Martin Currie GblPrt - Final Results
06/04/2023 15:32
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RNS Number : 6817V Martin Currie Global Portfolio Tst 06 April 2023
Martin Currie Global Portfolio Trust plc (the "Company")
Legal Entity Identifier: 549300RKB85NFVSTBM94
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ANNUAL FINANCIAL RESULTS - YEAR TO 31 JANUARY 2023
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 January 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
Registrar of Companies and those for 2023 will be delivered following the
Company's annual general meeting.
The auditor has reported on those accounts; their report was unqualified.
The unedited full text of those parts of the annual report and accounts for
the year ended 31 January 2023 which are required to be published are set out
on the following pages.
The annual general meeting of the Company will be held on 1 June 2023. The
notice of meeting will shortly be issued to shareholders and a copy can be
downloaded on the Company's website (www.martincurrieglobal.com
(http://www.martincurrieglobal.com/) ).
A copy of the full annual report and accounts will be submitted to the
National Storage Mechanism and will be available for inspection.
FINANCIAL HIGHLIGHTS
Highlights
- Strong performance in the final quarter of the financial year
- Reduction in management fees
- Ongoing focus on the quality growth strategy of the Company
- Maintained annual dividend
Key data(1)
Year ended Year ended
31 January 2023 31 January 2022
Net asset value per share (pence)(2) 382.2p 364.6p
Net asset value per share ('NAV') total return(2) -8.8% 2.9%
MSCI All Country World index (benchmark) total return(3) 0.3% 15.9%
Share price (pence) 319.0p 356.5p
Share price total return -9.3% -2.6%
Ongoing charges (as a percentage of shareholders' funds)(4) 0.61% 0.68%
Revenue return per share(5) 2.16p 1.36p
Dividend per share 4.20p 4.20p
Past performance is not a guide to future returns. All returns are total
returns unless otherwise stated.
Source: Martin Currie Investment Management.
(1) Total return is the combined effect of the rise and fall in the share
price, net asset value or benchmark together with any dividend paid. See the
annual report and accounts for more details on Alternative Performance
Measures.
(2) The net asset value per share total return is calculated using the cum
income net asset value with dividends reinvested on the ex-dividend date.
This is an Alternative Performance Measure, please see the annual report and
accounts for more details.
(3) The benchmark with effect from 1 February 2020 is the MSCI All Country
World index. Prior to this, the benchmark was the FTSE World index to 31
January 2020. Prior to this, the benchmark was the FTSE All-Share to 31 May
2011.
(4) Ongoing charges (as a percentage of shareholders' funds) are calculated
using average net assets over the period. The ongoing charges figure has
been calculated in line with the Association of Investment Companies ('AIC')
recommended methodology. This is an Alternative Performance Measure, see the
annual report and accounts for more details.
(5) For details of calculation, refer to note 5 in the annual report and
accounts.
Three year performance
· +12.8% Net Asset Value total return over the three year period.
· +6.5% Share price total return over the three year period.
· +30.5% Benchmark total return over the three year period.
CHAIRMAN'S STATEMENT
Dear Shareholder
Investment performance
The 12 months covered by our financial year to 31 January 2023 were turbulent.
We started February 2022 with concern about the fallout from the pandemic, its
effect on trade and inflation along with a legacy of high debt. This was
rapidly overtaken by the Russian invasion of Ukraine, which affected the
prices of energy and other commodities. The prospect of a period of high and
prolonged inflation led central banks in most parts of the world to increase
interest rates which had hitherto generally been kept at a very low level to
counter the after-effects of the global financial crisis a decade
previously. The approach to setting interest rates in the current
environment is a delicate balancing act between controlling inflation while
not unnecessarily choking economic growth. The high level of uncertainty led
to volatile equity markets. This was a difficult period for our portfolio
manager's investment style in particular and, as a result, your Company's NAV
total return was -8.8%.
Negative returns are naturally disappointing. The portfolio manager has
remained true to an investment philosophy focused on companies selected for
their potential for long-term growth, backed by a firm focus on ESG
credentials and which we believe will generate strong returns over the long
term.
Income and dividends
Net revenue earnings per share for the period amounted to 2.16 pence. The
Company has paid three interim dividends of 0.9 pence per share and will pay a
fourth interim dividend of 1.5 pence per share on 28 April 2023 to
shareholders on the register on 11 April 2023. The total dividends with
respect to the year to 31 January 2023 will be 4.2 pence per share,
maintaining the same total dividend as the previous year.
Capital growth is the primary focus of the investment manager and the
investment strategy is not constrained by any income target. Nevertheless, the
Board recognises that dividends are important for many shareholders and hence
continues to maintain its dividend in line with historic levels. In 2022
shareholders approved changes to the Company's Articles of Association to
permit the distribution of realised capital gains and it has substantial
distributable reserves. The Board has again used these alongside revenue
earnings to maintain the dividend, while not impinging on the investment
manager's approach to managing the portfolio.
At each Annual General Meeting ('AGM') since 2019, shareholders have been
asked to approve the Company's dividend policy. The primary purpose of
adopting a formal dividend policy was to allow the Company to continue to pay
four quarterly interim dividends each year. Following a review by the Board we
have expanded the dividend policy this year, principally to reaffirm our
commitment to pay quarterly dividends and to confirm an intention at least to
maintain the level of dividend each year, subject to market conditions and the
Company's financial position and outlook. A detailed explanation of the
revised dividend policy is set out in the description of AGM resolutions in
the annual report and accounts.
ESG leadership and promoting the Company's shares
Martin Currie Global Portfolio Trust is recognised as a leader in ESG
investing and has been awarded the highest possible 'Five Globes' from
Morningstar. It is also rated in the top 1% of over 7,000 funds in
Morningstar's global large cap category for ESG(1). The portfolio manager's
focus remains on investing in the highest quality companies that are expected
to generate sustainable returns over the long term and, as described in this
report, ESG analysis is at the core of the investment strategy. We believe
that this distinctive approach to investing is important in stimulating demand
for shares in a crowded market and against a background of increasing focus on
the environment and on social and governance issues. The manager has remained
very active in promoting the Company, including regular meetings with major
shareholders, a wide variety of online activity designed to encourage
investors to go to our website and regular press coverage of the portfolio
manager's distinctive investment style.
Our website at www.martincurrieglobal.com is a comprehensive source of
information and includes regular portfolio manager updates and outlook videos,
monthly performance factsheets and independent research reports. I recommend
that you subscribe for regular email updates that will keep you abreast of the
news on your Company.
A key element of our approach to making the Company attractive to investors is
our zero discount policy under which the Company buys back and issues shares
with the objective of providing shareholders, in normal market conditions,
with:
• assurance that the share price is aligned with the prevailing NAV per
share; and
• liquidity so that investors can buy or sell as many shares as they wish at
a price which is not significantly different from the NAV.
During the year under review, the Company bought back 10,510,850 shares which
were placed in Treasury. No shares were issued, reflecting the difficult
market conditions which we have experienced over the last year. While the
Company has quite a high proportion of shares in Treasury, market sentiment
can change rapidly and the Board believes that it is appropriate to be able to
reissue shares in response to demand quickly and at low cost subject to
shareholders' annual approval to disapply pre-emption rights. Shares would
only be issued when we believe this to be in the best interests of existing
shareholders and at a premium to the prevailing NAV at the time of issue. The
Board remains committed to our zero discount policy and it continues to
achieve its aims, with the share price generally remaining close to NAV.
The Board
I joined the Board in April 2013 and, having served ten years as a director,
will stand down after this year's AGM. My fellow directors have decided to
appoint Christopher Metcalfe to take the chair when I stand down. Christopher
has extensive experience in global equity fund management and I am confident
that I leave the Board in highly capable hands.
Mindful of the size of the Company and its cost base, the Board has decided
not to recruit a further director for the time being and will continue with
four non-executive directors.
Reduced management fees
As reported at the half-year stage, the reduction in NAV as a result of market
movements and share buybacks led the Board to be concerned that the ongoing
charges ratio was increasing. We agreed with the manager that, with effect
from 1 July 2022, the investment management fee would be amended to 0.45% of
net assets(2) per annum. Previously, the investment management fee was 0.5%
per annum for the first £300m of the Company's net assets(2) and 0.35% for
net assets(2) in excess of £300m. Furthermore, with effect from 1 July
2022, there will no longer be a separate company secretarial fee(2). At the
financial year-end net assets(2) of circa £250m, the combined effect of the
cut in ad valorem fee and removing the company secretarial fee amounts to a
reduction of approximately 14% in annual fees and results in a simpler cost
structure. The Board is confident that the new structure provides a
competitive ongoing charge and contributes positively to increasing
shareholder value. We would like to thank the AIFM for a helpful and
constructive approach to this change.
AGM
I am pleased to be able to invite all shareholders to attend our AGM in person
at the offices of Franklin Templeton, 5 Morrison Street, Edinburgh EH3 8BH on
Thursday 1 June 2023 at 11.00 am. We do recognise that some shareholders may
be unable to come to the AGM and if you have any questions about the annual
report, the investment portfolio or any other matter relevant to the Company,
please write to me either via email at ftcosec@franklintempleton.com or by
post to The Company Secretary, Martin Currie Global Portfolio Trust plc, 5
Morrison Street Edinburgh EH3 8BH. If you are unable to attend, I urge you to
submit your proxy votes in good time for the meeting, following the
instructions enclosed with the proxy form.
Outlook
The outlook for economies around the world remains very difficult, with
inflation at levels not seen for a generation. Uncertainty is also driven by
geopolitical events, in particular the continuing Ukraine-Russia conflict and
tension between China and the USA. Against this challenging background, there
are some tentative signs of recovery. At the time of writing, inflation has
fallen back from the very high levels triggered by the initial reaction to the
conflict in Ukraine while China has apparently abandoned its zero-Covid
policy. The crucial point will be governments' and central banks' ability to
negotiate the balance of trying to control inflation by raising interest rates
while not triggering a prolonged recession.
Continued volatility in share prices remains inevitable. While markets seek to
anticipate future circumstances, current events in the news are likely to
trigger sharp moves in share prices, as witnessed by the recent reaction to
problems in the banking sector.
This year we did not achieve our KPIs relating to investment returns but it
was reassuring to note a marked improvement in performance towards the end of
our financial year and into the first quarter of 2023. Successful investment
relies on taking a long-term view and it is important to look beyond
volatility and remain consistent to our objective. Our portfolio manager will
continue to concentrate on a focused list of investments, researched in depth
and selected for their long-term growth prospects and sustainable credentials.
We remain of the view that over the longer term our portfolio manager's
consistent approach and strategy will deliver attractive returns to investors.
Keep in touch
The Company's website at www.martincurrieglobal.com is a comprehensive source
of information and includes regular portfolio manager updates and outlook
videos, monthly performance factsheets and independent research reports. I
recommend that you subscribe for regular email updates that will keep you
abreast of the news on your Company.
I thank you for your continued support. Please contact me if you have any
questions regarding your Company by email at: ftcosec@franklintempleton.com
(mailto:ftcosec@franklintempleton.com) .
Gillian Watson
Chairman
6 April 2023
(1)Morningstar, 31 December 2021 ©2021 Morningstar, Inc. All rights reserved.
The information herein is not represented or warranted to be accurate,
complete or timely.
Past performance is no guarantee of future results.
(2)For the purposes of calculating management fees, current period net income
is excluded from the calculation of net assets. The Company secretarial fee
for the year to 31 January 2022 was £56,000 plus VAT.
MANAGER'S REVIEW
Review of financial year ended 31 January 2023
2022 was a significant year for financial markets, with large movements both
in equities and bond markets, and poor performance in both of these asset
classes. There were many extreme developments in geopolitics, inflation,
monetary policies, and financial markets.
The financial year to the end of January 2023 was a disappointing year for us,
with marked underperformance by some of the stocks that we held and of the
portfolio as a whole.
During the year, inflation increased significantly as demand for goods and
services accelerated post the pandemic lockdowns, whilst shortages and
production bottlenecks kept the supply-side constrained. This led to a flare
up in frictional inflation, which was exacerbated by the Russian invasion of
Ukraine. In these circumstances it was very difficult for central banks,
economists, strategists, and market participants to predict inflation
accurately. Consumer Price Indices moved to above 10% in many regions across
developed markets. This is a level that was not seen since the early 1980's
or 1970's in some instances, and a level significantly above the c.2% targeted
by main central banks such as the US Federal Reserve (the 'Fed') and the
European Central Bank ('ECB'). Central banks went into a rapid series of
interest rate hikes to try to tackle the inflation flare up, with the Fed
moving from rates of 0.25% at the start of our financial year, to 4.75% on 1
February 2023, the day after the end of the year. This was a rapid 450bps
increase in 12 months, with increments of 75bps on four consecutive occasions
throughout the year. The significant shift in monetary policies was
unexpected, and led to a significant sell-off in both equities and bond
markets, with rapid negative returns of a magnitude not seen since the early
part of the 20th century.
In periods of rising interest rates markets can deviate from fundamentals for
some time, selling off companies with long duration of growth and compounding
cash flows, such as the companies that we hold in our portfolio. In periods of
rising interest rates, the market
tends to favour short-duration assets, such as Value stocks to which the
Company has no exposure. This therefore led to a style-leadership shift that
was detrimental to the portfolio, contributing to the underperformance during
the year.
In the early part of 2022, we also had the tragic invasion of Ukraine by
Russia. The resultant inflation led by energy and commodity prices, caused a
flight towards defence-exposed stocks, and "defensive" parts of the market.
The Company holds no energy and no defence stocks, has little exposure to
commodities-related stocks, and has an underweight to defensive sectors such
as food producers and pharmaceuticals companies.
During 2022, China went into periodic lockdowns to tackle the risk of the
Omicron variant of Covid-19. This led to a negative impact on China's economic
activity, and further amplified bottlenecks in supply chains and production
around the world. This exacerbated the frictional inflation that we mention
above. The Company has, directly or indirectly, exposure to the Chinese
economic cycle through companies in the Industrials, Construction, Technology
and Consumer space; this also contributed further to the underperformance of
the portfolio. The NAV total return for the financial year was -8.8%,
compared with a return of +2.9% for the benchmark index.
Some of the headwinds to performance in 2022 have been rapidly turning into
tailwinds for the Company's performance in the past 2-3 months, as China
suddenly and unexpectedly u-turned on its zero-Covid policy, and reopened its
economy. This provided support to stocks exposed to China, notably in the
Luxury Goods and Industrials sectors. With China being the second largest
economy globally, a reopening has the potential to support global economic
momentum, and therefore could reduce the fears of recession that the market
has been focusing on in the latter part of 2022. As a result, more cyclical
ends of the market, including the Technology sector, experienced a significant
rebound in the last 3 months of our financial year. With the Company being
sizeably exposed to China-related
stocks and to the Technology sector, the performance has been very strongly
positive, with the NAV total return being up by 12.9% in the 3 months to the
end of January, compared with a benchmark return of 3.7%.
The elevated market volatility that we have seen in 2022, and so far in 2023,
highlights the difficulty in timing the market, and therefore the importance
for investors to remain invested in stock markets for the long term. The (in
our view) over amplified fears of recession during 2022 would have also led to
some investors missing the significant market rally seen in late 2022 and
early 2023, as China will likely provide a more supportive backdrop for the
global economic cycle than many were predicting for 2023. This also highlights
why we manage our shareholders' assets on a long-term time horizon of 5-10
years, and position the portfolio in companies that can perform through the
economic cycle rather than trying to time the cycle, which experience has
shown is very difficult to achieve consistently.
Despite the underperformance experienced in 2022, we have continued to focus
on companies with strong long-term fundamentals. We have maintained our
conviction in most of the stocks which we have held, and so have made only
limited changes to the list of stocks in the portfolio.
We continue to focus on companies that are exposed to industries with high
barriers to entry, that have:
• dominant market positions
• strong pricing power
• low disruption risk
• exposure to structural growth opportunities
• high returns on invested capital with strong cash flows and solid balance
sheets
• quality management
• sustainable business models and
• good valuation support.
Valuation discipline remains core to our approach, and with the use of a high
discount rate in our valuation methodology, we have been anticipating interest
rates returning to more normal levels all along, even when rates were close to
0%, or at times below zero. This makes us confident that we have been using a
conservative interest rate assumption when valuing companies in the portfolio.
Valuation discipline is important during all phases of an economic cycle, but
even more important when we are going through a period of rising interest
rates. We wish to highlight to shareholders that our disciplined, consistent
and conservative approach to valuing investment opportunities in stock markets
should reassure them.
Key stock contributors and detractors
Linde performed well in the uncertain economic environment as their ability to
increase prices to offset and even exceed inflationary pressures came to the
fore. The new CEO also elaborated more on the company's strategy, notably
seizing opportunities from changing legislation in the US, describing the
Inflation Reduction Act as "accelerating the clean energy transition". Linde
sees around $30bn of incremental investment opportunities in decarbonising and
in new markets such as blue and green hydrogen, nitrogen, oxygen, hydrogen
storage, CO2 capture and transportation.
CSL, the Australian blood-plasma biotech company, performed strongly in 2022.
Through the second half of the year, news flow on
collections and therefore plasma supply has turned incrementally positive.
This has resulted in not only revenue growth but also margin expansion as the
collection centres, which have a high proportion fixed costs, are better
utilised. The good news is compounded by early indications that new collection
centre software can dramatically increase yield by up to 30%.
Ferrari performed well in the year. In June the luxury sportscar maker hosted
investors in Maranello at its first Capital Markets Day
since 2018. New CEO Benedetto Vigna used the occasion to set out its strategy,
sustainability and financial targets for the next five years. Investors seemed
to be satisfied with the company's focus on the electrification agenda.
Ferrari plans to shift the mix of models from 0% to 40% EV by 2030 with the
first EV model to be unveiled in 2025. Further, in September, Ferrari launched
the Purosangue, the company's first foray into the SUV market, a particularly
important segment of the
Chinese market. Orders of the Purosangue to date have been well beyond
management's initial expectations.
Adidas underperformed materially in 2022, with a mixture of transitory
external factors causing problems, compounded with some poor execution. The
transparency on the underlying health of the brand has been complicated by
Covid, supply chain disruption and Vietnamese factory closures which have
proved difficult for management to navigate. Adidas was then forced to
terminate its contract with the artist Ye in October. Whilst we believe this
was the proper course of action, the Yeezy issues were compounded by the
company's failure to disclose the highly profitable nature of those sales,
which leaves a significant gap in expected profitability of the
group. On this basis and with the CEO resigning prior to this news, we exited
the stock.
Conviction in Tencent weakened throughout 2022, due to a lack of visibility on
the regulatory front, and an ever-growing geopolitical risk. Despite the
crackdown easing towards the end of the year, we do not see the regulatory
uncertainty substantially lifted over the
longer term. In a bear case, one could foresee an ongoing request by the
Chinese political establishment for tech giants including Tencent to fund the
common prosperity initiative that President Xi Jinping has made one of his
primary policy focuses. As it was
difficult to quantify the downside risk, we exited the stock.
Farfetch performed very poorly throughout 2022 with exposure to a number of
negative themes. The company held a Capital Markets
Day in December, where they laid out the profitability of a recent deal and
other recently announced new business, disclosing for the
first time a significantly lower level of profitability than had been
anticipated and greater dependence on the brand platform. With
real challenges to reach profitable growth, we exited the stock.
Portfolio Activity
In March we exited the position in JD.com, which came into the portfolio as a
result of Tencent's divestment being distributed in shares. In April we exited
the position in TSMC, in favour of ASML. We believe that ASML is better
positioned to benefit from the onshoring trend that we are seeing and are
likely to continue to see in semiconductor production sites, with plants under
construction in the US, approved for construction in Japan, and the EU being
likely to follow suit in the next few years.
In October we entered into a position in Croda, while exiting positions in
Adidas and Tencent as described above. Croda is a stock where we have growing
conviction, as the company has continued to reposition its portfolio,
disposing of their PTIC business, and making two important acquisitions,
Avanti Lipid Systems and Iberchem. These changes make the company more
focused, with stronger growth potential going forward.
In November we entered positions in Nike and Zoetis. We acquired shares in
Nike following an update to our forecasts following weak trading. We assess
the stock as having a positive risk-reward profile, despite headwinds related
to inventory overhangs in the US and China in the sports apparel segment.
With the company having issued a profit warning with third quarter results, we
took advantage of the share price weakness.
We believe that the company has the potential to recover beyond 2023 and to
get back on track with its growth and ROIC. We continue to like Nike's
market share dominance in the US and globally and its strategic push to the
direct to consumer channel, into key categories like womenswear where they are
under-represented and Jordan where they are able to create more choice for the
consumer.
We entered into a position in Zoetis following a 12% fall in the share price
on release of the financial results. We believe that this was an over-reaction
to results where there will be limited change to consensus estimates, at c.2%
and mostly related to currency exchange rates in our view. Zoetis is the
market leading pure-play on the structural growth in animal medicines. The
industry enjoys relatively high barriers to entry and a sticky customer base
of veterinarians and livestock farmers. Zoetis has market leading breadth in
its portfolio and geographic reach in its sales force. It is also a R&D
leader in the animal health space. This gives the firm the ability to gain
market share through developing superior drugs in markets that are too small
and fragmented for larger players to be interested.
ESG engagements
Engagement has continued to be an important ongoing focal point for us
throughout the year. We are pleased that the Company has retained its
top-rating of five Morningstar Globes for Sustainability even under the new,
more stringent, methodology that they have applied.
Ahead of COP27 which took place in Egypt at the end of last year UNEP, the UN
Environmental Programme, produced its seventeenth edition of the Emissions Gap
report (www.unep.org/resources/emissions-gap-report-2022). This set out the
continuing gap between current commitments from governments (nationally
determined contributions or NDCs), pointing to a temperature rise of 2.6°C
and the goals of the Paris Agreement to limit the rise to well below 2°C. As
such this framed a renewed call for additional policy measures to support the
transition to a lower carbon economy.
We continue to engage with companies to understand how they are managing and
mitigating potential risks as well as embracing some of the opportunities
presented by this transition. There is an increasing focus from regulators for
companies to provide clarity to investors on their transition plans - notably
in Europe and the UK - but we are also seeing moves for the SEC in the US to
enhance climate disclosures. Our expectation is for companies to set targets
based on science and we continue to see progress in this with just over 50% of
your portfolio having set science-based targets by the year end and a further
16% committed to do so in the next two years.
Engagement topics split for 2022:
Governance 45%
Social 26%
Environmental 23%
Disclosure 6%
Carbon data (as at Jan 31 2023):
Weighted average Coverage
carbon intensity
Portfolio 84.0 100%
Benchmark 155.3 99.9%
Notes: Data as at 31 January 2023.
Source: MSCI.
Scope 1 are direct emissions from energy sources owned/controlled by a
company.
Scope 2 are indirect emissions from the generation of energy purchased by a
company.
Weighted average carbon intensity: tons CO2e/$M sales.
Coverage: Proportion of companies for which data is available.
Outlook
Key risks to watch out for in 2023
The challenges that we face as investment managers are summarised in the ten
key risks that we have identified:
Monetary policies risk - over-tightening in interest rates creates a higher
potential risk of policy mistakes for markets and
economies.
Fiscal policies risk - lack of follow-through in stated infrastructure
spending programs could put more downside risk to
economic momentum.
Persistence in inflation - given the difficulty of predicting frictional
inflation, risk of stronger and longer lasting inflation could fuel a need for
more tightening in monetary policies.
Pandemic relapse risk - localised lockdowns could create further disruptions
in supply chains and bottlenecks, which could create shortages and further
fuel the frictional inflation.
Corporate margin pressure - more persistent and more elevated inflation could
lead to more corporate margins pressure for
companies lacking pricing power.
Market volatility and Style leadership volatility - shifting expectations in
monetary policies could lead to ongoing volatility in
markets, and in style leadership between Growth and Value styles.
Lower long-term growth - growing indebtedness is likely to lead to ongoing low
long-term growth in our view, with more scarcity in growth opportunities.
Higher taxation - given higher indebtedness, there is a high likelihood of
higher tax rates, both for households and for
corporates.
Geopolitical risks flare ups - the Russia-Ukraine conflict will be an ongoing
risk, with the risk of the conflict escalating or broadening. Other
geopolitical hotspots to watch out for are China-Taiwan, North Korea,
Iran-Israel, and China-rest of the world. Some of these geopolitical risks
will be military, others will materialise into technological conflicts, such
as China-US.
Climate disasters risk - climate change related disasters are likely to
continue to take their toll on various regions, with risk of negative impact
on societies, but also on corporates in terms of risk to productive capacities
and to assets in general.
Geopolitical risks will continue to contribute to volatility
The Russia-Ukraine conflict shows no sign of an early resolution and there is
the risk of further escalation. The ongoing energy supply risk for Europe and
the effects on commodity prices are likely to continue to have ramifications
for inflation and economies around the world. On the other hand, a resolution
to this conflict could be an important driver of a risk-on rally -
particularly in European equities.
The China-Taiwan geopolitical risk is likely to remain for years to come. This
is also spilling over into technological conflicts with the US administration.
This will clearly have implications for corporates exposed to these regulatory
changes. North Korea also continues to have the potential to destabilise its
region and the wider world, as does Iran.
There is a tendency to rising nationalism in periods of economic challenge. In
particular we are concerned about tensions between the US and Europe leading
to increased protectionism which would damage economic growth.
All eyes to remain on inflation
Equity investors' focus in 2023 is likely to remain on inflation and its
impact on monetary policy. Whilst we have started to see some
undershooting in inflation numbers compared with expectations recently, there
is a risk that current elevated inflation levels will persist. With current
pressure largely related to supply chain disruptions and production
bottlenecks, there is a good likelihood that inflation rates could be in the
process of peaking.
However, this could be derailed by high wage inflation, which is a particular
challenge in the US. This could lead to a risk of inflation turning more
structural in the US, with a knock-on effect to other markets.
See chart of Headline CPI inflation on a monthly basis in the annual report
and accounts.
Extraneous risks to the inflation outlook include (i) further partial
lockdowns in China disrupting supply chains and (ii) the continuing effect of
the Ukraine/Russia conflict on energy and food supplies. In summary, inflation
remains difficult to forecast.
Macro-economic outlook pointing to sharp slowdown particularly in Europe
With leading indicators continuing to deteriorate, we believe that 2023 will
be a year of low economic growth at the global level and in particular in the
US. A key determinant of the global economic cycle will be the Chinese
economy, which is now the second largest in the world. The sudden and
unexpected u-turn by China on its zero-Covid policy and the reopening of its
economy could lead to a rapid improvement in the Chinese leading indicators in
the months to come. Europe is particularly challenged and we maintain a high
probability of stagflation. Europe's economic momentum will in significant
part be influenced by China. There could therefore be a chance of improvement
as China reopens. However, any renewed risk of energy rationing as we approach
the winter of 2023/24 could put further downward pressure on economic activity
in the second half of the year.
Central banks will be playing a game of chicken in 2023
Central banks were clear in 2022 that they were focused on inflation - they
effectively moved from whatever it takes to prop up growth to whatever it
takes to reduce inflation. During the course of 2023, if inflation overshoots
expectations interest rates will likely need to further adjust upwards.
Conversely, if inflation undershoots and concerns of a recession increase then
monetary policy expectations will adjust downwards. The recent turmoil in the
banking sector could also result in lower interest rates than would have been
the case. We could therefore have a scenario in 2023 where central banks
tolerate somewhat higher inflation in order not to push economies into
recession. One sure prediction for 2023 is that the word "pivot" will be used
aplenty. Anticipation of monetary policies pivoting will drive volatility
and will generate a healthy bull-bear debate in markets. We expect policy
expectations to continue to be the dominant driver of share price returns in
2023.
See the Global 10-year bond yields chart in the annual report and accounts.
Earnings growth lacklustre
Earnings momentum turned negative from early 2022, driven by the tragic
Russian invasion of Ukraine and the Chinese regional lockdowns. Economic
leading indicators have been deteriorating since then, which in turn led to
earnings momentum shifting negative rapidly. We believe that earnings
revisions are likely to remain negative in the current year. Our top down
growth estimates imply -1% for MSCI World, 0% for MSCI North America, and -5%
for MSCI Europe, with MSCI Asia at +2%, all of which are noticeably lower than
consensus forecasts. We therefore expect downward revisions in consensus
estimates and downgrades in the cyclical parts of the market. In this
environment it is critical to continue to focus on companies with resilient
earnings and pricing power that can protect their margins from the ongoing
higher inflationary pressures.
Valuation levels are more supportive
With equity markets having sold off significantly during 2022, equity
valuations are now more supportive across the US, EU and Global equity markets
in our view. On a relative basis for developed markets, we see more valuation
support in European vs US equity markets but against this the risks are higher
for Europe. Asian equity valuations also show good support in our view,
although there are again also some geopolitical risks in that region.
See the Schiller P/E chart in the annual report and accounts.
Mid-term opportunities still abound for long-term investors
Despite the many uncertainties that we highlight in the market outlook, we
find opportunities as long-term investors to be exposed to businesses that
generate high returns and have attractive structural growth opportunities.
These businesses are likely to be able to navigate the difficult near term
economic cycle headwinds, and should be able to come out of any market
slowdown in a stronger position than many of their competitors.
In particular, we highlight that in a market where growth will be scarce, or
indeed at risk of being negative for some areas such as Europe, we believe
that there are good opportunities for structural growth across the three
mega-trends that we have identified:
· Demographic Changes
· Future of Technology
· Resource Scarcity
As long-term investors, we believe that there are opportunities to capture
some secular trends and structural growth opportunities, through exposures to
themes that have supportive trends.
Specifically, the eight mid-term thematic opportunities that we have
identified previously still represent an important source of
structural growth in our view. These eight opportunities are:
(i) Green and alternative energy investment is an important focal point as
more governments focus on decarbonising their economies, whilst the
alternative energy sources have been an important geopolitical imperative for
Europe since the Russian invasion of Ukraine. We see this as a long-term
structural theme.
(ii) Greener infrastructure is an area of focus on decarbonisation, notably
focusing on reducing the carbon footprint of buildings, which are an important
source of carbon emissions.
(iii) Electric transportation is an important thematic opportunity as part of
the drive to reduce carbon emissions. In this field, we see opportunities both
in high-speed railway infrastructure, and in the development of infrastructure
for electric vehicles.
(iv) Healthcare infrastructure is an important field of infrastructure-related
thematic opportunity, as governments focus on the need to upgrade post the
pandemic crisis. At the same time, with an ageing population in many regions
the need for more bespoke healthcare and targeted therapies, and the use of
genomics to achieve such developments, are interesting areas of opportunity.
(v) The upgrade cycle in 5G telephony is an important opportunity, as
countries focus to make their economies more productive, with an upgrade in
telecommunications infrastructure being a way to achieve this.
(vi) Cloud computing trends in the mid-term are also very supportive, as more
businesses migrate their presence online, creating more demand for cloud
services. Related to this theme, as more corporates migrate their presence
online, there is an increased need to invest in cyber security.
(vii) Robotics and automation, and in particular Artificial Intelligence, is
an important area of structural growth opportunity. Following the pandemic
corporates are realising the need to make their production lines more robust,
and their supply chains more resilient. Increased investment in robotics and
automation is the way to do so. Trends towards onshoring or nearshoring of
production bases will also accelerate this thematic trend.
(viii) Finally, nascent but promising and fast growing opportunities exist in
the metaverse and quantum computing fields. Notably, we believe that, given
the sizable investments that big tech companies are channelling into this
area, there are opportunities in the enablers of the metaverse.
All in all, there are sizeable infrastructure and capital expenditure drivers
across these eight areas, which bring some interesting opportunities to
capture areas of structural growth through companies exposed to these themes.
An ever more disruptive decade continues to affirm itself in 2023 and beyond
With the ongoing focus on investing for a transitioning world towards
net-zero, innovation rates are likely to continue to increase and, with this,
disruption risk to traditional businesses is likely to continue to rise. For
long-term investors, this opens up interesting areas of opportunity. However,
it also highlights the need to be vigilant in terms of disruption risk on
established business models, and to ensure that disruption risk is assessed in
a detailed and structured analytical approach. Equally important is the
ability for companies to remain innovative, both to fend off competitive
pressures and to stay ahead of the disruptive trends that could challenge
their market positioning.
Overall, we continue to focus on companies:
• with resilient earnings growth profiles, given the ongoing risks of
earnings downgrades,
• exposed to structural growth themes, given the lower growth environment,
• with strong pricing power, given the ongoing elevated inflationary
pressures weighing on corporate margins,
• with solid balance sheets, to withstand the potential risk of an economic
hard landing.
Zehrid Osmani
Portfolio Manager, Martin Currie Global Portfolio Trust plc
Head of Global Long-Term Unconstrained Equities,
Martin Currie
6 April 2023
PORTFOLIO SUMMARY
By sector
31 January 2023 31 January 2022 MSCI All Country World index %
31 January 2023 MSCI All Country World index % 31 January 2022
Company % Company %
Information Technology 31.5 20.6 33.7 22.8
Healthcare 26.5 12.5 23.4 11.4
Consumer Discretionary 15.3 11.1 15.2 12.0
Industrials 9.7 10.0 11.3 9.5
Materials 7.4 5.1 4.7 4.7
Consumer Staples 5.9 7.3 5.8 6.9
Financials 3.7 15.3 3.0 14.8
Communication Services - 7.1 2.9 8.5
Energy - 5.4 - 4.0
Utilities - 3.1 - 2.7
Real Estate - 2.6 - 2.7
100.0 100.0 100.0 100.0
By asset class
31 January 2023 % 31 January 2022 %
Equities 111.1 107.5
Cash 0.9 2.0
Less borrowings (12.0) (9.5)
100.0 100.0
Portfolio distribution by region
31 January 2023 31 January 2022 MSCI All Country World index %
31 January 2023 MSCI All Country World index % 31 January 2022
Company % Company %
North America 47.1 63.1 43.9 63.9
Developed Europe 41.9 16.6 39.1 16.1
Developed Asia Pacific ex Japan 7.7 3.3 6.1 2.8
Global Emerging Markets 3.3 11.3 10.9 11.5
Middle East - 0.2 - 0.2
Japan - 5.5 - 5.5
100.0 100.0 100.0 100.0
Portfolio holdings as at 31 January 2023
Market value % of total
Sector Country £000 portfolio
North America 130,556 47.1
Linde Materials United States 15,041 5.4
ResMed Healthcare United States 14,270 5.1
Microsoft Information Technology United States 14,228 5.1
Nvidia Information Technology United States 12,745 4.6
VISA Information Technology United States 12,633 4.6
Masimo Healthcare United States 9,879 3.6
Nike Consumer Discretionary United States 8,528 3.1
Ansys Information Technology United States 8,302 3.0
Adobe Information Technology United States 7,929 2.9
Zoetis Healthcare United States 7,553 2.7
Autodesk Information Technology United States 6,981 2.5
Veeva Systems Healthcare United States 6,476 2.3
Illumina Healthcare United States 5,991 2.2
Developed Europe 116,482 41.9
ASML Holding Information Technology Netherlands 14,223 5.1
Moncler Consumer Discretionary Italy 13,190 4.8
L'Oreal Consumer Staples France 11,623 4.2
Ferrari Consumer Discretionary Italy 11,164 4.0
Atlas Copco Industrials Sweden 10,325 3.7
Hexagon Information Technology Sweden 10,301 3.7
Kingspan Group Industrials Ireland 9,457 3.4
Coloplast B Healthcare Denmark 9,212 3.3
Kering Consumer Discretionary France 8,697 3.1
Assa Abloy Industrials Sweden 7,192 2.6
Croda International Materials United Kingdom 5,562 2.0
Kerry Group Consumer Staples Ireland 4,802 1.7
Dr. Martens Consumer Discretionary United Kingdom 734 0.3
Global Emerging Markets 9,198 3.3
WuXi Biologics Healthcare China 9,198 3.3
Developed Asia Pacific ex Japan 21,370 7.7
CSL Healthcare Australia 11,078 4.0
AIA Group Financials Hong Kong 10,292 3.7
Total portfolio holdings 277,606 100.0
LARGEST 10 HOLDINGS
31 January 2023 31 January 2023 31 January 2022 31 January 2022
Market value % of total Market value % of total
£000 portfolio £000 portfolio
Linde 15,041 5.4 15,820 4.7
ResMed 14,270 5.1 15,600 4.6
Microsoft 14,228 5.1 19,489 5.7
ASML Holding 14,223 5.1 - -
Moncler 13,190 4.8 14,267 4.2
Nvidia 12,745 4.6 17,440 5.1
VISA 12,633 4.6 13,545 4.0
L'Oreal 11,623 4.2 12,624 3.7
Ferrari 11,164 4.0 10,786 3.2
CSL 11,078 4.0 10,509 3.1
As at 31 January 2023 the largest 10 holdings accounted for 46.9% of the
portfolio (46.4% as at 31 January 2022).
Largest 10 holdings in detail
Linde
Materials, United States
US-listed industrial-gases manufacturer Praxair, a subsidiary of Linde, holds
leadership throughout the Americas. In the current
macroeconomic environment, it is out of favour with investors, but the
execution of the business has been very strong in recent years.
Pricing power has been masked by currency headwinds. Praxair management has
continued to invest through this period and this has had some impact on group
ROIC. Although revenue growth is correlated to global industrial production,
the structure of client contracts using "take-or-pay" and "facility fees"
means that revenues are relatively cushioned during economic downturns.
Further, the merger has accelerated a strategy of focusing on less
economically sensitive customers in the healthcare and food and beverage
sectors.
ResMed
Healthcare, United States
The company is a global leader in the development of medical devices and
cloud-based software applications that diagnose, treat, and manage respiratory
disorders including sleep disordered breathing (more commonly known as sleep
apnea), asthma and chronic obstructive pulmonary disorder (COPD). The
company has a very attractive long-term revenue growth outlook. It is
estimated that more than 424 million individuals globally have moderate to
severe sleep apnea, with the percentage diagnosed below 15% and the percentage
treated by ResMed below 3%, despite the company being market leader. The
combined potential patient base including asthma and COPD numbers is in excess
of 1 billion globally.
Microsoft
Information Technology, United States
US software company Microsoft, best known for its Windows operating system,
the Xbox gaming console and cloud computing service Azure, is in a prime
position to benefit from a new 'golden era' of investment in technology. IT
investment is becoming crucial for every aspect of corporate life -
infrastructure, marketing, sales and commerce - and Microsoft stands to
capture a significant share of this double-digit-growing expenditure.
Furthermore, a progressive move towards a subscription-based model is
improving the company's pricing power and its competitive position in the
market.
ASML Holding
Information Technology, Netherlands
The semiconductor equipment company enjoys a very strong market position and
close relationships with customers. In addition the company is benefiting from
the trend of on-shoring of semiconductor production. The Dutch company is
critical in enabling innovation and development in the semiconductor industry.
This backdrop, coupled with strong structural growth in semiconductor volume,
gives the company a very attractive long-term growth and profitability
outlook.
Moncler
Consumer Discretionary, Italy
Is the undisputed global leader in super premium down jackets and has a rich
heritage and strategic focus on long-term sustainable and responsible growth.
The market is aware that the business is still expanding its distribution and
that the total available market is very large relative to its current revenues
(20% of total luxury and personal goods is apparel). However, the market seems
focused on short-term concerns around trade and a slowdown in China, and seems
to be missing the attractive long-term growth opportunity and the management's
exemplary execution within the category. We believe that the structural growth
potential of the company is compelling, and its ability to continue to
innovate remains strong.
Nvidia
Information Technology, United States
The company designs graphics processing units for gaming and professional
markets. We see long-term upside optionality in several secular growth areas,
including Gaming, Cloud, AI and Autonomous Vehicles. The growth is driven by
the long-term structural trends in gaming and more importantly in data
centres.
VISA
Information Technology, United States
VISA is a classic compounder, boosted by the secular shift away from
cash/physical sales towards digital/online commerce. The company's ROIC is
highly attractive as the network model provides structural operating leverage,
but with low requirements for capital expenditures. The electronic payments
space is seeing ongoing disruption, but VISA's prime competitive position
ensures that they can face these challenges from a position of strength.
L'Oreal
Consumer Staples, France
Based in France, L'Oreal is number one in global beauty (in 2021 by revenue*),
outgrowing a market which grows 3-5% annually.
The company's R&D, marketing capability, logistics platform and global
expertise in the space gives us conviction in the sustainability of this
outperformance. Thanks to sensible capital allocation, L'Oreal has a long
history of value creation through bolt-on acquisitions. Further to this, the
balance sheet is highly under-utilised, giving significant opportunity to
further beat expectations.
*Source company reports, August 2022. Based on 2021 beauty sales from the 10
leading global beauty companies.
Ferrari
Consumer Discretionary, Italy
The Italian sports car manufacturer provides a unique play on the global
growth of high-net-worth individuals and their passion for speed. It has
enviable pricing power, with huge scope for average selling prices to increase
through greater use of the Special Series and Icona platforms - already a
sizeable premium to other luxury car manufacturers. Growth potential is
further enhanced by electrification as they launch new hybrid and electric
models.
CSL
Healthcare, Australia
The Australian blood-plasma company has a long history of high and sustainable
returns, driven by cost efficiency in a largely consolidated market with high
barriers to entry. Persistent industry supply/demand tightness is allowing CSL
to capture an outsized share of growth through its superior collection
infrastructure. Meanwhile, visibility of the next phase of growth and
sustained returns appear promising, as waste products from the core operations
are successfully re-purposed into specialty drugs, for example, Haegarda for
hereditary angioedema. Existing molecules are also turned to new treatment
areas such as Transplant, all at substantial incremental margins.
Key Performance Indicators and Performance
The Board uses certain key performance indicators ('KPIs') to monitor and
assess its performance in achieving the Company's objectives. The Board have
made no changes to the KPI targets in the financial year to 31 January 2023.
KPI Target 2023 Achieved 2022 Achieved
1. Net asset value performance
relative to benchmark (over 3 years) Outperform -17.72% No 1.62% Yes
2. Performance against Company's peers (over 3 years)
Top third performance 10 out of 14 No 5 out of 17 Yes
3. Ongoing charges Less than 0.70% 0.61% Yes 0.68% Yes
1. Net asset value performance relative to benchmark
The Board assessed the net asset value total return compared to the benchmark.
It is measured on a financial year basis and assessed over a rolling three
year period. The benchmark with effect from 1 February 2020 is the MSCI All
Country World index. Prior to this, the benchmark was the FTSE World index.
The KPI was not achieved for the period. The return of the Company was 12.8%
and the benchmark 30.5% for the three years to 31
January 2023.
2. Performance against the Company's peers
The Board monitors the share price total return performance versus all
competitor funds within the AIC Global sector over a rolling three year
period.
The share price total return for the Company was 6.5% over the three years to
31 January 2023 which ranked 10 out of 14 in the AIC Global sector.
3. Ongoing charges
The Board monitors ongoing charges on a regular basis to ensure that it meets
its target by maintaining cost discipline and its focus on value adding
activities. The KPI was met for the year at 0.61%. The ongoing charges
figure has been calculated in line with the Association of Investment
Companies ('AIC') recommended methodology.
Principal and emerging risks and uncertainties
Risk and mitigation
The Company's business model is longstanding and resilient to most of the
short-term operational uncertainties that it faces. The Board believes that
these are effectively mitigated by the internal controls established by the
Board and by the AIFM and their combined oversight of the investment manager,
as described in the table below. Its principal risks and uncertainties are
therefore largely driven by the inherent uncertainties of investing in global
equity markets. The Board's process seeks to mitigate known risks and to
identify new risks as they emerge.
However, it is recognised that the likelihood and timing of crystallisation of
some risks, known and unknown, cannot be predicted and the Board then relies
on professional management, effective systems and communication to mitigate
and respond to them as and when they arise.
Operational and management risks are regularly monitored by the AIFM and by
the Board at Board meetings. As part of its annual strategy meeting the Board
carries out a robust assessment of the principal and emerging risks facing the
Company, including those that would threaten its business model, future
performance, solvency or liquidity.
The Board's planned mitigation measures for the principal and emerging risks
are described below.
The Board notes that the dominant global macroeconomic risks are geo-political
tensions, inflation, and climate transition as well as continuing fallout from
the Covid-19 pandemic. These are however considered to be risks that have an
impact on the identified principal and emerging risks and are therefore
considered and managed in that context. With regard to Covid-19, in most of
the world restrictions on social contact and travel have been reduced or
removed completely. While there remains a risk of further outbreaks, the Board
has concluded that the recent pandemic no longer represents a principal risk
for the Company. Nevertheless, the recent pandemic has highlighted the ability
of virulent diseases to travel rapidly around the world and the Board and AIFM
will manage the risk by continuing to ensure that the Company and its key
suppliers have effective contingency plans in place.
Principal Risk Mitigation
Sustained investment underperformance The Board oversees the implementation of the investment strategy and monitors
the performance of the
investment portfolio. The portfolio manager attends all Board meetings and
reviews the portfolio with the Board together with data that shows statistical
measures of the Company's risk and return profile. Should there be sustained
investment underperformance despite reasonable mitigation measures taken by
the investment manager, the Board would assess the cause and take appropriate
action to manage this risk. The investment strategy will underperform in
certain market conditions and the Board will assess whether underperformance
is due to market conditions, poor manager performance or whether the strategy
itself is unsustainable.
There is increasing awareness of the challenges and emerging risks posed by
climate change. The investment process incorporates detailed analysis of ESG
issues and, as set out in the Manager's review, this includes an assessment of
the potential impact of climate change. Overall, the specific potential
effects of climate change are difficult, if not impossible, to predict and to
measure and the Board and investment manager will continue to monitor
developments in this important risk area.
Geopolitical risks have always been an input into the investment process. This
risk area continues to be highlighted as a result of the Russian invasion of
Ukraine, with the resultant effects on global trade posed by
supply shocks, higher levels of inflation, and higher interest rates as
central banks seek to contain inflation and volatility in asset prices.
Further information on geopolitical risks is set out in the Outlook section of
the
Manager's review.
Material decline in market capitalisation of the Company The Board recognises that the zero discount policy allows new shareholders to
purchase shares and current shareholders to sell their shares at close to NAV,
in normal market conditions. Although this level of liquidity
encourages investment in the Company, it could also increase the risk of a
material decline in the size of the
Company. The Board monitors the performance and pace of share buybacks and the
Company's shareholder profile. Decline could also come as a consequence of the
Company's failure to meet its investment objective. The Board believes that
good long-term performance will mitigate this likelihood, increase demand for
the Company's shares and, subject to overall market stability, permit the
market capitalisation of the Company to increase.
Loss of s1158-9 tax status Loss of s1158-9 tax status would have serious consequences for the
attractiveness of the Company's shares.
The Board considers that, given the regular oversight of this risk by the
audit committee, the AIFM and the
investment manager, the likelihood of this risk occurring is minimal but as
the consequence of loss of the tax status would be very damaging it is
highlighted as a principal risk. The audit committee regularly reviews the
eligibility conditions and the Company's compliance against each, including
the minimum dividend requirements and shareholder composition for close
company status.
On the basis of its continual and ongoing assessment of the principal and
emerging risks facing the Company, and given its current position, the Board
is confident that the Company will be able to continue in operation and meet
its liabilities as they fall due. The Board believes that the processes of
internal control that the Company has adopted and oversight by the AIFM
continue to be effective.
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 position of the Company as at 31 January 2023 is shown in the
statement of financial position. The statement of cash flow of the Company is
included in this announcement. Note 17 sets out the Company's risk management
policies, including those covering market risk, liquidity risk and credit
risk. In accordance with the 2019 AIC Code of Corporate Governance and the
2018 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 diverse portfolio of listed equity shares which, in most
circumstances, are realisable within a very short timescale. The Directors
are mindful of the principal and emerging risks and uncertainties.
They have reviewed revenue forecasts for the next two financial years,
including liabilities arising from the loan facility, and believe that the
Company has adequate financial resources to continue its operational existence
for the period to 31 January 2025, which is at least 12 months from the date
on which the financial statements are authorised for issue. Accordingly, the
Directors continue to adopt the going concern basis in preparing these
financial statements.
Viability statement
The Company's business model is designed to deliver long-term returns to its
shareholders through investment in large and liquid stocks in global equity
markets. Its plans are therefore based on having no fixed or limited life
provided that global equity markets continue to operate normally. The Board
has assessed the Company's viability over a three year period in accordance
with provision 31 of the UK Corporate Governance Code as it believes that this
is an appropriate period over which it does not expect there to be any
significant change to the principal risks and adequacy of the mitigating
controls in place. The Board considers that this reflects the minimum period
which should be considered in the context of the Company's long-term objective
but one which is limited by the inherent and increasing uncertainties involved
in assessment over a longer period.
In making this assessment the Directors have considered the following factors:
• the principal and emerging risks and
uncertainties and the mitigating actions, including specifically the current
geopolitical and economic environment;
• the mitigation measures which key service
providers including the manager have in place to maintain operational
resilience;
• the challenges posed by climate change;
• 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 low level of fixed costs relative to the
Company's liquid assets;
• the expectation that in normal markets more than
94% of the current portfolio could be liquidated within two trading days; and
• the quantity of debt, the fixed interest rate on
the debt and the ability of the Company to make payments of interest and
repayments of principal on its debt on their due dates.
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 will be able to continue in operation and meet
its liabilities as they fall due over at least the next three years.
Responsibility statement
Each of the Directors confirms that to the best of their knowledge:
· the financial statements, which have been prepared in accordance
with United Kingdom Generally Accepted Accounting Practice, give a true and
fair view of the assets, liabilities, financial position and profit of the
Company; and
· the Report of the directors, Strategic report and Manager's
review include a fair, balanced and understandable review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and the uncertainties that it faces; and
· the annual report and financial statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice (and applicable law).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the
financial statements respectively; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The financial statements are published on the Company's
website (www.martincurrieglobal.com) which is maintained by the investment
manager. The Directors are responsible for the maintenance and integrity of
the Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
This responsibility statement was approved by the Board of Directors on 6
April 2023 and is signed on its behalf by the Chairman, Gillian Watson.
STATEMENT OF COMPREHENSIVE INCOME
Year to 31 January 2023 Year to 31 January 2022
Revenue Capital Total Revenue Capital Total
Note £000 £000 £000 £000 £000 £000
Net (losses)/gains on investments 7 - (30,277) (30,277) - 8,224 8,224
Net currency (losses)/gains - (43) (43) - 55 55
Revenue 2 2,889 - 2,889 2,502 - 2,502
Investment management fee(1) (244) (978) (1,222) (328) (1,312) (1,640)
Other expenses 3 (493) - (493) (629) - (629)
Net (loss)/return on ordinary activities before finance costs and taxation
2,152 (31,248) (29,096) 1,545 6,967 8,512
Finance costs 1(d) (71) (284) (355) (71) (284) (355)
Net (loss)/return on ordinary activities before taxation
2,081 (31,532) (29,451) 1,474 6,683 8,157
Taxation on ordinary activities 4 (300) - (300) (313) - (313)
Net (loss)/return attributable to shareholders
1,781 (31,532) (29,751) 1,161 6,683 7,844
Net (loss)/return per Ordinary share
5 2.16p (38.20)p (36.04)p 1.36p 7.81p 9.17p
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 ('AIC') Statement of Recommended Practice 2021.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued in the year.
The notes below form part of these financial statements.
There is no other comprehensive income and therefore the return attributable
to shareholders is also the total comprehensive income for the period.
(1)The details of the investment management fee are provided in the Report of
the directors in the annual report and accounts.
STATEMENT OF FINANCIAL POSITION
As at 31 January 2023 As at 31 January 2022
Note £000 £000 £000 £000 £000 £000
Fixed assets
Investments at fair value through profit or loss
7 277,606 339,535
Current assets
Trade receivables 8 1,771 160
Cash and cash equivalents 9 1,256 6,589
3,027 6,749
Current liabilities
Trade payables 10 (865) (450)
Bank loan 10 (30,000) -
(30,865) (450)
Total assets less current liabilities 249,768 345,834
Amounts falling due after more than one year
Bank loan 11 - (30,000)
Total net assets 249,768 315,834
Equity
Called up Ordinary share capital 12 4,934 4,934
Share premium account 11,424 11,424
Capital redemption reserve 11,083 11,083
Special distributable reserve 1(j) - 76,297
Capital reserve, of which: 13 221,463 211,583
Realised capital reserve (distributable) 154,191 110,511
Unrealised gains on investments (undistributable)
67,272 101,072
Revenue reserve 864 513
Total shareholders' funds 249,768 315,834
Net asset value per Ordinary share 14 328.2p 364.6p
The notes below form part of these financial statements.
Martin Currie Global Portfolio Trust plc is registered in Scotland, company
number SC192761.
The financial statements were approved by the Board of directors on 6 April
2023 and signed on its behalf by Gillian Watson, Chairman.
STATEMENT OF CHANGES IN EQUITY
Called up Share Capital Special
Ordinary premium redemption distributable Capital Revenue
share capital account reserve reserve reserve reserve Total
Note £000 £000 £000 £000 £000 £000 £000
As at 31 January 2022 4,934 11,424 11,083 76,297 211,583 513 315,834
Net (loss)/return attributable to shareholders
- - - - (31,532) 1,781 (29,751)
Ordinary shares bought back 12 - - - - (32,848) - (32,848)
Dividends paid 6 - - - (2,037) - (1,430) (3,467)
Transfers between reserves 1 (j) - - - (74,260) 74,260 - -
As at 31 January 2023 4,934 11,424 11,083 - 221,463 864 249,768
Called up Share Capital Special
Ordinary premium redemption distributable Capital Revenue
share capital account reserve reserve reserve reserve Total
Note £000 £000 £000 £000 £000 £000 £000
As at 31 January 2021 4,934 6,221 11,083 70,017 209,929 1,387 303,571
Net return attributable to shareholders
- - - - 6,683 1,161 7,844
Ordinary shares issued 12 - 5,203 - 7,833 550 - 13,586
Ordinary shares bought back 12 - - - - (5,579) - (5,579)
Dividends paid 6 - - - (1,553) - (2,035) (3,588)
As at 31 January 2022 4,934 11,424 11,083 76,297 211,583 513 315,834
The notes below form part of these financial statements.
STATEMENT OF CASH FLOW
Year to 31 January 2023 Year to 31 January 2022
Note £000 £000 £000 £000
Cash flows from operating activities
Net (loss)/return on ordinary activities before taxation (29,451) 8,157
Adjustments for:
Losses/(gains) on investments 7 30,227 (8,224)
Finance costs 355 355
Dividend income recognised 2 (2,885) (2,493)
Interest income recognised 2 (4) -
Stock lending income recognised 2 - (9)
(Increase)/decrease in receivables (18) 2
Decrease in payables (75) (2,885)
Overseas withholding tax suffered 4 (300) (313)
27,300 (13,567)
Net cash flows from operations (2,151) (5,410)
Interest received 4 -
Stock lending income received - 9
Dividends received 2,730 2,489
2,734 2,498
Net cash flows from operating activities 583 (2,912)
Cash flows for investing activities
Purchases of investments (39,765) (45,791)
Sales of investments 70,029 40,248
Net cash flows from investing activities 30,264 (5,543)
Cash flows from financing activities
Repurchase of Ordinary share capital (32,358) (5,544)
Shares issued for cash - 14,504
Equity dividends paid 6 (3,467) (3,588)
Interest and fees paid on bank loan (355) (355)
Net cash flows from financing activities (36,180) 5,017
Net decrease in cash and cash equivalents (5,333) (3,438)
Cash and cash equivalents at the start of the year 6,589 10,027
Cash and cash equivalents at the end of the year 1,256 6,589
Analysis of debt
Year to Exchange Year to
31 January 2022 Cash flows movements 31 January 2023
Note £000 £000 £000 £000
Cash at bank 9 6,589 (5,333) - 1,256
Bank loan 10, 11 (30,000) - - (30,000)
Net debt (23,411) (5,333) - (28,744)
Year to Exchange Year to
31 January 2021 Cash flows movements 31 January 2022
Note £000 £000 £000 £000
Cash at bank 9 10,027 (3,438) - 6,589
Bank loan 11 (30,000) - - (30,000)
Net debt (19,973) (3,438) - (23,411)
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
Note 1: Accounting policies
a) For the reporting period, 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').
The Company's assets consist of a diverse portfolio of listed equity shares
which, in most circumstances, are realisable within a very short timescale.
The Directors are mindful of the principal and emerging risks and
uncertainties including those related to geopolitical risks and climate
considerations.
They have reviewed revenue forecasts for the next two financial years,
including liabilities arising from the loan facility, and believe that the
Company has adequate financial resources to continue its operational existence
for the period to 31 January 2025, which is at least 12 months from the date
the financial statements are authorised for issue. Accordingly, the Directors
continue to adopt the going concern basis in preparing these financial
statements.
These financial statements have been prepared in accordance with the
Disclosure Guidance 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 July 2022.
Functional currency - the Company is required to identify a functional
currency, being the currency in which the Company predominately operates. The
Board has determined that sterling is the Company's functional currency, which
is also the currency in which these financial statements are prepared. This is
also the currency in which all expenses and dividends are paid.
The Directors have considered the impact of climate change on the value of the
listed investments that the Company holds. In the view of the Directors, as
the portfolio consists of listed equities, their market prices should reflect
the impact, if any, of climate change and accordingly no adjustment has been
made to take account of climate change in the valuation of the portfolio in
these financial statements.
b) Income from investments (other than capital 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. UK
investment income is stated net of the relevant tax credit. Overseas dividends
include any taxes deducted at source. Special dividends are credited to
capital or revenue, according to the circumstances. Stock 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) Interest receivable and payable, investment management fees and
other expenses are measured on an accruals basis.
d) The investment management fee and finance costs in relation to debt
are recognised four-fifths as a capital item and one-fifth 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 revenue,
respectively. Finance costs relate to interest and fees on bank loans and
overdrafts. 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 (f) below. Full details of the
investment management fee are included in the Report of the directors in the
annual report and accounts.
e) Investments - investments have been classified upon initial
recognition at fair value through profit or loss. Investments are recognised
and derecognised 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. For listed investments,
this is deemed to be bid market prices. Gains and losses arising from changes
in fair value are included in net profit or loss for the year as a capital
item in the statement of comprehensive income and are ultimately recognised in
the capital reserve.
f) Transaction costs incurred on the purchase and disposal of
investments are recognised as a capital item in the statement of comprehensive
income.
g) 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 currency are converted to sterling
at the rate ruling at the date of the 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.
h) Cash and cash equivalents comprise cash and demand deposits which are
readily convertible to a known amount of cash and are subject to insignificant
risk of changes in value.
i) Dividends payable - under FRS102 dividends should not be accrued
in the financial statements unless they have been approved by shareholders
before the statement of financial position date. Dividends to equity
shareholders are recognised in the statement of changes in equity when the
shareholder's right to receive the payment is established. In the case of the
fourth interim dividend, this would be the ex-dividend date of 6 April 2023.
j) Called up ordinary share capital - represents the nominal value
of the issued share capital including shares held in Treasury. This reserve
is non-distributable.
The share premium account - when shares held in Treasury are reissued, the
excess of the sales proceeds over the weighted average price of repurchase is
allocated to the share premium account. This reserve is non-distributable.
The capital redemption reserve - represents the nominal value of the shares
bought back and cancelled. This reserve is non-distributable.
The special distributable reserve - created through the cancellation and
reclassification of the share premium account in 1999 and 2004. Prior to 1
February 2021, the costs of share buybacks and the proceeds of shares
re-issued from Treasury up to the original cost of repurchase, calculated by
applying the weighted average price of shares held in Treasury, were allocated
to the special distributable reserve. Following the Board's decision to
simplify the Company's reserves, the balance of the special distributable
reserve of £74,260,000 was transferred in full to the capital reserve on 16
June 2022 (see statement of changes in equity for more details on the movement
in reserves). Thus, the balance of this reserve as at 31 January 2023 is nil.
The capital reserve - gains or losses on realisation of investments and
changes in fair values of investments are transferred to the capital reserve.
Any changes in fair values of investments that are not readily convertible to
cash are treated as unrealised gains or losses within the capital reserve. The
capital element of the investment management fee and relevant finance costs
are charged to this reserve. Any associated tax relief is also credited to
this reserve.
With effect from 16 June 2022, the accounting policy has been updated
following the passing of Resolution 18 at the Company's AGM, whereby the new
Articles of Association were adopted which allow the realised portion of the
capital reserve to be distributable by way of dividend in addition to
continuing to be available for distribution by way of share buybacks.
The consolidation of the special distributable reserve and the capital reserve
has had no impact on the Company's cash or net assets.
The revenue reserve - represents net revenue earned that has not been
distributed to shareholders. This reserve is fully
distributable.
k) Taxation - the charge for taxation is based upon the revenue for
the year and is allocated according to the marginal basis between revenue and
capital using the Company's effective rate of corporation tax for the
accounting period.
l) Deferred taxation - deferred taxation is recognised in respect of
all timing differences that have originated but not reversed at the statement
of financial position date where transactions or events that result in an
obligation to pay more or a right to pay less tax in future have occurred at
the statement of financial position date measured on an undiscounted basis and
based on enacted tax rates. This is subject to deferred tax assets being
recognised only if it is considered more likely than not that there will be
suitable profits from which the future reversal of the underlying temporary
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. Due
to the Company's status as an investment trust, and the intention to continue
meeting the conditions required to obtain approval as an investment trust in
the foreseeable future, the Company has not provided deferred tax on any
capital gains and losses arising on the revaluation or disposal of
investments.
m) Stock lending income (now discontinued) is received net of associated
costs and recognised in revenue as earned.
n) Estimates - estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any future periods affected. There
have been no significant judgements, estimates or assumptions for the year.
o) Bank loans are classified as financial liabilities at amortised cost.
Interest payable on the bank loan is accounted for on an accrual basis in the
statement of comprehensive income.
Note 2: Revenue from investments
Year ended Year ended
31 January 2023 31 January 2022
£000 £000
Dividends from listed investments
UK equities 275 210
International equities 2,610 2,283
Other revenue
Interest on deposits 4 -
Stock lending - 9
2,889 2,502
There were no capital dividends received during the year ended 31 January 2023
(2022: £nil).
Note 3: Other expenses
Year ended 31 January 2023 Year ended 31 January 2022
£000 £000
Directors' fees 158 139
Advertising and public relations 122 96
Audit fees(1) 56 58
Registration fees 38 41
Regulatory and listing fees 35 64
Legal fees 26 31
Secretarial fee(2) 25 67
Depositary fees 19 66
Printing and postage 19 25
Directors' and officers' liability insurance 12 10
Custody fees 7 31
VAT recovered (56) (44)
Other 32 45
493 629
All expenses detailed above include VAT where applicable.
(1)During the year to 31 January 2022 the Company changed administrators and
Martin Currie Investment Management paid an additional audit fee in relation
to
this change of £3,000 plus VAT. During the year to 31 January 2023 the audit
fee has been adjusted for inflation and an additional £2,500 plus VAT to
reflect the
change in scope as a result of the revised ISA 315 requirements.
(2)With effect from 1 July 2022, the AIFM ceased charging a separate company
secretarial fee.
Note 4: Taxation on ordinary activities
Year ended 31 July 2023 Year ended 31 January 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Overseas tax suffered 300 - 300 313 - 313
The corporation tax rate was 19.00% (2022: 19.00%). The tax charge for the
year differs from the charge resulting from applying the standard rate of
corporation tax in the UK. The differences are explained below.
Year ended 31 January 2023 Year ended 31 January 2022
£000 £000
Net return before taxation (29,451) 8,157
Corporation tax at rate of 19.00% (2022: 19.00%) (5,596) 1,550
Effects of:
UK dividends not taxable (52) (40)
Gains/(losses) on investments not taxable 5,751 (1,573)
Overseas dividends not taxable (496) (434)
Overseas tax suffered 300 313
Increase in excess management and loan expenses 393 497
Total tax charge for the year 300 313
As at 31 January 2023, the Company had unutilised management expenses of £44
million (2022: £42 million) carried forward. Due to the Company's status as
an investment trust and the intention to continue to meet the conditions
required to obtain approval for that status 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 5: Returns per share
Year ended 31 January 2023 Year ended 31 January 2022
The returns and net asset value per Ordinary share are calculated with
reference to the following figures:
Revenue return £000 1,781 1,161
Capital return £000 (31,532) 6,683
Total return £000 (29,751) 7,844
Weighted average number of shares in issue during the year 82,551,425 85,587,856
Revenue return per share 2.16p 1.36p
Capital return per share (38.20p) 7.81p
Total return per share (36.04p) 9.17p
Note 6: Dividends
Year ended Year ended
31 January 2023 31 January 2022
£000 £000
Year ended 31 January 2020 - fourth interim dividend of 1.50p - 1,270
Year ended 31 January 2021 - fourth interim dividend of 1.50p 1,285 -
Year ended 31 January 2023 - first interim dividend of 0.90p (2022: 0.90p) 752 765
Year ended 31 January 2023 - second interim dividend of 0.90p (2022: 0.90p) 728 774
Year ended 31 January 2023 - third interim dividend of 0.90p (2022: 0.90p) 702 779
3,467 3,588
Revenue return per share for the year ended 31 January 2023 is 2.16p (2022:
1.36p), refer to note 5 for details of calculation.
The fourth interim dividend for the year ended 31 January 2022 and the first
interim dividend for the year ended 31 January 2023 have been allocated to the
special distributable reserve. The second and third interim dividends for the
year ended 31 January 2023 have been allocated to the revenue reserve. (2022:
The fourth interim dividend for the year ended 31 January 2021 and the first
interim dividend for the year ended 31 January 2022 were allocated to the
revenue reserve. The second and third interim dividends for the year ended
31 January 2022 were allocated to the special distributable reserve).
Set out below are the total dividends paid/payable in respect of the financial
year which forms the basis on which the requirements of s1158-1159 of the
Corporation Taxes Act 2010 are considered.
Year ended Year ended
31 January 2023 31 January 2022
£000 £000
First interim dividend of 0.90p for the year ended 31 January 2023 (2022:
0.90p)
752 765
Second interim dividend of 0.90p for the year ended 31 January 2023 (2022:
0.90p)
728 774
Third interim dividend of 0.90p for the year ended 31 January 2023 (2022:
0.90p)
702 779
Proposed fourth interim dividend of 1.50p for the year ended 31 January 2023
(2022: 1.50p)
1,115 1,285
3,297 3,603
Note 7: Investments at fair value through profit or loss
Year ended 31 January 2023 Year ended 31 January 2022
£000 £000
Opening book cost 238,463 225,072
Opening investment holding gains 101,072 102,916
Opening market value 339,535 327,988
Additions at cost 39,765 43,571
Disposals proceeds received (71,467) (40,248)
(Losses)/gains on investments (30,227) 8,224
Market value of investments held at 31 January 277,606 339,535
Closing book cost 210,334 238,463
Closing investment holding gains 67,272 101,072
Closing market value 277,606 339,535
The Company received £71,467,000 (2022: £40,248,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£67,894,000 (2022: £30,180,000).
The transaction costs in acquiring investments during the year were £52,000
(2022: £52,000). For disposals, transaction costs were £37,000 (2022:
£20,000).
Year ended 31 January 2023 Year ended 31 January 2022
£000 £000
Net realised gain on investments 3,573 10,068
Net change in unrealised losses on investments (33,800) (1,844)
Total capital gains/(losses) (30,227) 8,224
Note 8: Trade receivables
As at 31 January 2023 As at 31 January 2022
£000 £000
Sales awaiting settlement 1,438 -
Taxation recoverable 243 103
VAT recoverable 49 49
Dividends receivable 22 7
Other debtors 19 1
1,771 160
Note 9: Cash and cash equivalents
As at 31 January 2023 As at 31 January 2022
£000 £000
Sterling bank account 1,256 6,589
1,256 6,589
Note 10: Trade payables
As at 31 January 2023 As at 31 January 2022
£000 £000
Amounts falling due within one year:
Ordinary shares bought back awaiting settlement 525 35
Investment management and secretarial fees 83 134
Interest accrued on bank loan 67 67
Other payables 190 214
865 450
Bank loan(1) 30,000 -
(1)For details please see narrative below Note 11.
Note 11: Payables - amounts falling due after more than one year
As at 31 January 2023 As at 31 January 2022
£000 £000
Bank loan - 30,000
- 30,000
On 23 November 2020, the Company entered into an unsecured three year £30
million sterling term loan facility agreement with The Royal Bank of Scotland
International Limited at a fixed interest rate of 1.181%. This facility was
fully drawn down on 24 November 2020 and matures on 24 November 2023. Due to
its maturity in less than one year, this credit facility has been reclassified
as a current liability.
The facility agreement contains covenants that the adjusted investment
portfolio value at each month end should not be less than £120 million, the
gross borrowings should not exceed 30% of the Company's adjusted investment
portfolio value and the portfolio must contain at least 22 eligible
investments.
The facility is shown at amortised cost.
Finance costs are charged to capital (80%) and revenue (20%) in accordance
with the Company's accounting policies.
Note 12: Ordinary shares of 5p
As at As at
Number of shares 31 January 2023 Number of shares 31 January 2022
£000 £000
Ordinary shares of 5p
Ordinary shares in issue at the beginning of the year 86,614,404 4,330 84,759,499 4,237
Ordinary shares issued from Treasury during the year - - 3,415,000 171
Ordinary shares bought back to Treasury during the year (10,510,850) (526) (1,558,095) (78)
Ordinary shares in issue at end of the year 76,105,554 3,804 86,614,404 4,330
As at As at
Number of shares 31 January 2023 Number of shares 31 January 2022
£000 £000
Treasury shares (Ordinary shares of 5p)
Treasury shares in issue at the beginning of the year 12,059,503 604 13,916,408 697
Ordinary shares issued from Treasury during the year - - (3,415,000) (171)
Ordinary shares bought back to Treasury during the year 10,510,850 526 1,558,095 78
Treasury shares in issue at end of the year 22,570,353 1,130 12,059,503 604
Total Ordinary shares in issue and in Treasury at the end of the year
98,675,907 4,934 98,675,907 4,934
For the financial year to 31 January 2023, the net proceeds received for
shares issued from Treasury less payments made for shares bought back to
Treasury was
-£32,848,000 (2022: the net proceeds received for shares issued from
Treasury less payments made for shares bought back to Treasury was
£8,007,000).
Between 1 February 2023 and 31 March 2023, 1,738,928 Ordinary shares of 5p
were bought back to Treasury and no Ordinary shares of 5p were issued from
Treasury.
Note 13: Capital reserves
Unrealised investment holding gains
Realised capital reserve £000 Total capital reserve
£000 £000
As at 31 January 2022 110,511 101,072 211,583
Gains on realisation of investments at fair value 3,573 - 3,573
Movement in fair value gains of investments - (33,800) (33,800)
Realised currency losses during the year (43) - (43)
Cost of shares bought back into Treasury (32,848) - (32,848)
Capital expenses (1,262) - (1,262)
Transfer of reserves(1) 74,260 - 74,260
As at 31 January 2023 154,191 67,272 221,463
Unrealised investment holding gains
Realised capital reserve £000 Total capital reserve
£000 £000
As at 31 January 2021 107,013 102,916 209,929
Gains on realisation of investments at fair value 10,068 - 10,068
Movement in fair value gains of investments - (1,844) (1,844)
Realised currency gains during the year - - 55
Cost of shares bought back into Treasury 550 - 550
Proceeds from the issue of Shares from Treasury (5,579) - (5,579)
Capital expenses (1,596) - (1,596)
As at 31 January 2022 110,511 101,072 211,583
(1)Refer to Note 1(j): Accounting policies for details on the consolidation of
reserves. Prior to the consolidation, the balance of the special distributable
reserve was reduced by £2,037,000, the amount of the dividends paid during
the period. The realised capital reserve is distributable by way of dividend
and by way of share buybacks. The unrealised investment holding gains is
non-distributable.
The above split in capital reserve is shown in accordance with provisions of
the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts 2022'.
Note 14: Net asset value per share
As at 31 January 2023 As at 31 January 2022
£000 £000
Net assets attributable to shareholders £249,768,000 £315,834,000
Number of shares in issue at the year end 76,105,554 86,616,404
Net asset value per share 328.2p 364.6p
Note 15: Related party transactions
With the exception of the investment management and secretarial fees (as set
out in the annual report and accounts), and Directors' shareholdings (as set
out in the annual report and accounts), there have been no related party
transactions during the year, or in the prior year.
The amounts payable for Directors' fees as at 31 January 2023 are £14,478
(2022: £14,000).
Note 16: Financial instruments
The Company's financial instruments comprise securities and other investments,
cash balances, receivables and payables 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 (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 AIFM'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.
(a) Market price risk
The fair value or 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.
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment and
borrowing decisions.
The Board imposes borrowing limits to ensure that gearing levels are
appropriate and reviews these on a regular basis. Borrowings may comprise
fixed rate, revolving, and uncommitted facilities. The total borrowings will
not exceed 20% of the net assets of the Company at the time of drawdown. On 23
November 2020, the Company entered into a £30 million sterling term loan
facility agreement. The facility was fully drawn down on 24 November 2020 and
the term loan is shown at amortised cost.
Interest risk profile
The interest rate risk profile of the Company at the reporting date was as
follows:
As at 31 January 2023 As at 31 January 2022
Cash and cash equivalents 1,256 6,589
Total net exposure to interest rate risk 1,256 6,589
Interest rate sensitivity
The sensitivity analysis below has been determined based on the exposure to
interest rates for non-derivative instruments at the statement of financial
position 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 2% (2022: 0.75%) higher or lower and all other
variables were held constant, the Company's profit for the year ended 31
January 2023 would increase/decrease by £25,000 (2022: increase/decrease by
£49,000).
This is mainly attributable to the Company's exposure to interest rates on its
floating rate cash balances.
An interest rate variation of 2% is used at 31 January 2023 as the Bank of
England has increased the Bank Rate to 3.5% as of the year-end date, while
market expectations are that this will reach to 5% during the second half of
2023.
(ii) Market risk arising from foreign currency risk
A significant proportion of the Company's investment portfolio is invested in
overseas securities and the statement of financial position can be
significantly affected by movements in foreign exchange rates. It is not
currently the Company's policy to hedge this risk.
The revenue account is subject to currency fluctuation arising on overseas
income.
Foreign currency risk profile
Foreign currency risk exposure by currency of denomination:
Year ended 31 January 2023 Year ended 31 January 2022
Total currency exposure Total currency exposure
£000 £000
US dollar 131,244 172,981
Euro 73,668 78,826
Swedish kroner 28,004 36,204
Hong Kong dollar 19,590 29,203
Australian dollar 11,136 10,509
Danish krone 9,330 10,195
Swiss franc - 12
Total overseas investments 272,972 337,930
Sterling (23,204) (22,096)
Total 249,768 315,834
The asset allocation between specific markets can vary from time to time based
on the portfolio manager's opinion of the attractiveness of the individual
stocks.
Foreign currency sensitivity
At 31 January 2023, if sterling had strengthened by 5% in relation to all
currencies, with all other variables held constant, total net assets and total
return on ordinary activities would have decreased by the amounts shown below.
A 5% weakening of sterling against all currencies, with all other variables
held constant, would have had an equal but opposite effect on the financial
statement amounts. The level of change is considered to be a reasonable
illustration based on the volatility of exchange rates during the year.
Year ended 31 January 2023 Year ended 31 January 2022
£000 £000
Total net sensitivity to foreign currencies 13,649 16,897
(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 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. The allocation of assets to international
markets as detailed above, and the stock selection process both 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. All investments held by the Company are listed on various
stock exchanges worldwide.
Other price risk sensitivity
If market prices at the statement of financial position date had been 30%
(2022: 30%) higher or lower while all other variables remained constant, the
return attributable to Ordinary shareholders at the year ended 31 January 2023
would have increased/decreased by £83,300,000 (2022: increase/decrease of
£101,900,000) and capital reserves would have increased/decreased by the same
amount. This level of change is considered to be reasonably possible based on
observation of market conditions and historic trends.
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Liquidity risk is not considered to be significant as the Company's assets
comprise mainly 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 that 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, and
limits are set on the amount that may be due from any one broker; and
• cash is held only with reputable banks with high-quality external credit
ratings.
The maximum credit risk exposure as at 31 January 2023 was £3,027,000 (2022:
£6,749,000). This was due to trade receivables and cash as per notes 8 and 9.
Fair values of financial assets and financial liabilities
All financial assets and liabilities of the Company are included in the
statement of financial position at fair value or a reasonable approximation of
fair value with no material difference in the carrying amount.
Note 17: 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;
• to maximise the return to its equity shareholders through an appropriate
balance of equity capital and debt; and
• to limit gearing to 20% of net assets at time of drawdown.
The Board monitors and reviews the broad structure of the Company's capital on
an ongoing basis. This review includes the nature and planned level of
gearing, which takes account of the portfolio manager's views on the market
and the extent to which revenue in excess of that which is required to be
distributed under the investment trust rules should be retained.
The capital of the Company consists of the equity reserves as shown on the
equity section of the statement of financial position and the bank loan as
disclosed in the liabilities section.
Note 18: 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 are
grouped into the fair value hierarchy as follows:
Year ended 31 January 2023 Year ended 31 January 2022
£000 £000
Level 1 277,606 339,535
Net fair value 277,606 339,535
Note 19: Stock lending
During the financial year ended 31 January 2023, the Company was not involved
in securities financing transactions (SFTs) as defined in Article 3 of UK
version of Regulation (EU) 2015/2365, as a result there are no outstanding
balances, collateral, or SFTs reportable counterparties at the reporting date.
During the prior financial year, the Company was engaged in securities
lending, the net securities lending income is disclosed in note 2 to the
financial statements.
Note 21: Post balance sheet events
On 22 March 2023, the Board declared a fourth interim dividend of 1.50p per
share.
As at 31 March 2023, the Company had bought back a further 1,738,928 ordinary
shares at an average price of 328.0p per share.
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