Final Results
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RNS Announcement: Preliminary Results |
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Pacific Horizon Investment Trust PLC |
Legal Entity Identifier: VLGEI9B8R0REWKB0LN95
Regulated Information Classification: Additional regulated information required to be disclosed under applicable laws.
Results for the year to 31 July 2020
The following is the Preliminary Results Announcement for the year to 31 July 2020 which was approved by the Board on 28 September 2020.
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Chairman's Statement |
Covid-19
Covid-19 has had far-reaching consequences, many tragic and many yet unknown. On behalf of myself and the Board, I should like to take this opportunity to pass on our sympathies to those who have suffered most.
During this period of 'business as unusual', the Board and Managers have remained in regular contact, and there has been no evident disruption to the effectiveness of the day-to-day management of the Company's assets nor in the level of service from the various third-party service providers used.
Performance
In a period that has had both Covid-19 and US/China trade disputes as its backdrop, it seems quite remarkable to be able to report that in the year to 31 July 2020, the Company's net asset value per share ('NAV') has risen by 39.9%* compared to a 5.1% total return* from the MSCI All Country Asia ex Japan Index in sterling terms. The share price rose by 57.5%* resulting in the shares ending the period at a 4.6% premium, having been at a 7.1% discount a year earlier.
The majority of the absolute and relative outperformance was achieved in the second half of the Company's financial year, with the NAV rising 38.1%* versus 8.8%* for the comparative index. This was driven by stock specific returns, notably a strong performance from SEA Limited, which has built an enviable position in both gaming and ecommerce across multiple ASEAN markets. The Managers' Review on the following pages contains a more detailed explanation of the Company's performance along with commentary on the areas the managers are finding of interest.
Whilst it is pleasing to note the strong performance, shareholders should not expect such strong returns as a matter of course. The portfolio is managed actively with the objective of outperforming its comparative index over the long term by aspiring to invest in the highest growth companies in the fastest growing region in the world; or as the managers call it, 'growth squared'. Neither absolute nor relative returns will be consistent; it is more likely that future performance will continue to be volatile, and shareholders would be prudent to anticipate periods when returns are less favourable.
The Company will be undertaking its quinquennial Continuation vote as part of the business of the 2021 Annual General Meeting ('AGM'), meaning that shareholders will be able to determine whether the Company continues for a further five years or is wound-up and its capital returned to investors.
Issuance, Share Buy-backs and Treasury
The Company's performance over the past year did not go unnoticed by the market, resulting in demand for the Company's shares at times outstripping supply. This allowed the issuance of 4,138,000 shares in the year to 31 July 2020, 7.0% of the shares in issue at the start of the Company's financial year. All were issued at a sufficient premium to NAV to cover all costs of issuance. The ongoing demand meant that the Board sought and obtained an additional 10% annual issuance authority from shareholders in August. A further 4,120,000 shares have been issued since 31 July 2020.
At the forthcoming AGM in November, the Board will be seeking an additional 10% non pre-emptive issuance authority to run concurrently with the authority granted in August 2020. Issuance will continue to be undertaken only at a premium to NAV, thereby avoiding dilution to existing investors. In the event that this authority is utilised, it has the effect of enhancing NAV per share, improving liquidity in the Company's shares and spreading the operating expenses of the Company across a wider base thus reducing costs to each shareholder.
As part of this year's AGM business, the Board will also be asking shareholders to renew the authority to repurchase up to 14.99% of the outstanding shares on an ad hoc basis, either for cancellation or to be held in treasury, and also to permit the re-issuance of any shares held in treasury at a premium to NAV. The Board intends to use the buyback authority opportunistically, taking into consideration not only the level of the discount but also the underlying liquidity and trading volumes in the Company's shares. This approach allows the Board to seek to address any imbalance between the supply and demand for the Company's shares that results in a large discount to NAV whilst being cognisant that current and potential shareholders have expressed a desire for continuing liquidity.
The Board also believes that the Company would benefit from holding any shares that are bought back in treasury so that it has the ability to re-issue these shares in the circumstances described above. There are no shares held in treasury at present.
Earnings and Dividend
Earnings per share increased to 0.95p from 0.01p for last year. After deduction of the management fee and relevant expenses, the Company is in the position to pay a dividend. The Board is therefore recommending that a final dividend of 0.25p should be paid, subject to shareholder approval at the AGM. As highlighted in past reports, investors should not consider investing in this Company if they require income from their investment as the Company typically invests in high growth stocks with little or no yield.
Gearing
The Board continues to set the gearing parameters within which the managers are permitted to operate and these are reviewed at each Board meeting, and between meetings if necessary, as was the case earlier this year. At present, the agreed range of equity gearing is minus 15% (i.e. holding net cash) to plus 15%.
At the year end, invested gearing was 4.1%, compared to 8.3% at the start of the year. Gearing is achieved through the use of bank borrowings. At present the Company has a multi-currency revolving credit facility with The Royal Bank of Scotland for up to £30 million, of which £25 million was drawn at 31 July 2020, split between GBP and USD.
The Board
At the conclusion of last year's AGM, Miss Jean Matterson stood down as Chairman and Company Director. I should like to take this opportunity to put on record both my own and my colleagues' thanks for her contributions to the success of the Company. We wish her well with future endeavours.
During the year, we welcomed Ms Wee-Li Hee to the Board. As a former portfolio manager investing in Asia Pacific equities, she brings a fresh perspective to assessing the performance of the managers as well as knowledge of investment trusts, having once co-managed Scottish Oriental Smaller Companies trust. Her appointment falls to be ratified by shareholders as part of November's AGM business.
Having been appointed a Director in 2010, Mr Edward Creasy will be standing down from the Board at the conclusion of the AGM. He will be replaced as Chairman of the Audit Committee and as Senior Independent Director by Ms Angela Lane.
Governance and Stewardship
As highlighted by the previous Chairman, the Board is very aware that shareholders expect the highest standards of governance. Our Managers, Baillie Gifford, adopt a position of supportive and constructive engagement without prescriptive policies or rules, assessing matters on a case-by-case basis. As part of maximising long-term performance for the benefit of the Company's shareholders, the managers consider Environmental, Social and Governance ('ESG') factors as part of the investment case. While Baillie Gifford has clearly articulated ESG principles and a detailed policy framework, their application to often quite complex situations is necessarily subjective.
Details of the Company's policy on socially responsible investment can be found under Corporate Governance and Stewardship on page 29 of the Annual Report and Financial Statements. A document outlining Baillie Gifford's Governance and Sustainability principles can be found at www.bailliegifford.com .
Outlook
The impact of Covid-19 and the current, increasingly uncertain, global economic conditions on Asian economies make the outlook for the portfolio unusually uncertain. As the managers have shown, such challenges also provide opportunities for investors which they have successfully exploited over the past financial year. As is noted above however, considerable future volatility is possible and shareholders should be prepared for this.
Notwithstanding this risk, the Board remains fundamentally committed to the principle that investing in the fastest growing companies in the fastest growing economies in the world will in the long term generate significant excess returns. The recent and past performance of the Company provides some encouraging corroboration of this view.
Annual General Meeting
This year's AGM will take place on 10 November 2020 at the offices of Baillie Gifford & Co in Edinburgh at 11.00am. As a consequence of Covid-19 and the uncertainty regarding government policy on group meetings, shareholders are being encouraged to submit their votes by proxy ahead of the meeting. It is intended that the meeting itself will involve the minimum number of people necessary for it to be quorate, so anyone not authorised to attend will likely be declined entry for health reasons. Should the situation change, further information will be made available through the Company's website at www.pacifichorizon.co.uk and the London Stock Exchange regulatory news service. Should shareholders have questions for the Board or the Managers or any queries as to how to vote, please make contact using the information set out on page 61 of the Annual Report and Financial Statements.
Angus Macpherson
Chairman
28 September 2020
* Calculated on a total return basis. Source: Baillie Gifford/Refinitiv and relevant underlying index providers.
See Disclaimer at the end of this announcement.
For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Past performance is not a guide to future performance.
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Managers' Review |
Overview
"The current age of uncertainty might be defined thus: the old order has been undermined, but the shape of the new one is not yet clear. What determines how it turns out? Transformational technology? The sudden rise of China? Perhaps the consequences of unorthodox monetary policy? Most likely a combination of all these and more. What is certain is that, even amid this upheaval, the search for growth and the discovery of and investment in great companies will enable outperformance for the benefit of shareholders."
Pacific Horizon Annual Report 2019
Who would have predicted 12 months ago that a viral pandemic would lead to such massive fear and probably the greatest quarterly collapse in US GDP in history? The old order, including both public and private institutions in the West, was tested and found wanting, socially, politically, morally and economically. In contrast, the Asian model, so far, has held up relatively well. China, the epicentre of the viral outbreak, is still on pace to become a superpower by 2030. In the 'old economy', especially financial companies, we saw a collapse in share prices and corporate earnings. In the 'new economy' throughout the world, transformational technology helped ease the passing of the old 'normality'.
With the accelerated growth of the online economy (ecommerce, cloud and gaming) catalysed by Covid-19, the outline of the new order became clearer. In contrast, the consequences of monetary and fiscal reactions to the worldwide lockdowns, plus the political and social upheavals these will bring, have only just begun to filter through to asset prices.
Pacific Horizon's portfolio has prospered by investing in some of the region's great growth companies and holding these positions through significant volatility. We see no immediate prospect of escape from this turbulence. The global bond market is implying, via negative interest rates, asset destruction on an unimaginable level (the assumption is that money today is worth less than money in 10 years' time). To look back invites oblivion, to stand still is death. Surely embracing the new and going for growth is the only way out? Well, possibly.
The economic chaos and destruction caused by Covid-19 has ended a long positive economic cycle. Since the start of the pandemic, many businesses, previously kept alive by freely available cheap money, have failed. The pandemic has done what central banks have been afraid to do: create a Schumpeterian capital cycle where the role of the entrepreneur and innovation is paramount at the expense of entrenched, stale incumbents. This economic collapse has freed capital to work better for humanity. That is the good news. The possible bad news would be governments not allowing the market to allocate this capital effectively, intervening instead.
For equity investors the main point is that the East looks better on most metrics than the West (given government debt levels, the price of money, regulation, etc), supported by some of the strongest growth drivers globally. These range from the continued rise of the Asian middle class and consumer, to Asia's central role in supply chains, world trade and globalisation. Clearly the latter has recently come under pressure, especially with deteriorating US - China relations; however, it is also providing great opportunities for parts of Asia. Vietnam is one of the biggest winners of these trade disputes as it increasingly becomes one of the world's most important manufacturing centres, capturing much of the manufacturing capacity leaving China.
The start of a new cycle is almost always very positive for business owners. In fact, we would argue that this is possibly one of the best times to be a business owner in Asia: demand for products and services may have collapsed, but many competitors are insolvent, corporate profits are at a very low percentage of GDP, costs can be cut and when growth returns, operating leverage will be significant. We believe that the USD will probably be weak by historical standards, and capital will flow to Asia. Business profits have already bottomed and will rise rapidly from here. Old entrenched businesses may reinvent themselves and embrace the new and begin afresh.
If we are too cautious because of the risk and uncertainty arising from investment in times of rapid change, we will lose the opportunity to outperform. Hence our continued willingness to seek opportunities for great company returns. Risk and uncertainty mean that we will inevitably make mistakes and that many of our investments will be less successful than we hoped. Our approach is to back current holdings, hoping they will outperform in the longer term, while continuously searching for stocks with the potential to deliver significantly enhanced returns over longer timeframes. We accept the volatility this strategy entails and Pacific Horizon's shareholders, as well as potential investors, should be mindful of this.
Performance
In the year to 31 July 2020, on a total return basis, the Company's net asset value ('NAV') and share price increased by 39.9% * and 57.5% * respectively. This compares favourably against the Company's comparative index, the MSCI All Country Asia ex Japan Index (in sterling terms), which rose by 5.1% * .
Over the course of our latest financial year, market performance could be divided into two distinct halves: pre- and post-Covid-19. In the first half, many of our businesses were performing well after the brief technology-led market slump of 2018. Our commodity exposure, especially nickel and oil names, was also performing strongly. Covid-19 changed all this. After a brief but rapid decline, the portfolio experienced one of the fastest rebounds in its history, with the NAV more than doubling from the March low, driven by almost all its holdings outperforming in this period, especially the ecommerce, software and biotech stocks.
Instead of panicking during the decline, we assessed the resilience of the portfolio's companies and gave further thought as to whether they would still be here in one, three- or five-years' time. We considered whether they could survive current events with products and services that people would want to buy. We concluded that the portfolio comprised companies that were in aggregate cash rich, cash generative and reflective of the new rather than old economy. We undertook further analysis where we saw exceptions and thought carefully about the longer-term implications of events. We used Covid-19-induced share price plunges to increase the risk profile of the portfolio and, as managers, we believe that the mass panic and irrationality caused by this virus offers a once in a decade chance to reallocate assets towards Asia ex Japan markets.
We did not reduce the total of invested borrowings but did take some money from the larger cap names that had outperformed and reinvested it in some smaller names being sold off as they were seen as particularly risky. The key is to invest in specific, researched stocks and be sure that we own the companies that can survive current events.
The current global crisis is likely to create new secular trends and spur innovation. We believe that the Asia ex Japan region could be one of the major beneficiaries. The region is coming out of this crisis as an economic leader, in significantly better financial shape than Western economies, with superior long-term growth prospects and more attractive valuations. The year 2020 may well be an inflection point where Asia ex Japan becomes a favoured asset class for the coming decade. We believe our strategy of investing in growth companies focused on the areas of technology and innovation is extremely well placed in such an environment. The risks and opportunities from increased disruption are here to stay. In our view, the market's focus on geopolitics and capital flows misses the bigger picture and the opportunities created by global digital penetration, technological change and the rise of the Asian middle class. These fundamentals will underpin growth in the region for decades to come. The best way to invest in this rapidly-changing growth market is to find the best long-term growth companies; we call it 'growth squared'.
Philosophy
We are excited by the future. We are growth investors looking for rapidly growing companies. Believing that time is on our side, we are patient. We seek out companies whose business models and management teams are likely to fulfil their ambitions. We look for areas where our ideas give us an edge on the market over a longer timeframe.
When thinking about growth, we look for companies that have the potential to increase their revenue and earnings at around 15% per annum on average for the next five years or longer, and for opportunities where we feel this potential has not been fully recognised by the market. Our approach may lead to significant investment concentration in certain areas depending upon the immediate outlook for different countries and sectors. As well as growth potential, the corporate characteristics we look for include sustainable competitive advantage, attractive financials and good management. We also target stocks where a wider range of potential positive outcomes may not be currently recognised by the market, but which are likely to enhance future profitability, potentially significantly.
Our starting premise is based on how we think the world and individual countries may change over the next three, five and 10 years-plus, in every area of life: economically, socially and politically. What impact might technology have on these trends? When we look at a company and consider what size it and the industry in which it operates might become, we ask ourselves what the current rate of growth is, how the industry could change and whether there are additional opportunities for growth in adjacent markets that the company could enter. This gives us a rough estimate of the total addressable market for a company, its products and its growth potential. We examine the competitive dynamics of the industry and try to understand how these are likely to change. We ask whether the industry is improving and whether the position of the company within that industry is also changing for the better. Lastly, we look for a management team with the ability, ambition and integrity to deliver on its promise. The ideal team has a vision of the future and knows how, in its own small space, it can realise this vision.
The background to this process is inevitably one of uncertainty. Trial and error and chance play a huge role in any eventual outcome, hence the way the portfolio is diversified by country, sector and industry. More importantly we understand and appreciate that not all the companies we invest in will realise their value and growth potential. We remain committed to, and will back, our winners and reduce and sell our losers. Ideally, we will end up with a small group of stocks that, due to compounding growth and profit, will generate significant longer-term returns. These will be counterbalanced by a potentially larger group that have not reached this level of performance. Due to smaller holding sizes in this latter group and the benefits of enhanced returns from our successful investments, we aim to deliver outperformance over time.
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Pacific Horizon |
MSCI AC Asia ex Japan Index |
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Historic earnings growth (5 years trailing compound annual growth to 31 July 2020) |
32.21% |
7.64% |
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One year forecast earnings growth (to 31 July 2021) |
44.20% |
13.26% |
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Estimated p/e ratio (to 31 July 2021) |
31.16x |
16.09x |
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Percentage in sub £1bn market cap companies |
20.43% |
0.21% |
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Percentage in sub £5bn market cap companies |
43.30% |
12.77% |
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Active share |
84.79% |
N/A |
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Portfolio turnover |
28.8% |
N/A |
Data as at 31 July 2020, source: Baillie Gifford, UBS PAS, APT, MSCI (see disclaimers at the end of this announcement)
As highlighted in the table above, the growth characteristics of the current portfolio remain strong, with historic earnings growth and one-year forecast earnings growth notably higher than the comparative index equivalents. The portfolio's estimated price-to-earnings ratio for the current year is 31.2x versus 16.1x for the comparative index. Over the longer term, we believe the higher growth potential of our holdings more than justifies this additional multiple. The portfolio now has a slightly lower proportion of larger capitalised stocks compared to last year and when measured against the comparative index. Active share [i] is 84.8% and turnover for the year was 28.8% with 45 new stocks purchased and 21 holdings sold. The portfolio had invested gearing of 4.1% at 31 July 2020.
Finally, we continue to believe that the rapid development of technology is creating a fundamental change in market behaviour, with digitalisation driving profound changes in economic and political systems, businesses and consumer habits. The number of sectors and industries that are becoming digitalised and connected is increasing rapidly. There is growing awareness of these changes across the globe. Artificial intelligence ('AI') is now taken for granted and the concept of electric rather than internal combustion engine cars is seen as a commercial inevitability rather than a distant vision.
Review
We actively seek out the big winners - the stocks that can give us asymmetric returns. Over the last year this approach has played out fantastically well, with a few of our chosen stocks making enormous gains. The top five positive contributors to relative returns versus the comparative index in the year were SEA Limited, L&C Bio, JD.com, Kingdee and Accton Technology; a total of 63 holdings outperformed on a relative basis. This really was a big-winners-take-all year, with these five names accounting for around 78% of the portfolio's absolute return. This is in line with our continued investment philosophy of finding potential long-term winners, backing them, then running our winners and selling our losers.
We outperformed in all regions with the exception of Vietnam and India, both of which lagged the broader MSCI All Country Asia ex Japan index (in sterling terms). Singapore, South Korea, and China/HK were our largest positive contributors to relative performance at a regional level, with aggregate relative performance attribution of 30.5 percentage points. Stock selection in South Korea, where we outperformed the local index by 44.1 percentage points, was particularly noteworthy.
We also outperformed in most sectors, only underperforming in Consumer Staples and Energy. We have been adding to names in the Industrials and Materials sectors and our weight in them is now higher than the average for the year. Our Information Technology sector exposure accounts for 22.9% of the portfolio, slightly up from last year, while Consumer Discretionary remains our second largest sector weight, with Communication Services moving into third.
SEA Limited, our largest holding at the beginning of the year at 8.2% of total assets, is South East Asia's biggest ecommerce and online gaming company. It rose 248% over the year in local currency terms (225% in sterling terms), up 222% from the March low. Its gaming division Garena, already flush with success from its global hit Free Fire, experienced a surge in users and revenues in May and June 2020, as gamers went online, especially in India, Indonesia and Brazil. We see Garena morphing into an emerging markets' gaming powerhouse.
However, the real excitement lies in ecommerce. The ASEAN online markets have less than half the penetration of their Chinese counterpart and are showing much faster growth. We see gross merchandise value potentially soaring from US$32bn in 2020 towards US$200bn by 2025 and SEA Limited emerging as the leading ecommerce platform in the region. We would not be surprised if its new fintech business delivers similar value to its ecommerce division in five years' time. We have been wrestling with how much exposure to allow ourselves to just one stock, however much we like it, and have reduced SEA Limited three times, at US$40, US$80 and US$105, with our average entry price at US$14. It remains around 9% of our portfolio. SEA Limited added 12.8 percentage points to the Company's relative return.
Most years (with the probable exception of 2020) we spend time in South Korea looking at small cap biotech and technology companies, some of which even the domestic institutions have not heard of. The 2019 visit was productive. That year we came back with a number of new ideas, some of which we purchased. One was L&C Bio, a stock we had bought at IPO earlier in the year, and to which we added following our visit. The company runs Asia's biggest human tissue bank and has developed various tissue regeneration and reconstruction techniques. We see its products growing in acceptance in South Korea and, more importantly, in China where we see a multibillion-dollar opportunity. The stock was up 555% for the year in local currency terms (507% in sterling terms), adding 3.3 percentage points to the Company's relative return.
Our third key stock contributor was Kingdee, the Chinese enterprise resource planning ('ERP') software company we have owned since 2015. It was up 182% over the year in local currency terms (166% in sterling terms); the company has met our expectations with its successful move to a cloud service business enabling it to transform from a low margin one in a highly competitive market to a high margin business in a winner-takes-most world. This year the company emerged as a clear leader in the online cloud market. Covid-19 significantly accelerated the shift online among Chinese businesses. China's ERP market today, at roughly Rmb 30bn, is only 0.03% of GDP versus 0.12% globally ex China, 0.22% in Germany and 0.24% in the US. The market has belatedly realised the revenue and margin potential of this company and re-rated the stock.
Outside of the top ten contributors to absolute performance, a further 20 stocks added roughly 10 percentage points to the portfolio's return over the period. The biggest detractors to the portfolio's performance were TSMC and Tencent where we are underweight. These are great businesses, but we believe that in general smaller companies have the greatest potential for outsized returns. Therefore, we seek to add value by moving down the market cap spectrum and investing in companies where there is the greatest growth potential. Our holdings in oil stocks China Oilfield Services and CNOOC also under-performed.
In terms of the regions where we invest, our Hong Kong and China weighting increased from 34.4% to 41.1% over the year. It remains the largest geographical weighting in the portfolio, followed by South Korea at 19.5%. Our India weight fell by 2.5 percentage points to 6.8%. The Vietnam weighting declined to 5.0% as a result of market movements rather than due to transactions.
Turning to unlisted holdings, we wrote down our holding in JHL Biotech following a lawsuit against the company for alleged technology theft in the US. We participated in a funding round for Zomato, a leader in online food delivery in India where we took a US$5m holding. We will continue to evaluate potential unlisted offerings while remaining alert to significant opportunities in listed markets.
In terms of portfolio positioning, the key change to highlight is our increased relative overweight exposure in both energy and commodities. We already had exposure to nickel miners via Nickel Mines and PT Vale Indonesia, a decision made on the back of the expected supply and demand gap in nickel due to growth in electric vehicles. We see significant upside to copper prices as well, and took a position in MMG, a Hong Kong miner with assets mostly in Peru. Lastly, we took a position in Merdeka Copper Gold, a fast-growing miner in Indonesia, partly in recognition that there will be consequences from unconventional monetary policy. The response to Covid-19 has increased our conviction and the portfolio has 3% exposure to rapidly growing gold and copper miners.
Environmental, Social and Governance
As growth investors, we are attracted to companies whose products will benefit from strong future demand. These companies not only have to produce better and cheaper products and services than their competitors, but they must also be alert for changes in the outlooks and attitudes of the societies of which they are part.
Companies that fail to keep pace in this way tend to fail, either as a result of falling consumer demand for their products or because of government intervention in their activities. When taking investment decisions, we consider the potential positive and negative impact on society that these companies may have, and how their commercial activities may be perceived by external stakeholders in the future.
For our long-term investments to be successful, the companies in which we invest must add value to society. This can be achieved in various ways. For example, the products of our regenerative biotech companies may allow many to benefit from otherwise unachievable medical cures, our Internet companies provide goods and services at prices and in quantities previously beyond the reach of many, while our technology holdings are enabling the fastest increase in human connectivity and information on record.
Lastly, it is very important to us that the interests of minority shareholders are upheld. We remain careful to make sure our investments are aligned with those of majority shareholders and owners.
Outlook
There is significant potential for positive returns from the Asia Pacific region in coming years. We believe that China especially, but the whole of Asia more generally, will emerge from the Covid-19 situation stronger and with better business models than most of the West. We see a high likelihood of a China-led economic expansion and believe this is a good time to be a long-term investor in Asian equities.
* Source: Baillie Gifford/Refinitiv and relevant underlying index providers. See disclaimer at the end of this announcement.
For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
i See Glossary of terms and Alternative Performance Measures at the end of this announcement.
Past performance is not a guide to future performance.
Baillie Gifford Statement on Stewardship
Reclaiming Activism for Long-Term Investors
Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.
Our Stewardship Principles
Prioritisation of long-term value creation
We encourage company management and their boards to be ambitious and focus their investments on long-term value creation. We understand that it is easy for businesses to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer businesses away from destructive financial engineering towards activities that create genuine economic value over the long run. We are happy that our value will often be in supporting management when others don't.
A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and representing the interests of minority shareholders. There is no fixed formula, but it is our expectation that boards have the resources, cognitive diversity and information they need to fulfil these responsibilities. We believe that a board works best when there is strong independent representation able to assist, advise and constructively test the thinking of management.
Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create alignment with genuine long-term shareholders. We are accepting of significant pay-outs to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.
Fair treatment of stakeholders
We believe it is in the long-term interests of companies to maintain strong relationships with all stakeholders, treating employees, customers, suppliers, governments and regulators in a fair and transparent manner. We do not believe in one-size-fits-all governance and we recognise that different shareholder structures are appropriate for different businesses. However, regardless of structure, companies must always respect the rights of all equity owners.
Sustainable business practices
We look for companies to act as responsible corporate citizens, working within the spirit and not just the letter of the laws and regulations that govern them. We believe that corporate success will only be sustained if a business's long-run impact on society and the environment is taken into account. Management and boards should therefore understand and regularly review this aspect of their activities, disclosing such information publicly alongside plans for ongoing improvement.
Income Statement |
The following is the Preliminary Statement for the year to 31 July 2020 which was approved by the Board on 28 September 2020.
| For the year ended 31 July 2020 | For the year ended 31 July 2019 | ||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 |
Gains/(losses) on investments | - | 79,433 | 79,433 | - | (3,116) | (3,116) |
Currency gains/(losses) | - | 731 | 731 | - | (781) | (781) |
Income (note 2) | 3,128 | - | 3,128 | 2,473 | - | 2,473 |
Investment management fee (note 3) | (1,533) | - | (1,533) | (1,297) | - | (1,297) |
Other administrative expenses | (479) | - | (479) | (542) | - | (542) |
Net return before finance costs and taxation | 1,116 | 80,164 | 81,280 | 634 | (3,897) | (3,263) |
Finance costs of borrowings | (337) | - | (337) | (440) | - | (440) |
Net return on ordinary activities before taxation | 779 | 80,164 | 80,943 | 194 | (3,897) | (3,703) |
Tax on ordinary activities | (215) | (74) | (289) | (186) | - | (186) |
Net return on ordinary activities after taxation | 564 | 80,090 | 80,654 | 8 | (3,897) | (3,889) |
Net return per ordinary share (note 4) | 0.95p | 134.99p | 135.94p | 0.01p | (6.65p) | (6.64p) |
The total column of this statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit and comprehensive income for the year.
Balance Sheet |
| At 31 July 2020 | At 31 July 2019 | ||
| £'000 | £'000 | £'000 | £'000 |
Fixed assets |
|
|
|
|
Investments held at fair value through profit or loss (note 5) |
| 316,952 |
| 219,984 |
Current assets |
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Debtors | 885 |
| 636 |
|
Cash and cash equivalents | 12,146 |
| 3,627 |
|
| 13,031 |
| 4,263 |
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Creditors |
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|
|
Amounts falling due within one year (note 7) | (25,504) |
| (20,897) |
|
Net current liabilities |
| (12,473) |
| (16,634) |
Creditors |
|
|
|
|
Amounts falling due after more than one year (note 8) | (76) |
| - |
|
Net assets |
| 304,403 |
| 203,350 |
|
|
|
|
|
Capital and reserves |
|
|
|
|
Share capital |
| 6,317 |
| 5,903 |
Share premium account |
| 40,048 |
| 20,063 |
Capital redemption reserve |
| 20,367 |
| 20,367 |
Capital reserve |
| 233,472 |
| 153,382 |
Revenue reserve |
| 4,199 |
| 3,635 |
Shareholders' funds |
| 304,403 |
| 203,350 |
Net asset value per ordinary share* |
| 481.92p |
| 344.50p |
Ordinary shares in issue (note 9) | 63,165,282 | 59,027,282 | ||
* See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Statement of Changes in Equity |
For the year ended 31 July 2020
| Share £'000 | Share £'000 | Capital redemption reserve £'000 | Capital reserve† £'000 | Revenue reserve £'000 | Shareholders' £'000 |
Shareholders' funds at 1 August 2019 | 5,903 | 20,063 | 20,367 | 153,382 | 3,635 | 203,350 |
Net return on ordinary activities after taxation | - | - | - | 80,090 | 564 | 80,654 |
Ordinary shares bought back into treasury (note 9) | - | - | - | (114) | - | (114) |
Ordinary shares sold from treasury (note 9) | - | 60 | - | 114 | - | 174 |
Ordinary shares issued (note 9) | 414 | 19,925 | - | - | - | 20,339 |
Shareholders' funds at 31 July 2020 | 6,317 | 40,048 | 20,367 | 233,472 | 4,199 | 304,403 |
For the year ended 31 July 2019
| Share £'000 | Share £'000 | Capital redemption reserve £'000 | Capital reserve† £'000 | Revenue reserve £'000 | Shareholders' £'000 |
Shareholders' funds at 1 August 2018 | 5,833 | 17,774 | 20,367 | 157,279 | 3,627 | 204,880 |
Net return on ordinary activities after taxation | - | - | - | (3,897) | 8 | (3,889) |
Ordinary shares issued | 70 | 2,289 | - | - | - | 2,359 |
Shareholders' funds at 31 July 2019 | 5,903 | 20,063 | 20,367 | 153,382 | 3,635 | 203,350 |
† The Capital Reserve balance at 31 July 2020 includes investment holding gains on fixed asset investments of £122,011,000 (31 July 2019 - gains of £62,384,000).
Cash Flow Statement |
| For the year ended 31 July 2020 | For the year ended 31 July 2019 | ||
| £'000 | £'000 | £'000 | £'000 |
Cash flows from operating activities |
|
|
|
|
Net return on ordinary activities before taxation |
| 80,943 |
| (3,703) |
Net (gains)/losses on investments |
| (79,433) |
| 3,116 |
Currency (gains)/losses |
| (731) |
| 781 |
Finance costs of borrowings |
| 337 |
| 440 |
Overseas withholding tax |
| (222) |
| (183) |
Changes in debtors and creditors |
| 129 |
| (177) |
Cash from operations ‡ |
| 1,023 |
| 274 |
Interest paid |
| (367) |
| (435) |
Net cash inflow/(outflow) from operating activities |
| 656 |
| (161) |
Cash flows from investing activities |
|
|
|
|
Acquisitions of investments | (94,628) |
| (53,465) |
|
Disposals of investments | 77,120 |
| 51,412 |
|
Net cash outflow from investing activities |
| (17,508) |
| (2,053) |
Cash flows from financing activities |
|
|
|
|
Ordinary shares bought back into treasury (note 9) | (114) |
| - |
|
Ordinary shares sold from treasury (note 9) | 174 |
| - |
|
Ordinary shares issued (note 9) | 20,344 |
| 2,909 |
|
Borrowings drawn down | 4,513 |
| 492 |
|
Borrowings repaid | - |
| (972) |
|
Net cash inflow from financing activities |
| 24,917 |
| 2,429 |
Increase in cash and cash equivalents |
| 8,065 |
| 215 |
Exchange movements |
| 454 |
| (79) |
Cash and cash equivalents at 1 August |
| 3,627 |
| 3,491 |
Cash and cash equivalents at 31 July |
| 12,146 |
| 3,627 |
‡ Cash from operations includes dividends received of £2,917,000 (2019 - £2,231,000) and interest received of £205,000 (2019 - £144,000).
List of Investments as at 31 July 2020 |
Name |
Geography |
Business | Value £'000 | % of total assets ‡ | |
SEA Limited ADR | Singapore | Internet gaming and ecommerce business | 29,949 | 9.1 | |
Alibaba Group ADR | HK/China | Online and mobile commerce business | 15,380 | 4.7 | |
JD.com ADR | HK/China | Online and mobile commerce business | 14,191 | 4.3 | |
Kingdee International Software | HK/China | Enterprise management software distributor | 11,842 | 3.6 | |
Samsung SDI | Korea | Electrical equipment manufacturer | 10,650 | 3.2 | |
Li Ning | HK/China | Sportswear apparel supplier | 8,490 | 2.6 | |
L&C Bio | Korea | Medical equipment manufacturer | 6,849 | 2.1 | |
MediaTek | Taiwan | Taiwanese electronic component manufacturer | 6,527 | 2.0 | |
Tencent Holdings | HK/China | Online gaming and social networking | 6,342 | 1.9 | |
Meituan Dianping | HK/China | Chinese online services platform | 6,033 | 1.8 | |
Zia Lab ADR | HK/China | Biopharmaceutical company | 5,770 | 1.8 | |
MMG | HK/China | Chinese copper miner | 5,546 | 1.7 | |
Douzone Bizon | Korea | Enterprise resource planning software developer | 5,523 | 1.7 | |
Accton Technology | Taiwan | Server network equipment manufacturer | 5,378 | 1.6 | |
Koh Young Technology | Korea | 3D inspection machine manufacturer | 5,330 | 1.6 | |
Enzychem Lifesciences Corp | Korea | Biopharmaceutical company | 5,124 | 1.6 | |
Genexine | Korea | Therapeutic vaccine researcher and developer | 5,072 | 1.5 | |
Dragon Capital Vietnam Enterprise Investments | Vietnam | Vietnam investment fund | 4,995 | 1.5 | |
Bioneer | Korea | Drug researcher and developer | 4,325 | 1.3 | |
Nickel Mines | Indonesia | Base metals miner | 4,183 | 1.3 | |
Merdeka Copper Gold | Indonesia | Indonesian miner | 4,125 | 1.3 | |
Info Edge | India | Multi-service online review aggregator | 4,085 | 1.2 | |
Ping An Insurance H Shares | HK/China | Life insurance provider | 3,878 | 1.2 | |
Zomato Mediau | India | Online restaurant search, ordering and discovery platform |
3,872 |
1.2 | |
Jadestone | Singapore | Oil and gas explorer and producer | 3,844 | 1.2 | |
PT Vale Indonesia | Indonesia | Nickel miner | 3,794 | 1.2 | |
Geely Automobile | HK/China | Automobile manufacturer | 3,762 | 1.1 | |
HUYA ADR | HK/China | Live-streaming game platform | 3,737 | 1.1 | |
Kingsoft Cloud Holdings Ltd ADR | HK/China | Chinese cloud computing provider | 3,368 | 1.0 | |
LONGi Green Energy A Shares | HK/China | Solar panel manufacturer | 3,322 | 1.0 | |
Korea Zinc | Korea | Non-ferrous metals smelter and manufacturer | 3,318 | 1.0 | |
CNOOC Ltd | HK/China | Oil and gas producer | 3,164 | 1.0 | |
iClick Interactive Asia Group | HK/China | Online marketing technology platform | 3,113 | 0.9 | |
Quess Corp | India | Human resources company | 3,073 | 0.9 | |
HDBank | Vietnam | Consumer bank | 3,009 | 0.9 | |
Genius Electronic Optical | Taiwan | Lens manufacturer for phones and cameras | 2,962 | 0.9 | |
iQIYI Inc ADR | HK/China | Chinese online video | 2,949 | 0.9 | |
China Conch Venture Holdings |
HK/China | Provider of environmentally-friendly building materials and solutions |
2,897 |
0.9 | |
NCSOFT | Korea | Computer games developer | 2,783 | 0.8 | |
List of Investments as at 31 July 2020 (ctd) |
| ||||
Name |
Geography |
Business | Value £'000 | % of total assets ‡ |
Chungwa Precision Test Tech | Taiwan | Manufacturer of printed circuit boards | 2,518 | 0.8 |
PT Aneka Tambang | Indonesia | Nickel miner | 2,468 | 0.8 |
AU Small Finance Bank | India | Consumer finance bank | 2,351 | 0.7 |
S-Fuelcell | Korea | Fuel cell manufacturer | 2,334 | 0.7 |
Reliance Industries | India | Indian petrochemical company | 2,280 | 0.7 |
CIMC Vehicles H Shares | HK/China | Manufacturer of trailers and trucks | 2,116 | 0.6 |
Military Commercial Joint Stock Bank | Vietnam | Retail and corporate bank | 2,108 | 0.6 |
Burning Rock Biotech Ltd ADR | HK/China | Chinese developer of oncology and early cancer detection technology |
2,107 |
0.6 |
Brilliance China Automotive | HK/China | Minibus and automotive components manufacturer |
2,024 |
0.6 |
ST Pharm | Korea | Manufacturer of specialist pharmaceutical ingredients |
2,019 |
0.6 |
Zijin Mining Group Co Ltd H Shares | HK/China | Gold and copper miner | 2,003 | 0.6 |
Tong Hsing Electronic Industries | Taiwan | Semiconductor packaging supplier | 1,983 | 0.6 |
Hoa Phat Group | Vietnam | Steel and related products manufacturer | 1,944 | 0.6 |
Chinasoft International | HK/China | Information technology provider | 1,934 | 0.6 |
Techtronic Industries | HK/China | Power tool manufacturer | 1,889 | 0.6 |
ICICI Lombard | India | General insurance provider | 1,881 | 0.6 |
Precision Tsugami | HK/China | Industrial machinery manufacturer | 1,846 | 0.6 |
Vincom | Vietnam | Property developer | 1,841 | 0.6 |
Offcn Education Technology | HK/China | Chinese education training services | 1,749 | 0.5 |
Hyundai Mipo Dockyard | Korea | Korean shipbuilder | 1,731 | 0.5 |
Dada Nexus Ltd ADR | HK/China | Chinese ecommerce distributor of online consumer products |
1,724 |
0.5 |
Hypebeast | HK/China | Digital media and ecommerce company | 1,723 | 0.5 |
Cowell Fashion | Korea | Apparel manufacturer | 1,696 | 0.5 |
Johnson Electric | HK/China | Hong Kong electric motor manufacturer | 1,635 | 0.5 |
Flitto | Korea | Internet based service provider | 1,595 | 0.5 |
China Oilfield Services Ltd | HK/China | Oilfield services | 1,578 | 0.5 |
TCI | Taiwan | Food producer | 1,539 | 0.5 |
SK Hynix | Korea | Electric component and device manufacturer | 1,538 | 0.5 |
Samsung Electronics | Korea | Memory, phones and electronic components manufacturer |
1,495 |
0.5 |
AirTac International Group | Taiwan | Pneumatic components manufacturer | 1,483 | 0.5 |
Tata Motors Ltd ADR | India | Indian automobile manufacturer | 1,476 | 0.4 |
Ningbo Peacebird Fashion A Shares | HK/China | Chinese fashion | 1,464 | 0.4 |
Ayala Corporation | Philippines | Real estate property developer | 1,423 | 0.4 |
Wuxi Lead Intelligent Equipment Co Ltd A Share |
HK/China | Manufacturer of electronic capacitors, solar energy and lithium battery equipment |
1,400 |
0.4 |
Shennan Circuits | HK/China | Chinese printed circuit board manufacturer | 1,269 | 0.4 |
Bank Rakyat Indonesia | Indonesia | Indonesian bank | 1,222 | 0.4 |
BizLink Holding | Taiwan | Electrical components manufacturer | 1,205 | 0.4 |
List of Investments as at 31 July 2020 (ctd)
Name |
Geography |
Business | Value £'000 | % of total assets ‡ |
Intron Biotechnology | Korea | Antibiotics drug researcher | 1,182 | 0.4 |
ICICI Prudential Life Insurance | India | Life insurance provider | 1,124 | 0.3 |
Saigon Securities | Vietnam | Brokerage and securities company | 1,000 | 0.3 |
MINTH Group | HK/China | Auto parts manufacturer | 931 | 0.3 |
Huaya Automotive Systems A Shares | HK/China | Auto parts manufacturer | 917 | 0.3 |
India Capital Growth Fund | India | Indian investment trust | 897 | 0.3 |
Guangzhou Kingmed Diagnostics A Shares | HK/China | Chinese healthcare provider | 868 | 0.3 |
Hanall Biopharma | Korea | Pharmaceutical company | 857 | 0.3 |
Taiwan Semiconductor Manufacturing | Taiwan | Semiconductor foundry | 825 | 0.3 |
Vinh Hoan Corporation | Vietnam | Food producer | 789 | 0.2 |
Bank Danamon Indonesia Tbk PT | Indonesia | Provider of general banking services | 727 | 0.2 |
SCM Lifescience Co Ltd | Korea | Korean biotech | 716 | 0.2 |
Nexteer Automotive | HK/China | Producer of automotive components | 633 | 0.2 |
SDI Corporation | Taiwan | Stationery and lead frames for semiconductors manufacturer |
625 |
0.2 |
Binh Minh Plastics Joint Stock Company | Vietnam | Plastic piping manufacturer | 622 | 0.2 |
Ping An Bank A Shares | HK/China | Consumer bank | 582 | 0.2 |
Mahindra CIE Automotive | India | Truck parts manufacturer | 538 | 0.2 |
Venustech | HK/China | Chinese software developer | 504 | 0.2 |
Future Lifestyles Fashions | India | Operator of apparel retail stores | 476 | 0.1 |
Yeah1 Group Corporation | Vietnam | Media company | 472 | 0.1 |
Beijing Thunisoft Corp Ltd | HK/China | Chinese software developer | 466 | 0.1 |
TTY Biopharm | Taiwan | Specialist genetics manufacturer | 459 | 0.1 |
Petro Matad | Mongolia | Oil explorer and producer | 444 | 0.1 |
Lemon Tree Hotels | India | Owner and operator of a chain of Indian hotels and resorts |
296 |
0.1 |
Skipper Limited | India | Transmission and distribution structures provider | 269 | 0.1 |
BitAuto Holdings Ltd ADR | HK/China | Automobile pricing website | 203 | 0.1 |
Chime Biologics Limitedu | HK/China | Biopharmaceutical company | 154 | - |
Ramkrishna Forgings | India | Auto parts manufacturer | 140 | - |
JHL Biotechu | Taiwan | Biopharmaceutical company | 91 | - |
Philtown Propertiesu | Philippines | Property developer | - | - |
|
|
|
|
|
Total Investments |
|
| 316,952 | 96.3 |
Net Liquid Assets |
|
| 12,092 | 3.7 |
Total Assets |
|
| 329,044 | 100.0 |
HK/China denotes Hong Kong and China.
‡ For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
u Denotes unlisted investment.
Distribution of Total Assets‡ |
Geographical Analysis
|
| At 31 July 2020 % | At 31 July 2019 % |
Equities: | Hong Kong and China | 41.1 (inc 2.6 A Shares) | 34.4 (inc 2.6 A Shares) |
| Korea | 19.5 | 19.0 |
| Taiwan | 7.9 | 10.9 |
| Vietnam | 5.0 | 9.4 |
| India | 6.8 | 9.3 |
| Singapore | 10.3 | 9.9 |
| Indonesia | 5.2 | 4.8 |
| Philippines | 0.4 | - |
| Mongolia | 0.1 | 0.6 |
Total equities | 96.3 | 98.3 | |
Net liquid assets | 3.7 | 1.7 | |
Total assets | 100.0 | 100.0 | |
Sectoral Analysis
|
| At 31 July 2020 % | At 31 July 2019 % |
Equities: | Consumer Discretionary | 18.6 | 16.6 |
| Communication services | 16.6 | 14.3 |
| Consumer Staples | 0.7 | 1.4 |
| Energy | 3.5 | 5.9 |
| Financials | 7.2 | 16.4 |
| Healthcare | 10.8 | 8.9 |
| Industrials | 6.9 | 6.8 |
| Information Technology | 22.9 | 19.6 |
| Materials | 8.5 | 7.1 |
| Real Estate | 0.6 | 1.3 |
Total equities | 96.3 | 98.3 | |
Net liquid assets | 3.7 | 1.7 | |
Total assets | 100.0 | 100.0 | |
‡ For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Notes to the Financial Statements |
There are no dilutive or potentially dilutive shares in issue.
1. | The Financial Statements for the year to 31 July 2020 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently. | ||||||||
|
| 31 July 2020 £'000 | 31 July 2019 £'000 | ||||||
2. | Income from Investments |
|
| ||||||
| Overseas dividends | 3,027 | 2,225 | ||||||
| Overseas interest | 89 | 104 | ||||||
|
| 3,116 | 2,329 | ||||||
| Other income |
|
| ||||||
| Deposit interest | 12 | 144 | ||||||
| Total income | 3,128 | 2,473 | ||||||
3. | The Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager (AIFM) and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting have been further sub-delegated to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited. The Managers may terminate the Management Agreement on six months' notice and the Company may terminate on three months' notice. With effect from 1 January 2019 the annual management fee is 0.75% on the first £50 million of net assets, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. In the periods before 1 January 2019 covered by this report, the fee was 0.95% on the first £50 million, 0.65% on the next £200 million of net assets and 0.55% on the remaining net assets. Management fees are calculated and payable quarterly.
| ||||||||
4. |
| 31 July 2020 £'000 | 31 July 2019 £'000 | ||||||
| Net return per ordinary share |
|
| |||||||
| Revenue return on ordinary activities after taxation | 564 | 8 | |||||||
| Capital return on ordinary activities after taxation | 80,090 | (3,897) | |||||||
| Total return | 80,654 | (3,889) | |||||||
| Weighted average number of ordinary shares in issue | 59,331,304 | 58,565,364 | |||||||
| The figures for net return per ordinary share are based on the above totals for revenue and capital and the weighted average number of ordinary shares (excluding treasury shares) in issue during the year. | |||||||||
5. | Fixed Assets - Investments |
|
|
|
| ||||
| As at 31 July 2020 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | ||||
| Listed equities | 312,835 | - | - | 312,835 | |||||
| Unlisted equities | - | - | 4,117 | 4,117 | |||||
| Total financial asset investments | 312,835 | - | 4,117 | 316,952 | |||||
|
|
|
| ||||||
Notes to the Financial Statements (ctd) |
5. | Fixed Assets - Investments (ctd) |
|
|
|
|
| As at 31 July 2019 | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 |
| Listed equities | 217,070 | - | - | 217,070 | |
| Unlisted equities | - | - | 2,914 | 2,914 | |
| Total financial asset investments | 217,070 | - | 2,914 | 219,984 | |
| Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the preceding tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value. Fair Value Hierarchy The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows: Level 1 - using unadjusted quoted prices for identical instruments in an active market; Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and Level 3 - using inputs that are unobservable (for which market data is unavailable).
The Company's unlisted ordinary share investments at 31 July 2020 were valued using a variety of techniques. These include using comparable company performance, comparable scenario analysis and assessment of milestone achievement at investee companies. The determinations of fair value included assumptions that the comparable companies and scenarios chosen for the performance assessment provide a reasonable basis for the determination of fair value. In some cases the latest dealing price is considered to be the most appropriate valuation basis, but only following assessment using the techniques described above. The Managers' unlisted investment valuation policy applies methodologies consistent with the International Private Equity and Venture Capital Valuation guidelines ('IPEV'). These methodologies can be categorised as follows: (a) market approach (multiples, industry valuation benchmarks and available market prices); (b) income approach (discounted cash flows); and (c) replacement cost approach (net assets). The valuation process recognises also, as stated in the IPEV Guidelines, that the price of a recent investment may be an appropriate starting point for estimating fair value, however it should be evaluated using the techniques described above.
| ||||
6. | The Company incurred transaction costs on purchases and sales of £116,000 (2019 - £101,000) and £133,000 (2019 - £109,000) respectively, total transaction costs being £249,000 (2019 - £210,000). The Company received £77,364,000 (2019 - £51,412,000) from investments sold during the year. The book cost of these investments when they were purchased was £57,558,000 (2019 - £46,554,000). These investments have been revalued over time and, until they were sold, any unrealised gains/losses were included in the fair value of the investments. Of the realised gains on sales of investments during the year of £19,806,000 (2019 - £4,858,000), a net gain of £11,114,000 (2019 - gain of £22,537,000) was included in investment holding gains at the previous year end.
| ||||
7. | Creditors - Amounts falling due within one year The Company has a one year multi-currency revolving credit facility of up to £30 million with Royal Bank of Scotland International Limited (31 July 2019 - up to £30 million) which expires on 13 March 2021. At 31 July 2020 there were outstanding drawings of £12,500,000 and US$15,935,500 at interest rates of 0.71891% and 0.83874% respectively (31 July 2019 - £10,000,000 and US$12,739,900 at interest rates of 1.28492% and 2.9272% respectively), maturing in September 2020. The main covenants relating to the loan are that borrowings should not exceed 20% of the Company's adjusted net asset value and the Company's net asset value should be at least £100 million. There were no breaches in the loan covenants during the year.
| ||||
Notes to the Financial Statements (ctd) |
8. | Creditors - Amounts falling due after more than one year Provision for Deferred Tax Liability The deferred tax liability provision at 31 July 2020 of £76,000 (31 July 2019 - nil) relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates. The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates. |
9. |
|
| 2020 Number of Shares | 2019 Number of shares | ||||||||||||||||||||||||||||||||||||
| Called up share capital: ordinary shares of 10p each |
|
|
| |||||||||||||||||||||||||||||||||||||
| Allotted, called up and fully paid |
| 63,165,282 | 59,027,282 | |||||||||||||||||||||||||||||||||||||
| Total |
| 63,165,282 | 59,027,282 | |||||||||||||||||||||||||||||||||||||
| In the year to 31 July 2020, the Company issued 4,138,000 ordinary shares (nominal value of £414,000, representing 7% of the issued share capital at 31 July 2019) at a premium to net asset value, raising net proceeds of £20,399,000 (2019 - £2,359,000). 37,000 shares (representing 0.1% of the issued share capital at 31 July 2019) were bought back during the year and subsequently reissued from treasury. At 31 July 2020 the Company had authority to buy back 8,842,643 ordinary shares on an ad hoc basis and to allot or sell from treasury 1,727,728 ordinary shares without application of pre-emption rights. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. Between 1 August and 24 September 2020, the Company issued 4,120,000 ordinary shares (nominal value £412,000) at a premium to net asset value, raising net proceeds of £22,598,000. | |||||||||||||||||||||||||||||||||||||||
10. |
| |||||||||||||||||||||||||||||||||||||||
11. | The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 July 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course. The auditor has reported on these accounts; the reports were unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498 (2) or 498(3) of the Companies Act 2006. | |||||||||||||||||||||||||||||||||||||||
12. | The Annual Report and Financial Statements will be available on the Company's page on the Managers' website www.pacifichorizon.co.uk‡ on or around 8 October 2020. | |||||||||||||||||||||||||||||||||||||||
‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
Glossary of Terms and Alternative Performance Measures (APM)
Total Assets
The total value of all assets held less all liabilities (other than liabilities in the form of borrowings).
Shareholders' Funds and Net Asset Value
Also described as shareholders' funds, Net Asset Value (NAV) is the value of all assets held less all liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares (excluding treasury shares) in issue.
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities (excluding borrowings) and provisions for deferred liabilities.
Discount/Premium (APM)
As stock markets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.
Total Return (APM)
The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.
Ongoing Charges (APM)
The total recurring expenses (excluding the Company's cost of dealing in investments and borrowing costs) incurred by the Company as a percentage of the daily average net asset value, as detailed below.
| 2020 £'000 | 2019 £'000 |
Investment management fee | 1,533 | 1,297 |
Other administrative expenses | 479 | 542 |
Total Expenses | 2,012 | 1,839 |
Average net asset value | 219,376 | 186,150 |
Ongoing charges | 0.92% | 0.99% |
China A Shares
'A' Shares are shares of mainland China-based companies that trade on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Since 2003, select foreign institutions have been able to purchase them through the Qualified Foreign Institutional Investor system.
Treasury Shares
The Company has the authority to make market purchases of its ordinary shares for retention as Treasury Shares for future reissue, resale, transfer, or for cancellation. Treasury Shares do not receive distributions and the Company is not entitled to exercise the voting rights attaching to them.
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.
Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.
Invested gearing is borrowings at par less cash and brokers' balances expressed as a percentage of shareholders' funds.
Glossary of Terms and Alternative Performance Measures (APM) (Ctd)
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
Active Share (APM)
Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.
Compound Annual Return (APM)
The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compound value at the start of each year.
Unlisted Company
An unlisted company means a company whose shares are not available to the general public for trading and are not listed on a stock exchange.
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Pacific Horizon Investment Trust PLC (Pacific Horizon) aims to achieve capital growth through investment in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent. The Company has total assets of £329.0 million (before deduction of loans of £24.6 million)at 31 July 2020.
Pacific Horizon is managed by Baillie Gifford & Co Limited, the Edinburgh based fund management group.
Past performance is not a guide to future performance. Pacific Horizon is a public listed company and is not authorised or regulated by the Financial Conduct Authority. The value of its shares and any income from those shares can fall as well as rise and you may not get back the amount invested. Pacific Horizon invests in overseas securities, changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up. Pacific Horizon invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. Shareholders in Pacific Horizon have the right to vote every five years, on whether to continue Pacific Horizon, or wind it up. If the shareholders decide to wind the Company up, the assets will be sold and you will receive a cash sum in relation to your shareholding. The next vote will be held at the Annual General Meeting in 2021. You can find up to date performance information about Pacific Horizon on the Pacific Horizon page of the Managers' website at www.pacifichorizon.co.uk.†
† Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.
29 September 2020
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 2000
Mark Knight, Four Communications
Tel: 0203 697 4200 or 07803 758810
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