
13. Under section 319A of the 2006 Act, the Company must cause to be answered
any question relating to the business being dealt with at the Annual General
Meeting put by a member attending the meeting unless answering the question
would interfere unduly with the preparation for the meeting or involve the
disclosure of confidential information, or the answer has already been given on
a website in the form of an answer to a question, or it is undesirable in the
interests of the Company or the good order of the meeting that the question be
answered.
Members who have any queries about the Annual General Meeting should contact
the Company Secretary at 25 Southampton Buildings, London WC2A 1AL.
Members may not use any electronic address provided in this notice or in any
related documents (including the accompanying proxy form) to communicate with
the Company for any purpose other than those expressly stated.
14. The following documents will be available for inspection at the offices of
Frostrow Capital LLP, the Company's Company Secretary, 25 Southampton
Buildings, London WC2A 1AL during normal business hours on any weekday
(Saturdays, Sundays and English public holidays excepted) from the date of this
notice until the conclusion of the Annual General Meeting:
14.1 copies of the Directors' letters of appointment; and
14.2 copies of the Directors' deeds of indemnity.
15. Under section 338 and section 338A of the Companies Act 2006, members
meeting the threshold requirements in those sections have the right to require
the Company (i) to give, to members of the Company entitled to receive notice
of the meeting, notice of a resolution which may properly be moved and is
intended to be moved at the meeting; and/or (ii) to include in the business to
be dealt with at the meeting any matter (other than a proposed resolution)
which may be properly included in the business. A resolution may properly be
moved or a matter may properly be included in the business unless (a) (in the
case of a resolution only) it would, if passed, be ineffective (whether by
reason of inconsistency with any enactment or the Company's constitution or
otherwise), (b) it is defamatory of any person, or (c) it is frivolous or
vexatious. Such a request may be in hard copy form or in electronic form, must
identify the resolution of which notice is to be given or the matter to be
included in the business, must be authorised by the person or persons making
it, must be received by the Company not later than 13 May 2014, being the date
six clear weeks before the meeting, and (in the case of a matter to be included
on the business only) must be accompanied by a statement setting out the
grounds for the request.
Further Information / Explanatory Notes to the Resolutions
Resolution 1 - To receive the Annual Report and Accounts
The Annual Report and Accounts for the year ended 31 January 2014 will be
presented to the AGM. These accounts accompanied this Notice of Meeting and
shareholders will be given an opportunity at the meeting to ask questions.
Resolutions 2 to 3 - Remuneration Policy and Remuneration Report
It is now mandatory for all listed companies to put both their Report on
Directors' Remuneration and their Remuneration Policy to a shareholder vote.
The Report on Directors' Remuneration is set out in full in the Annual Report
on pages 36 to 37.
Resolutions 4 - The Declaration of a Final Dividend for the year ended 31
January 2014
Resolution 4 seeks Shareholder approval for the paying of a final dividend of
2.6p per share for the year ended 31 January 2014.
Resolutions 5 to 8 - Re-election of Directors
Resolutions 5 to 8 deal with the re-election of each Director. Biographies of
each of the Directors can be found on pages 20 and 21 of the Annual Report.
The Board has confirmed, following a performance review, that the Directors
standing for election and re-election continue to perform effectively.
Resolutions 9 and 10 - Appointment of Auditor and the determination of its
remuneration
Resolutions 9 and 10 relate to the appointment of KPMG LLP as the Company's
independent auditors to hold office until the next AGM of the Company and also
authorises the Directors to set its remuneration.
Resolutions 11 and 12
Ordinary Resolution No. 11 in the Notice of Annual General Meeting will renew
the authority to allot the unissued share capital up to an aggregate nominal
amount of £1,460,605 (equivalent to 11,684,838 shares, or 10% of the Company's
existing issued share capital on 14 April 2014, being the nearest practicable
date prior to the signing of this Report). Such authority will expire on the
date of the next Annual General Meeting or after a period of 15 months from the
date of the passing of the resolution, whichever is earlier. This means that
the authority will have to be renewed at the next Annual General Meeting.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006
(the "Act") provides that existing shareholders have pre-emption rights and
that the new shares must be offered first to such shareholders in proportion to
their existing holding of shares. However, shareholders can, by special
resolution, authorise the Directors to allot shares otherwise than by a pro
rata issue to existing shareholders. Special Resolution No. 12 will, if passed,
give the Directors power to allot for cash equity securities up to 10% of the
Company's existing share capital on 14 April 2014, as if Section 551 of the Act
does not apply. This is the same nominal amount of share capital which the
Directors are seeking the authority to allot pursuant to Resolution No. 11.
This authority will also expire on the date of the next Annual General Meeting
or after a period of 15 months, whichever is earlier. This authority will not
be used in connection with a rights issue by the Company.
The Directors intend to use the authority given by Resolutions Nos. 11 and 12
to allot shares and disapply pre-emption rights only in circumstances where
this will be clearly beneficial to shareholders as a whole. The issue proceeds
would be available for investment in line with the Company's investment policy.
No issue of shares will be made which would effectively alter the control of
the Company without the prior approval of shareholders in general meeting.
Resolution 13
The Directors wish to renew the authority given by shareholders at the previous
Annual General Meeting. The principal aim of a share buy-back facility is to
enhance shareholder value by acquiring shares at a discount to net asset value,
as and when the Directors consider this to be appropriate. The purchase of
shares, when they are trading at a discount to net asset value per share,
should result in an increase in the net asset value per share for the remaining
shareholders. This authority, if conferred, will only be exercised if to do so
would result in an increase in the net asset value per share for the remaining
shareholders and if it is in the best interests of shareholders generally. Any
purchase of shares will be made within guidelines established from time to time
by the Board. It is proposed to seek shareholder authority to renew this
facility for another year at the Annual General Meeting.
Under the current Listing Rules, the maximum price that may be paid on the
exercise of this authority must not exceed the higher of (i) 105% of the
average of the middle market quotations for the shares over the five business
days immediately preceding the date of purchase and (ii) the higher of the last
independent trade and the highest current independent bid on the trading venue
where the purchase is carried out. The minimum price which may be paid is 12.5p
per share. Shares which are purchased under this authority will either be
cancelled or held as treasury shares.
Special Resolution No. 13 in the Notice of Annual General Meeting will renew
the authority to purchase in the market a maximum of 14.99% of shares in issue
on 14 April 2014, being the nearest practicable date prior to the signing of
this Report, (amounting to 17,515,573 shares). Such authority will expire on
the date of the next Annual General Meeting or after a period of 15 months from
the date of passing of the resolution, whichever is earlier. This means in
effect that the authority will have to be renewed at the next Annual General
Meeting or earlier if the authority has been exhausted.
Resolution 14
Special Resolution No. 14 seeks shareholder approval for the Company to hold
General Meetings (other than the Annual General Meeting) at 14 clear days'
notice.
The Board considers that the resolutions relating to the above items of special
business, are in the best interests of shareholders as a whole. Accordingly,
the Board unanimously recommends to the shareholders that they vote in favour
of the above resolutions to be proposed at the forthcoming Annual General
Meeting as the Directors intend to do in respect of their own beneficial
holdings totaling 249,650 shares.
Contact: Mark Pope at Frostrow Capital LLP,
0203 008 4913
Frostrow Capital LLP, Company Secretary
14 April 2014
ANNOUNCEMENT ENDS
Latest directors dealings
- 2 days ago Mattioli Woods
- 2 days ago Morgan Advanced Materials
- 2 days ago Capita
- 2 days ago Judges Scientific
- 2 days ago Me Group International