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PHI Pacific Horizon Investment Trust Plc

575.00
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Pacific Horizon Investment Trust Plc LSE:PHI London Ordinary Share GB0006667470 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 575.00 574.00 580.00 583.00 574.00 574.00 131,673 16:35:23
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Trust,ex Ed,religious,charty -20.44M -23.29M -0.2529 -22.89 533.11M

Pacific Horizon Investment Tst PLC Annual Financial Report (2543L)

29/09/2016 4:44pm

UK Regulatory


Pacific Horizon Investment (LSE:PHI)
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TIDMPHI

RNS Number : 2543L

Pacific Horizon Investment Tst PLC

29 September 2016

Pacific Horizon Investment Trust PLC

Circular and Annual Financial Report

Pacific Horizon Investment Trust PLC ('the Company') has today published a circular ('the Circular') containing notice of the Annual General Meeting of the Company. In addition to the customary business to be conducted at the Annual General Meeting the notice also includes a resolution, as outlined in the Chairman's Statement below, proposing to extend the life of the Company.

Full details of all the resolutions are set out in the Circular. Copies of the Circular are available for inspection during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

Expected Timetable

 
    Latest time and date for receipt   11.00 a.m. on 2 November 
     of forms of direction              2016 
    Latest time and date for receipt   11.00 a.m. on 7 November 
     of forms of proxy                  2016 
    Annual General Meeting             11.00 a.m. on 9 November 
                                        2016 
 

A copy of the Circular and the Annual Report and Financial Statements for the year ended 31 July 2016 has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM

The Circular and Annual Report and Financial Statements for the year ended 31 July 2016 are also available on Pacific Horizon's page of the Baillie Gifford website at:http://www.pacifichorizon.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 July 2016 which require to be published by DTR 4.1 are set out below.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

Baillie Gifford & Co Limited

Company Secretaries

29 September 2016

Chairman's Statement

Performance

In the year to 31 July 2016, the Company's net asset value per share (NAV) total return was 13.3%. During the same period the Company's comparative index, the MSCI All Country Asia ex Japan Index, total return was 16.2% in sterling terms. The share price total return was 10.9%, and the discount widened from 8.2% to 10.1%. Over the five years to 31 July 2016 the Company's NAV and share price returned 29.8% and 26.8% respectively; over the same period the Company's comparative index, the MSCI All Country Asia ex Japan Index, returned 30.3% in sterling terms.

The Managers' Review below provides a more detailed review of the Company's performance along with comment on the various markets in which the Company invests.

Earnings per share decreased from 0.35p to a deficit of 0.30p. The Company's objective is to invest for capital growth rather than income and all expenses, including borrowing costs, are charged to revenue. The Company has revenue reserves and the Board is recommending that a final dividend of 0.35p (2015 - 0.35p) be paid on this occasion. Any dividend payable in future will be determined as being the minimum permissible in order to maintain investment trust status and be paid by way of one final payment per year. As the Company's objective is to achieve capital growth, it is not recommended that investors consider investing in this Company if they require income from this investment.

The ongoing charges increased to 1.13% (2015 - 1.02%). Although the Company's NAV per share increased over the financial year, shareholders' funds averaged less than in the prior year partly as a result of the bi-annual tender offers. Consequently, the fixed administrative expenses accounted for a higher proportion of shareholders' funds.

The Board and Managers believe that the long term stock picking approach, focussing on growth companies in the Asia Pacific ex Japan region and markets of the Indian Sub-continent, will generate competitive positive long term returns. Although the Company can invest in a broad spread of markets and sectors, it remains differentiated from its peers at present not only through its geographic exposure (being mainly China/Hong Kong, South Korea, Taiwan, India and increasingly Vietnam), but also as a result of its focus on asset light innovating companies. There continues to be a bias to companies which have the potential to benefit significantly from the growing wealth and sophistication of the Asian consumer. The overlap between the Company's portfolio and index was 19% as at 31 July 2016, meaning that the active share was over 81%, again demonstrating a very distinct investment style.

Continuation of the Company

At this year's Annual General Meeting ('AGM') the Directors are proposing, in accordance with the Articles, that the life of the Company be extended for a further five years. Having conducted a thorough review of the Managers' approach and resources, the Board judges them to have the right team to manage a portfolio in what it considers to be a region with superior long term prospects for investment.

Your Directors therefore believe that it is desirable to extend the Company's life and recommend that shareholders vote in favour of the extension for a further period of five years. A fuller outline of the proposal is set out in the circular containing the Notice of the AGM accompanying this Report.

Tender Mechanism

At the Company's 2015 AGM, shareholders once again authorised the implementation of bi-annual tender offers for up to 5% of the Company's shares at a 2% discount to NAV, less costs. The decision to implement the tender was at the Board's discretion in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July 2016. Over the six month periods to 31 July 2015 and 31 January 2016 the Company's average discounts were 9.6% and 10.3% respectively and consequently the Board implemented tender offers in October 2015 and April 2016. The Company's average discount for the six month period to 31 July 2016 was 11.9% and the Board has again decided to implement a 5% tender offer, applicable to shareholders on the register on 9 August 2016. Details of how to tender your shares in respect of this 5% tender offer are contained within the Tender Offer Circular accompanying this Report.

Through tender offers implemented on 31 July 2015 and 31 January 2016, the Company bought back a total of 6,170,662 ordinary shares, representing 9.7% of the issued share capital as at 31 July 2015, at a cost of GBP11,618,000.

Following consultation with a number of shareholders, the Board is not proposing to seek authority for the existing bi-annual 5% tender to be continued for a period of at least the next three years. Some investors have commented that they require the Company to have liquidity and scale and have found the existing size and/or frequency of tenders unhelpful. In addition, they felt that the trigger for tenders can be over influenced by market sentiment towards the asset class, rather than by the Company's performance. Instead, the Board is proposing a tender that will be triggered if the Company's NAV, calculated at fair value cum-income, total return fails to exceed the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. If this performance target is not met, it is the intention that the Directors will propose a 25% tender of the Company's issued share capital at the time of calculation. The tender would be at a 2% discount to NAV less costs.

This would be subject to shareholders' approval of the tender authority that will be put to shareholders at the 2018 AGM. If the authority is obtained and the tender is subsequently triggered, a separate circular and tender form will be sent to shareholders which will set out the full terms and conditions of the tender offer and the procedure for tendering shares.

Share Buy-backs

At the forthcoming AGM, the Board will be asking shareholders to renew the mandate to repurchase up to 14.99% of the outstanding shares on an ad hoc basis. The Board uses this authority opportunistically, taking into account not only the level of the discount but also the underlying liquidity and trading volumes in the Company's shares. This approach allows the Board to seek to address any imbalance between the supply and demand for the Company's shares that results in a large discount to NAV whilst being cognisant that current and potential shareholders require continuing liquidity.

Gearing

The Board sets the gearing parameters within which the portfolio managers are permitted to operate and these are reviewed at each Board meeting. At present, the agreed range of equity gearing is minus 15% to plus 10%. At the year end, equity gearing was relatively low at 2.9%, having started the year at 7.9%. Gearing ranged between a negative of 8.3% (i.e. holding net cash) and a positive of 8.1%. Gearing is achieved through the use of bank borrowings. At present the Company has a Royal Bank of Scotland GBP10 million multi-currency revolving credit facility, of which GBP5 million was drawn at 31 July 2016. In addition the Company benefits from a GBP10 million one year uncommitted revolving credit facility with The Bank of New York Mellon which was undrawn at 31 July 2016.

Annual General Meeting

This year's AGM will take place on 9 November 2016 at the offices of Baillie Gifford & Co in Edinburgh at 11.00am. I would encourage shareholders to arrive by 10.50am to allow time to register. The Managers will make a presentation and, along with the Directors, will answer any questions from shareholders. I hope to see as many of you as possible there.

Outlook

Over the year, the performance of stockmarkets across Asia was mixed. In local currency terms, the Chinese and Hong Kong markets were weaker, whilst South Korea and India were largely unchanged, albeit with some volatility during the year. These are the areas where we have most of our exposure. The headline economic numbers indicate reasonable growth potential and we believe that there are good opportunities across the Asian markets to find entrepreneurial companies on valuations which look reasonably priced. Our exposure to technologies of differing types - such as internet search tools, online services and biotechnology - offer us plenty of scope to invest in growing businesses with the opportunity to take market share from traditional businesses and benefit from the disruption which is now occurring internationally.

Jean Matterson

Chairman

15 September 2016

Past performance is not a guide to future performance.

Managers' Review

Overview

Management of Pacific Horizon's portfolio is focussed on finding and investing in attractive growth companies within Asia Ex-Japan and the Indian Sub-continent. We believe that investing for the long-term in companies that can deliver significantly faster growth than the market will, over time, deliver rewards. We are looking to invest in companies that have the potential to grow their revenue and earnings at around 15% per annum for at least the next five years and where we feel the growth prospects have not been fully recognised. This investment approach can lead to significant concentration in certain areas of the market.

Over the Company's financial year the NAV total return was 13.3% compared with 16.2% for the comparative index in sterling terms. We are disappointed with this relative performance, but we believe that our investment stance will be vindicated over the longer-term. As at the Company's year end we had equity gearing of 2.9% and we would look to be adding investment exposure if there were to be any significant weakness in markets or were we to find opportunities to invest in new exciting companies with significant growth potential.

The Portfolio

The weighting in technology companies increased from 47.9% to 50.9% following outperformance of the sector during the year and additions to our Chinese holdings. The consumer internet names in China now represent the largest concentration in our portfolio at 22%; we see significant upside from both earnings growth and a potential re-rating of valuations in this sector, which have been significantly de-rated over the last year due to fear of an overall Chinese slowdown. We feel that the sector represents one of the most compelling long-term investments within our region.

Tencent Holdings, which is the portfolio's largest holding at just over 10%, significantly beat consensus earnings expectations recently, growing its revenues by 52% and net profit by 47% year on year, which is impressive for a $250bn company. With the second largest user base in the world after Facebook, we see tremendous opportunity for Tencent to monetise its network through games, video, music and advertising. Alibaba accounts for 3% of the portfolio and announced recent revenue growth of 59%. Five of the Company's top six largest holdings and 25% of the portfolio as a whole represent companies that profit from the supply of information through their respective networks.

Our technology holdings, in China and elsewhere, helped our overall performance, with Sunny Optical, Tencent and NAVER being our top contributors to overall performance. On the other hand, not holding sufficient positions in TSMC and Samsung Electronics and severe weakness in some of our Chinese names: JD.com, Kingdee, Kingsoft and Jumei International dampened portfolio returns.

Within China we bought China Harmony New Energy Auto, a leading car dealer and after-market operator in China, which is investing in a partnership with Tencent and Hon Hai to create a leading electric vehicle. We bought the stock on a price earnings ratio of 8x and with potential three year earnings growth of 20% per annum.

Korean investments represent some 30% of the portfolio and we continue to find plenty of interesting innovative growth companies in this market; this is at odds with the consensus judgement on the country. We took a position in Finetex EnE which is one of the world's leading companies in nano-materials. We believe the company is in late stage negotiations to supply innovative materials to Nike, improved performance facial masks in Korea and China, and has the potential to revolutionise the membranes and materials used in air conditioning systems.

We hold a number of smaller technology companies in Korea, where we believe the growth potential is underappreciated; for example, Koh Young, a $500m company where our holding represents 2.2% of the portfolio, the world leader in automated 3D inspection equipment. Koh Young's combination of leading algorithms and hardware has led it to achieve a 49% market share in the Silicon Paste Inspection industry and potential leadership in adjacent semiconductor inspection markets.

Our Korean healthcare investments experienced a mixed year. We hold 9.2% of the portfolio in a number of small biotech companies in both Korea and Taiwan, all of which we believe are at or close to the leading edge of their technology specialisation or have a distinct technological manufacturing advantage. The volatility of this sector and the size of the individual companies has meant that they are under-researched and tend to have been overlooked by many institutional investors. By taking a long-term approach and by investing alongside management we believe we can add significant value to the Company over time from these investments.

We repositioned our Indian exposure away from the IT services sector where, after many years of positive performance, we became worried that the longer-term growth outlook was slowing due to changes in the outsourcing model and the need to invest in digitalisation which favoured larger and western players. Consequently, Tech Mahindra and HCL Technologies were sold and our Indian weighting reduced from 21.3% to 14.3%. We purchased a holding in Arvind Ltd, a leading textile and consumer brand company in India. There appears to be a general economic trigger point of a per capita income of $1,500 per annum when demand for apparel takes off quite rapidly and we believe India is at this turning point. We feel that the market may be underestimating the effect on margins and asset turnover that this increase in demand can have and hence improve profitability. We like the longer-term outlook for the Indian market and will be looking for interesting companies on any valuation pull-back.

We increased our Vietnamese market exposure from 1.3% to 4.8% of the portfolio. We believe that Vietnam is at a very early stage of becoming part of the global market. Given its large and educated workforce and the geographical benefits of being near the centre of Asia, we see probability of a very positive long-term outlook for the country. The Vietnam Hanoi Index is currently cheap at a price earnings ratio of around 11x and is under-researched by foreign investors. We have an indirect holding via the Dragon Capital Vietnam Enterprise Investments where we are impressed by the domestic managers' ability to source interesting ideas; their long-term active approach fits our philosophy. We have also acquired holdings in two domestic companies, Military Commercial Joint Stock Bank, the fourth largest bank and largest private sector operator in the country, and Vingroup, a real-estate and consumer conglomerate, which we believe has the potential to increase its earnings significantly.

In Taiwan we added an innovative biotech manufacturing company called TTY Biopharm to our portfolio. It is a leading global manufacturer of liposomal products with a significant technological edge that has allowed it to be the key licensed partner for Johnson & Johnson's Doxil drug. With this technological manufacturing know-how, we see significant market opportunities for a pipeline of high margin drugs to deliver 20% plus earnings growth in the long term.

Our largest country exposures are in China/Hong Kong, followed by Korea and then Taiwan. With the exception of Vietnam we retain little exposure to the smaller ASEAN markets. Our investment philosophy means that we inevitably focus on technology and currently 50.9% of the portfolio is invested in this sector. After technology, consumer discretionary and financials make up the largest sector investments.

We believe that the broader economic environment is driven by cycles of innovation rather than being the creator of change. For example, many of the structural issues affecting China and much of Asia today are the result of a technological shift to a more productive economic structure which is leaving investments in fixed assets, heavy industry and other "old economy" assets in severe overcapacity. Within this changing economic structure the affluent Asian consumer stands out as a key beneficiary of rising wealth and increased penetration of technology. Around 30% of the portfolio is invested in consumer, outside of technology, companies that benefit from the rise of the middle class in Asia.

We are also looking for companies that are innovating and moving up their respective value chain. Geely Automotive, a leading Chinese automotive manufacturer, has managed to upgrade its manufacturing capability substantially following its acquisition of Volvo and is launching new sports utility vehicle models, a segment in the car market that is forecast to grow above 20% for the next few years due to the rise in the affluent middle-class. Positive shorter-term growth prospects are starting to be recognised by the market; however, the company's strategic goal to make electric vehicles 90% of its output by 2020 is still being under-appreciated by investors.

Financials represent our third largest sector position although we do not hold investments in banks in a number of the larger countries, including China, Korea and Taiwan, where we feel returns are likely to be challenged or depressed for many years. In line with our investment approach, our holdings are focused on the merits of the individual companies, for example, in India, where we see the return of a structural growth story, and in Vietnam. We find the insurance industry a more compelling investment proposition. We hold significant positions in the Korean insurers, Samsung Fire & Marine and Hyundai Marine & Fire, and in Taiwan's China Life Insurance. These should all benefit from a number of fundamental social and economic changes in the coming years, such as demographics, increased financial sophistication and increasing wealth; we are of the view that there will be significant development of the insurance markets to provide mitigation for the increased risks to which a more wealthy society is exposed.

Investment Approach

The growth characteristics of the portfolio remain strong with historic earnings growth at 11%, almost double the market's 5.7%, and one year forecast earnings growth at 12.2%, double that for the comparative index, the MSCI All Country Asia ex Japan Index. The price earnings ratio of the Company is 19.2x on the current year, versus 13x for the comparative index. Over the longer-term time frame, we believe the higher growth potential of our holdings more than justifies the additional multiple.

Our comparative index has changed materially over the year with the average company size moving from around GBP35bn to GBP45bn largely due to the inclusion of US-listed Chinese internet names, several of which we own, and the outperformance of large capitalisation stocks. Over 20% of our portfolio is invested in companies with a market capitalisation below GBP1bn; a further 34% is invested in companies with a market capitalisation less than GBP10bn. This compares with 0.1% and 35% respectively for the comparative index. The portfolio's active share has decreased slightly, to 81%, largely due to the inclusion of the Chinese US-listed internet companies within the comparative index.

We continue to implement our strategy of investing in companies with good long-term growth prospects. The corporate characteristics we look for include strong growth potential, sustainable competitive advantage, attractive financials and sensible management. In addition, we target stocks that we consider to have very significant long-term opportunities to enhance future profitability.

Environmental, Social and Governance Matters

As growth investors, we are looking for companies whose products will benefit from strong future demand. These companies not only have to produce better and cheaper products and services than their competitors but also have to be alert to the changing nature and views of the societies in which they exist. Companies who do not change tend to fail either due to falling demand for their product or as a result of government intervention. When we invest, we take into account the potential positive and negative impact these companies have on the world today and how their commercial activities will be perceived in the future.

For our long-term investments to be successful the companies in which we invest must add value to society. We see this being achieved in a variety of ways: the regenerative biotech companies we own, whose products may allow many people to gain otherwise unachievable medical benefits, our internet companies which provide goods and services to people at prices and quantities previously unobtainable, and our technology holdings that are helping to enable the greatest and most rapid increase in human connectivity and information availability in human history.

Lastly, the interests of minority shareholders must be upheld; we remain careful to make sure our investments are aligned with those of majority shareholders and owners.

Outlook

It is our view that there is significant potential for positive returns from the region over the coming years. Our focus remains on investment in individual stocks which will benefit from the economic, social and technological changes which are in evidence across the region. After almost five years of slow GDP growth we feel that the region may be gradually recovering. Cheap assets and an improving growth profile may be all that is needed to generate strong positive absolute returns to investors. We believe that our philosophy, process and investment style will reward our shareholders over the medium to long-term.

 
 List of Investments as at 31 
  July 2016 
============================= 
 
 
                                                                                             % of 
                                                                              Value         total 
   Name                        Country                         Business     GBP'000    assets(++) 
--------------------------  -----------  ------------------------------  ----------  ------------ 
                                          Online gaming and 
 Tencent Holdings            HK/China      social networking                 13,457          10.1 
                                          Online search and 
 NAVER                       Korea         messaging                          5,413           4.1 
 Baidu ADR                   HK/China     Internet search engine              4,855           3.7 
                                          Online and mobile 
 Alibaba Group ADR           HK/China      commerce                           4,012           3.0 
 Hon Hai Precision 
  Industries                 Taiwan       Electronic manufacturing            3,849           2.9 
 JD.com                      HK/China     Online mobile commerce              3,729           2.8 
  Dragon Capital Vietnam 
   Enterprise                             Vietnam investment 
   Investments               Vietnam       fund                               3,707           2.8 
                                          Small optical lenses 
 Sunny Optical Technology    HK/China      manufacturer                       3,368           2.5 
 Geely Automobile            HK/China     Automobile manufacturer             3,047           2.3 
                                          3D inspection machine 
 Koh Young Technology        Korea         manufacturer                       2,952           2.2 
 China Life Insurance 
  (Taiwan)                   Taiwan       Life insurance provider             2,760           2.1 
 Mahindra & Mahindra         India        Tractor and SUV manufacturer        2,688           2.0 
 Advantech                   Taiwan       Computer manufacturer               2,636           2.0 
                                          Electronic component 
                                           and device 
 SK Hynix                    Korea         manufacturer                       2,609           2.0 
                                          Indian petrochemical 
 Reliance Industries         India         conglomerate                       2,602           2.0 
 Taiwan Semiconductor 
  Manufacturing              Taiwan       Semiconductor foundry               2,383           1.8 
 Ctrip.com International                  Chinese online travel 
  ADR                        HK/China      agency                             2,332           1.8 
                                          Retail and corporate 
 ICICI Bank                  India         bank                               2,270           1.7 
                                          Commercial bank focusing 
                                           on consumer 
 Indusind Bank               India         lending                            2,046           1.5 
 Samsung Fire & Marine                    Non-life insurance 
  Insurance                  Korea         provider                           2,006           1.5 
                                           Media and entertainment 
                                            creator and 
 CJ E&M                      Korea          supplier                          1,962           1.5 
                                          Memory, phones and 
                                           electronic 
 Samsung Electronics         Korea         components manufacturer            1,929           1.5 
 Techtronic Industries       HK/China     Power tool manufacturer             1,892           1.4 
                                          Pork processor and 
 WH Group                    HK/China      distributor                        1,872           1.4 
                                          Drug researcher and 
 Bioneer                     Korea         development                        1,861           1.4 
 Himax Technologies 
  ADR                        Taiwan       Markets semiconductors              1,683           1.3 
                                          Global biopharmaceutical 
 Medy-Tox                    Korea         company                            1,674           1.3 
 Infosys                     India        Software development                1,632           1.2 
 Container Corporation                    Transportation services 
  of India                   India         provider                           1,565           1.2 
                                          In vitro diagnostic 
 Seegene                     Korea         screening producer                 1,549           1.2 
 Samsung C&T                 Korea        Korean conglomerate                 1,544           1.2 
                                          Integrated circuit 
 MediaTek                    Taiwan        design house                       1,526           1.1 
                                          Laser equipment manufacturer 
                                           and 
 EO Technics                 Korea         distributor                        1,493           1.1 
                                          Nano-technology material 
 Finetax EnE                 Korea         manufacturer                       1,492           1.1 
                                          Therapeutic vaccine 
                                           researcher and 
 Genexine                    Korea         developer                          1,479           1.1 
 Vingroup                    Vietnam      Property developer                  1,451           1.1 
 NCSOFT                      Korea        Online games developer              1,426           1.1 
                                          Designer and manufacturer 
                                           of flash 
 Phison Electronics          Taiwan        memory controllers                 1,411           1.1 
 Mindtree                    India        IT services provider                1,356           1.0 
 Eclat Textile               Taiwan       Textile manufacturer                1,322           1.0 
 China Harmony New 
  Energy Auto                HK/China     Luxury car dealership               1,300           1.0 
                                           Power supplies and 
                                            video display product 
 Delta Electronics           Taiwan         manufacturer                      1,292           1.0 
                                          Outsourced software 
 Persistent Systems          India         product developer                  1,280           1.0 
                                          Jobseekers, housing 
                                           sales and restaurant 
 Info Edge                   India         online review provider             1,254           0.9 
 Military Commercial                      Retail and corporate 
  Joint Stock Bank           Vietnam       bank                               1,245           0.9 
 Orion Corp                  Korea        Consumer conglomerate               1,231           0.9 
                                          Antibiotics drug 
 Intron Biotechnology        Korea         researcher                         1,226           0.9 
                                          Enterprise resource 
                                           planning software 
 Duzonbizon                  Korea         developer                          1,194           0.9 
                                          Consumer textile 
                                           brand owner and 
 Arvind                      India         manufacturer                       1,186           0.9 
 SK Telecom                  Korea        Telecoms operator                   1,171           0.9 
 
 
                                           Enterprise management 
 Kingdee International                      software 
  Software                  HK/China        distributor                     1,130     0.8 
 Mahindra CIE Automotive    India          Truck parts manufacturer         1,092     0.8 
                                           Washing machine and 
 Haier Electronics                          water heater 
  Group                     HK/China        manufacturer                    1,035     0.8 
                                           Electrical components 
 Hansol Technics            Korea           manufacturer                      937     0.7 
                                           Diamond grading measurement 
                                            systems 
 Sarine Technologies        Singapore       developer                         921     0.7 
                                           Electron beam inspection 
 Hermes Microvision         Taiwan          tool manufacturer                 892     0.7 
                                           Smartphone and virtual 
                                            reality 
 HTC                        Taiwan          manufacturer                      844     0.6 
                                           Internet-based shopping 
 Interpark                  Korea           mall                              835     0.6 
 Johnson Electric 
  Holding                   HK/China       Electric motor manufacturer        802     0.6 
                                           Gaming, cloud and 
 Kingsoft                   HK/China        digital advertiser                796     0.6 
                                           Antibiotics and cancer 
 Qurient                    Korea           drug researcher                   693     0.5 
                                           Genetics researcher 
 Theragen Etex              Korea           and developer                     674     0.5 
                                           Manufacturer of specialist 
 TTY Biopharm               Taiwan          genetics                          656     0.5 
                                           Manufacturer of specialist 
                                            pharmaceutical 
 ST Pharm                   Korea           ingredients                       652     0.5 
                                           Drug developer of 
 Viromed                    Korea           recombinant DNA                   613     0.5 
 JHL Biotech                Taiwan         Biologics manufacturer             565     0.4 
                                           Proteomic drug discovery 
 Crystalgenomics            Korea           investigator                      557     0.4 
 Hyundai Marine and                        Non-life insurance 
  Fire Insurance            Korea           provider                          504     0.4 
 Philtown Properties*       Philippines    Property developer                   0     0.0 
 Total Investments                                                        131,417    99.0 
 Net Current Assets                                                         1,285     1.0 
=======================================================================  ========  ====== 
 Total Assets                                                             132,702   100.0 
=======================================================================  ========  ====== 
 

HK/China denotes Hong Kong and China

   ++      Total assets less current liabilities, before deduction of borrowings. 
   *      Denotes unlisted investment. 

Distribution of Portfolio

Geographical Analysis

 
                                     At 31   At 31 
                                      July    July 
                                      2016    2015 
                                         %       % 
===========  =====================  ======  ====== 
 Equities:    Hong Kong and China     32.9    35.6 
  Korea                               29.9    23.1 
  Taiwan                              16.4    15.0 
  India                               14.3    21.3 
  Vietnam                              4.8     1.3 
  Singapore                            0.7     0.8 
 Total equities                       99.0    97.1 
 Net current assets                    1.0     2.9 
==================================  ======  ====== 
 Total assets(++)                    100.0   100.0 
==================================  ======  ====== 
 

Sectoral Analysis

 
                                         At 31 July  At 31 July 
                                               2016        2015 
                                                  %           % 
==========  ===========================  ==========  ========== 
Equities:   Energy                              2.0           - 
 Consumer Discretionary                        16.9        17.3 
 Consumer Staples                               2.3         2.2 
 Financials                                    12.0        14.8 
 Health Care                                    9.2         7.9 
 Industrials                                    4.8         6.0 
 Information Technology                        50.9        47.9 
 Telecommunication Services                     0.9         0.9 
 Utilities                                        -         0.1 
 ======================================  ==========  ========== 
Total equities                                 99.0        97.1 
Net current assets                              1.0         2.9 
=======================================  ==========  ========== 
Total assets                                  100.0       100.0 
=======================================  ==========  ========== 
 
   ++      Total assets less current liabilities, before deduction of borrowings. 

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

3/4 the movement in net asset value per ordinary share;

3/4 the movement in the share price;

3/4 the premium/(discount) of the share price to the net asset value per share;

3/4 the movement in the comparative index (MSCI All Country Asia ex Japan Index (in sterling terms)); and

3/4 the ongoing charges.

The one, five and ten year records for the KPIs can be found on pages 4, 5 and 6 of the Annual Report and Financial Statements respectively.

Future Developments of the Company

The outlook for the Company is set out in the Chairman's Statement and the Managers' Review.

Buy-backs, Issuances and Share Tenders

The Company currently has powers to buy back up to 14.99% of its own ordinary shares for cancellation at a discount to net asset value per share (NAV) on an ad hoc basis as well as to issue shares at a premium to NAV. During the year to 31 July 2016 no shares were bought back under the buy-back authority and no shares were issued. At 31 July 2016 the Company had authority to buy back a further 9,012,649 ordinary shares. At the forthcoming Annual General Meeting, the Directors are seeking to renew these authorities, details of these resolutions are contained in the Circular sent to shareholders with the Annual Report and Financial Statements.

The Company also has authority to implement, at the Board's discretion, bi-annual tender offers for up to 5% of its shares at a 2% discount to net asset value, less costs, in the event that the discount averaged more than 9% during the six month periods to 31 January and 31 July in the years 2014, 2015 and 2016. The Board implemented a 5% tender offer in October 2015 and April 2016 in respect of the tender periods to 31 July 2015 and 31 January 2016. Through the exercise of both of these tenders the Company bought back a total of 6,170,662 (2015 - 6,837,299) ordinary shares at a total cost of GBP11,618,000 (2015 - GBP14,336,000). The nominal value of these shares was GBP617,000 and represented 9.75% of the issued share capital at 31 July 2015. The Board is not proposing to seek shareholder authority for the existing bi-annual 5% tender to be continued for a period of at least the next three years but it is the intention that the Directors will propose a 25% tender to be triggered if the Company's NAV, calculated at fair value cum-income, total return fails to exceed the Company's comparative index by at least 1% per annum over a three year period to 31 July 2019 on a cumulative basis. Details of this are contained in the Circular sent to shareholders with the Annual Report and Financial Statements.

Related Party Transactions

Details of the management contract are set out in the Directors' Report on page 18 of the Annual Report and Financial Statements. The management fee payable to the Manager by the Company for the year, as disclosed in note 3 of the Annual Report and Financial Statements, was GBP899,000 (2015 - GBP1,032,000) of which GBP245,000 (2015 - GBP241,000) was outstanding at the year end, as disclosed in note 11 of the Annual Report and Financial Statements.

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 26 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Management Fee Arrangements

Details of the Investment Management Agreement are set out on page 18 of the Annual Report and Financial Statements. The annual management fee is 0.95% on the first GBP50m of net assets and 0.65% on the balance. Management fees are calculated and payable on a quarterly basis.

 
                                               2016       2015 
                                            GBP'000    GBP'000 
===========================  ======================  ========= 
 Investment management fee                      899      1,032 
===========================  ======================  ========= 
 

Principal Risks

As explained on pages 22 and 23 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 16 to the Financial Statements on pages 41 to 45 of the Annual Report and Financial Statements. As oversight of this risk, the Board considers at each meeting various metrics including regional and industrial sector weightings, top and bottom stock contributors to performance along with sales and purchases of investments. Individual investments are discussed with the portfolio managers together with their general views on the various investment markets and sectors. A strategy review is held annually.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to the Company being subject to tax on capital gains, suspension of the Company's Stock Exchange Listing, financial penalties or a qualified audit report. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive with reference to inside information.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised as a result of control failures by the Depositary, including cyber hacking. To monitor potential risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other third party providers are reviewed by Baillie Gifford on behalf of the Board.

Discount/Premium Volatility - the discount/premium at which the Company's shares trade can widen. The Board monitors the level of discount/premium and the Company has authority to buy back its own shares, as well as to issue shares at a premium, when deemed to be in the best interest of all of its shareholders.

Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts. All borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found in note 17 on page 45 of the Annual Report and Financial Statements and the Glossary of Terms on page 51 of the Annual Report and Financial Statements.

Political and Associated Economic Risk - the Board is of the view that political change in areas in which the Company invests or may invest may have practical consequences for the Company. Political developments are closely monitored and considered by the Board. The Board has noted the results of the UK referendum on continuing membership of the European Union. Whilst there is considerable uncertainty at present, the Board will continue to monitor developments as they occur and assess the potential consequences for the Company's future activities.

Viability Statement

Notwithstanding that the continuation of the Company is subject to approval of shareholders every five years, with the next vote at the Annual General Meeting in November 2016, the Directors have, in accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, assessed the prospects of the Company over a three year period. The Directors believe this period to be appropriate as it is reflective of the Company's investment approach. In the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, such a period is one over which they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. The Directors do not envisage any change in the Company's strategy or objectives nor do they foresee any events that would prevent the Company from continuing in existence over that period.

In making this assessment, the Directors have taken into account the Company's current position and have conducted a robust assessment of the Company's principal risks and uncertainties (as detailed above), in particular the impact of market risk where a significant fall in the Asia-Pacific (excluding Japan) and the Indian Sub-continent equity markets would adversely impact the value of the investment portfolio. The Directors have also considered the Company's investment objective and policy, the level of demand for the Company's shares, the nature of its assets, its liabilities and its projected income and expenditure. The vast majority of the Company's investments are readily realisable and can be sold to meet its liabilities as they fall due, the main liability currently being the short term bank borrowings. In addition, substantially all of the essential services required by the Company are outsourced to third party service providers; this allows key service providers to be replaced at relatively short notice where necessary.

Based on the Company's processes for monitoring revenue projections, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

Going Concern

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained above.

The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. The Board approves borrowing and gearing limits and reviews regularly the amounts of any borrowing and the level of gearing as well as compliance with borrowing covenants. In accordance with the Company's Articles of Association, shareholders have the right to vote on the continuation of the Company every five years, the next vote being on 9 November 2016. The Directors have no reason to believe that the continuation resolution will not be passed this year. After making enquiries and considering the future prospects of the Company and notwithstanding the above, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

If the continuation resolution is not passed, the Articles provide that the Directors shall convene an Extraordinary General Meeting at which a resolution will be proposed to wind up the Company voluntarily.

Financial Instruments

As an Investment Trust, the Company invests in equities and makes other investments so as to achieve its investment objective of maximising capital appreciation from a focused and actively managed portfolio of investments from the Asia-Pacific region including the Indian Sub-continent. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise short term volatility. Risk provides the potential for both losses and gains. In assessing risk, the Board encourages the Managers to exploit the opportunities that risk affords.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.

Details of the Company's investment portfolios are shown in note 9 of the Annual Report and Financial Statements. The Company may, from time to time, enter into derivative transactions to hedge specific market, currency or interest rate risk. During the years to 31 July 2015 and 31 July 2016 no such transactions were entered into.

The Company's Managers may not enter into derivative transactions without the prior approval of the Board.

Currency Risk

The majority of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

 
 
                                            Cash                          Other 
                        Investments          and       Loans            debtors     Net exposure 
   At 31 July 2016          GBP'000     deposits     GBP'000     and creditors*          GBP'000 
                                         GBP'000                        GBP'000 
===================  ==============  ===========  ==========  =================  =============== 
 Korean won                  39,676            -           -                  5           39,681 
 Hong Kong dollar            28,699           83           -               (59)           28,723 
 Taiwan dollar               20,136            -           -                260           20,396 
 Indian rupee                18,971            -           -                 31           19,002 
 US dollar                   16,611        1,220           -                 12           17,843 
 Vietnam dong                 2,696            -           -                  -            2,696 
 Singapore dollar               921            -           -                  -              921 
 Total exposure 
  to currency 
  risk                      127,710        1,303           -                249          129,262 
 Sterling                     3,707           20     (5,000)              (287)          (1,560) 
===================  ==============  ===========  ==========  =================  =============== 
                            131,417        1,323     (5,000)               (38)          127,702 
===================  ==============  ===========  ==========  =================  =============== 
 

* Includes net non-monetary assets of GBP14,000.

 
 
                                            Cash                          Other 
                        Investments          and       Loans            debtors     Net exposure 
   At 31 July 2015          GBP'000     deposits     GBP'000     and creditors*          GBP'000 
                                         GBP'000                        GBP'000 
===================  ==============  ===========  ==========  =================  =============== 
 Korean won                  32,112            -           -                  5           32,117 
 Hong Kong dollar            32,357           13           -                 21           32,391 
 Taiwan dollar               19,536            -           -                133           19,669 
 Indian rupee                29,812            -           -                 89           29,901 
 US dollar                   20,278        4,032     (3,497)                  4           20,817 
 Vietnam dong                     -            -           -                  -                - 
 Singapore dollar             1,038            -           -                  -            1,038 
 Total exposure 
  to currency 
  risk                      135,133        4,045     (3,497)                252          135,933 
 Sterling                         -           16    (10,500)              (279)         (10,763) 
===================  ==============  ===========  ==========  =================  =============== 
                            135,133        4,061    (13,997)               (27)          125,170 
===================  ==============  ===========  ==========  =================  =============== 
 

* Includes net non-monetary assets of GBP13,000.

Currency Risk Sensitivity

At 31 July 2016, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2015.

 
                         2016       2015 
                      GBP'000    GBP'000 
==================  =========  ========= 
 Korean won             1,984      1,606 
 Hong Kong dollar       1,436      1,620 
 Taiwan dollar          1,020        983 
 Indian rupee             950      1,495 
 US dollar                892      1,041 
 Vietnam dong             135          - 
 Singapore dollar          46         52 
                        6,463      6,797 
==================  =========  ========= 
 

Interest Rate Risk

Interest rate movements may affect directly:

3/4 the fair value of any investments in fixed interest rate securities;

3/4 the level of income receivable on cash deposits;

3/4 the fair value of any fixed-rate borrowings; and

3/4 the interest payable on any variable rate borrowings.

Interest rate movements may also impact upon the market value of investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity. The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements. The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company may finance part of its activities through borrowings at approved levels. The amount of any such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value (assuming that the Company's share price is unaffected by movements in interest rates).

The interest rate risk profile of the Company's financial assets and liabilities at 31 July is shown below.

Financial Assets

The Company's interest rate risk exposure on its financial assets at 31 July 2016 amounted to GBP1,323,000 (2015 - GBP4,061,000), comprising of its cash and short term deposits.

The cash deposits generally comprise call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

Financial Liabilities

The interest rate risk profile of the Company's financial liabilities and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31 July are shown below.

Interest Rate Risk Profile

 
                                  2016           2015 
                               GBP'000        GBP'000 
===========================  =========      ========= 
 Floating rate bank loan - 
  sterling denominated           5,000         10,500 
   - US$ denominated                 -          3,497 
===========================  =========      ========= 
                                 5,000         13,997 
===========================  =========      ========= 
 

Maturity Profile

 
                            2016       2015 
                        Within 1     Within 
                            year     1 year 
                         GBP'000    GBP'000 
====================  ==========  ========= 
 Repayment of loans        5,000     13,997 
 Interest on loans            56        111 
====================  ==========  ========= 
                           5,056     14,108 
====================  ==========  ========= 
 

Interest Rate Risk Sensitivity

The sensitivity analysis below has been determined based on the exposure to interest rates at the Balance Sheet date and with the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

An increase of 100 basis points in interest rates, with all other variables being held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 31 July 2016 by GBP99,000 (2015 - decrease of GBP29,000). This is mainly due to the Company's exposure to interest rates on its floating rate bank loan and cash balances. A decrease of 100 basis points would have had an equal but opposite effect.

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the index. Investments are selected based upon the merit of individual companies and therefore performance may well diverge from the comparative index.

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given above. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector are contained in the Strategic Report of the Annual Report and Financial Statements.

102.9% (2015 - 108.0%) of the Company's net assets are invested in quoted equities. A 5% (2015 - 5%) increase in quoted equity valuations at 31 July 2016 would have increased total assets and total return on ordinary activities by GBP6,571,000 (2015 - GBP6,757,000). A decrease of 5% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board provides guidance to the Managers as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings.

The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's current borrowing facility is detailed in note 11 of the Annual Report and Financial Statements and the maturity profile of its borrowings are set out above. Under the terms of the borrowing facility, borrowings are repayable on demand at their current carrying value.

Borrowings Falling Due Within One Year

 
                  2016       2015 
               GBP'000    GBP'000 
===========  =========  ========= 
 Bank loan       5,000     13,997 
===========  =========  ========= 
 

Borrowing Facilities

The Company has a one year GBP10 million multi-currency revolving credit facility with The Royal Bank of Scotland Plc (2015 - one year GBP14 million multi-currency revolving credit facility with The Royal Bank of Scotland Plc) and a GBP10 million one year uncommitted, unsecured floating rate revolving credit facility with The Bank of New York Mellon (2015 - GBP20 million one year uncommitted, unsecured floating rate revolving credit facility with The Bank of New York Mellon). At 31 July 2016 there were outstanding drawings of GBP5,000,000 at an interest rate of 1.02906% (2015 - GBP10,500,000 and US$5,456,850 at interest rates of 0.97188% and 0.68625% per annum respectively) under The Royal Bank of Scotland Plc facility. There were no drawings under The Bank of New York Mellon facility at either date. The main covenant relating to the loan is that borrowings should not exceed 20% of the Company's net asset value. There were no breaches in the loan covenants during the year.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

This risk is managed as follows:

3/4 where the Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

3/4 the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to Bank of New York Mellon SA/NV London Branch. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Managers monitor the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

3/4 investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

3/4 the creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Managers; and

3/4 cash is only held at banks that are regularly reviewed by the Managers.

Credit Risk Exposure

The exposure to credit risk at 31 July was:

 
                                     2016       2015 
                                  GBP'000    GBP'000 
==============================  =========  ========= 
 Cash and short term deposits       1,323      4,061 
 Debtors and prepayments              359        276 
==============================  =========  ========= 
                                    1,682      4,337 
==============================  =========  ========= 
 

The maximum exposure in cash during the year was GBP23,434,000 (2015 - GBP9,615,000) and the minimum GBP1,323,000 (2015 - GBP150,000). None of the Company's financial assets are past due or impaired (2015 - none).

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the carrying amount of financial assets and liabilities in the Balance Sheet approximates their fair value.

Capital Management

The capital of the Company is its share capital and reserves as set out in note 13 of the Annual Report and Financial Statements together with its borrowings (see note 11 of the Annual Report and Financial Statements). The objective of the Company is to invest in the Asia-Pacific region (excluding Japan) and in the Indian Sub-continent in order to achieve capital growth. The Company's investment policy is set out on page 7 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out on page 19, pages 7 and 8 and pages 21 and 22, respectively, of the Annual Report and Financial Statements. The Company has the ability to buy back its shares (see page 19 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in note 12 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loan which are detailed in note 11 of the Annual Report and Financial Statements.

Investments

 
                          Level    Level 2    Level 3      Total 
   As at 31 July              1    GBP'000    GBP'000    GBP'000 
   2016                 GBP'000 
====================  =========  =========  =========  ========= 
 Listed equities        131,417          -          -    131,417 
====================  =========  =========  =========  ========= 
 Total financial 
  asset investments     131,417          -          -    131,417 
====================  =========  =========  =========  ========= 
 
 
                          Level    Level 2    Level 3      Total 
   As at 31 July              1    GBP'000    GBP'000    GBP'000 
   2015                 GBP'000 
====================  =========  =========  =========  ========= 
 Listed equities        135,133          -          -    135,133 
 Total financial 
  asset investments     135,133          -          -    135,133 
====================  =========  =========  =========  ========= 
 

Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly

observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the Alternative Investment Fund Managers Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy is available at www.bailliegifford.com on request and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ended 31 March 2016) are also available at www.bailliegifford.com.

The Company's maximum and actual leverage (see Glossary of Terms on page 52 of the Annual Report and Financial Statements) levels at 31 July 2016 are shown below:

Leverage Exposure

 
                    Gross   Commitment 
                   Method       Method 
===============  ========  =========== 
 Maximum limit     2.50:1       2.00:1 
 Actual            1.04:1       1.04:1 
===============  ========  =========== 
 

Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these Financial Statements, the Directors are required to:

3/4 select suitable accounting policies and then apply them consistently;

3/4 make judgements and accounting estimates that are reasonable and prudent;

3/4 state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

3/4 prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that comply with that law and those regulations.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The work carried out by the Auditor does not involve any consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

Each of the Directors, whose names and functions are listed within the Directors and Managers section confirm that, to the best of their knowledge:

3/4 the Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' give a true and fair view of the assets, liabilities, financial position and net return of the Company;

3/4 the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

3/4 the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

Jean Matterson

Chairman

15 September 2016

Income Statement

 
                                  For the year ended               For the year ended 
                                     31 July 2016                     31 July 2015 
                             Revenue    Capital      Total    Revenue    Capital      Total 
                             GBP'000    GBP'000    GBP'000    GBP'000    GBP'000    GBP'000 
=========================  =========  =========  =========  =========  =========  ========= 
 Gains/(losses) 
  on investments                   -     13,414     13,414          -      (338)      (338) 
 Currency gains/(losses)           -      1,140      1,140          -      (322)      (322) 
 Income (note 
  2)                           1,331          -      1,331      1,886          -      1,886 
 Investment management 
  fee (note 3)                 (899)          -      (899)    (1,032)          -    (1,032) 
 Other administrative 
  expenses                     (389)          -      (389)      (397)          -      (397) 
=========================  =========  =========  =========  =========  =========  ========= 
 Net return before 
  finance costs 
  and taxation                    43     14,554     14,597        457      (660)      (203) 
=========================  =========  =========  =========  =========  =========  ========= 
 Finance costs 
  of borrowing                 (127)          -      (127)       (93)          -       (93) 
=========================  =========  =========  =========  =========  =========  ========= 
 Net return on 
  ordinary activities 
  before taxation               (84)     14,554     14,470        364      (660)      (296) 
=========================  =========  =========  =========  =========  =========  ========= 
 Tax on ordinary 
  activities                    (98)          -       (98)      (133)          -      (133) 
=========================  =========  =========  =========  =========  =========  ========= 
 Net return on 
  ordinary activities 
  after taxation               (182)     14,554     14,372        231      (660)      (429) 
=========================  =========  =========  =========  =========  =========  ========= 
 Net return per 
  ordinary share 
  (note 4)                   (0.30p)     24.25p     23.95p      0.35p    (0.99p)    (0.64p) 
=========================  =========  =========  =========  =========  =========  ========= 
 

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as there is no other comprehensive income.

Balance Sheet

 
                                       At 31 July              At 31 July 
                                           2016                   2015 
                                    GBP'000      GBP'000    GBP'000   GBP'000 
==============================  ===========  ===========  =========  ======== 
 Fixed assets 
 Investments held at fair 
  value through profit or 
  loss                                           131,417              135,133 
 Current assets 
 Debtors                                359                     276 
 Cash and cash equivalents            1,323                   4,061 
==============================  ===========  ===========  =========  ======== 
                                      1,682                   4,337 
==============================  ===========  ===========  =========  ======== 
 Creditors 
 Amounts falling due within 
  one year (note 6)                 (5,397)                (14,300) 
==============================  ===========  ===========  =========  ======== 
 Net current liabilities                         (3,715)              (9,963) 
==============================  ===========  ===========  =========  ======== 
 Net assets                                      127,702              125,170 
==============================  ===========  ===========  =========  ======== 
 
 Capital and reserves 
 Called up share capital                           5,712                6,329 
 Share premium                                     3,166                3,166 
 Capital redemption reserve                       20,081               19,464 
 Capital reserve                                  94,377               91,441 
 Revenue reserve                                   4,366                4,770 
==============================  ===========  ===========  =========  ======== 
 Shareholders' funds                             127,702              125,170 
==============================  ===========  ===========  =========  ======== 
 Net asset value per ordinary 
  share                                          223.58p              197.78p 
==============================  ===========  ===========  =========  ======== 
 Ordinary shares in issue 
  (note 7)                       57,118,191   63,288,853 
==============================  ===========  ===========  =========  ======== 
 

Statement of Changes in Equity

For the year ended 31 July 2016

 
                             Called 
                                 up                  Capital 
                              share      Share    redemption    Capital    Revenue   Shareholders' 
                            capital    premium       reserve    reserve    reserve           funds 
                            GBP'000    GBP'000       GBP'000    GBP'000    GBP'000         GBP'000 
========================  =========  =========  ============  =========  =========  ============== 
 Shareholders' funds 
  at 1 August 2015            6,329      3,166        19,464     91,441      4,770         125,170 
 Net return on ordinary 
  activities after 
  taxation                        -          -             -     14,554      (182)          14,372 
 Shares purchased 
  for cancellation 
  (note 7)                    (617)          -           617   (11,618)          -        (11,618) 
 Dividends paid during 
  the year (note 5)               -          -             -          -      (222)           (222) 
========================  =========  =========  ============  =========  =========  ============== 
 Shareholders' funds 
  at 31 July 2016             5,712      3,166        20,081     94,377      4,366         127,702 
------------------------  ---------  ---------  ------------  ---------  ---------  -------------- 
 

For the year ended 31 July 2015

 
                       Called up                   Capital 
                           share     Share      redemption         Capital                   Shareholders' 
                         capital   premium         reserve         reserve  Revenue reserve          funds 
                         GBP'000   GBP'000         GBP'000         GBP'000          GBP'000        GBP'000 
================  ==============  ========  ==============  ==============  ===============  ============= 
  Shareholders' 
   funds at 1 
   August 2014             7,013     3,166          18,780         106,437            5,521        140,917 
  Net return on 
   ordinary 
   activities 
   after 
   taxation                    -         -               -           (660)              231          (429) 
  Shares 
   purchased for 
   cancellation 
   (note 7)                (684)         -             684        (14,336)                -       (14,336) 
  Dividends paid 
   during the 
   year (note 5)               -         -               -               -            (982)          (982) 
 ===============  ==============  ========  ==============  ==============  ===============  ============= 
  Shareholders' 
   funds at 31 
   July 2015               6,329     3,166          19,464          91,441            4,770        125,170 
 ---------------  --------------  --------  --------------  --------------  ---------------  ------------- 
 
 

Cash Flow Statement

 
                                                         For the year ended    For the year ended 
                                                               31 July 2016          31 July 2015 
                                                         GBP'000    GBP'000     GBP'000   GBP'000 
=====================================================  =========  =========  ==========  ======== 
Cash flows from operating activities 
Net return on ordinary activities before taxation ++                 14,470                 (296) 
Net (gains)/losses on investments                                  (13,414)                   338 
Currency (gains)/losses                                             (1,140)                   322 
Finance costs of borrowings                                             127                    93 
Overseas tax incurred                                                  (84)                 (150) 
Changes in debtors and creditors                                       (86)                   155 
=====================================================  =========  =========  ==========  ======== 
Cash from operations                                                  (127)                   462 
Interest paid                                                         (134)                  (84) 
=====================================================  =========  =========  ==========  ======== 
Net cash (outflow)/inflow from operating activities                   (261)                   378 
=====================================================  =========  =========  ==========  ======== 
Cash flows from investing activities 
Acquisitions of investments                             (29,853)               (70,065) 
Disposals of investments                                  47,072                 78,263 
=====================================================  =========  =========  ==========  ======== 
Net cash inflow from investing activities                            17,219                 8,198 
=====================================================  =========  =========  ==========  ======== 
Cash flows from financing activities 
Equity dividends paid (note 5)                             (222)                  (982) 
Shares purchased for cancellation (note 7)              (11,618)               (14,336) 
Borrowings (repaid)/drawn down                           (9,369)                  9,518 
=====================================================  =========  =========  ==========  ======== 
Net cash outflow from financing activities                         (21,209)               (5,800) 
=====================================================  =========  =========  ==========  ======== 
(Decrease)/increase in cash and cash equivalents                    (4,251)                 2,776 
Exchange movements                                                    1,513                    11 
Cash and cash equivalents at 1 August                                 4,061                 1,274 
=====================================================  =========  =========  ==========  ======== 
Cash and cash equivalents at 31 July                                  1,323                 4,061 
=====================================================  =========  =========  ==========  ======== 
 
 
    Notes to the Financial Statements 
 1.    The Financial Statements for the year to 31 
        July 2016 have been prepared in accordance with 
        The Financial Reporting Standard applicable 
        in the UK and Republic of Ireland ('FRS 102') 
        which the Company must adopt for its financial 
        year ending 31 July 2016. Following the application 
        of the new reporting standard and the AIC's 
        issued Statement of Recommended Practice, there 
        has been no change in the Company's Income Statement, 
        Balance Sheet or Statement of Changes in Equity 
        (previously called the Reconciliation of Movements 
        in Shareholders' Funds) from the period previously 
        reported. The Cash Flow Statement reflects the 
        presentational requirements of FRS 102, which 
        are different to FRS 1. In addition, the Cash 
        Flow Statement reconciles to cash and cash equivalents 
        whereas under previous UK GAAP the Cash Flow 
        Statement reconciled to net funds/debt. The 
        Company has already adopted the amendments to 
        Section 34 of FRS 102 regarding fair value hierarchy 
        disclosures. 
        The Directors consider the Company's functional 
        currency to be sterling as the Company's shareholders 
        are predominantly based in the UK and the Company 
        is subject to the UK's regulatory environment. 
      ======================================================================================== 
                                                               31 July                 31 July 
                                                                  2016                    2015 
                                                               GBP'000                 GBP'000 
      =====================================================  =========  ====================== 
 2.    Income from financial assets 
        designated at fair value through 
        profit or loss 
  Listed overseas dividends                                      1,331                   1,886 
 ==========================================================  =========  ====================== 
  Total income                                                   1,331                   1,866 
 ==========================================================  =========  ====================== 
 
                                                          31 July 2016                 31 July 
                                                               GBP'000                    2015 
                                                                                       GBP'000 
      ======================================  ========================  ====================== 
 3.    Net return per ordinary 
        share 
  Revenue return on ordinary 
   activities after taxation                                     (182)                     231 
  Capital return on ordinary 
   activities after taxation                                    14,554                   (660) 
 ===========================================  ========================  ====================== 
  Total return                                                  14,372                   (429) 
 ===========================================  ========================  ====================== 
  Weighted average number 
   of ordinary shares in 
   issue                                                    60,007,258              66,526,663 
 -------------------------------------------  ------------------------  ---------------------- 
       The figures for net return per ordinary share 
        are based on the above totals for revenue and 
        capital and the weighted average number of ordinary 
        shares in issue during the year. 
        There are no dilutive or potentially dilutive 
        shares in issue. 
                                                    31 July    31 July    31 July      31 July 
                                                       2016       2015       2016         2015 
                                                                          GBP'000      GBP'000 
      ======================================  =============  =========  =========  =========== 
 4.    Ordinary Dividends 
       Amounts recognised as 
        distributions in the 
        year: 
  Previous year's final 
   (paid 11 November 2015)                            0.35p      1.40p        222          982 
 ===========================================  =============  =========  =========  =========== 
       Also set out below are the total dividends paid 
        and proposed in respect of the financial year, 
        which is the basis on which the requirements 
        of section 1158 of the Corporation Tax Act 2010 
        are considered. There is no revenue available 
        for distribution by way of dividend for the 
        year (31 July 2016 - revenue loss of GBP182,000; 
        2015 - revenue gain of GBP231,000). 
      ======================================================================================== 
                                                    31 July    31 July    31 July      31 July 
                                                       2016       2015       2016         2015 
                                                                          GBP'000      GBP'000 
                                              =============  =========  =========  =========== 
       Amounts paid and proposed 
        in respect of the financial 
        year: 
  Proposed final dividend 
   per ordinary share (payable 
   11 November 2016)                                  0.35p      0.35p        200          222 
 ===========================================  =============  =========  =========  =========== 
  If approved, the recommended final dividend 
   of 0.35p per ordinary share for the year ended 
   31 July 2016 will be paid on 11 November 2016 
   to shareholders on the register at the close 
   of business on 14 October 2016. The ex-dividend 
   date is 13 October 2016. The Company's Registrar 
   offers a Dividend Reinvestment Plan and the 
   final date for elections for this dividend is 
   21 October 2016. 
 5.    The Company has authority to buy back up to 
        14.99% of its shares on an ad hoc basis and 
        to implement, at the Board's discretion, bi-annual 
        tender offers for up to 5% of its shares at 
        a 2% discount to net asset value, less costs, 
        in the event that the discount averaged more 
        than 9% during the six month period to 31 January 
        and 31 July in the years 2014, 2015 and 2016. 
        The Board implemented a 5% tender offer in October 
        2015 and April 2016 in respect of the tender 
        periods to 31 July 2015 and 31 January 2016. 
        Through the exercise of both of these tenders 
        during the year, the Company bought back a total 
        of 6,170,662 (2015 - 6,837,299) ordinary shares 
        at a total cost of GBP11,618,000 (2015 - GBP14,336,000). 
        The nominal value of these shares was GBP617,000 
        and represented 9.75% of the issued share capital 
        at 31 July 2015. At 31 July 2016 the Company 
        had authority to buy back a further 9,012,649 
        ordinary shares. 
        The Company also has authority to allot shares 
        under section 551 of the Companies Act 2006. 
        In the years to 31 July 2015 and 31 July 2016 
        no shares were issued. 
 6.    The Company incurred transaction costs on purchases 
        of GBP46,000 (2015 - GBP157,000) and on sales 
        of GBP133,000 (2015 - GBP239,000), being GBP179,000 
        (2015 - GBP396,000) in total. 
 
 

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

- ends -

This information is provided by RNS

The company news service from the London Stock Exchange

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