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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Martin Currie Asia Unconstrained Trust Plc | LSE:MCP | London | Ordinary Share | GB0005695126 | ORD 50P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 414.00 | 414.00 | 419.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMMCP
RNS Number : 3554C
Martin Currie Asia Uncnst Trust PLC
14 June 2019
MARTIN CURRIE ASIA UNCONSTRAINED TRUST PLC (the "Company")
Legal Entity Identifier: 549300ZKNK4O55N18863
Annual Financial Results
Year to 31 March 2019
The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 March 2019 or financial period ended 31 March 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's annual general meeting.
The auditor's have reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
A copy of the annual report and accounts has also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.morningstar.co.uk/uk/NSM
The annual general meeting of the Company will be held at the offices of Martin Currie, 1 Bartholomew Lane, London, EC2N 2AX on Wednesday, 17 July 2019 at 12.30pm. Full notice of the meeting can be found on the Company's website (www.martincurrieasia.com).
The unedited full text of those parts of the annual report and accounts for the year ended 31 March 2019, which are required to be published are set out on the following pages.
Financial Highlights
Key data
Hot Features
Premium
As at As at % change
31 March 31 March
2019 2018
Net asset value per share
(cum income) 431.6p 437.8p (1.4)
--------- --------- --------
Net asset value per share
(ex income) 425.6p 431.9p (1.5)
--------- --------- --------
Share price 382.0p 384.0p (0.5)
--------- --------- --------
Discount 11.5% 12.3%
--------- --------- --------
Total returns
Year ended Year ended
31 March 2019 31 March 2018
Net asset value per share 2.4% 6.3%
-------------- --------------
Share price 3.8% 9.8%
-------------- --------------
Income
Year ended Year ended % change
31 March 2019 31 March 2018
Revenue return per share 8.60p 8.58p 0.2
--------------- --------------- ---------
Dividend per share 16.70p 16.70p 0.0
--------------- --------------- ---------
Gross income from investments GBP4,409,000 GBP4,305,000 2.4
--------------- --------------- ---------
Yield* 4.37% 4.35%
--------------- --------------- ---------
Ongoing charges
Year ended Year ended
31 March 2019 31 March 2018
Ongoing charges 1.17% 1.08%
--------------- ---------------
Source: Martin Currie Investment Management Limited ('Martin Currie', 'investment manager' or 'manager').
* The yield is calculated using the dividend per share divided by the year end share price.
Chairman's statement
Future of the Company
On 4 June 2019, the Board announced preliminary proposals for the Company's future. The intention is to provide Shareholders with the opportunity for a cash exit together with a rollover option into an open-ended company to be managed by Martin Currie Investment Management under the Legg Mason Investment Funds ICVC umbrella, with a similar Asia Long Term Unconstrained strategy ("ALTU") and investment objective. More details will be published in a Circular to be sent to Shareholders in due course and if the proposals are subsequently approved by Shareholders, the Company will go into voluntary liquidation.
The Board believes that this is the best solution for Shareholders frustrated by the lack of liquidity in the Company's shares, and the steep discount they have traded at to their underlying net asset value, as well as those who wish to retain exposure to the ALTU investment strategy.
Despite the unanimous vote in favour of continuation of the Company at the AGM in July 2018, the Board see little prospect of any significant improvement in the key issues affecting the rating of the Company's shares in the market. The discount has widened partly reflecting little current investor appetite for Asia, but the small size of the Company and poor liquidity continue to present structural hurdles deterring new buyers. The resumption of buy backs in November 2018 resulting in regular purchases underlines the hard truth that there is little new demand for the Company's shares.
The Board conducted a review to assess the continuing commercial viability of the Company and the long-term credentials of the ALTU strategy and concluded that it is appropriate to take immediate action to act in the best interests of all Shareholders.
-- The Company is the smallest by net assets in the Association of Investment Companies' ("AIC") Asian peer groups.
-- Potential investors are deterred by the lack of liquidity with no certainty of being able to realise their investment at close to NAV.
-- Since the mandate change in August 2014, and despite concerted marketing efforts, the Company's shares have not attracted any material buying interest.
-- At the time of writing, the discount is the highest in the recently reclassified AIC Asia Pacific and Asia Pacific Income sectors.
-- Both the change in dividend policy, announced in April 2017, and share buy backs have failed to narrow the discount materially.
-- Expenses are rising to levels which represent a challenge versus larger funds in the same sector.
Regrettably, since the mandate change to ALTU there has been insufficient demand generated to grow the Company's assets.
The Board are fully supportive of Martin Currie's ALTU investment strategy as a disciplined and differentiated process with a credible investment objective that mirrors Asian economic growth. The investment performance has broadly met the Asian nominal GDP objective since adopting the ALTU mandate. Importantly, last year's continuation vote confirmed that Shareholders endorse the strategy, hence the Board's recommendation to provide for continuation in open ended form rather than initiating an exercise to look for an alternative investment manager. The rollover to the ICVC successor vehicle will be processed under section 110 of the Insolvency Act 1986, which should provide a tax efficient rollover for UK Shareholders.
Equally, the Board believes that there are a significant number of Shareholders who will welcome a cash exit to release them from what has become a perennial liquidity trap allowing realisation of value from their shareholdings.
Both options will provide Shareholders with an uplift of value reflecting the share price discount to an exit at NAV less costs. It is intended that Shareholders will be able to elect all or part of their holding for either option.The rollover vehicle will be the default option.
Simply put, ALTU is a commendable strategy at a structural disadvantage in the current closed end form.
Detailed proposals will be put forward in a Circular to be sent to Shareholders in due course, which will include a timetable for the General Meetings seeking Shareholder approval. A further update will be given as soon as is practicable.
Performance
The results for the financial year to 31 March 2019 show that the Net Asset Value ('NAV') as measured by total return increased by 2.4% and the share price rose by 3.8%. These figures include dividends of 16.7p per ordinary share paid during the year. For reference, Asian nominal GDP increased by 5.7%, while the MSCI AC Asia ex Japan index rose by 2.3%, both in in sterling terms.
Over three years to the end of March 2019, the NAV, on a total return basis, has increased by 45.4% as against the MSCI AC Asia ex Japan index return of 55.8% and the benchmark Asia nominal GDP growth of 34.0%.
Since the Asia Long-Term Unconstrained ('ALTU') mandate was adopted on 1 August 2014, the NAV has risen by 50.6%, again in total return terms, while the share price has risen by 56.8%. This is comparable to the Asia nominal GDP growth which recorded 57.6% over that period. These returns have been achieved with portfolio volatility of 13.4% slightly lower than the market volatility of 14.3% over that period. This reflects the secular rather than cyclical growth characteristics of holdings in the portfolio but is disappointing given the lower beta of the portfolio.
2018/19 has been another difficult year. Markets have ridden a switchback heavily influenced by the stop/start monetary policy of the US Federal Reserve ('the Fed'). Initially, the Fed applied the brakes a little clumsily by misreading the strength of domestic US growth, without appreciating the effects of the deterioration in world trade and the global economy. As a result, the Fed have now taken their foot off the brake, creating an impetus for a sharp global, including Asian, stock market recovery in the first quarter of this calendar year; the last quarter of our financial year. The Fed's current stance appears to underwrite "financial stability" as a primary policy objective and they will find it difficult to "normalise "rates in the current environment.
Markets and liquidity flows were also bruised by the deterioration in US/China trade relations and the imposition of renewed tit for tat tariffs, together with concerns over the health of the Chinese economy itself. However, sentiment over China's economy and credit problems has improved more recently, aided by front loaded fiscal stimulus from the Government and the relaxation of credit from the Bank of China, evidenced in successive cuts in reserve requirements and interest rates, together with the extension of credit programmes for Small and Medium Sized Enterprises ('SMEs') and infrastructure initiatives.
Dividend
Subject to approval by Shareholders at the Annual General Meeting ('AGM'), an unchanged final dividend of 14p per ordinary share will be paid to Shareholders on 16 August 2019 to those Shareholders on the register as at 26 July 2019, with an ex-dividend date of 18 July 2019. This includes a contribution from capital reserves representing 2% of yearend ex income NAV, reflecting the change in dividend policy in 2017. The total dividend for the year including the 2.7p per ordinary share interim payment represents a 4.37% yield on the share price at the year end, 31 March 2019. The revenue return of 8.60p per ordinary share was marginally ahead of last year.
Discount control
The change in dividend policy in 2017 was designed to offer an attractive yield to Shareholders by supplementing dividends out of capital. The Board's view was this could attract new buyers and any improved demand would have a positive traction on the share price discount to NAV. Initially the discount narrowed, but the efficacy appears to have worn off as the discount has drifted out to be the highest in the Asian investment trust peer groups.
The Board has repeatedly shied away from buying back shares. However, after painstaking review, it concluded that the discount was too wide and reluctantly initiated the renewal of buy back activity from November 2018, initially to provide support in disorderly markets.
During the year to 31 March 2019, the Company bought back 539,537 shares at an average price of 370.5p per ordinary share and subsequent to the year end a further 421,537 shares at a cost of GBP1,600,000.
While this exercise has been accretive to Shareholders, it reduces the size of the Company and further erodes liquidity. The alternative would have been a tender offer, which would be expensive to execute and undermine the ongoing viability of the Company, already sub scale in a rising cost environment. Please note that ongoing charges have crept up to 1.17% from 1.08% last year.
Association of Investment Companies (AIC) Peer Group
The AIC have recently completed a substantive review of peer group classifications. As far as the Asian peer group is concerned, Asia Pacific now includes Japan while two new groups have been devised for trusts that invest in Asian Smaller Companies and Asia Pacific Income with a premium dividend. Our inclusion in the Asia Pacific Income bracket is somewhat anomalous as the classification defines income as the investment objective. Our yield reflects the policy of supplementing the dividend by a contribution from capital. We contested this designation and view the reclassification as less than satisfactory.
Appointment of co-manager
Damian Taylor was appointed co-manager of the Company alongside Andrew Graham on 1 December 2018. Damian has worked with Andrew and the Martin Currie Asian investment team since 2013 and has 18 years' experience as an active equity investor, with a background in private equity and investment banking. The Board welcomed Damian's appointment as complementary to Andrew Graham's role and strengthening the efforts of the investment manager in executing the investment strategy.
Refreshment of the Board
Although I am sceptical about the regulators judging the effectiveness and independence of directors according to their length of service, the Board is well aware of corporate governance concerns regarding tenure of directorships and diversity. A complementary balance of skills and experience available is crucial to an efficient boardroom and it is important to recruit new blood. Therefore, in the autumn of 2018, we initiated a search to refresh the Board. As a result, I welcome the appointment of Craig Cleland to the Board on 7 January 2019. Craig has extensive experience of the investment trust industry, currently at CQS (UK) LLP, and previously at JP Morgan Asset Management (UK) Ltd and at Robert Fleming.
Peter Edwards stepped down as a director in February 2019 after 11 years' service. On behalf of Shareholders, I would like to place on record our thanks to Peter, a prominent Hong Kong lawyer, for his counsel, sagacity and his contribution to the Company.
Outlook
The supply of liquidity is the key factor in determining the level of markets and this is still dictated by the policies of the Fed. For the moment, liquidity conditions appear benign as a consequence of the failed attempts by the Fed to try and "normalise" rates during 2017/18 and their subsequent capitulation after a sharp reversal in markets. It is difficult to see any resurgence in inflation in an environment where the enormous increase in global debt acts as a great deflator, provided, of course, that there is no significant supply chain disruption in input prices or wages. Therefore, interest rates in the USA should remain low with the prospect of a rate cut later this year.
Politics remain a challenge with the impasse over US/China relations, and their ongoing trade negotiations, the outcome of which is a paramount concern. Still there are other sources of friction across the region with tensions over China/Taiwan cross strait relations, the South China Sea, North Korea and Kashmir, all presenting potential flashpoints or challenges. The sudden imposition of increased tariffs of 25% on US$200bn of Chinese goods and the breakdown of trade talks does little to engender confidence, already corroded by President Trump's diplomacy by Twitter. A brighter development has been the Indian elections which have seen the return of Narendra Modi and the BJP for a further five years, giving his government a strong mandate for further structural reforms and underpinning further positive developments across its economy.
Protectionist pressures, either through tariffs or regulation, continue to be a headwind for stock markets. For instance, India has just lost its 'favoured nation' trading status with the USA. Nevertheless, Asia's domestic economies will continue to grow, regardless of exogenous factors.
Both the Board and managers are confident of secular growth throughout Asia, as is laid out in the manager's review. Our Shareholders have been consistently supportive of a strategy designed to capture long term Asian growth with less risk, but the Board believes that Shareholders will be better served by continuing exposure to the existing strategy in an open-ended vehicle, with a similar investment mandate, and by providing this option together with an all or part cash exit.
Harry Wells
Chairman
12 June 2019
Manager's review
Market review
The near flat performance of Asian stock markets over the year to end March disguises a quite turbulent environment. While the MSCI AC Asia ex Japan Index, as a proxy for the markets in our region, delivered a total return of 2.3% in sterling terms over the period, the market endured a peakto- trough decline of over 18% between mid-June and late October 2018, retesting the October low in early January 2019, before rebounding nearly 11% by the end of March. Reduced expectations for global growth caused downgrades to earnings forecasts, which gathered pace from September. Successive increases in US interest rates (from an extremely low base), and Federal Reserve efforts to trim its balance sheet, pushed bond yields higher, squeezing global liquidity. This combined with concerns over the effects on global growth of the China/US trade dispute to pressure markets at the start of the year. In the ensuing shakeout, earnings optimism was replaced with considerable pessimism and stock market valuations slipped below long-term averages.
More recently, the environment has again changed. The pressure on global liquidity is starting to ease and it is likely to ease further. In response to weak asset markets and softer economic data in the second half of 2018, the US Federal Reserve (Fed) has signalled an earlier-than-anticipated exit from its balance sheet normalisation process and other central banks seem to have become more 'dovish' too. We could debate the extent to which central banks are evolving to 'new policy frameworks', perhaps in response to a new understanding about how asset markets and the real economy affect each other, or are simply being bullied into dovishness by populist presidents. While we believe that persistent interference with the workings of markets, particularly to limit the pain inflicted by market corrections, not only protects the imprudent but ultimately results in a structural misallocation of capital, this is not the platform to debate the ethical dimensions of policy. Rather, our goal is to grasp the runes of policy direction and understand the extent to which it could derail the long-term fundamental drivers of the Asian economic story,or influence the oscillations of the business cycle as the region's longer-term secular dynamics play out. In turn, this leads us to consider the earnings cycle and market valuations.
The most important change since publication of our interim report is that our comments regarding the direction of travel regarding monetary policy tightening, including a tightening bias among Asian monetary and regulatory authorities, are no longer valid. At the same time, elections in India, Indonesia, Thailand and the Philippines have inclined policymakers there to be more constructive in terms of supporting their respective economies. While not subject to the rigours of the electoral cycle, China's government has become sufficiently concerned about the deceleration of economic growth at home to resort to meaningful fiscal stimulus, as well as pressuring big banks to lend more - especially to small and medium-sized enterprises. It seems reasonable to assume some improvement in the business cycle in Asia; this will probably be noticeable in the second half of 2019. However, there is still room for near term disappointment. The full effect of last year's interest rate rises may not have fully filtered through to the real economy and, importantly, the Fed is currently still shrinking its balance sheet, which could have uncomfortable ripple effects in asset markets.
At the same time, trade friction remains an unresolved issue. Until recently there was optimism that China and the US would achieve a workable compromise. While this hope has recently been dashed by implementation of increased 25% tariffs by the Trump administration over the whole range of Chinese exports to the USA, this may be a negotiating tactic, so a deal is still may be the most realistic outcome. However, there is a strong lobby in Washington which wants the USA to stand up to China as it is now perceived as a global threat to American interests and are reluctant to back down.
Performance
Net asset value measured by total return increased by 2.4% over the year. This takes total return on net assets since the Company adopted Martin Currie's Asia Long-Term Unconstrained strategy to 50.6%, compared to 57.2% growth of Asia ex Japan nominal GDP growth over the same period (both in sterling terms; see chart below). As our investment strategy's principal objective is to deliver a long-term total return greater than Asia ex Japan region nominal GDP growth, it is disappointing when cumulative net asset value progression dips below this yardstick, as it has recently. But share prices are typically more volatile than the nominal GDP data series, so it is reasonable to expect some periods in which portfolio returns might undershoot nominal GDP growth.
The largest positive contributors to returns came from investments in the financial services, utilities and technology sectors. At the individual stock level, pan-Asia life insurer AIA again delivered strong returns. Two of the 'new purchases' featured in last year's annual report, India's leading private sector bank, HDFC Bank, and Hong Kong-listed water utility Guangdong Investment, also made notable positive contributions, as did Chinese gas utility ENN Energy (along with AIA, also a top performer in the prior fiscal year). Our two investments in the Indian IT services industry, Tata Consultancy Services and Infosys, were the main drivers of technology sector returns and, after being out of favour in the prior year, China Mobile performed well thanks to the company's stable earnings profile and attractive dividend. Singapore Technologies Engineering, added to the portfolio less than a year ago, made a positive start.
The main detractors to performance were largely confined to the consumer discretionary sector. Our Indian consumer stocks, Hero MotoCorp and Maruti Suzuki, have been depressed as growth in new vehicle sales has slowed. However, the worst performing stock was the Indian financial inclusion services provider Vakrangee.
Performance Contributors
AIA Group Management continues to focus on profitable growth, while maintaining a strong capital position and a progressive dividend policy. In the 2018 financial year operating profits grew 13% and the underlying dividend was raised 14% year-on-year (yoy). AIA also paid a special dividend in 2018 and, if that is included, dividend per share rose 23%. From its inaugural dividend paid in 2011, AIA has raised its dividend 3.4x (HK$0.33 to HK$1.14, excluding the special last year), underlining the benefit of taking a longterm view with share ownership. The structural drivers of AIA's life insurance and related business remain compelling and have many years to run: urbanisation and expanding wealth, low insurance penetration and limited provision of social welfare, an ageing population and the growing need for retirement savings.
Guangdong Investment (GDI) GDI's water-utility business is a source of stable profits. Approximately 60% of operating profits come from its Hong Kong water supply business. The latter is a very low growth business but the returns from this are funding growth investments in mainland China municipal water and waste treatment assets; GDI currently has 23 projects in operation there, 11 under construction and 6 in the pre-construction phase. Despite this increased investment, the company has been steadily growing its dividend pay-out ratio and, as a result, increased its dividend by 10% in 2018, compared with 4% growth in recurring earnings. GDI has a very strong balance sheet with virtually no net debt and enjoys strong cash flow. Management is focused on seeking investment opportunities in the water sector in China, as well as in property and infrastructure development. We expect 2019 profit growth to be subdued, although the dividend may grow by another 10%, but anticipate acceleration in 2020 as profits from property development are booked and new mainland China water projects start to contribute to earnings.
Tata Consultancy Services (TCS) One of India's leading IT service companies, TCS continues to deliver a solid operating performance. In its third quarter (Q3) release, the company reported 9.7% yoy revenue growth in US$ terms and net income growth of 12.7%. It remains a highly profitable business, with an operating profit margin of 25.6%. A key data-point we track is the growth in the company's customer base, especially larger customers. In Q3 the company added 8 new clients that will each generate US$100million+ of revenue - for a total of 45 of this scale. There was also good growth in medium and smaller sized clients and as a result the total customer base grew by 7% to 2,240. TCS will typically win a new customer and then, over a period of several years, penetrate different parts of that customer's business, over time becoming a strategic partner. This expansion is being achieved in North America, Europe and Asia. Growth of digital technology services is expanding particularly rapidly, achieving over 50% growth yoy in Q3. and we anticipate the contribution of digital services will grow significantly from its current approximately 30% share of revenues today.
Performance Detractors
Vakrangee (VKI) We wrote extensively on VKI in the November 2018 interim management report, as well as in the last annual report. In those reports we drew attention to the very poor performance of the shares in the wake of a resignation by the company's auditor, PWC, shortly before the annual report was due to be published. After new auditors were appointed financial statements were published, but management's engagement with shareholders over this period was significantly below the standard that should be expected of a listed company. This failure to engage with shareholders, combined with a costly change in business strategy led us to sell the entire holding.
Matahari Department Store (MDS)This retailer has a dominant position with middle-income Indonesians and we have held the stock in anticipation of a steady recovery in consumer spending. The latter has belatedly started to come through and same-store-sales at Matahari staged a recovery over the year. However, at the very end of the year, sales appeared to lose impetus, with competition from online marketplaces cited as a contributing factor. A sizeable write down of MDS' own investment in an online marketplace is doubly disappointing. In the Indonesian general election, the incumbent has returned to power, which is positive for business and consumer sentiment. However, the online-retail segment, while very small in Indonesia, is growing fast. There is a rising risk that online encroachment may impede MDS from fully enjoying any recovery in consumer spending. While this is unlikely to be fatal for MDS, the company will have to work harder to maintain sales and may have to accept lower profit margins in the process. The shares are very cheap and the company is buying back stock for cancellation. However this is being partly funded with debt, which could be problematic in the absence of a business recovery.
Hero MotoCorp Demand for motorcycles and scooters, Hero's key products, have been soft recently. Insurance costs have risen, driven by regulatory change, which has pushed up the cost of ownership at a time when consumer confidence has been somewhat subdued in the run-up to India's national elections. New ABS braking system standards (this April) and changes to emission limits (next April) might distort demand for two-wheeled vehicles as both will result in costlier (albeit better) vehicles. We expect manufacturers such as Hero to share some of these cost increases with consumers and, in the short term, to absorb some of the costs in profit margins. In our view, these are essentially short-term issues; we believe the longer-term structural growth story for motorcycles and scooters in India remains intact and will therefore retain the investment.
Activity
Over the past year the Company sold six holdings and purchased three new ones.
Sales
A sustainable resumption of earnings growth has proved increasingly elusive at Singapore Telecommunications. While the dividend yield of 5% was attractive, a high pay-out ratio implied a lack of future dividend growth potential. We would therefore have been unable to compound a sufficiently attractive return had we remained long-term shareholders. A different situation challenged our continued ownership of shares in branded luggage company Samsonite. As 2018 unfolded, the operating environment for the company became increasingly problematic. While the company produced acceptable headline results, we were concerned about deteriorating cash flow generation and what looked like involuntary inventory accumulation. Following our exit the stock has been hit by concerns about margins and cash flow generation. This is a business with decent growth prospects and we would consider repurchasing when the risk/reward balance is more attractive. The entire holding in Vakrangee (discussed above) was sold towards the end of last year. The position in Hong Kong-listed Johnson Electric, a well-managed producer of industrial motors principally for the automotive industry, was replaced by an investment in another auto parts company (Minth Group, discussed below) which has superior structural growth prospects. Quick service restaurant operator Café de Coral was disposed of on valuation grounds, while we exited the position in Hong Kong TV broadcaster and programme producer Television Broadcasts due to a more challenging regulatory environment in mainland China, a key area of future growth for the company, and on concerns about the local advertising market in Hong Kong.
Purchases
Singapore Technologies Engineering (STE). STE is a leading Asian technology, defence and engineering group specialising in the aerospace, electronics, land systems and marine sectors. As a result of its large and diversified range of businesses, STE's sales and earnings profile has historically been very stable. However, we believe the company has entered a new growth phase driven by two divisions. STE's Aerospace division is the world's largest airframe maintenance, repair & overhaul (MRO) service provider and will benefit from the steady growth of the world's commercial aircraft fleet. STE's Electronics division benefits from the investment in infrastructure needed as Asia continues to urbanise and as transportation and utility networks globally invest in new technology solutions in a drive for greater efficiency and security.
Minth Group. A Chinese auto-parts producer with a leading position in the market for exterior automotive body parts in China. We expect Minth to achieve growth ahead of the global automotive industry. Its products are being designed into a wider range of models for existing customers, while at the same time, new customers are being added. While this does not mean the company can remain immune from economic cycles, it should nonetheless deliver a superior across-cycle performance. The company has already built a strong position supplying the mainland China manufacturing plants of Japanese auto-makers and, having impressed other international and local Chinese firms with its strong commitment to product quality, is now steadily building business with them too. Minth is also increasingly successfully winning business from international auto clients for their non-China operations and we believe this trend will persist.
Ping An Insurance Group Ping An is a diversified financial services business in China. The largest contributor to earnings is the Life & Health Insurance business, which is protection focused and driven by a good agency sales force. We believe this is the highest-quality operator among Chinese insurance companies and enjoys a strong competitive position from which it can sustain double-digit earnings growth. The business is not problem free, as the Group owns a bank which is currently under transition to a more profitable operating model. Our investment case is not predicated on the latter being successful. The combined operations of the group, including its digital affiliates, have the hallmarks of a strong, emerging financial services franchise. Years of heavy investment have placed the company in a leadership role in terms of technology, which will enable above-average growth and returns over the next several years.
Outlook
At the time of writing, the earnings cycle in Asia appears to be bottoming after a torrid year of downgrades in which the mid-teens growth expectations of analysts were ultimately watered down to a modest year-on-year decline for 2018 and low single-digit growth for 2019. Given the increased chance of improved economic growth at some point in the second half of 2019, it is reasonable to assume that any further downside to Asian earnings will be limited from here. Catalysts for a stabilisation and improvement in earnings expectations include signs of supportive policy action, a softening of energy and raw material prices, the emergence of strong mandates to govern in the countries with national elections (particularly India and Indonesia), and a resolution to the trade dispute between China and the US. After a strong start to 2019, Asian stock market valuations were mixed although market weakness post our Company's financial year end has seen valuations return to more attractive levels. As the market recovered in advance of earnings announcements, earnings-based valuation metrics are above 10-year averages although not at extreme levels. Asset value based measures suggest valuations below 10-year averages, or even slightly below (for example, at the time of writing the price-to-book value based on the trailing 12-month book value is at 1.49x compared with the 10-year average of 1.63).
We believe the long-term secular growth opportunity in Asia remains substantial. Employment levels in the region are generally healthy and incomes are growing. As a result, the middle class continues to expand and the proportion of the population exposed to poverty is shrinking. Rising disposable income leads to changes in consumption patterns, with increased spending on leisure, travel, education, health care, discretionary consumer goods and housing. Rising financial inclusion also supports spending on bigger ticket items such as motor vehicles, as well as growth in demand for savings products and insurance. Population growth and, particularly, rising urbanisation creates rising demand for more and better infrastructure. Asia needs to invest trillions of dollars in infrastructure in the years ahead.
The Asian stock market offers many opportunities to access this growth. Your Company is focused on finding businesses that can not only participate in that growth but also translate it into attractive returns for investors. This means finding companies capable of generating cash flows, after necessary maintenance capital spending, which can be re-employed back into their businesses to fund future growth, or returned to shareholders. The changes to the portfolio highlighted above reflect that objective. We remain sensitive to valuation and will seek to move capital from businesses that become overvalued relative to their prospects into other, more attractively valued portfolio holdings or into new holdings.
Andrew Graham & Damian Taylor
14 June 2019
Portfolio Summary
Portfolio distribution as at 31 March 2019 (%)
China & India Singapore South Malaysia Thailand Taiwan Indonesia Total
Hong Korea
Kong
-------------------- --------- ------ ---------- ------- --------- --------- -------------- ---------- ------
Financials 18.4 6.0 4.6 - - 2.8 - - 31.8
Technology 11.2 8.9 - - - - 2.6 - 22.7
Consumer Services 1.4 6.5 - 11.3 - - - - 19.2
Utilities 8.3 - - - - - - - 8.3
Industrials - - 8.3 - - - - - 8.3
Consumer services 1.2 - - - 3.2 - - 0.8 5.2
Telecommunications 4.5 - - - - 4.5
Total portfolio 45.0 21.4 12.9 11.3 3.2 2.8 2.6 0.8 100.0
Total portfolio
(31.03.2018) 42.7 21.9 12.1 10.2 4.4 3.6 3.1 2.0 100.0
-------------------- --------- ------ ---------- ------- --------- --------- -------------- ---------- ------
By asset class
31 March 2019 % 31 March 2018 %
------------ ------------------------------------- ----------------
Equities 100.3 100.5
Options - (0.1)
Cash 3.0 2.6
Borrowings (3.3) (3.0)
------------ ------------------------------------- ----------------
Total 100.0 100.0
------------ ------------------------------------- ----------------
Top ten holdings
31 March 31 March 31 March 2018 31 March
2019 Market 2019 % of Market value 2018 % of
value GBP000 total portfolio GBP000 total portfolio
------------------------- -------------- ----------------- ----------------------- -----------------
Tencent Holdings 12,440 8.0 11,838 7.5
AIA Group 12,221 7.9 11,936 7.5
Ping An Insurance 8,301 5.4 - -
HSBC Holdings 7,929 5.1 7,784 4.9
Coway 7,445 4.8 5,263 3.3
Infosys 7,382 4.8 6770 4.3
Guangdong Investment 7,146 4.6 6,586 4.2
United Overseas Bank 7,011 4.6 7,347 4.6
China Mobile 6,952 4.5 5,809 3.7
Singapore Technologies
Engineering 6,822 4.4 - -
Total 83,649 54.1 63,333 40.0
------------------------- -------------- ----------------- ----------------------- -----------------
Portfolio holdings
Sector Market value % of total
GBP000 portfolio
-------------------------------------- -------------------- ------------- -----------
China & Hong Kong 69,462 45.0
Tencent Holdings Technology 12,440 8.0
AIA Group Financials 12,221 7.9
Ping An Insurance Financials 8,301 5.4
HSBC Holdings Financials 7,929 5.1
Guangdong Investment Utilities 7,146 4.6
China Mobile Telecommunications 6,952 4.5
ENN Energy Utilities 5,680 3.7
TravelSky Technology Technology 4,861 3.2
Minth Consumer Goods 2,097 1.4
Dairy Farm International
Holdings Consumer Services 1,835 1.2
India 32,839 21.4
Infosys Technology 7,382 4.8
Tata Consultancy Services Technology 6,262 4.1
Hero Motocorp Consumer Goods 5,807 3.8
HDFC Bank Financials 5,550 3.6
Maruti Suzuki India Consumer Goods 4,129 2.7
HDFC Bank ADR Financials 3,709 2.4
-------------------------------------- -------------------- ------------- -----------
Singapore 19,812 12.9
United Overseas Bank Financials 7,011 4.6
Singapore Technologies
Engineering Industrials 6,822 4.4
Jardine Matheson Holdings Industrials 5,979 3.9
South Korea 17,461 11.3
Coway Consumer Goods 7,445 4.8
LG Household & Health Care Consumer Goods 5,220 3.4
Samsung Electronics Consumer Goods 4,796 3.1
Malaysia 4,855 3.2
Genting Berhad Consumer Services 4,855 3.2
-------------------------------------- -------------------- ------------- -----------
Thailand 4,296 2.8
Siam Commercial Bank Financials 4,296 2.8
-------------------------------------- -------------------- ------------- -----------
Taiwan Technology 4,023 2.6
Taiwan Semiconductor Manufacturing 4,023 2.6
Company
-------------------------------------- -------------------- ------------- -----------
Indonesia 1,291 0.8
Matahari Department Store Consumer Services 1,291 0.8
-------------------------------------- -------------------- ------------- -----------
Total portfolio 154,039 100.0
------------------------------------------------------------ ------------- -----------
Principal risks and uncertainties
Risk and mitigation
The Company's business model is longstanding and resilient to most of the short term uncertainties that it faces, which the Board believes are effectively mitigated by its internal controls and the oversight of the investment manager, as described in the table below. The principal risks and uncertainties are therefore largely longer term and driven by the inherent uncertainties of investing in equity markets. The Board endeavours to respond to these longer term risks and uncertainties with effective mitigation so that both the potential impact and the likelihood of these risks seriously affecting shareholders' interests are materially reduced.
Risks are regularly monitored at Board meetings and the Board's planned mitigation measures are described in the table below. The Board believes that the processes of internal control that the Company has adopted and oversight by the investment manager continue to be effective.
The Board has identified the following principal risks to the Company:
Risk Mitigation
Loss of s1158-9 tax Loss of s1158-9 tax status would have serious
status consequences for the attractiveness of the
Company's shares. The Board considers that,
given the regular oversight of this risk
carried out by the investment manager and
reviewed by the Board itself, the likelihood
of this risk occurring is minimal. The audit
and risk committee regularly reviews the
eligibility conditions and the Company's
compliance against each of the latter, including
the minimum dividend requirements and shareholder
composition for close company status.
Failure to manage The Board recognises the importance of managing
shareholder relations shareholder relations. At each Board meeting,
the Board monitors the constituency and changes
to the shareholder register. The Board also
reviews feedback from the investment manager
and the Company's broker based on meetings
and interaction with shareholders. Where
appropriate the directors are available to
address shareholder questions. Shareholders
are encouraged to engage with the Company
by using the email address noted on the back
page of the Company's annual report.
Major external market There is a risk that a major external market
disruption disruption, war event, natural disaster or
cyber attack could impact the Company's business
and underlying portfolio. Board members keep
abreast of political, market and industry
issues, meet regularly and have the ability
to call ad hoc meetings to discuss and take
appropriate action should such disruption
arise. The investment manager has a dedicated
cyber security defence programme and a Valuation
Committee in place to support the continued
production of the Company's NAV in the event
that stock markets are closed for an extended
period.
Long term investment The Board manages the risk of investment
underperformance underperformance by relying on the integrity
of the investment manager's investment process.
The Board monitors the implementation and
results of the investment process with the
portfolio manager, who attends all Board
meetings, and reviews data that shows statistical
measures of the Company's risk profile. Should
investment underperformance be sustained
despite the mitigation measures taken by
the investment manager, the Board would assess
the cause and look to take appropriate action
to manage this risk. Please see the Chairman's
statement and manager's review on above for
further details on the investment performance
and outlook.
Gearing risk From time to time the Company finances its
operations through bank borrowings. The Board
regularly and actively considers such borrowings
(gearing) closely, with regard to interest
rates, market conditions and peer group activity.
Details of the current gearing are provided
in notes 11, 13 and 14 to the financial statements.
There were no debt securities held at 31
March 2019 and the Company's investment portfolio
is only indirectly exposed to interest rate
risk. The Board also reviews analysis of
lending counterparties, which includes counterparty
risk, rates and other terms.
Market, financial Although the Company is based in the UK,
and interest rate its portfolio of investments principally
risk consists of overseas stocks.
Currency risk is inherent in all investment
decisions and the portfolio manager applies
his skills and experience to mitigate this
risk within acceptable tolerances.
Diversification via the countries and markets
in which the portfolio is invested is a key
mitigant of currency and market risk.
The investment manager oversees various risk
factors inherent in the portfolio, including
geographical concentration and, by extension,
currency risk. It also stress tests the portfolio
for significant currency and market risk.
The investment manager's investment process
and investment risk framework are designed
to manage inherent market risk and optimise
portfolio positioning in reference to the
investment objective.
In addition to the overseas investments,
during the year the Company also had non-sterling
cash deposits and a multi-currency loan facility
which expires on 30 September 2020. At 31
March 2019 the Company had no non-sterling
cash deposits (2018: an overdraft of GBP2,000
equivalent in US dollars). As at 31 March
2019 the Company had borrowings in Hong Kong
dollars and Singapore dollars. Details are
given in note 14 below.
The Company's sterling statement of financial
position and statement of comprehensive income
can be significantly affected by movements
in the local currencies of these stocks.
Outsourcing risk The Company has outsourced its entire operational
infrastructure to third party providers.
Contracts and service level agreements have
been arranged to ensure that the service
provided by each third party provider is
of a sufficiently professional and technically
high standard. The Board receives and reviews
control reports from all service providers.
Periodically, the Board requests representatives
from third party service providers to attend
Board meetings to give the Board the opportunity
to discuss the controls that are in place
directly with the third party providers.
The Board receives and reviews control reports
from all service providers. The Board carries
out an annual evaluation of its service providers
and gives regular feedback to the investment
manager through the management engagement
committee.
Counterparty risk Most transactions are made delivery versus
payment on recognised exchanges. The risk
to the Company of default is therefore minimised.
Investment transactions are only carried
out with approved brokers. Counterparty risk
indicators are regularly reviewed by the
investment manager and appropriate action
taken, including, if necessary, removing
brokers from the approved list.
Cash is held only with approved counterparties.
Strategic planning A Board strategy session is held annually
impacts on discount to establish strategic priorities, which
and liquidity are subject to review and discussion at Board
meetings.
The Board monitors relevant risk factors
and has set performance targets for the investment
manager in relation to investment performance,
shareholder constituents and the discount
level. These factors can impact the Company's
reputation, market sentiment and validity
of the investment manager's investment process.
The investment manager and the Company's
broker assist in identifying commercial opportunities
for the Company.
Discount management policy is regularly discussed
and approved by the Board.
Failure to meet Company The Company's dividend policy is reviewed
dividend policy and approved by the Board, in line with the
semi-annual dividend payment. The Board has
authority to make a capital payment representing
2% of ex income NAV with the final dividend.
The Board expects this dividend policy to
endure, but it remains subject to review
in the event that there is a change in market
conditions or shareholder expectations, and
in the event that the Company has incurred
a capital loss in any financial year. The
Board are recommending the payment of the
capital element as part of the final dividend.
Revenue estimates are presented to the Board
at each meeting for the current and next
financial year.
The shareholders have the opportunity to
vote on the Company's final dividend annually.
Responsibility Statement
The financial statements are published on the website, www.martincurrieasia.com. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Martin Currie, as delegated by the Board of directors.
Each of the directors, whose names and functions are listed in the Board of directors, confirms that, to the best of his or her knowledge:
-- the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and performance of the Company; and
-- 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 they face.
We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
The financial statements are published on the website, www.martincurrieasia.com. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Martin Currie, as delegated by the Board of directors.
Each of the directors, whose names and functions are listed in the Board of directors' section confirms that, to the best of his or her knowledge:
-- the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and performance of the Company; and
-- the strategic review, the report of the directors and manager's review include 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.
Statement of directors' responsibilities
The directors are responsible for preparing the annual report and 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 they are required to prepare the financial statements in accordance with UK accounting standards, 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 its profit or loss for that period. In preparing these financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
-- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
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 its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Martin Currie, as delegated by the Board of directors. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Going concern status
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's statement, manager's review, strategic report and the report of the directors.
The financial statements have been prepared on a going concern basis. As discussed in the Chairman's statement on 4 June 2019, the Board announced preliminary proposals for the Company's future. Given that the Company has significant financial resources and that the circular detailing the proposals is yet to be published and voted on by Shareholders, the Directors consider it appropriate for the Company to prepare the accounts on a going concern basis. The material uncertainty over the result of the Shareholder vote on the preliminary proposals casts doubt on the likelihood that the Company will continue as a going concern. The financial statements do not include any adjustments that would result, if the Company's accounts were not prepared on a going concern basis.
The financial position of the Company as at 31 March 2019 is shown in the statement of financial position below. The statement of cashflow of the Company and the statement of comprehensive income are also set out below.
Note 14 below sets out the Company's risk management policies, including those covering market risk, liquidity risk and credit risk.
The Company's loan facility, during the financial year, was GBP15,000,000 of which GBP5,069,000 was drawn down at the year-end date. The facility expires on 30 September 2020. The purpose of the facility is to enable the manager to enhance the return for shareholders by borrowing and investing where the return is expected to exceed the cost of borrowing. The Company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the Company is able to continue in operational existence without the facility.
In accordance with the 2016 UK Corporate Governance Code, the directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets consist of a diversified portfolio of listed equity shares which, in most circumstances, are realisable within a short timescale.
The directors are mindful of the principal risks and uncertainties disclosed above and have reviewed revenue forecasts and they believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and for at least one year from the date of this annual report.
Viability Statement
The Viability Statement is based on the status of the Company as at the end of the financial year, and does not reflect any impact that may result from the proposed reconstruction of the company except where noted below. The Company's business model is designed to achieve returns commensurate with Asia ex Japan nominal GDP growth through investing in companies across the Asian region that are capable of producing high and sustainable returns. In accordance with the Company's Articles of Association, a continuation resolution is proposed to shareholders every three years, with the next vote due to take place at the Company's AGM in 2021.
The Board has assessed its viability in accordance with provision C.2.2 of the 2016 UK Corporate Governance Code. The Board considers that five years to be an appropriate period over which to judge the performance of the Company against its long-term objectives. Taking into account demand for shares in the Company, liquidity, discount, shareholder register and running costs, the Board is proposing that options, other than the continuation of the Company in its current form, would be more beneficial to shareholders. Please refer to the Chairman's statement for more information.
The Board has considered the impact of Brexit and does not believe it will have a material impact on the viability of the Company.
In making this assessment the directors have considered the following risks to its ongoing viability:
-- The principal risks and uncertainties and the mitigating actions set out above; -- The ongoing relevance of the Company's investment objective in the current environment;
-- The level of income forecast to be generated by the Company and the liquidity of the Company's portfolio;
-- The level of fixed costs and limited debt relative to its liquid assets;
-- The current loan facility is due to expire on 30 September 2020. The Board is not aware of any reason why it would not be able to renew the loan facility at that date or indeed repay the loan if preferred; and
-- The expectation is that the current portfolio could be liquidated to the extent of 99.6% within 8 days.
Based on the results of their analysis and the Company's processes for monitoring each of the factors set out above, the directors have a reasonable expectation that the Company would be able to continue in operation and meet its liabilities over the next five years. However, on 4 June 2019, the Board announced preliminary proposals for the Company's future. The intention is to provide Shareholders with the opportunity for a cash exit together with a rollover option into an open-ended company to be managed by Martin Currie Investment Management under the Legg Mason Investment Funds ICVC umbrella, with a similar Asia Long Term Unconstrained strategy ("ALTU") and investment objective. The long-term viability would be affected should the Shareholders vote to wind up the Company as the Company would cease to be a going concern.
Statement of Comprehensive Income
Year ended 31 March Year ended 31 March 2018
2019
Revenue Capital Total Revenue Capital Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------- ------- ------------- ------------- --------- -------- ----------- ---------
Dividend income 2 4,409 - 4,409 4,305 - 4,305
Interest on deposits 2 2 - 2 - - -
Net gains on investments 8 - 1,727 1,727 - 7,207 7,207
Net currency (losses/gains) 18 (309) (291) (15) 364 349
----------------------------- ------- ------------- ------------- --------- -------- ----------- ---------
4,429 1,418 5,847 4,290 7,571 11,861
Investment management
fee (385) (771) (1,156) (395) (790) (1185)
Other expenses 4 (661) - (661) (557) - (557)
----------------------------- ------- ------------- ------------- --------- -------- ----------- ---------
Net return on ordinary
activities before
finance costs and
taxation 3,383 647 4,030 3,338 6,781 10,119
Interest payable and similar charges 3 (56) (111) (167) (40) (76) (116) ----------------------------- ------- ------------- ------------- --------- -------- ----------- --------- Net return on ordinary activities before taxation 3,327 536 3,863 3,298 6,705 10,003 Taxation on ordinary activities 5 (227) (179) (406) (198) - (198) ----------------------------- ------- ------------- ------------- --------- -------- ----------- --------- Net return attributable to shareholders 3,100 357 3,457 3,100 6,705 9,805 Net return per ordinary share 7 8.60p 0.99p 9.59p 8.58p 18.56p 27.14p ----------------------------- ------- ------------- ------------- --------- -------- ----------- ---------
The total columns of this statement are the profit and loss accounts of the Company.
The revenue and capital items are presented in accordance with the Association of Investment Companies Statement of Recommended Practice ('SORP').
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued in the year ended 31 March 2019.
The net return attributable to shareholders is the profit/(loss) for the financial period and there was no other comprehensive income.
The notes below form part of these financial statements.
Statement of Financial Position
As at 31 March As at 31 March
2019 2018
Note GBP000 GBP000 GBP000 GBP000
--------------------------------------- ----- -------- -------- -------- --------
Fixed assets
Investment at fair value through
profit or loss 8 154,039 158,466
Current assets
Receivables 9 600 1,083
Cash at bank 10 4,660 4,053
--------------------------------------- ----- -------- -------- -------- --------
5,260 5,136
Current liabilities
Derivative instruments at fair
value through profit or loss 8 - (232)
Payables 11 (5,723) 5,219
--------------------------------------- ----- -------- -------- -------- --------
Net current liabilities (463) (315)
Total assets less current liabilities 153,576 158,151
--------------------------------------- ----- -------- -------- -------- --------
Share capital and reserves
Called-up ordinary share capital 12 19,753 19,753
Share premium account 6,084 6,084
Capital redemption reserve 3,428 3,428
Capital reserve* 121,609 126,198
Revenue reserve* 2,876 2,688
--------------------------------------- ----- -------- -------- -------- --------
Total shareholders' funds 153,576 158,151
Net asset value per ordinary
share of 50p 7 431.6p 437.8p
--------------------------------------- ----- -------- -------- -------- --------
* These reserves are distributable in accordance with the Companies Act 2006.
The notes below form part of these financial statements.
Martin Currie Asia Unconstrained Trust plc is registered in Scotland, company number SC092391.
The financial statements were approved by the board of directors on 14 June 2019 and signed on its behalf by Harry Wells, Chairman.
Statement of Changes in Equity
Year ended 31 Note Called up Share premium Capital Capital Revenue Total
March 2019 share capital reserve redemption reserve* reserve* GBP000
GBP000 GBP000 reserve GBP000 GBP000
GBP000
--------------------- ---------- ---------------- -------------- ------------ ----------- ----------- ---------
At 1 April 2018 19,753 6,084 3,428 126,198 2,688 158,151
Net return
attributable
to shareholders** 7 - - - 357 3,100 3,457
Ordinary shares
bought back into
treasury 12 - (1,999) - (1,999)
Dividends paid
from revenue 6 - - - - (2,912) (2,912)
Dividends paid
from capital*** 6 - - - (3,121) - (3,121)
--------------------- ---------- ---------------- -------------- ------------ ----------- ----------- ---------
At 31 March 2019 19,753 6,084 3,428 121,435 2,876 153,576
--------------------- ---------- ---------------- -------------- ------------ ----------- ----------- ---------
Share premium Capital
Called up reserve redemption Capital Revenue
share capital GBP000 reserve reserve* reserve* Total
Year ended 31 Note GBP000 GBP000 GBP000 GBP000 GBP000
March 2018
--------------------- ---------- ---------------- -------------- ------------ ----------- ----------- ---------
At 1 April 2017 19,753 6,084 3,428 122,538 2,460 154,263
Net return
attributable
to shareholders** 7 - - - 6,705 3,100 9,805
Dividends paid
from revenue 6 - - - - (2,872) (2,872)
Dividends paid
from capital 6 - - - (3,045) - (3,045)
--------------------- ---------- ---------------- -------------- ------------ ----------- ----------- ---------
At 31 March 2018 19,753 6,084 3,428 126,198 2,688 158,151
--------------------- ---------- ---------------- -------------- ------------ ----------- ----------- ---------
* These reserves are distributable.
** The Company does not have any other income or expenses that are not included in the 'Net return attributable to shareholders' as disclosed in the Statement of Comprehensive Income and therefore is also the 'Total comprehensive income for the year'.
*** The dividend per share for the year ended 31 March 2018 was 14.00p per ordinary share (31.03.2017): 13.68) including 8.50p (31.03.2017: 8.43p) which was paid from capital. The dividend was paid during the year ended 31 March 2019 and 31 March 2018 respectively).
The notes below form part of these financial statements.
Statement of Cashflow
Year ended Year ended
31 March 2019 31 March 2018
Note GBP000 GBP000 GBP000 GBP000
------------------------------------- ----- --------- -------- --------- --------
Cash flows from operating
activities
Profit before tax 3,863 10,003
Adjustments for:
Gains on investments 8 (1,727) (7,207)
Purchases of investments* (36,296) (28,255)
Sales of investments* 42,218 34,638
Finance costs 167 116
Dividend revenue 2 (4,409) (4,305)
Interest revenue (2) -
Dividends received 4,339 4,321
Interest received 2 -
Decrease/ (increase) in receivables 553 (590)
Increase in other payables
and amounts due to: Martin
Currie Investment Management
Limited 221 25
Overseas withholding tax suffered 5 (406) (198)
4,660 (1,455)
------------------------------------- ----- --------- -------- --------- --------
Net cash flows from operating
activities 8,523 8,548
------------------------------------- ----- --------- -------- --------- --------
Cash flows from financing
activities
Repurchase of ordinary share (1,997) -
capital
Net movement in short-term
borrowings 13 - (1,593)
Exchange movement on short-term
borrowings 13 281 (444) Interest paid and similar charges (167) (116) Equity dividends paid from revenue 6 (2,911) (2,872) Equity dividends paid from capital 6 (3,121) (3,045) ------------------------------------- ----- --------- -------- --------- -------- Net cash flows from financing activities (7,916) (8,070) ------------------------------------- ----- --------- -------- --------- -------- Net increase in cash and cash equivalents 607 478 Cash and cash equivalents at the start of the year 4,053 3,575 ------------------------------------- ----- --------- -------- --------- -------- Closing cash and cash equivalents at the end of the year 4,660 4,053 ------------------------------------- ----- --------- -------- --------- --------
* Receipts from the sale of and payments to acquire investment securities have been classified as components of cash flows from operating activities because they form part of the fund's dealing operations.
The notes below form part of these financial statements.
Notes to the Financial Statements
Note 1. Accounting policies
(a) Basis of preparation - for the year ended 31 March 2019, the Company is applying FRS 102 Financial Reporting Standard applicable in the UK and Republic of Ireland ('FRS 102'), which forms part of the Generally Accepted Accounting Practice ('UK GAAP') issued by the Financial Reporting Council (FRC).
Going Concern
These financial statements have been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS102 issued by the FRC and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (SORP) issued by the AIC in November 2014 and updated in February 2018, although there is material uncertainty as noted below.
On 4 June 2019 the Company indicated its intention to publish proposals to effect a scheme of reconstruction of the Company under section 110 of the Insolvency Act 1986, which would result in the voluntary liquidation of the Company and a tax efficient roll over of its assets into an open ended vehicle managed by Martin Currie Investment Management Limited within the Legg Mason Investment Funds ICVC umbrella.
Given that the Company has significant financial resources and that the circular detailing the proposals is yet to be published and voted on by Shareholders, the Directors consider it appropriate for the Company to prepare the accounts on a going concern basis, however the uncertainty in relation to the shareholder vote on the preliminary proposals is considered to constitute a material uncertainty which may cast doubt on the Company's continuation as a going concern, and that the Company may therefore not realise its assets and discharge its liabilities in the normal course of business. If the Shareholders do not approve the proposals it is expected that the Company would continue as a going concern. The financial statements do not include any adjustments which would be required if the Company's accounts were not prepared on a going concern basis.
Although the Company is in a net current liability position the Board does not believe this affects the going concern status of the Company as it holds a liquid investment portfolio which could be sold to ensure all liabilities are me as they fall due.
Statement of estimation uncertainty - in the application of the Company's accounting policies, the Board is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not always readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may
vary from these estimates.
Functional currency - sterling is the Company's functional currency, which is also the currency in which these financial statements are prepared.
(b) Income from equity investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted, when the Company's right to receive payment is established. Franked investment income is stated net of the relevant tax credit. Other income includes any taxes deducted at source. Special dividends are credited to capital or revenue, according to the circumstances. Scrip dividends are treated as unfranked investment income; any excess in value of the shares received over the amount of the cash dividend is recognised as a capital item in the Statement of Comprehensive Income.
(c) The management fee and finance costs in relation to debt are recognised two-thirds as a capital item and one-third as a revenue item in the statement of comprehensive income in accordance with the Board's expected long-term split of returns in the form of capital gains and income, respectively. Interest receivable and payable, and management expenses are treated on an accruals basis. All other expenses are charged to revenue except where they directly relate to the acquisition or disposal of an investment, in which case, they are treated as described in note 1 (e) below.
(d) Investments - investments have been classified upon initial recognition as at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. Movements in the fair value of investments and gains/losses on the sale of investments are taken to the statement of comprehensive income as a capital item.
The Company's listed investments are valued at bid price. Further details on investments are disclosed in note 8.
(e) Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the statement of comprehensive income.
(f) Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the date of the statement of financial position. Non-monetary items expressed in foreign currencies held at fair value are translated into sterling at rates of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to sterling at the rate ruling at the date of transaction. Exchange gains and losses are taken to the income statement as a capital or revenue item depending on the nature of the underlying item.
(g) All financial assets and liabilities are recognised in the financial statements at fair value, with the exception of short-term assets and liabilities, which are held at nominal value that approximates to fair value, and loans that are initially recognised at the fair value of the consideration received, less directly attributable costs, and subsequently recognised at amortised cost.
(h) Dividends payable - interim dividends are recognised once the directors are obligated to pay the dividend. Final dividends are recognised in the period which they are declared/approved as disclosed in note 6.
(i) Capital reserve - capital expenses, gains or losses on realisation of investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. Share buybacks are funded through the capital reserve, with details of buybacks disclosed in note 12. The capital reserve is distributable. An element of the dividend is deducted from capital reserve.
Revenue reserve - the net revenue for the year is transferred to the revenue reserve and dividends paid are deducted from the revenue reserve.
Capital redemption reserve - the nominal value of the shares bought back and cancelled are transferred to the capital redemption reserve.
Share premium account - this represents the surplus of subscription monies after expenses over the nominal value of the issued share capital.
(j) Taxation - the tax effect of different items of income/gains and expenditure/losses is allocated between revenue and capital on the same basis as the particular item to which it relates, under the marginal method, using the Company's effective rate of tax. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the reporting date where transactions of events that result in an obligation to pay more or a right to pay less tax in future have occurred at the reporting date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Deferred tax will be provided for potential capital gains tax liabilities.
(k) The Company uses derivative financial instruments to manage the risk associated with foreign currency fluctuations arising on dividends received in currencies other than sterling. This is achieved by the use of forward foreign currency contracts. The Company does not hold or issue derivative financial instruments for speculative purposes. Derivative financial instruments are recognised initially at fair value on the contract date and subsequently remeasured to the fair value at each reporting date. The resulting gain or loss is recognised as revenue or capital in the statement of comprehensive income depending on the nature and motive of each derivative transaction.
During the year ended 31 March 2018 the Company commenced the purchasing of options. These derivatives are held at fair value based on the bid/offer prices of the options purchased to which the Company is exposed. The value of the option is subsequently marked-to-market to reflect the fair value of the option based on traded prices. The primary purpose behind the purchase of options is to protect the portfolio. When an option is closed out or exercised, the gain or loss is accounted for as a capital gain or loss.
(l) Cash and cash equivalents comprise cash on hand and deposits.
(m) Key judgements - the only key judgement is the functional currency of the Company. This is considered to be a key judgement as the Company invests in non-sterling investments, yet the functional currency is determined to be sterling.
The Board has determined that sterling is the Company's functional currency based on various considerations, including that it is the currency in which the Company's shares are denominated, as well as the currency in which dividends and the majority of expenses are paid.
(n) Segmental reporting - The Company only has one material segment, being that of an investment trust
company investing in a portfolio of long term investments in Asian markets.
Note 2. Revenue from investments
Year ended Year ended
31 March 2019 31 March 2018
GBP000 GBP000
------------------------- --------------- ---------------
From listed investments
Overseas equities 4,409 3,305
------------------------- --------------- ---------------
4,409 3,305
------------------------- --------------- ---------------
Other revenue
Interest on deposits 2 -
------------------------- --------------- ---------------
4,411 4,305
------------------------- --------------- ---------------
Total income comprises:
Dividends 4,409 4,305
Interest 2 -
------------------------- --------------- ---------------
4,411 4,305
------------------------- --------------- ---------------
The Company received a capital dividend of GBP117,091 from Television Broadcasts and Café De Coral during the year ended 31 March 2019 (31.03.18: GBP40,727 from Singapore Telecommunications).
Note 3. Interest payable and similar charges
Year ended 31 March Year ended 31 March
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------- -------- -------- -------- -------- -------- --------
Interest expense on bank
loans and overdrafts 56 111 167 40 76 116
-------------------------- -------- -------- -------- -------- -------- --------
Note 4. Other expenses
Year ended Year ended
31 March 2019 31 March 2018
GBP000 GBP000
------------------------------------ --------------- ---------------
AIFMD Depositary fees 36 36
Bank charges 15 11
Custody fee 98 89
Directors' fees 135 127
Legal and professional fees 83 46
Printing and postage 9 5
Public relations 84 84
Registration fees 27 20
Secretarial fee 84 82
Miscellaneous revenue expenses 69 37
------------------------------------ --------------- ---------------
640 537
Auditor's remuneration
Payable to KPMG LLP for the audit
of the Company's annual financial
statements 21 20
661 557
------------------------------------ --------------- ---------------
Details of the contract between the Company and Martin Currie for provision of investment management and secretarial services are given in the report of the directors in the annual report.
Note 5. Taxation on ordinary activities
Year ended 31 March Year ended 31 March
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ -------- -------- -------- -------- -------- --------
Irrecoverable overseas
tax 227 179 406 198 - 198
------------------------ -------- -------- -------- -------- -------- --------
The effective UK corporation tax rate was 19% (31.03.2018: 19%). The tax charge for the year differs from the charge resulting from applying the standard rate of corporation tax in the UK for an investment trust company. The differences are explained below.
Year ended Year ended
31 March 2019 31 March 2018
GBP000 GBP000
----------------------------------------- --------------- ---------------
Net return before taxation 3,863 10,003
----------------------------------------- --------------- ---------------
UK corporation tax at effective rate
of 19% (31.03.2018: 19%) 734 1,900
Adjustments:
Currency losses/ (gains) not taxable 58 (69)
Gains on investments not taxable (328) (1,369)
Non taxable overseas dividends (844) (812)
Irrecoverable overseas tax 227 198
Excess management expenses not utilized 380 350
Overseas capital gains tax 179 -
Total tax charge 406 198
----------------------------------------- --------------- ---------------
At the year end, after offset against income taxable on receipt, there is a potential deferred tax asset of GBP2,754,000 (31.03.18: GBP2,415,000) in relation to surplus tax reliefs. It is unlikely that, due to excess management expenses brought forward, the Company will utilise these amounts and therefore no deferred tax asset has been recognised.
Due to the Company's status as an investment trust and its intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments.
Note 6. Equity dividends
Year ended Year ended
31 March 2018 31 March
GBP000 2017
GBP000
--------------------------------------------- --------------- -----------
Year ended 31 March 2019 - interim dividend 975 -
from revenue of 2.70p
Year ended 31 March 2018 - final dividend 1,937 -
from revenue of 5.36p
Year ended 31 March 2018 - final dividend 3,121 -
from capital of 8.64p
Year ended 31 March 2018 - interim dividend
from revenue 2.70p - 975
Year ended 31 March 2017 - interim dividend
from revenue of 5.25p - 1,897
Year ended 31 March 2017 - final dividend
from revenue of 8.43p - 3,045
6,033 5,917
--------------------------------------------- --------------- -----------
Set out below are the total dividends payable in respect of the financial period which forms the basis on which the requirements of s1158-9 of the Corporation Taxes Act 2010 are considered.
Year ended Year ended
31 March 2019 31 March
GBP000 2018
GBP000
---------------------------------------------- --------------- -----------
Proposed final dividend from revenue of 1,934 -
5.50p for the year ended 31 March 2019
Proposed final dividend from capital of 2,989 -
8.50p for the year ended 31 March 2019
Interim dividend from revenue of 2.70p for 975 -
the year ended 31 March 2019
Final dividend of from revenue of 5.36p
for the year ended 31 March 2018 - 1,936
Final dividend of from capital of 8.64p
for the year ended 31 March 2018 - 3,121
Interim dividend of 2.70p for the year ended
31 March 2018 - 975
5,898 6,032
---------------------------------------------- --------------- -----------
The Company bought back 421,537shares between 1 April 2019 and 13 June 2019; therefore the final dividend for 2019 is based on 35,163,422 ordinary shares in issue.
Note 7. Returns and net asset value
Year ended Year ended
31 March 2019 31 March 2018
----------------------------------------- --------------- ---------------
The return and net asset value per
ordinary share are calculated with
reference to the following figures:
Revenue return
Revenue return attributable to ordinary GBP3,100,000 GBP3,100,000
shareholders
----------------------------------------- --------------- ---------------
Weighted average number of shares
in issue during year* 36,047,951 36,124,496
Return per ordinary share 8.60p 8.58p
----------------------------------------- --------------- ---------------
Capital return
Capital return attributable to ordinary GBP357,000 GBP6,705,000
shareholders
----------------------------------------- --------------- ---------------
Weighted average number of shares
in issue during year* 36,047,951 36,124,496
Return per ordinary share 0.99p 18.56p
----------------------------------------- --------------- ---------------
Total return
Total return per ordinary share 9.59p 27.14p
----------------------------------------- --------------- ---------------
As at 31 March As at 31 March
2019 2018
----------------------------------------- --------------- ---------------
Net asset value per share
Net assets attributable to shareholders GBP153,576,000 GBP158,151,000
Number of shares in issue at the year
end* 35,584,959 36,124,496
Net asset value per share 431.6p 437.8p
----------------------------------------- --------------- ---------------
*Calculated excluding shares held in treasury.
Note 8. Investments at fair value through profit and loss
As at 31 March As at 31 March
2019 2018
GBP000 GBP000
-------------------------------------------- --------------- ---------------
Overseas listed investments held at
fair value through profit or loss 154,039 158,466
-------------------------------------------- --------------- ---------------
Total value of financial asset investments 154,039 158,466
Derivative financial instruments -
options contracts - (232)
-------------------------------------------- --------------- ---------------
Valuation of investments and derivatives 154,039 158,234
-------------------------------------------- --------------- ---------------
Opening valuation 158,234 157,537
Opening unrealised fair value gains
on investments (41,560) (45,928)
-------------------------------------------- --------------- ---------------
Opening cost 116,674 111,609
Add: additions at cost 36,296 28,128
-------------------------------------------- --------------- ---------------
152,970 139,737
Less: disposals at cost (38,867) (23,063)
-------------------------------------------- --------------- ---------------
Closing cost 114,103 116,674
Closing unrealised fair value gains
on investments 39,936 41,560
-------------------------------------------- --------------- ---------------
Closing valuation 154,039 158,234
-------------------------------------------- --------------- ---------------
Gains on investments Year ended 31 March Year ended 31 March
2019 GBP000 2018 GBP000
-------------------------------- -------------------- --------------------
Realised gains for the current
period 3,234 11,534
Movement in unrealised fair
value losses on investments (1,624) (4,368)
117 41
-------------------------------- -------------------- --------------------
Gains on investments 1,727 7,207
-------------------------------- -------------------- --------------------
Transaction costs
During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within net gains on investments in the statement of comprehensive income. The total costs were as follows:
Year ended 31 March Year ended 31 March
2019 GBP000 2018 GBP000
----------- -------------------- --------------------
Purchases 46 57
Sales 77 65
----------- -------------------- --------------------
123 122
----------- -------------------- --------------------
Note 9. Receivables: amounts falling due within one year
As at 31 March As at 31 March
2019 GBP000 2018 GBP000
-------------------------------- --------------- ---------------
Dividends receivable 551 481
Cash collateral held at broker
for derivatives - 600
Other receivables 49 2
-------------------------------- --------------- ---------------
600 1,083
-------------------------------- --------------- ---------------
None of the Company's trade receivables are past, due or impaired.
Note 10. Cash at bank
As at 31 March As at 31 March
2019 GBP000 2018 GBP000
----------- --------------- ---------------
Sterling 4,660 4,055
US dollar - (2)
----------- --------------- ---------------
4,660 4,053
----------- --------------- ---------------
Note 11. Payables - amounts falling due within one year
As at 31 March As at 31 March
2019 GBP000 2018GBP000
-------------------------------------- --------------- ---------------
Interest expense and similar charges 10 10
Due to brokers for repurchase 2 -
of ordinary shares
Due to Martin Currie Investment
Management Ltd 283 290
Revolving bank loan 5,069 4,788
Capital Gains Tax 174 -
Other payables 185 131
-------------------------------------- --------------- ---------------
5,723 5,219
-------------------------------------- --------------- ---------------
On 1 April 2018, the Indian government withdrew an exemption from capital gains tax on investments held for 12 months or longer. Accordingly, the Company has recognised a deferred tax liability of GBP174,000 on capital gains which may arise if the Indian investments are sold. For interest rate risk analysis in respect of receivables and payables refer to note 14.
The Company has a GBP15,000,000 (31.03.18: GBP15,000,000) loan facility with the Royal Bank of Scotland, which expires on 31 September 2020.
As at 31 March 2019 and 31 March 2018, the drawdowns were as shown below, with a maturity date of 28 June 2019 (31.03.18: 7 June 2018).
As at 31 March 2019
Currency GBP Interest
rate
---------------- --------- ---------
HKD 25,657,070 2,508,000 2.56%
SGD 4,520,400 2,561,000 2.63%
---------------- --------- ---------
5,069,000
---------------- --------- ---------
As at 31 March 2018
Currency GBP Interest
rate
---------------- --------- ---------
HKD 25,657,070 2,331,000 1.78%
SGD 4,520,400 2,457,000 2.12%
---------------- --------- ---------
4,788,000
---------------- --------- ---------
All payables are due within three months.
Note 12. Called up share capital
As at As at
31 March 31 March
2019 2018
GBP000 GBP000
--------------------------------------------- ---------- ----------
Authorised:
66,000,000 (31.03.18 - 66,000,000) ordinary
shares of 50p each - equity 33,000 33,000
--------------------------------------------- ---------- ----------
Allotted, called up and fully paid:
35,584,959 (31.03.18 - 36,124,496) ordinary
shares of 50p each - equity 17,793 18,062
Treasury shares:
3,920,913 (31.03.18 - 3,381,376) ordinary
shares of 50p each - equity 1,960 1,691
--------------------------------------------- ---------- ----------
Total 19,753 19,753
--------------------------------------------- ---------- ----------
The Company bought back 539,537 shares of 50p each during the year ended 31 March 2019 at a cost of GBP1,999,000 to be held in treasury. The Company did not buy back any shares during the year ended 31 March 2018.
The Company has an authorised share capital of 66,000,000 ordinary shares of 50p each, which rank equally. Shareholders are entitled to dividends, which are paid bi-annually, and to attend and vote at all general meetings of the Company. On a winding-up, and after satisfying all liabilities of the Company, shareholders will be entitled to all of the remaining assets of the Company.
Note 13. Analysis of net debt
At 1 April Cash flows Exchange movements At 31 March
Analysis of net 2018 GBP000 GBP000 2019
debt GBP000 GBP000
----------------------- ----------- ----------- ------------------- ------------
Cash at bank 4,053 617 (10) 4,660
Bank borrowings
- sterling revolving
loan (4,788) - 281 (5,069)
----------------------- ----------- ----------- ------------------- ------------
Net debt (735) 617 (291) (409)
----------------------- ----------- ----------- ------------------- ------------
For interest rate risk and currency risk analyses refer to note 14 below.
Note 14. Financial instruments
The Company's financial instruments comprise securities, derivatives and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and receivables for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, for the purpose of managing currency and market risks arising from the Company's activities. The main risks the Company faces from its financial instruments are (a) market price risk (comprising of (i) interest rate risk, (ii) currency risk and (iii) other price risk), (b) liquidity risk and (c) credit risk.
The Board regularly reviews and agrees policies for managing each of these risks. The manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term receivables and payables, other than for currency disclosures, as they are deemed immaterial.
(a) Market price risk
The fair value of future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.
(i) Market risk arising from interest rate risk
Interest rate movements may affect the level of income receivable on cash deposits/payable on short term borrowings.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and liabilities at the statement of financial position date was as follows:
Sterling
Local currency Foreign exchange equivalent
As at 31 March Interest '000 rate GBP000
2019 rate %
------------------ ----------- ----------------- ------------------- ------------
Assets
Sterling 0.07 4,660 1.000 4,660
South Korean won n/a 2 1,479.093 -
------------------ ----------- ----------------- ------------------- ------------
Total 4,660
------------------ ----------- ----------------- ------------------- ------------
Liabilities
Loan - Hong Kong
Dollar 2.56 25,657 10.229 2,508
Loan - Singapore
Dollar 2.63 4,520 1.765 2,561
------------------ ----------- ----------------- ------------------- ------------
Total 5,069
------------------ ----------- ----------------- ------------------- ------------
Sterling
Local currency Foreign exchange equivalent
As at 31 March Interest '000 rate GBP000
2018 rate %
--------------------------- ----------- ----------------- ------------------- ------------
Assets
Sterling 0.01 4,055 1.000 4,055
US dollar 0.28 (3) 1.403 (2)
--------------------------- ----------- ----------------- ------------------- ------------
Total 4,053
--------------------------- ----------- ----------------- ------------------- ------------
Liabilities
Loan - Hong Kong
Dollar Loan - Singapore
Dollar 1.78 25,657 11.010 2,331
2.12 4,520 1.839 2,457
--------------------------- ----------- ----------------- ------------------- ------------
Total 4,788
--------------------------- ----------- ----------------- ------------------- ------------
All cash balances are exposed to floating rates of interest. Both loan balances have fixed rates of interest until the next rollover date.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates for financial instruments at the reporting date and 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.
If interest rates had been 50 basis points (31.03.18: 50 basis points) higher or lower and all other variables were held constant, the Company's profit or loss for the year to 31 March 2019 would increase/decrease by GBP23,300 (31.03.18: increase/decrease by GBP20,300). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances.
As at 31 March 2019 an interest rate of 0.5% is used, given the prevailing Bank of England base rate is 0.75%. This level is considered possible based on observations of market conditions and historic trends.
(ii) Market risk arising from foreign currency risk
The Company's investment portfolio is invested almost entirely in foreign securities and the Statement of Financial Position can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings.
The Statement of Comprehensive Income is subject to currency fluctuation arising on overseas income.
Foreign currency risk profile
Foreign currency risk exposure by currency of denomination:
As at 31 March 2019 As at 31 March 2018
Investment Net monetary Total Investment Net monetary Total
exposure exposure currency exposure exposure currency
GBP000 GBP000 exposure GBP000 GBP000 exposure
GBP000 GBP000
------------------- ----------- ------------- ---------- ----------- ------------- ----------
Hong Kong Dollar 67,628 (2,508) 65,120 64,958 (1,560) 63,398
Indian Rupee 29,130 (174) 28,956 31,633 - 31,663
Indonesian
Rupiah 1,291 - 1,291 3,108 - 3,108
Korean Won 17,461 140 17,601 19,214 130 19,344
Malaysian Ringgit 4,855 52 4,907 5,705 46 5,751
Singaporean
Dollar 13,832 (2,561) 11,271 11,834 (2,460) 9,374
Taiwanese Dollar 4,023 - 4,023 7,036 - 7,036
Thai Baht 4,296 - 4,296 4,920 - 4,920
US Dollar 11,523 358 11,881 9,796 129 9,925
------------------- ----------- ------------- ---------- ----------- ------------- ----------
Total 154,039 (4,693) 149,346 158,234 (3,715) 154,519
------------------- ----------- ------------- ---------- ----------- ------------- ----------
The asset allocation between specific markets can vary from time to time based on cumulative invested positions of the portfolio of equity holdings listed in special stock markets.
Foreign currency sensitivity
The following table details the Company's sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies and the resultant impact that any such increase or decrease would have on net return before tax and equity shareholders' funds.
31 March 2019 31 March 2018
GBP000 GBP000
-------------------- -------------- --------------
Hong Kong Dollar 6,512 6,340
Indian Rupee 2,896 3,166
Indonesian Rupiah 129 311
Korean Won 1,760 1,934
Malaysian Ringgit 491 575
Singaporean Dollar 1,127 937
Taiwanese Dollar 402 704
Thai Baht 430 492
US Dollar 1,188 993
-------------------- -------------- --------------
Total 14,935 15,452
(iii) Market risk arising from other price risk
Other price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
It is the Board's and investment managers' policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets to international markets as detailed above, and the stock selection process act to reduce market risk. The investment manager actively monitors market prices throughout the year and reports to the board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide.
The Company can use derivates to mitigate market fluctuation but has not done so during the year.
Other price risk sensitivity
If market prices at the statement of financial position date had been 15% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders at the year ended 31 March 2019 would have increased/decreased by GBP23,110,000 (31.03.18: increase/decrease of GBP23,770,000) and capital reserves would have increased/decreased by the same amount. The calculations are based on the portfolio valuations, as at the respective reporting dates, and are not representative of the year as a whole.
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. All payables are due within three months.
Liquidity risk is not considered to be significant as the Company's assets mainly comprise readily realisable securities, which can be sold to meet funding commitments if necessary.
(c) Credit risk
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction which could result in the Company suffering a loss.
The risk is managed as follows:
-- Investment transactions are carried out with a large number of brokers, whose credit ratings are reviewed periodically by the portfolio manager. Limits are set on the exposure to any one broker. The risk to the Company of default is therefore minimised;
-- Most transactions are made delivery versus payment on recognised exchanges; and -- Cash is held only with reputable banks.
None of the Company's financial assets are secured by collateral or other credit enhancements, apart from the derivatives. The maximum credit risk exposure as at 31 March 2019 was GBP5,260,000 (31.03.18: GBP5,136,000). This was due to trade receivables and cash as per notes 9 and 10.
Fair values of financial assets and financial liabilities
All financial assets and liabilities are recognised in the financial statements at fair value, with the exception of short-term assets and liabilities, which are held at nominal value that approximates to fair value, and loans that are initially recognised at the fair value of the consideration received, less directly attributable costs, and subsequently recognised at amortised cost.
Note 15. Capital management policies and procedures
The Company's capital management objectives are:
-- to ensure that the Company will be able to continue as a going concern; and
-- to maximise the revenue and capital return to its equity shareholders through an appropriate balance of equity capital and debt.
The Company's capital as at 31 March 2019 comprised:
31 March 2019 31 March 2018
GBP000 GBP000
-------------------------------------- -------------- --------------
Equity share capital 19,753 19,753
Retained earnings and other reserves 133,823 138,398
Total 153,576 158,151
-------------------------------------- -------------- --------------
The Board, with the assistance of the investment manager and the AIFM, monitors and reviews the broad structure of the Company's capital on an ongoing basis. These reviews include:
-- the planned level of gearing, which takes account of the manager's views on the market;
-- whether to buy back equity shares for cancellation or to hold in treasury, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium);
-- whether to issue new shares, or re-issue treasury shares; and
-- the extent to which revenue in excess of that which is required to be distributed should be retained.
The Company's objectives, policies and processes for managing capital are unchanged from the
preceding accounting period. The Company had 100% net gearing at the year end (31.03.18: 100%).
Note 16. Fair value hierarchy
Under FRS 102, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc).
-- Level 3: significant unobservable input (including the Company's own assumptions in determining the fair value of investments). The financial assets measured at fair value through profit and loss in the financial statements are grouped into the fair value hierarchy as follows:
The financial assets and liabilities measured at fair value through the profit and loss in the financial statements are grouped into the fair value hierarchy as follows:
At 31 March 2019
Level Level Level Total
1 GBP000 2 GBP000 3 GBP000 GBP000
---------------------------------------- ---------- ---------- ---------- --------
Financial assets at fair value through
profit or loss
Quoted equities 154,039 - - 154,039
Net fair value 154,039 - - 154,039
---------------------------------------- ---------- ---------- ---------- --------
At 31 March 2018
Level Level Level Total
1 GBP000 2 GBP000 3 GBP000 GBP000
----------------------------------------- ---------- ---------- ---------- -------- Financial assets at fair value through profit or loss Quoted equities 158,466 - - 158,466 Financial liabilities at fair value through profit or loss Derivative instruments (232) - - (232) ----------------------------------------- ---------- ---------- ---------- -------- Net fair value 158,234 - - 158,234 ----------------------------------------- ---------- ---------- ---------- --------
Note 17. Related party transactions
With the exception of directors' fees and directors' shareholdings, there were no related party transactions to report throughout the financial year.
Note 18. Post balance sheet events
As at 13 June 2019 the Company bought back a further 421,537 ordinary shares and at a total cost of GBP1,599,589.
On 4 June 2019 the Company indicated its intention to publish proposals to effect a scheme of reconstruction of the Company under section 110 of the Insolvency Act 1986, which, in effect would result in the voluntary liquidation of the Company and a tax efficient roll over of its assets into an open ended vehicle managed by Martin Currie Investment Management Limited within the Legg Mason Investment Funds ICVC umbrella. It is intended that this open ended investment company will follow the Asia Long-Term Unconstrained strategy currently pursued by the Company and have a similar investment objective. Please refer to the Chairman's statement for further details. The share price has appreciated following the announcement on 4 June 2019, the share price as at 13 June 2019 was 418p.
Website
The Company has its own dedicated website at www.martincurrieasia.com. This offers shareholders, prospective investors and their advisors a wealth of information about the Company. Updated daily it includes the following: latest prices, performance data, latest factsheet, research, portfolio information, press releases and articles, the manager's latest views and annual and half yearly reports.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
ACSUSVARKNANAAR
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June 14, 2019 08:09 ET (12:09 GMT)
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