Gulf Investment Fund - Annual Financial Report
14/09/2022 07:00
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RNS Number : 3340Z Gulf Investment Fund PLC 14 September 2022
Gulf Investment Fund plc
14 September 2022
Legal Entity Identifier: 2138009DIENFWKC3PW84
Annual report for year ended 30 June 2022
Further outperformance
- Net asset value per share (NAV) rose 15.4% (including
dividends) to US$2.0256, outperforming the benchmark (S&P GCC Composite
Index) by 8.4%.
- Share price increased 22%
- Dividend of US cents 4.93 paid during the year which
equates to 4.00% of NAV, in line with the enhanced dividend policy introduced
in April 2021
- The investment mandate widened from Qatar-focused to
Gulf-wide in early December 2017. $100 invested in the fund in December 2017
is now worth $225. If the same $100 had been invested in the benchmark it
would be worth $183.
Anderson Whamond, Chairman, said:
"I took over as Chairman on 1 January 2022 from Nick Wilson who provided
careful and effective stewardship of the company over the last years.
"GIF remains the only London-listed investment company focussed solely on the
Gulf Cooperation Council (GCC) economies. These states now represent 7.77 %
of the MSCI Emerging index, up from 1.20% of MSCI in June 2017. While global
investors generally are underweight Qatar, Kuwait, and Saudi, the GCC
weighting in EM indexes should increase as IPOs join the market and
governments carry out stake sales, as well as higher foreign ownership limits
in Qatar.
"The GCC is now much more than just a hydrocarbon story. There are compelling
reasons why the strong long-term outperformance of the company and performance
of the region will attract a wider investor audience."
Enquiries:
Anderson Whamond
Gulf Investment Fund Plc
+44 (0) 1624 630 400
William Clutterbuck
Maitland/AMO
+44 (0) 77 8529 2617
gulfinvestmentfund-maitland@maitland.co.uk
Chairman's Statement
On behalf of the Board, I am pleased to present your company's Annual Report
and Financial Statements for the 12 months to 30 June 2022.
During the 12 months, Gulf Investment Fund PLC's (GIF) net asset value per
share (NAV) rose 15.4% (including dividends) to US$2.0256, outperforming the
benchmark (S&P GCC Composite Index) by 8.4%. Over the year the share price
increased 22% from US$1.655 to US$2.02.
It worth remembering that the NAV of the company has grown 125.42% (including
dividends) since the investment mandate widened from Qatar-focused to
Gulf-wide in early December 2017. Over that 4.5 year period the fund has
outperformed its benchmark by an impressive 42.49%. That means that $100
invested in the fund in December 2017 is now worth $225. If the same $100
had been invested in the benchmark it would be worth $183.
Over the 12 months to the end of June 2022 the company paid US cents 4.93 of
dividends which equates to 4.00% of the NAV at 30 June 2021. This is in line
with the enhanced dividend policy the board introduced in April 2021.
I had the privilege of taking over the role of Chairman on 1 January 2022 and
would like to take this opportunity to thank my predecessor Nick Wilson for
all his efforts and careful and effective stewardship on behalf of the company
over the last years.
GCC a vigorous economic region, hitherto overlooked by international investors
GIF remains the only London-listed investment company focussed solely on the
Gulf Cooperation Council (GCC) economies. These states now represent 7.77 %
of the MSCI Emerging index, a powerful increase from 1.20% of MSCI in June
2017.
The GCC is now much more than just a hydrocarbon story as shown by GIF's
portfolio with only c. 12.7% in Energy, 32.7% in Financials, and 23.5% in
industrials.
There are compelling reasons why the strong long-term outperformance of the
company and performance of the region will attract a wider investor audience.
We are doing much to encourage interest from investors by promoting and
enhancing the visibility, liquidity, and investor appeal of the company. This
includes a revamp of the website to make it more user friendly and relevant to
retail investors, and the commissioning of research report which was released
post the year end.
Since shareholder approved bi-annual tender offers, the company did two tender
offers which, in all saw the buy-back and cancellation of 5,214,956 shares. As
a result, the number of shares in issue as at the end of June has fallen to
41,105,216.
During the second half of the financial year the company's shares were trading
at a premium to NAV so we also decided to apply to the London Stock Exchange
for a listing facility of 2,700,000 ordinary shares. As at the end of June no
shares had been issued under this facility but it remains in place.
Results
Results for the 12 months showed a profit of $16.183m generated from fair
value adjustments, realised gains/losses and dividend income. This is
equivalent to a basic earnings per share of US cents 34.09c (2021 gain of US
cents 53.21c).
Ongoing Charges fell to 1.67% from 1.89% in the previous year. The charges
were calculated in accordance with the methodology recommended by the
Association of Investment Companies.
Outlook
Changes in oil and gas prices will continue to impact GCC economies, as
countries deal with budget challenges. The geopolitics of the region bring
economic uncertainty as does the situation with Iran.
The Board continues to view the future of GIF with confidence expecting
healthy growth in the region as a whole, as the developing non-hydrocarbon
sector in several GCC countries helps to balance their economies.
In accordance with the authority granted by Shareholders at the Annual General
Meeting in December 2021, set out in more detail in the circular of the
company issued that month, we will shortly be announcing details of the second
tender offer for 2022, which will continue to have a minimum size condition of
38,000,000 Shares.
Annual General Meeting
I look forward to welcoming shareholders to our fourteenth Annual General
Meeting later in the year at the company's registered office at Exchange
House, 54-62 Athol Street, Douglas, Isle of Man.
Anderson Whamond
Chairman
13 September 2022
Business Review
This provides information about the Company's business and results for the
year ended 30 June 2022. It should be read in conjunction with the Report of
the Investment Manager and the Investment Adviser on pages 7 to 13 which gives
a detailed review of the investment activities for the year and an outlook for
the future.
Investment objective and strategy
The Company's investment objective is to capture the opportunities for growth
offered by the expanding GCC economies by investing, through its wholly owned
subsidiary, in listed or soon to be listed companies on one of the GCC
exchanges.
The Company applies a top-down screening process to identify those sectors
which should most benefit from sector growth trends. Fundamental industry and
Company analysis, rather than benchmarking, forms the basis for both stock
selection and portfolio construction.
The investment policy is on pages 14 to 16.
Performance measurement and key performance indicators
In order to measure the success of the Company in meeting its objectives and
to evaluate the performance of the Investment Manager, the Directors take into
account the following key performance indicators:
Returns and Net Asset Value
At each quarterly Board meeting the Board reviews the performance of the
portfolio versus the S&P GCC Composite Index (local benchmark) as well as
the net asset value, income, share price and expense ratio for the Company.
Discount/Premium to Net Asset Value
The Board regularly monitors the discount/premium to net asset value. The
Directors renew their authority at the AGM in order to be able to make
purchases through the market where they believe they can assist in narrowing
the discount to net asset value and where it is accretive to net asset value
per share.
Currently there is no live buy-back programme in operation. Buy-backs have
been replaced by a programme of bi-annual tender offers launched in March and
September each year, in each case for up to 100 per cent. of each
Shareholder's holding of Shares as at the relevant Record Date (each a
"Contractual Bi-Annual Tender Offer"), subject to a minimum size condition.
Shareholders on the Register at the relevant Record Date will be invited to
either (i) continue their full investment in the Company; or (ii) save for
Restricted Shareholders, tender some or all of their Shares held at that date.
The Directors believe that the implementation of the Contractual Bi-Annual
Tender Offers should provide those Shareholders who want it with the
additional liquidity they require going forward.
The Company will seek the requisite authorities required from its Shareholders
to undertake the Contractual Bi-Annual Tender Offers at each Annual General
Meeting.
On 9 May 2022 the Company made an application to the London Stock Exchange for
a block listing of 2,700,000 Ordinary Shares of US$0.01 each ("Shares") to be
admitted to trading on the Specialist Fund Segment of the London Stock
Exchange's main market for listed securities ("Admission").
The Shares to be issued under the block listing may be issued pursuant to the
Company's existing authorities to issue new Shares on a non pre-emptive basis,
to satisfy continuing market demand for the Shares and to manage the premium
to NAV at which the Shares trade.
The Board is responsible for close monitoring of the Company's share price and
working with its broker to buy back shares when the Company believes
appropriate so as to manage any discount to net asset value.
Yield
The Board monitors the dividend income of the portfolio and the amount
available for distribution and considers the impact on the Company's annual
enhanced dividend policy of future progressive dividend payments, subject to
the absence of exceptional market events.
Principal risks and uncertainties
The Board confirms that there is an on-going process for identifying,
evaluating and managing or monitoring the key risks to the Company. These key
risks have been collated in a risk matrix document which is reviewed and
updated on a quarterly basis by the Directors. The risks are identified and
graded in this process, together with the policies and procedures for the
mitigation of the risks. Apart from the key risks outlined below, the
possibility of a tender offer up to 100% of the share capital of the Company
and the Company's continuation is identified as an ongoing risk.
In addition to the tender offer noted on page 4 the key risks which have been
identified and the steps taken by the Board to mitigate these are as follows:
Market
The Company's underlying investments consist of listed companies. There are no
investments in companies soon to be listed. Market risk arises from
uncertainty about the future prices of the investments. This is commented on
in Notes 1 and 2 on pages 47 to 53.
Investment and strategy
The achievement of the Company's investment objective relative to the market
involves risk. An inappropriate asset allocation may result in
underperformance against the local index. Monitoring of these risks is carried
out by the Board which, at each quarterly Board meeting, considers the asset
allocation of the portfolio, the ratio of the larger investments within the
portfolio and the management information provided by the Investment Manager
and Investment Adviser, who are responsible for actively managing the
portfolio in accordance with the Company's investment policy. The net asset
value of the Company is published weekly.
Accounting, legal and regulatory
The Company must comply with the provisions of the Isle of Man Companies Acts
1931 to 2004 and since its shares are listed on the London Stock Exchange, the
Disclosure Guidance and Transparency Rules and Market Abuse Regulation (MAR)
(together the "FCA Rules")'. A breach of company law or FCA Rules could result
in the Company and/or the Directors being fined or the subject of criminal
proceedings and, in the case of a breach of the FCA Rules, could result in the
suspension of the Company's shares. The Board relies on its company secretary
and advisers to ensure adherence to company law and FCA Rules. The Board takes
legal, accounting or compliance advice, as appropriate, to monitor changes in
the regulatory environment affecting the Company.
Operational
Disruption to, or the failure of, the Investment Manager, the Investment
Adviser, the Custodian or Administrator's accounting, payment systems or
custody records could prevent the accurate reporting or monitoring of the
Company's financial position. Details of how the Board monitors the services
provided by the Investment Manager and its other suppliers, and the key
elements designed to provide effective internal control, are explained further
in the internal control section of the Corporate Governance Report on pages 20
to 28.
Financial
The financial risks faced by the Company include market price risk, foreign
exchange risk, credit risk, liquidity risk and interest rate risk. Further
details are disclosed in Notes 1(c), 2, 6 and 8.
Report of the Investment Manager and Investment Adviser
Regional Market Overview:
GCC market witnessed strong 1Q 2022 performance driven by effective
vaccination programme, easing of pandemic restrictions, and buoyant
hydrocarbon market. Nevertheless, all GCC markets corrected in 2Q 2022 as the
market succumbed to heightened volatility in tandem with global sell off going
into 2Q 2022 on the back of increased probability of a hard landing. In the
LTM, S&P GCC Composite index rose 7.3 per cent versus the MSCI World index
down 15.6 per cent and the MSCI EM index down 27.2 per cent.
The price of oil (Brent) rose 47.6 per cent in 1H2022, reaching ~US$115 per
barrel in part driven by the gradual easing of lockdown measures globally as
well as supply tightness.
Among the GCC markets, the YTD performance was led by Abu Dhabi market
advancing 10.4 per cent, followed by Kuwait with a 5.2 per cent increase.
Qatar, Bahrain, Saudi Arabia and Dubai gained 4.9 per cent, 2.4 per cent, 2.1
per cent, and 0.9 per cent respectively. Oman market saw the fall of 0.2 per
cent.
GCC: Sturdy Oil Price Levels to Remain Supportive of Economic Growth in the
Region
The IMF in its Regional Economic Outlook, April 2022, has revised the GDP
growth rate of GCC countries to 6.4 per cent for 2022, followed by 3.4 per
cent in 2023. Economic growth momentum in the Gulf is expected to remain
solid, partly as the sanctions provoked by the Russia-Ukraine war are on the
balance, positive for the region. In the medium term, recovery will be
bolstered by elevated oil prices, which remains well above fiscal breakeven
price for all GCC countries.
Table: IMF Real GDP Growth Forecast 2022 and 2023
Real GDP Growth 2019 2020 2021 2022e 2023e
GCC 1.0% -4.8% 2.7% 6.4% 3.4%
GCC Oil GDP -1.2% -5.9% 0.2% 10.1% 3.2%
GCC Non-oil GDP 2.4% -4.0% 4.0% 3.9% 3.6%
Source: IMF World Economic Outlook and Regional Economic Outlook April 2022
GCC Expected to Record a Fiscal Surplus of 7.3% of GDP in 2022
The fiscal positions across the GCC improved markedly as hydrocarbon market
conditions recovered and as energy prices and export earnings strengthened.
The increase in the oil prices and revenues from hydrocarbons have been the
major contributors to the public sector's total revenue, ranging from a low of
58 per cent in the case of Bahrain to 90 per cent in Qatar and Kuwait. Most of
the GCC countries announced tighter fiscal policies to solidify their fiscal
position in 2022. The IMF forecast a turnaround in GCC fiscal balances from
deficit of 1.1 in 2021 to a surplus of 7.3 in 2022 and 7.1 in 2023.
Table: General Government Fiscal Balance
% of GDP 2019 2020 2021 2022e 2023e
Saudi Arabia -4.4 -11.3 -2.4 5.5 4.7
UAE 0.4 -5.2 0.3 8.1 6.9
Qatar 4.6 1.0 4.1 8.5 11.8
Kuwait 3.1 -12.8 -0.5 16.6 18.3
Bahrain -9.0 -17.9 -11.1 -3.3 -4.6
Oman -5.6 -16.5 -2.5 5.6 6.3
GCC -1.8 -9.0 -1.1 7.3 7.1
Source: IMF Regional Economic Outlook April 2022
The IMF expects that the windfall from higher oil prices is likely to improve
fiscal and external balances. The decline in fiscal breakeven oil prices is
reported across the GCC countries except for Oman, UAE and Qatar. Kuwait is
anticipated to have the lowest fiscal breakeven oil price of US$52.5 per
barrel in the region. GCC economies have seen a relatively strong start to
2022, mainly due to hydrocarbons sectors which have benefited from increased
oil production.
GCC Countries Fiscal Breakeven Oil Price (2022E)
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com (http://www.gulfinvestmentfundplc.com) for
charts depicting fiscal breakeven oil price.
Key developments in GCC countries
Saudi Arabia to invest US$100m in Tourism Support Fund
Saudi Arabia aims to raise US$100 million to establish the Tourism Support
Fund in collaboration with the World Bank to further advance the sustainable
tourism by increasing job opportunities and preserving natural heritage. The
target is to receive as much as 100 million visits per year from both domestic
and international tourists by 2030.
Saudi Arabia approved investment of US$151.9 billion by 2030 to catalyse the
kingdom's GDP growth
The National Development Fund (NDF) will inject US$151.9 billion into the
economy by 2030, under the new strategy revealed by the Saudi Crown Prince.
Furthermore, as a part of its new strategy NDF aims to triple the kingdom's
non-oil GDP to US$161.25 billion by 2030, while generating new job
opportunities in the kingdom. The IMF expects the kingdom's economy to grow by
7.6 per cent in 2022.
UAE government to launch initiative for SMEs and startups
The UAE government announced new initiatives to provide entrepreneurs and
Small and Medium Enterprises (SMEs) with several integrated services aimed at
enhancing their growth possibilities and market share. These include the
Government Procurement Program, the Business Support Program, and the
Financing Solutions Program. These new services represent a continuation and
expansion of the National SME Program's efforts. The IMF sees growth
accelerating in the Emirate on the back of structural reform efforts,
increased foreign investment, and rising oil production
Qatar Sanctions US$30 billion for North Field Expansion Project
Qatar is partnering with international companies in the first and largest
phase of the nearly $30 billion expansion that will boost Qatar's position as
the world's top LNG exporter. The first phase of the expansion project, called
North Field East, is expected to increase Qatar's LNG production capacity to
110 mtpa from 77 mtpa. The second phase of expansion plan will involve six LNG
trains, which are anticipated to boost Qatar's liquefaction capacity to 126
mtpa by 2027.
The Kuwait government announced a draft budget for FY2022/23 projecting a
narrower budget deficit of KWD3.1 billion, down 74.2 per cent amid higher oil
prices and reduced spending. Total revenues are projected at KWD18.8 billion,
a rise of 72.2 per cent, on the back of higher oil revenues. Total Spending to
fall 4.8 per cent to KWD21.9 billion, with capital expenditure accounting for
13.2 per cent of total expenditure. The IMF projects real GDP to accelerate to
8.2 per cent in 2022, on the back of higher oil output and strengthening
domestic demand.
Oman to allow full foreign ownership in listed companies
Oman's stock exchange plans to allow full foreign ownership in listed
companies to attract more investments to its market. The move is expected to
make the bourse more attractive for international investors as it seeks
inclusion within global emerging market indices. Furthermore, Oman plans to
list 35 state owned companies in the next five years.
Oman has allocated an additional 200 million rials for the 2022 budget to
bring total expenditure this year to 1.1 billion rials. Additionally, country
has also directed to allocate an additional 650 million rials for development
projects for a five-year plan that ends in 2025. Oman posted a budget surplus
of US$545m in the first two months of this year, helped by higher oil prices
and tax collection. Oman also announced expansion of free zones to boost the
economy and attract foreign investments in the country. The free zones in
Muscat, Salalah, Sohar and Duqm are expected to bring in economic benefits by
diversifying the state income and bringing prospective trading partners. The
move is aimed to align Oman with international standards and create a global
investment scenario. Growth is projected by the IMF to be 5.6 per cent in
2022.
GCC central banks raise interest rates
FED has raised rates 3 times, 25bps in March, 50bps in May and 75bps in June
2022. Post FED rate hike of 75 bps in June 2022, Saudi Central Bank increased
its repo rate and reverse repo rates by 50 bps each to 2.25 per cent and 1.75
per cent, respectively. Qatar Central Bank hiked its deposit rate by 75 bps to
2.25 per cent, lending rate by 50 bps to 3.25 per cent and its repo rate by 75
bps to 2.50 per cent. The Central Bank of the United Arab Emirates increased
the base rate of its overnight deposit facility by 75 bps to 3%. The Central
Bank of Bahrain increased its four-week deposit rate to 3.25 per cent and the
lending rate to 3.75 per cent. Meanwhile, the Central Bank of Kuwait raised
its discount rate by 25 bps to 2.25 per cent.
GCC's IPO boom continues
During Q1 2022, there were 14 total listings across the GCC which raised
approximately US$3.9 billion in proceeds. The GCC IPO markets continue to see
increased activity levels driven by government listings, boosting liquidity.
In UAE, the petrochemical firm Borouge, a joint venture between ADNOC and
Borealis AG, became the largest IPO (proceeds of US$2.0 billion) listed in Abu
Dhabi's history, attracting 42 times oversubscription demand of $83.4 billion.
Additionally, in Dubai, TECOM Group's IPO raised US$454 million by listing 625
million shares on Dubai's DFM.
Portfolio structure
Gulf Cooperation Council (GCC) equity markets did not escape the global
sell-off in 2Q 2022, although GIF performance was still strong YTD with NAV up
8.6 per cent. GIF annualized performance since December 2017 (when the
investment mandate changed from Qatar-focused to Gulf-wide) was 19.5 per cent
versus S&P GCC Composite Index 14.1 per cent annualized and MSCI EM Index
0.6 per cent annualized.
Compared to the benchmark, GIF is still overweight Qatar (37.0 per cent of NAV
vs. the S&P GCC Qatar weight of 12.5 per cent) and UAE (19.7 per cent vs
15.9 per cent). GIF is underweight Saudi Arabia (30.6 per cent vs 58.6 per
cent), Kuwait (2.9 per cent vs 10.6 per cent). During the second quarter,
exposure to Saudi Arabia increased by 3.4 per cent points, while exposure to
Qatar and UAE decreased by 4.7 per cent points and 1.5 per cent points
respectively.
The fund's Qatar overweight is based on the country's macroeconomic resilience
and growth prospects. Qatar still trades at a discount to its GCC peers. Qatar
enjoys robust growth fueled by gas prices over the long term. We believe gas
demand should hold up better than oil demand as the world transitions to net
zero. Qatar already embarked on a programme to increase LNG capacity by 64 per
cent by 2027 at a time when other gas supply projects are being shelved
(Nordstream 2). Elsewhere, GIF remains underweight Saudi Arabia in view of its
stretched valuations. As of 30 June 2022, Qatar was trading on P/E multiple of
15.7 times (MSCI EM trades on 10.7 times).
On 30 June 2022, GIF ended with 31 holdings: 17 in Saudi Arabia, 9 in Qatar, 4
in the UAE and 1 in Kuwait.
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com (http://www.gulfinvestmentfundplc.com) for
charts depicting Country allocation.
Top 10 holdings
Company Country Sector % share of GIF NAV
Commercial Bank of Qatar Qatar Financials 10.0%
Qatar Gas Transport Qatar Energy 9.1%
Emirates National Bank of Dubai UAE Financials 6.4%
Qatar Navigation Qatar Industrials 6.0%
Emaar Properties Company UAE Real Estate 5.2%
Saudi National Bank Saudi Arabia Financials 5.1%
Air Arabia UAE Industrials 4.4%
Saudi Telecom Saudi Arabia Communication Services 4.1%
Qatar National Bank Qatar Financials 3.7%
Dubai Islamic Bank UAE Financials 3.6%
Source: QIC
Sector Allocation
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com (http://www.gulfinvestmentfundplc.com) for
charts depicting sector allocation.
During the second quarter exposure to the financial sector was reduced from
51.1 per cent of NAV to 32.7 per cent but remains the largest sector
allocation. Qatar International Islamic Bank, Qatar National Bank, Arab
National Bank, and Banque Saudi Fransi were new additions to portfolio during
the quarter. Increasing interest rates coupled with moderation in asset
quality will support GCC bank profitability. Most GCC banks have strong
capital and liquidity buffers to safeguard them from systematic risk.
GIF increased exposure to the industrials and healthcare sector in the
quarter, as valuations turned attractive. For healthcare sector, Middle East
Healthcare and Al Hammadi were new additions to portfolio. The Investment
Adviser also increased exposure to the communications sector to 5.6 per cent
of NAV (vs 3.9 per cent in 1Q 2022), mainly on increased holdings in Vodafone
Qatar. Investments in information technology and consumer discretionary
sectors were reduced in 2Q 2022 as valuations looked stretched.
Profile of Top Five Holdings:
Commercial Bank of Qatar (10.0 per cent of NAV)
Commercial Bank of Qatar (CBQ) is the second-largest commercial bank in Qatar.
As part of its 5-year turnaround strategy, it is strengthening its balance
sheet by cautiously managing its risk exposure. Under its diversification
strategy, CBQ has expanded its GCC footprint through strategic partnerships
with associated banks, which include the National Bank of Oman (NBO) in Oman,
United Arab Bank (UAB) in the UAE and its subsidiary Alternatifbank in Turkey.
Qatar Gas Transport (9.1 per cent of NAV)
Qatar Gas Transport (QGTS) is a leader in energy transportation, with the
world's largest LNG shipping fleet of 74 vessels. It is responsible for
transporting the country's LNG production to its global customers and is
integral to the state's LNG supply chain. It plans to expand capacity with
ship building agreements for 100+ vessels worth over QAR70 billion. Nakilat is
set to be a beneficiary of Qatar's LNG expansion.
Emirates National Bank of Dubai (6.4 per cent of NAV)
Emirates NBD is global bank with presence in 13 countries and over 17 million
customers worldwide. Emirates NBD is 4th largest GCC bank and one of the
largest UAE banks. ENBD has strong management with good track record and has
consistently delivered on targets. The Group has a significant retail banking
franchise in the UAE and leader in digital banking which will help it to
reduce cost to income ratio in long run. The bank remains strongly
capitalized with stable asset quality outlook.
Qatar Navigation (6.0 per cent of NAV)
Qatar Navigation (Milaha) is one of the largest and most diversified maritime
and logistics companies in the Middle East with a focus on providing marine
transport and services, as well as supply chain solutions. Higher shipping
rates and volumes should drive revenue from container shipping and logistic
business. In Logistic business, new global network partnerships and work
related to NFE project should bring uplift in warehousing and freight
forwarding activities. Ports management (QTerminals) business should also
benefit from volume uptick/phase II expansion at the Hamad Port and growth
associated with the NFE project. Milaha Offshore is also set to benefit from
the NFE project.
Emaar Properties Company (5.2 per cent of NAV)
Emaar Properties (EMAAR) is the UAE's largest real estate developer. The
Group's business encompasses UAE & International Development, Emaar Malls,
Emaar Hospitality, and Entertainment & Leasing. The brand EMAAR has a
varied retail asset portfolio, which includes the Burj Khalifa, Dubai Mall,
and Dubai Fountain. The reopening of the economy is expected to boost demand
for retail operators. Additionally, the recovery in the real estate sector
supported by the strong property sales will support topline growth. EMAAR also
has a growing presence in international markets such as India, Egypt, KSA, and
Turkey. Furthermore, the developer has a strong balance sheet, a strong credit
profile, substantial debt coverage, and has generated significant brand
loyalty.
GIF Performance:
LTM NAV rose 18.5 per cent vs. 10.1 per cent increase in S&P GCCTD index.
Since the investment mandate widened from Qatari-focused to Gulf-wide in
December 2017, NAV has risen 125.4 per cent (dividend included), as against
the 82.9 per cent returns recorded by S&P GCC total return index. On 30
June 2022, GIF share price was trading at a 0.3 per cent discount to NAV vs.
five-year average discount of 10.3 per cent.
Embedded image removed - please refer to the Company's website
www.gulfinvestmentfundplc.com (http://www.gulfinvestmentfundplc.com) for
charts depicting Gulf Investment Fund performance.
GCC Outlook:
The GCC remains well positioned for growth, led by increased oil production
and momentum in non-oil activity. Investing in the GCC is about oil but also
about diversification, infrastructure spending, expansion of the non-oil and
gas sector, privatization, and economic, social, and capital market reforms.
Events such as FIFA World Cup 2022 and large-scale infrastructure projects
such as NEOM City, the Red Sea project, and the North Field Gas expansion
project, should fuel prosperity in the region.
GCC banks should benefit from higher interest rates. This, coupled with
attractive valuations post the recent correction should provide better value
to shareholders. Hence, we continue to remain overweight on financials.
Inflation is still running at below 2 per cent so far in 2022. We expect some
increase over the second half of this year, but we see inflation remaining
well below international levels. HSBC forecasts GCC inflation at around 3.8
per cent for 2022 and 3 per cent for 2023.
While global investors generally are underweight Qatar, Kuwait, and Saudi, the
GCC weighting in EM indexes should increase as IPOs join the market and
governments carry out stake sales, as well as higher foreign ownership limits
in Qatar. Qatar is witnessing a significant increase in foreign direct
investments recording more than US$3bn of inflows since January. We expect
foreign inflows to the GCC to continue, attracted by currencies pegged to the
dollar, dividend yields, high oil prices and market reforms.
Epicure Managers Qatar
Limited
Qatar Insurance Company S.A.Q.
13 September
2022
13 September 2022
Investment Policy
Investment objective
The Company's investment objective is to capture the opportunities for growth
offered by the expanding GCC economies by investing, through its wholly owned
subsidiary, in listed companies on one of the GCC exchanges or companies soon
to be listed on one of the GCC exchanges.
The Company applies a top-down screening process to identify those sectors
which should most benefit from sector growth trends. Fundamental industry and
company analysis, rather than benchmarking, forms the basis of both stock
selection and portfolio construction.
Assets or companies in which the Company can invest
The Company invests in listed companies on any GCC Exchanges in addition to
companies soon to be listed. The Company may also invest in listed companies,
or pre-IPO companies, in other GCC countries. The Company will also be
permitted to invest in companies listed on stock markets not located in the
GCC which will have a significant economic exposure to and/or derive a
significant amount of their revenues from GCC countries.
Whether investments will be active or passive investments
In the ordinary course of events, the Company is not an activist investor,
although the Investment Adviser will seek to engage with investee company
management where appropriate.
Holding period for investments
In the normal course of events, the Company expects to be fully invested,
although the Company may hold cash reserves pending new IPOs or when it is
deemed financially prudent. Although the Company is a long-term financial
investor, it will actively manage its portfolio.
Spread of investments and maximum exposure limits
The Company will invest in a portfolio of investee companies. The following
investment restrictions are in place to ensure a spread of investments and to
ensure that there are maximum exposure limits in place (see investment
guidelines under Investing Restrictions).
Policy in relation to gearing and derivatives
Borrowings will be limited, as at the date on which the borrowings are
incurred, to 5% of NAV. Borrowings will include any financing element of a
swap. The Company will not make use of hedging mechanisms.
The Company may utilise derivative instruments in pursuit of its investment
policy subject to:
· such derivative instruments being designed to offer the holder a
return linked to the performance of a particular underlying listed equity
security;
· a maximum underlying equity exposure limit of 15 per cent of NAV
(calculated at the time of investment); and
· a policy of entering into derivative instruments with more than
one counterparty in relation to an investment, where possible, to minimise
counterparty risk.
Policy in relation to cross-holdings
Cross-holdings in other listed or unlisted investment funds or ETFs that
invest in Qatar or other countries in the GCC region will be limited to 10 per
cent. of Net Asset Value at any time (calculated at the time of investment).
Investing restrictions
The investing restrictions for the Company are as follows:
(i) Foreign ownership restrictions
Investments in most GCC listed companies by persons other than citizens of
that specific GCC country have an ownership restriction wherein the law
precludes persons other than citizens of that specific GCC country from
acquiring a certain proportion of a company's issued share capital. It is
possible that the Company may have problems acquiring stock if the foreign
ownership interest in one or more stocks reaches the allocated upper limit.
This may adversely impact the ability of the Company to invest in certain
companies listed on the GCC exchanges.
(ii) Investment guidelines
The Company has established certain investment guidelines. These are as
follows (all of which calculated at the time of investment):
· No single investment position in the S&P GCC
Composite constituent may exceed the greater of: (i) 15 per cent. of the Net
Asset Value of the Company; or (ii) 125 per cent. of the constituent company's
index capitalisation divided by the index capitalisation of the S&P GCC
Composite Index, as calculated by Bloomberg (or such other source as the
Directors and Investment Manager may agree):
· No single investment position in a company which
is not a S&P GCC Composite Index constituent may at the time of investment
exceed 15 per cent. of the NAV of the Company; and
· No holding may exceed 5 per cent. of the
outstanding shares in any one company (including investment in Saudi Arabian
listed companies by way of derivative investment in P-Note or Swap structured
financial products); and
(iii) Conflicts management
The Investment Manager, the Investment Adviser, their officers and other
personnel are involved in other financial, investment or professional
activities, which may on occasion give rise to conflicts of interest with the
Company. The Investment Manager will have regard to its obligations under the
Investment Management Agreement to act in the best interests of the Company,
and the Investment Adviser will have regard to its obligations under the
Investment Adviser Agreement to act in the best interests of the Company, so
far as is practicable having regard to their obligations to other clients,
where potential conflicts of interest arise. The Investment Manager and the
Investment Adviser will use all reasonable efforts to ensure that the Company
has the opportunity to participate in potential investments that each
identifies that fall within the investment objective and strategies of the
Company. Other than these restrictions set out above, and the requirement to
invest in accordance with its investing policy, there are no other investing
restrictions.
Returns and distribution policy
The Company's primary investment objective is to achieve capital growth.
However, the Company has instituted an annual dividend policy to return to
shareholders distributions at least equal to reported income for each
reporting period. shareholders should note that this cannot be guaranteed and
the level of distributions for any period remains a matter to be determined at
the discretion of the Board.
Life of the Company
The Company currently does not have a fixed life but the Board considers it
desirable that shareholders should have the opportunity to review the future
of the Company at appropriate intervals. Accordingly, at the annual general
meeting of the Company in 2023, a resolution will be proposed that the Company
continues in existence. More than 50 per cent. of shareholders voting must
vote in favour for this resolution to be passed. If the resolution is passed,
a similar resolution will be proposed at every third annual general meeting
thereafter. If the resolution is not passed, the Directors will be required to
formulate proposals to be put to shareholders to reorganise, unitise or
reconstruct the Company or for the Company to be wound up.
Environmental, social and governance standards
The adoption of environmental, social, and governance (ESG) standards and
principles by governments and regulators in the GCC will play a role in the
sustainable economic recovery of the region. It is the ambition of the Fund's
Manager to address investors' concerns about climate change-related risks such
as changes in oil demand, rising temperatures, water supply, and the impact of
extreme weather on their portfolios.
The Board and the Manager believe that integrating these considerations into
our Investment Policy is in line with the Fund's aim of delivering long-term
capital growth to investors. So, the Manager will be integrating ESG factors
into our research and monitoring process wherever possible.
Currently, a challenge facing ESG-concerned GCC investors is the lack of
consistent disclosures from corporates on top of the varying regulations and
standards in operation globally. The Manager expects that governments in the
GCC will seek to improve and standardise disclosures and ESG-related
obligations in the coming years. The official multi-year economic and
strategic 'visions' in Saudi Arabia, Qatar, Kuwait and the UAE include focus
on sustainability, diversification and environmentally friendly practices.
We are already seeing the setting up of national sustainability goals,
revamping water security programs, launching diversity initiatives,
introducing ESG financial disclosure standards and publishing of ESG
guidelines for exchange listings. There has been a shift towards investing in
renewable energies, launching green bonds and other green financing
initiatives, with a view to facilitating green solutions across a range of
sectors.
Developments such as these will assist the Manager to integrate ESG
considerations into our investment process. The Fund will update investors on
progress in this important area in future.
Report of the Directors
The Directors hereby submit their annual report together with the audited
financial statements of Gulf Investment Fund plc (the "Company") for the year
ended 30 June 2022.
The Company
The Company is incorporated in the Isle of Man and has been established to
invest primarily in quoted equities of Qatar and other Gulf Co-operation
Council (GCC) countries. The Company's investment policy is detailed on pages
14 to 16.
Results and Dividends
The results of the Company for the year and its financial position at the
year- end are set out on pages 42 to 46 of the financial statements.
The Directors manage the Company's affairs to achieve capital growth and the
Company has instituted an annual dividend policy. The quantum of the dividend
is calculated based on a proportion of the dividends received during the year,
net of the Company's attributable costs. Any undistributed income will be set
aside in a revenue reserve in order to facilitate the Company's policy of
future progressive dividend payments. This policy will be subject to the
absence of exceptional market events.
In the Circular published by the Company on 25 March 2021 the Board announced
the implementation of an enhanced dividend policy targeting an annual dividend
equivalent to 4 per cent. of Net Asset Value at the end of the preceding year,
to be paid in semi-annual instalments.
The net asset value per share at 30 June 2021 was US$1.7552 and pursuant to
the above stated policy the directors recommend a dividend of 7.02 cents per
share in respect of the year ended 30 June 2022 to be paid in two tranches.
For the year ended 30 June 2021, the Directors declared a dividend of 4.93
cents per share which was paid in two tranches with US$1,274,718 (2.46 cents
per share) being paid on 17 September 2021 to shareholders on the register as
at 20 August 2021 (the "Record Date") and US$1,144,108.24 (2.47 cents per
share) being paid on 11 March 2022 to shareholders on the register as at 7
January 2022 (the "Record Date").
Directors
Details of Board members at the date of this report, together with their
biographical details, are set out on page 29.
Director independence and Directors' and other interests have been detailed in
the Directors' Remuneration Report on pages 33 and 34.
Creditor payment policy
It is the Company's policy to adhere to the payment terms agreed with
individual suppliers and to pay in accordance with its contractual and other
legal obligations.
Gearing policy
Borrowings will be limited, as at the date on which the borrowings are
incurred, to 5% of NAV (or such other limit as may be approved by the
shareholders in general meeting). The Company will not make use of any hedging
mechanisms.
There were no borrowings during the year (2022: US$ nil).
Donations
The Company has not made any political or charitable donations during the year
(2022: US$ nil).
Adequacy of the Information supplied to the auditors
The Directors who held office at the date of approval of this Directors'
Report confirm that, so far as each is aware, there is no relevant audit
information of which the Company's auditors are unaware; and each Director has
taken all steps that he ought to have taken as a Director to make himself
aware of any relevant audit information and to establish that the Company's
auditors are aware of that information.
Statement of going concern
The Directors are satisfied that the Company has adequate resources to
continue to operate as a going concern for the foreseeable future and have
prepared the financial statements on that basis, however shareholders have
been given the opportunity to participate in 100% bi-annual tenders. They will
also vote for the continued existence of the Company at the annual general
meeting (AGM) in 2023 and every third AGM thereafter. Which could lead to a
change in the future outlook during the going concern assessment.
Independent Auditors
KPMG Audit LLC has expressed its willingness to continue in office in
accordance with Section 12 (2) of the Companies Act 1931 to 2004.
Annual general meeting
The Annual General Meeting of the Company will be held later in the year at
the Company's registered office.
A copy of the notice of Annual General Meeting is contained within this Annual
Report. As well as the business normally conducted at such a meeting,
Shareholders will be asked to renew the authority to allow the Company to
continue with share buy-backs.
The notice of the Annual General Meeting and the Annual Report are also
available at www.gulfinvestmentfundplc.com
(http://www.gulfinvestmentfundplc.com) .
Corporate governance
Full details are given in the Corporate Governance Report on pages 20 to 28,
which forms part of the Report of the Directors.
Substantial shareholdings
As at the date of publication of this annual report, the Company had been
notified, or the Company is aware of the following significant holdings in its
Share Capital.
Ordinary Shares
Name %
City of London Investment Management Company 43.59
Qatar Insurance Company S.A.Q. 42.14
Union Bancaire Privee (Geneva) 3.15
Hargreave Lansdown Asset Management (Bristol) 3.01
Interactive Investor (Glasgow) 2.62
Premier Milton Investors (London) 0.85
Substantial shareholdings continued
The above percentages are calculated by applying the shareholdings as notified
to the Company or the Company's awareness to the issued Ordinary Share Capital
as at 30 June 2022.
On behalf of the Board
Anderson Whamond
Chairman
13 September 2022
Millennium House
46 Athol Street
Douglas
Isle of Man
IM1 1JB
Corporate Governance Report
Compliance with Companies Acts
As an Isle of Man incorporated company, the Company's primary obligation is to
comply with the Isle of Man Companies Acts 1931 to 2004. The Board confirms
that the Company is in compliance with the relevant provisions of the
Companies Acts.
Compliance with the Association of Investment Companies (AIC) Code of
Corporate Governance
The Company is committed to high standards of corporate governance. The Board
is accountable to the Company's shareholders for good governance and this
statement describes how the Company applies the principles identified in the
UK Corporate Governance Code which is available on the Financial Reporting
Council's website: www.frc.org.uk (http://www.frc.org.uk) . The Board confirms
that the Company has complied throughout the accounting period with the
relevant provisions contained within the UK Code - via examining compliance
against the AIC Code of Corporate Governance.
The Board of the Company has considered the principles and provisions AIC Code
of Corporate Governance as published in February 2019 (the AIC Code). The AIC
Code addresses the principles and provisions set out in the UK Corporate
Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the Company. The
AIC Code is available on the AIC's website: www.theaic.co.uk.
The Board considers that reporting against the principles and recommendations
of the AIC Code, which has been endorsed by the FRC, will provide better
information to shareholders.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except the length of
service of Mr. Wilson and as set out below.
The UK Corporate Governance Code includes provisions relating to:
• the role of the chief executive
• executive directors' remuneration
• the need for an internal audit function
• Interaction with the workforce
For the reasons set out in the AIC Guide, and as explained in the UK Corporate
Governance Code, the Board considers these provisions are not relevant to the
position of the Company, being an externally managed investment company. In
particular, all of the Company's day-to-day management and administrative
functions, with the exception of portfolio management, risk management and
service provider performance management, are outsourced to third parties. As a
result, the Company has no executive directors, employees or internal
operations. The Company has therefore not reported further in respect of these
provisions.
Directors
The Directors are responsible for the determination of the Company's
investment policy and strategy and have overall responsibility for the
Company's activities including the review of the investment activity and
performance.
All of the Directors are non-executive. The Board considers each of the
Directors to be independent of, and free of any material relationship with,
the Investment Manager and Investment Adviser.
The Board of Directors delegates to the Investment Manager through the
Investment Management Agreement the responsibility for the management of the
Company's assets in GCC securities in accordance with the company's investment
policy and for retaining the services of the Investment Adviser. The Company
has no executives or employees.
The Articles of Association require that all Directors submit themselves for
election by shareholders at the first opportunity following their appointment
and shall not remain in office longer than three years since their last
election or re-election without submitting themselves for re-election.
The Board meets formally at least 4 times a year and between these meetings
there is regular contact with the Investment Manager. Other meetings are
arranged as necessary. The Board considers that it meets regularly enough to
discharge its duties effectively. The Board ensures that at all times it
conducts its business with the interests of all shareholders in mind and in
accordance with Directors' duties. Directors receive the relevant briefing
papers in advance of Board and Board Committee meetings, so that should they
be unable to attend a meeting they are able to provide their comments to the
Chairman of the Board or Committee as appropriate. The Board meeting papers
are the key source of regular information for the Board, the contents of which
are determined by the Board and contain sufficient information on the
financial condition of the Company. Key representatives of the Investment
Manager attend each Board meeting. All Board and Board Committee meetings are
formally minuted.
Board composition and succession plan
Objectives of Plan
· To ensure that the Board is composed of persons who collectively
are fit and proper to direct the Company's business with prudence, integrity
and professional skills.
· To define the Board Composition and Succession Policy, which
guides the size, shape and constitution of the Board and the identification of
suitable candidates for appointment to the Board.
Methodology
The Board is conscious of the need to ensure that proper processes are in
place to deal with succession issues and the Nomination Committee assists the
Board in the Board selection process, which involves the use of a Board skills
matrix.
The matrix incorporates the following elements: finance, accounting and
operations; familiarity with the regions into which the Company invests;
diversity (gender, residency, cultural background); Shareholder perspectives;
investment management; multijurisdictional compliance and risk management. In
adopting the matrix, the Nomination Committee acknowledges that it is an
iterative document and will be reviewed and revised periodically to meet the
Company's on-going needs.
The Nomination Committee monitors the composition of the Board and makes
recommendations to the Board about appointments to the Board and its
Committees.
Directors may be appointed by the Board, in which case they are required to
seek election at the first AGM following their appointment and triennially
thereafter. Directors who are not regarded as independent are required to seek
re-election annually. In making an appointment the Board shall have regard to
the Board skills matrix.
A Director's formal letter of appointment sets out, amongst other things, the
following requirements:
· bringing independent judgment to bear on issues of strategy,
performance, resources, key appointments and standards of conduct and the
importance of remaining free from any business or other relationship that
could materially interfere with independent judgement;
· having an understanding of the Company's affairs and its position
in the industry in which it operates;
· keeping abreast of and complying with the legislative and broader
responsibilities of a Director of a company whose shares are traded on the
London Stock Exchange;
· allocating sufficient time to meet the requirements of the role,
including preparation for Board meetings; and
· disclosing to the Board as soon as possible any potential
conflicts of interest.
The Board authorises the Nomination Committee to:
· recommend to the Board, from time to time, changes that the
Committee believes to be desirable to the size and composition of the Board;
· recommend individuals for nomination as members of the Board;
· review and recommend the process for the election of the Chairman
of the Board, when appropriate; and
· review on an on-going basis succession planning for the Chairman
of the Board and make recommendations to the Board as appropriate.
The Plan will be reviewed by the Board annually and at such other times as
circumstances may require (e.g. a major corporate development or an unexpected
resignation from the Board). The Plan may be amended or varied in relation to
individual circumstances at the Board's discretion.
Board Committees
The Board has established the following committees to oversee important issues
of policy and maintain oversight outside the main Board meetings:
· Audit Committee
· Remuneration Committee
· Nomination Committee
· Management Engagement Committee
Throughout the year the Chairman of each committee provided the Board with a
summary of the key issues considered at the meeting of the committees and the
minutes of the meetings were circulated to the Board.
The committees operate within defined terms of reference. They are authorised
to engage the services of external advisers as they deem necessary in the
furtherance of their duties, at the Company's expense.
Audit Committee
The Board has established an Audit Committee made up of at least two members
and comprises, Anderson Whamond, Neil Benedict and David Humbles. The Audit
Committee is responsible for, inter alia, ensuring that the financial
performance of the Company is properly reported on and monitored. The Audit
Committee is chaired by David Humbles. The Audit Committee normally meets at
least twice a year when the Company's interim and final reports to
shareholders are to be considered by the Board but meetings can be held more
frequently if the Audit Committee members deem it necessary or if requested by
the Company's auditors. The Audit Committee will, amongst other things, review
the annual and interim accounts, results announcements, internal control
systems and procedures, preparing a note in respect of related party
transactions and reviewing any declarations of interest notified to the
Committee by the Board each on six monthly basis, review and make
recommendations on the appointment, resignation or dismissal of the Company's
auditors and accounting policies of the Company. The Company's auditors are
advised of the timing of the meetings to consider the annual and interim
accounts and the auditors shall be asked to attend the Audit Committee meeting
where the annual audited accounts are to be considered. The Audit Committee
Chairman shall report formally to the Board on its proceedings after each
meeting and compile a report to shareholders on its activities to be included
in the Company's annual report. At least once a year, the Audit Committee will
review its performance, constitution and terms of reference to ensure that it
is operating at maximum effectiveness and recommend any changes it considers
necessary to the Board for approval.
The terms of reference for the Audit Committee are available on the Company's
website www.gulfinvestmentfundplc.com (http://www.gulfinvestmentfundplc.com) .
Significant Issues
During its review of the Company's financial statements for the year ended 30
June 2022, the Audit Committee considered the following significant issue as
communicated by the auditor during their reporting:
Valuation and existence of investment in subsidiary
The valuation of the investment in subsidiary, including valuation and
existence of the portfolio of investments held by the subsidiary, is
undertaken in accordance with the accounting policies, disclosed in Notes 1(a)
and 1(b) to the financial statements. All underlying investments are
considered liquid and priced based on quoted prices in active markets and have
been categorised as Level 1 or level 2 within the IFRS 13 fair value
hierarchy. The underlying portfolio is reviewed and verified by the Manager on
a regular basis and management accounts including a full portfolio listing are
prepared each month and circulated to the Board. An independent custodian,
HSBC Bank Middle East Limited, are used to hold the assets of the underlying
investment portfolio. The underlying investment portfolio is reconciled
regularly by the Manager and a reconciliation is also reviewed by the Auditor.
Remuneration Committee
The Company has established a Remuneration Committee. The Remuneration
Committee is made up of at least two non-executive Directors who are
identified by the Board as being independent. Its members are Neil Benedict
(Chairman), Anderson Whamond, and David Humbles. The Remuneration Committee
normally meets at least once a year and at such other times as the Chairman of
the Remuneration Committee shall require. The Remuneration Committee reviews
the performance of the Directors and sets the scale and structure of their
remuneration and the basis of their letters of appointment with due regard to
the interests of shareholders. In determining the remuneration of Directors,
the Remuneration Committee seeks to enable the Company to attract and retain
Directors of the highest calibre. No Director is permitted to participate in
any discussion of decisions concerning their own remuneration. The
Remuneration Committee reviews at least once a year its own performance,
constitutions and terms of reference to ensure it is operating at maximum
effectiveness and recommend any changes it considers necessary to the Board
for approval.
The terms of reference for the Remuneration Committee are available on the
Company's website www.gulfinvestmentfundplc.com.
Nomination Committee
The Company has established a Nomination Committee which shall be made up of
at least two members and which shall comprise all independent non-executive
Directors. The Nomination Committee comprises Anderson Whamond (Chairman),
Neil Benedict, and David Humbles. The Nomination Committee meets at least once
a year prior to the first quarterly Board meeting and at such other times as
the Chairman of the committee shall require. The Nomination Committee is
responsible for ensuring that the Board members have the range of skills and
qualities to meet its principal responsibilities in a way which ensures that
the interests of shareholders are protected and promoted and regularly review
the structure, size and composition of the Board. The Nomination Committee
shall, at least once a year, review its own performance, constitution and
terms of reference to ensure that it is operating at maximum effectiveness and
recommend any changes it considers necessary to the Board for approval.
The Nomination Committee will assess potential candidates on merit against a
range of criteria including experience, knowledge, professional skills and
personal qualities as well as independence, if this is required for the role.
Candidates' ability to commit sufficient time to the business of the Company
is also key, particularly in respect of the appointment of the Chairman. The
Chairman of the Nomination Committee is primarily responsible for interviewing
suitable candidates and a recommendation will be made to the Board for final
approval.
Management Engagement Committee
The Company has established a Management Engagement Committee which is made up
of at least two members who are independent non-executive Directors. The
Management Engagement Committee members are Neil Benedict (Chairman), Anderson
Whamond and David Humbles. The Management Engagement Committee will meet at
least quarterly and is responsible for reviewing the performance of the
Investment Manager and other service providers, to ensure that the Company's
management contract is competitive and reasonable for the shareholders and to
review and make recommendations to the Board on any proposed amendment to or
material breach of the management contract and contracts with other service
providers.
Board Attendance
The number of formal meetings during the year of the Board, and its
Committees, and the attendance of the individual Directors at those meetings,
is shown in the following table:
Board Audit Committee Remuneration Committee Nomination Committee Management Engagement Committee
Total number of meetings in year 10 6 2 1 4
Meetings Attended (entitled to attend)
Nicholas Wilson 5 (5) 3 (3) 1 (1) 1 (1) 2 (2)
(Chairman and Chairman of Nomination Committee)*
Anderson Whamond (Chairman and Chairman of Nomination Committee)** 8 (8) 5 (5) 1 (1) 0 (0) 3 (3)
Neil Benedict 10 (10) 6 (6) 2 (2) 1 (1) 4 (4)
(Chairman of Remuneration Committee and Chairman of Management Engagement
Committee)
David Humbles 10 (10) 6 (6) 2 (2) 1 (1) 4(4)
(chairman of Audit Committee from 20 November 2020)
*Retired 30 December 2021
**Appointed 30 December 2021
The Annual General Meeting was held on 31 December 2021.
Internal Control
The Board is responsible for the Company's system of internal control and for
reviewing its effectiveness. Its review takes place at least once a year. Such
a system is designed to manage rather than eliminate the risk of failure to
achieve business objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss. The Board also determines the
nature and extent of any risks it is willing to take in order to achieve its
strategic objectives.
The Board, assisted by the Investment Manager and Investment Adviser, has
undertaken regular risk and controls assessments. The business risks have been
analysed and recorded in a risk and internal controls report which is
regularly reviewed. The Board has reviewed the need for an internal audit
function. The Board has decided that the systems and procedures employed by
the Investment Manager and Investment Adviser, including its internal audit
function provide sufficient assurance that a sound system of internal control,
which safeguards shareholders' investments and the Company's assets, is
maintained. An internal audit function, specific to the Company, is therefore
considered unnecessary.
The Board confirms that there is an on-going process for identifying,
evaluating and managing the Company's principal business and operational risks
that have been in place for the year ended 30 June 2022 and up to the date of
approval of the annual report and financial statements.
Accountability and Relationship with the Investment Manager, the Custodian and
the Administrator
The Statement of Directors' Responsibilities is set out on page 30.
The Board has delegated contractually to external third parties, including the
Investment Manager, the Investment Adviser, the Custodian and the
Administrator, the management of the investment portfolio, the custodial
services (which include the safeguarding of the assets), the day-to-day
accounting, company secretarial and administration requirements. Each of these
contracts was entered into after full and proper consideration by the Board of
the quality and cost of the services provided, including the control systems
in operation in so far as they relate to the affairs of the Company.
The Investment Manager, the Investment Adviser and the Administrator ensure
that all Directors receive, in a timely manner, all relevant management,
regulatory and financial information. Representatives of the Investment
Manager and the Administrator attend each Board meeting enabling the Directors
to probe further on matters of concern.
Continued Appointment of the Investment Manager
The Board considers the arrangements for the provision of investment
management and other services to the Company on an on-going basis. The Board
reviews investment performance at each Board meeting and a formal review of
the Investment Manager (and Investment Adviser) is conducted annually. As a
result of their annual review, NAV performance has been found to be
satisfactory and it is the opinion of the Directors that the continued
appointment of the current Investment Manager (and Investment Adviser) on the
terms agreed is in the interests of the Company's shareholders as a whole.
Relations with shareholders
The Chairman is responsible for ensuring that all Directors are made aware of
shareholders' concerns. The shareholder profile of the Company is regularly
monitored and the Board liaises with the Investment Manager to canvass
shareholder opinion and communicate views to shareholders. The Company is
concerned to provide the maximum opportunity for dialogue between the Company
and shareholders. It is believed that shareholders have proper access to the
Investment Manager at any time and to the Board if they so wish. All
shareholders are encouraged to attend annual general meetings. Together with
the Investment Manager and Investment Adviser, regular investor presentations
are held to promote a wider following for the Company.
Viability statement
The Board makes an assessment of the longer term prospects of the Company
beyond the timeframe envisaged under the going concern basis of accounting
having regard to the Company's current position and the principal risks it
faces.
The Board does this by performing robust risk assessments using a detailed
risk matrix at each of its scheduled audit committee meetings.
The Company is a long-term investment vehicle and the Directors, therefore,
believe that it is appropriate to assess its viability over a long-term
horizon. The Board considers that assessing the Company's prospects over a
period of five years is appropriate given the nature of the Company and the
inherent uncertainties of looking out over a longer time period. The Directors
believe that a five year period appropriately reflects the long term strategy
of the Company and over which, in the absence of any adverse change to the
regulatory environment, they do not expect there to be any significant change
to the current principal risks and to the adequacy of the mitigating controls
in place.
Notwithstanding the above the Company's shareholders will have the opportunity
to vote for the cessation of the Company at the annual general meeting in 2023
which will be proposed as an ordinary resolution. In the event that the
continuation vote is not passed the Directors will be required to put forward
proposals to shareholders to the effect that the Company be wound up,
liquidated, reorganised or unitised. If the continuation vote is passed, a
further continuation vote will be proposed at every third annual general
meeting thereafter. In addition, the Directors are committed to bi-annual
tenders, subject to shareholder approval. The directors have a reasonable
expectation that the company will continue after the tender offers. However,
until the shareholders both vote and tender, the outcome of the tenders is
impossible to predict.
Promoting the Company's Success
In accordance with corporate governance best practice, the Board is now
required to describe to the Company's shareholders how the Directors have
discharged their duties and responsibilities over the course of the financial
year following the guidelines set out in the UK under section 172 (1) of the
Companies Act 2006 (the "s172 Statement"). This Statement, from 'Promoting the
Success of the Company' to "Long Term Investment" on page 28 provides an
explanation of how the Directors have promoted the success of the Company for
the benefit of its members as a whole, taking into account the likely
long-term consequences of decisions, the need to foster relationships with all
stakeholders and the impact of the Company's operations on the environment.
The purpose of the Company is to act as a vehicle to provide, over time,
financial returns (both income and capital) to its shareholders.
The Company's Investment Objective is disclosed on page 5. The activities of
the Company are overseen by the Board of Directors of the Company. The Board's
philosophy is that the Company should operate in a transparent culture where
all parties are treated with respect and provided with the opportunity to
offer practical challenge and participate in positive debate which is focused
on the aim of achieving the expectations of shareholders and other
stakeholders alike. The Board reviews the culture and manner in which the
Investment Adviser operates at its regular meetings and receives regular
reporting and feedback from the other key service providers.
The Company is a long-term investment vehicle, with a recommended holding
period of five or more years. It is externally managed, has no employees, and
is overseen by an independent non-executive board of directors. Your Company's
Board of Directors sets the investment mandate, monitors the performance of
all service providers (including the Investment Adviser) and is responsible
for reviewing strategy on a regular basis. All this is done with the aim of
preserving and, indeed, enhancing shareholder value over the longer term.
Shareholder Engagement
The following table describes some of the ways we engage with our
shareholders:
AGM The AGM provides an opportunity for the Directors to engage with shareholders,
answer their questions and meet them informally. The next AGM will take place
later in the year in the Isle of Man. We encourage shareholders to lodge their
vote by proxy on all the resolutions put forward.
Annual report We publish a full annual report each year that contains a strategic report,
governance section, financial statements and additional information. The
report is available online and in paper format.
Company announcement We issue announcements for all substantive news relating to the Company. You
can find these announcements on the website.
Results announcement We release a full set of financial results at the half year and full year
stage. Updated net asset value figures are announced on a weekly basis.
Website Our website contains a range of information on the Company and includes a full
monthly portfolio listing of our investments as well as podcasts by the
Investment Manager. Details of financial results, the investment process and
Investment Manager together with Company announcements and contact details can
be found here: www.gulfinvestmentfundplc.com
Investor relations The Management Engagement Committee evaluates the level and effectiveness of
the handling of investor relations.
Quarterly reports The investment manager produces in depth quarterly investment reports to the
market - these can also be found on the Company's website.
Other Service Providers
The other key stakeholder group is that of the Company's third party service
providers. The Board is responsible for selecting the most appropriate
outsourced service providers and monitoring the relationships with these
suppliers regularly in order to ensure a constructive working relationship.
Our service providers look to the Company to provide them with a clear
understanding of the Company's needs in order that those requirements can be
delivered efficiently and fairly. The Board, via the Management Engagement
Committee, ensures that the arrangements with service providers are reviewed
at least annually in detail. The aim is to ensure that contractual
arrangements remain in line with best practice, services being offered meet
the requirements and needs of the Company and performance is in line with the
expectations of the Board, Manager, Investment Manager and other relevant
stakeholders. Reviews include those of the Company's custodian, share
registrar, broker and auditor.
Principal Decisions
Pursuant to the Board's aim of promoting the long term success of the Company,
the following principal decisions have been taken during the year:
Portfolio The report of the Investment Manager and Investment Adviser on pages
7 to 13 details the key investment decisions taken during the year and
subsequently. The Investment Manager has continued to monitor the investment
portfolio throughout the year under the supervision of the Board.
ESG As highlighted on page 16, the Board is responsible for overseeing the
work of the Investment Manager and this is not limited solely to the
investment performance of the portfolio companies. The Board also has regard
for environmental, social and governance matters that subsist within the
portfolio companies.
Audit KPMG Audit LLC was re-appointed as auditor at the last AGM on 31
December 2021.
Long Term Investment
The Investment Manager's investment process seeks to outperform over the
longer term. The Board has in place the necessary procedures and processes to
continue to promote the long term success of the Company. The Board will
continue to monitor, evaluate and seek to improve these processes as the
Company continues to grow over time, to ensure that the investment proposition
is delivered to shareholders and other stakeholders in line with their
expectations.
Communities and the environment
The Board expects the Manager, supported by its governance function, to engage
with investee companies at the appropriate time on ESG matters in line with
good stewardship practices.
The Board is also conscious of the importance of providing an investment
product which meets the needs of its investors, including retail investors and
pensioners.
The Board is conscious of the need to take appropriate account of broader ESG
concerns and to act as a good corporate citizen.
On behalf of the Board
Anderson Whamond
Chairman
13 September 2022
Board of Directors
Nicholas Wilson (Non-Executive Chairman) retired 30 December 2021
Nicholas Wilson has over 40 years of experience in hedge funds, derivatives
and global asset management. He has run offshore branch operations for Mees
Pierson Derivatives Limited, ADM Investor Services International Limited and
several other London based financial services companies. He is a director of
EPE Special Opportunities Limited. He is a resident of the Isle of Man.
Anderson Whamond (Non-Executive Chairman)
Anderson has over 35 years' experience in the banking and financial services
sector. He is a non-executive director of The International Stock Exchange
Group Limited, and a non-executive director of the Irish domiciled Magna
Umbrella Fund and the OAKS Emerging & Frontier Umbrella Fund. Previously,
he was a non-executive director of Cayman Islands-domiciled OCCO Eastern
European Fund.
Neil Benedict (Non-Executive Director)
Neil Benedict is based in the USA with over thirty years' experience of
financial markets. He was formerly a Managing Director at Salomon Brothers,
where he was Head of International Capital Markets, and, prior to that, the
founder and head of the worldwide Currency Swaps group. Neil was also a
Managing Director at Dillon Read and helped establish their Tokyo office. He
is currently a Senior Managing Director at Sonenshine Partners a New York
private investment bank. Neil is a fellow member of the Institute of Chartered
Accountants in England and Wales.
David Humbles (Non-Executive Director)
David Humbles was born in 1960 and is British. He worked in the downstream oil
industry for 25 years and relocated to the Isle of Man in 1998 as Director of
Total. In 2003, David purchased Abbey Properties Ltd which owns and manages a
property complex in the north of the island. David owns Westminster
Properties Ltd which manages a large portfolio of residential and commercial
properties on the island. David was Managing Director of Oakmayne, a
residential developer in London. He has previously served on the board of two
AIM listed companies.
Statement of Directors' responsibilities in respect of the Annual Report and
the Financial Statements
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 company financial statements for
each financial year. Under the law they have elected to prepare the company
financial statements in accordance with International Financial Reporting
Standards (IFRSs) 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 for that period. In
preparing each of the Company's financial statements, the Directors are
required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether applicable standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
· assess the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Acts 1931 to 2004. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report and Corporate Governance Statement that complies
with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation governing the preparation and dissemination of financial
statements may differ from one jurisdiction to another.
Disclosure Guidance and Transparency Rules responsibility statement
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company;
· that in the opinion of the Directors, the Annual Report and
Accounts taken as a whole, is fair, balanced and understandable and it
provides the information necessary to assess the Company's position,
performance, business model and strategy; and
· the Business Review, Report of the Investment Manager and
Investment Adviser and the Report of the Directors include a fair review of
the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that they face.
On behalf of the Board
Anderson Whamond
Chairman
13 September 2022
Audit Committee Report
An Audit Committee has been established in compliance with the FCA's
Disclosure Guidance and Transparency Rule 7.1, the UK Corporate Governance
Code and the AIC Code of Corporate Governance consisting of independent
Directors. Its authority and duties are clearly defined within its written
terms of reference. David Humbles is Chairman of the Audit Committee, which
also comprises Mr Anderson Whamond and Mr Neil Benedict.
The Committee meets at least two times a year.
The Committee's responsibilities, which were discharged during the year,
include:
• monitoring and reviewing the integrity of the interim and
annual financial statements and the internal financial controls;
• reviewing the appropriateness of the Company's accounting
policies;
• making recommendations to the Board in relation to the
appointment of the external auditors and approving their remuneration and
terms of their engagement;
• reviewing the external Auditor's plan for the audit of the
Company's financial statements;
• developing and implementing policy on the engagement of the
external auditors to supply non-audit services;
• reviewing and monitoring the independence, objectivity and
effectiveness of the external auditors;
• reviewing the arrangements in place within the Administrator
and Investment Manager/Adviser whereby their staff may, in confidence, raise
concerns about possible improprieties in matters of financial reporting or
other matters insofar as they may affect the Company;
• performing the annual review of the effectiveness of the
internal control systems of the Company;
• reviewing the terms of the Investment Management Agreement;
• considering annually whether there is a need for the Company
to have its own internal audit function; and
• review the relationship with and the performance of the
Custodian, the Administrator and the Registrar.
The Audit Committee does not award any non-audit work. The full Board has to
approve any non-audit work and this includes confirmation that in all such
work auditor objectivity and independence is safeguarded.
Owing to the nature of the fund's business, with all major functions being
outsourced and the absence of employees, the Audit Committee do not feel it is
necessary for the Company to have its own internal audit function. This
situation is re-evaluated annually.
KPMG Audit LLC was re-appointed as auditor at the last AGM on 31 December
2021. The Audit Committee considered the experience and tenure of the audit
partner and staff and the nature and level of services provided. The Audit
Committee receives confirmation from the auditor that they have complied with
the relevant UK professional and regulatory requirements on independence. The
Company's Audit Committee meets representatives of the Administrator, who
report as to the proper conduct of the business in accordance with the
regulatory environment in which the Company, the Administrator, and the
Investment Manager/Adviser operate. The Company's external auditor also
attends this Audit Committee meeting at its request and reports if the Company
has not kept proper accounting records, or if it has not received all the
information and explanations required for its audit. The Audit Committee also
approves a policy regarding non-audit services provided by the auditor.
The Audit Committee also monitors the risks to which the Company is exposed,
provide policy re: non-audit services from the auditor and makes
recommendations as to the mitigation of these risks. This task is facilitated
by using an extensive risk matrix that enables the Committee to make a
quantitative analysis of the individual risks and to highlight those areas
where risk is high or increasing.
This report was reviewed and approved by the Board on DD September 2022.
David Humbles
Chairman of the Audit Committee
13 September 2022
Management Engagement Committee Report
A Management Engagement Committee has been established in accordance with good
corporate governance. Neil Benedict is Chairman of the Committee, which also
comprises Anderson Whamond and David Humbles.
The function of the Management Engagement Committee is to monitor the
performance of all the Company's service providers and in the particular the
performance of the Investment Manager/Investment Adviser.
The performance of the Investment Manager/Investment Adviser is formally
reviewed annually at the end of the Company's financial year. The Management
Engagement Committee meets quarterly prior to the quarterly Board meetings and
the Chairman of the Management Engagement Committee monitors the performance
periodically during the intervening periods.
As regards the Investment Manager/Investment Adviser, the Committee:
· monitors and evaluates the investment performance
(http://www.theaic.co.uk/handbook/?l=3.3.) both in absolute terms and also by
reference to peer group analysis prepared by the Investment Manager/Adviser
and by the Company's broker;
· reviews the performance fee
(http://www.theaic.co.uk/handbook/?l=4.2.2) structure to ensure that it does
not encourage excessive risk and that it rewards demonstrable superior
performance;
· investigates any breaches of agreed investment limits and any
deviation from the agreed investment policy
(http://www.theaic.co.uk/handbook/?l=3.1.1) and strategy;
· reviews the standard of any other services provided by the
Investment Manager;
· evaluates the level and effectiveness of any marketing support
provided by the Investment Manager, including but not limited to, their input
into quarterly reports, handling investor relations and website monitoring and
development;
· assesses the level of fees
(http://www.theaic.co.uk/handbook/?l=1.3.1.5) charged by the Investment
Manager and how these fees compare with those charged to peer group
(http://www.theaic.co.uk/handbook/?l=3.2.4) companies;
· compares the notice period on the Investment Management Agreement
(http://www.theaic.co.uk/handbook/?l=1.3.1.3) with industry norms;
· considers any other issues on the appointment of the Investment
Manager.
As regards the other service providers to the Company, the Committee:
· monitors the terms on which they are retained and compares them
to market rates;
· examines the effectiveness of the services provided;
· makes recommendations to the Board where changes are warranted.
At its most recent meeting, the Management Engagement Committee concluded that
the performance of the Investment Manager/Investment Adviser had been
satisfactory. The Investment Manager had adhered to the investment policy and
policy limits.
The Committee was satisfied with the current performance of the Company's
other service providers.
Neil Benedict
Chairman of the Management Engagement Committee
13 September 2022
Directors' Remuneration Report
This report meets the relevant rules of the Financial Conduct Authority and
describes how the Board has applied the principles relating to Directors'
remuneration. An ordinary resolution to receive and approve this report will
be put to the shareholders at the forthcoming Annual General Meeting.
Role of the Remuneration Committee
The role and make-up of the Remuneration Committee is more fully discussed on
page 23.
The committee held two formal meetings during the year, during which it
addressed all the matters under its remit.
Consideration by the Directors of Matters relating to the Directors'
remuneration
As the Board is comprised entirely of non-executive Directors the Board as a
whole consider the Directors' remuneration but it has appointed its
Remuneration Committee to consider matters relating thereto.
Remuneration policy
The Company's Articles of Association limit the basic fees payable to the
Directors to £200,000 per annum in aggregate. Subject to this overall limit
it is the Company's policy that the fees payable to the Directors should
reflect the time spent by the Board on the Company's affairs and the
responsibilities borne by the Directors and should be sufficient to enable
candidates of high calibre to be recruited. The Directors are also entitled to
receive reimbursement of any expenses incurred in relation to their
appointment.
The policy is for the Chairman of the Board and Chairman of the Audit
Committee to be paid a higher fee than the other Directors in recognition of
their more onerous roles and more time spent.
In the year under review the Directors' fees were paid at the following annual
rates: the Chairman £43,750, the Chairman of the Audit Committee £26,250,
the other Directors £24,000. From 1 January 2022 the Directors' fees changed
to the following rates: the Chairman £35,000, the Chairman of the Audit
Committee £26,250 and the other Director £24,500.
Directors' and officers' liability insurance cover is in place in respect of
the Directors.
Reappointment
It is the Board's policy that non-independent Directors stand for re-election
every year and independent Directors stand for re-election every three years.
Directors' fees
The fees expensed (including additional payments) by the Company in respect of
each of the Directors who served during the year, and in the previous year,
were as follows:
30 June 2022 30 June 2021
£ £
Nicholas Wilson (Chairman)* 21,875 53,125
Anderson Whamond (Chairman)** 27,020
Paul Macdonald*** - 14,572
David Humbles (Chairman of Audit Committee) 26,250 30,625
Neil Benedict (Chairman of Remuneration Committee and Management Engagement 24,500 29,750
Committee)
99,645 128,072
US$ charge reflected in the financial statements 130,055 171,342
*Resigned 30 December 2021
**Appointed 1 January 2022
***Resigned 20 November 2020
Expenses totalling US$20,518 (2021: US$420) were incurred by the Directors and
reimbursed during the year.
No other remuneration or compensation was paid or payable by the Company
during the period to any of the Directors.
Directors' and other interests
None of the Directors had any interest during the year in any material
contract for the provision of services which was significant to the business
of the Company.
Director holdings in the Company:
30 June 2022 30 June 2021
Director Shares Shares
Nicholas Wilson* 39,600 39,600
*Retired 30 December 2021
For and on behalf of the Board
Neil Benedict
Chairman of the Remuneration Committee
13 September 2022
Report of the Independent Auditors, KPMG Audit LLC, to the members of Gulf
Investment Fund plc
Our opinion is unmodified
We have audited the financial statements of Gulf Investment Fund plc (the
"Company"), which comprise the statement of financial position as at 30 June
2022, the income statement, statement of comprehensive income, statement of
changes in equity, statement of cash flows for the year then ended, and notes,
comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the state of the Company's affairs
as at 30 June 2022 and of the Company's profit for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards; and
· have been properly prepared in accordance with the requirements
of the Companies Acts 1931 to 2004.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed entities. We believe
that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion.
Material uncertainty relating to going concern
The
Risk
Our response
Going Concern: Disclosure quality: Our procedures included:
Refer to Audit Committee Report on page 31 The financial statements explain how the Board has formed a judgement that it We obtained and inspected a Board approved written assessment of going concern
is appropriate to adopt the going concern basis of preparation for the on the Company and corroborated the assessment with our knowledge of the
Company. business.
We draw attention to note 13.1 to the financial statements which indicates
that the Company is subject to 100% bi- annual tender offers in March and
September each year. As indicated in that note, should the amount tendered That judgement is based on an evaluation of the inherent risks to the We considered the risk that the outcome of the 100% bi-annual tender offers in
result in the remaining outstanding shares being below a set minimum size, a Company's business model and how those risks might affect the Company's March and September each year could effect the Company for at least a year
process would commence that may lead to the winding up or liquidation of the financial resources or ability to continue operations over a period of at from the date of approval of the financial statements (the "going concern
Company. least a year from the date of approval of the financial statements, in period") by inspecting minutes of meetings held by the directors and inquiring
particular in relation to the 100% bi-annual tender offers each year. with management as to their assessment of the likelihood of uptake of the
tender offers.
This condition constitutes a material uncertainty that may cast significant
doubt on the Company's ability to continue as a going concern. The risk for our audit is whether or not those risks are such that they
amounted to a material uncertainty that may cast significant doubt about the Assessing Transparency:
Our opinion is not modified in this respect. ability of the Company to continue as a going concern. If so, that fact is
required to be disclosed (as has been done) and, along with a description of We considered whether the going concern disclosure in note 13.1 to the
the circumstances, is a key financial statement disclosure. financial statements gives a full and accurate description of the directors'
assessment of going concern, including the identified risks and dependencies.
Other key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. Going concern is a significant
key audit matter and is described in the 'Material uncertainty relating to
going concern' section of our report. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the other key audit matter
was as follows (unchanged from 2021):
The Risk Our Response
Valuation and existence of the investment at fair value through profit or loss Incorrect valuation and existence Our procedures included:
(comprising investment in subsidiary)
The investment in subsidiary is stated at fair value of US$83.2m (2021: Control design:
(US$83.2m, 2021: US$90.6m) US$90.6m), based on its net asset value, representing 99.8% (2021: 99.5%) of
total assets. · Documenting and assessing the processes in place to record
investment transactions and to value the portfolio;
Refer to page 23 (Significant Issues identified by the Audit Committee) and
note 1(a) (note relating to investment in subsidiary) and note 1(b) (note The underlying portfolio of investments held by the subsidiary is stated at
relating to investments held by the subsidiary). fair value of US$73.9m (2021: US$88.4m), representing 88.7% (2021: 97.1%) of Tests of detail:
the Company's net assets on a look-through basis (by value) and is considered
to be the key driver of the results of the Company. · Auditing the accounts of the subsidiary as part of the audit of
the Company;
· Assessing the accounting policies adopted by the subsidiary to
Regarding the underlying portfolio of investments held by the subsidiary, ensure these are consistent with the Company's accounting policies. In
incorrect asset pricing or a failure to maintain proper title of assets could particular, ensuring that the portfolio of investments held by the subsidiary
have a significant impact on the investment portfolio valuation and the return is stated at fair value and ensuring net asset value of the subsidiary
generated for shareholders of the Company. represents fair value;
· Agreeing the valuation of 100 per cent of investments in the
subsidiary's portfolio to externally quoted prices (in the case of P-Notes
Of the investments held by the subsidiary, a total of US$28.3m (2021: this represents the quoted price of the underlying equity);
US$41.6m) was held via P-Notes; held to obtain exposure to Saudi Arabia, where
direct investment in equities is not possible for foreign investors. · Assessing the credit worthiness of the P-Note issuers by
examining their credit ratings or financial statements in the absence of a
credit rating and inspecting the P-Note legal instruments to assess whether
they provide the full return of the underlying share;
Additional risks arise regarding the P-Notes as follows:
· Agreeing 100 per cent of investment holdings in the subsidiary's
- they are issued by counterparty financial institutions and therefore are portfolio to independently received third party confirmations from investment
subject to counterparty risk; and custodians.
- they are classified as level 2 in the fair value hierarchy as there is no
quoted price in an active market for the P-Note instrument itself - instead
they are priced based on the quoted price of the underlying equity to which
they relate.
Our Response
. Our procedures included:
Assessing transparency
· Consideration of the appropriateness, in accordance with relevant
accounting standards, of the disclosures in respect of the P-Notes, including
their level in the fair value hierarchy.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £800,000,
determined with reference to a benchmark of total assets of £83,337,000, of
which it represents approximately 1.0% (2021: 1.0%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2021: 75%) of materiality for the financial
statements as a whole, which equates to £600,000. We applied this percentage
in our determination of performance materiality because we did not identify
any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £40,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic for at least a year from the date of approval of
the financial statements (the "going concern period"). As stated above, they
have also concluded that there is a material uncertainty related to going
concern.
An explanation of how we evaluated the directors' assessment is set out in the
'material uncertainty relating to going concern' section of our report.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate; and
· we have nothing material to add in relation to the directors'
statement in the notes to the financial statements on the use of the going
concern basis of accounting and their identification therein of a material
uncertainty over the Company's use of that basis for the going concern period
and we found the going concern disclosure in note 13.1 to be acceptable..
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company's policies and
procedures to prevent and detect fraud as well as enquiring whether management
have knowledge of any actual, suspected or alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular the risk that management may
be in a position to make inappropriate accounting entries. On this audit we do
not believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including
· Identifying journal entries and other adjustments to test based
on risk criteria and comparing any identified entries to supporting
documentation; and
· incorporating an element of unpredictability in our audit
procedures.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations continued
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report but does
not include the financial statements and our auditor's report thereon. Our
opinion on the financial statements does not cover the other information and
we do not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. We have nothing material to add or draw attention to
in relation to:
· the directors' confirmation within the viability statement (page
25) that they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
· the emerging and principal risks disclosures describing these
risks and explaining how they are being managed or mitigated;
· the directors' explanation in the viability statement (page 25)
as to how they have assessed the prospects of the Company, over what period
they have done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
· the directors' statement that they consider that the annual
report and financial statements taken as a whole is fair, balanced and
understandable, and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy;
· the section of the annual report describing the work of the Audit
Committee, including the significant issues that the Audit Committee
considered in relation to the financial statements, and how these issues were
addressed; and
· the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies Acts 1931 to 2004 require us to report to you if, in our opinion:
· proper books of account have not been kept and proper returns
adequate for our audit have not been received from branches not visited by us;
or
· the financial statements are not in agreement with the books of
account and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 30, the directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error;
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern
basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at: www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than the Company's members as a body
This report is made solely to the Company's members, as a body, in accordance
with section 15 of the Companies Act 1982. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Edward Houghton
Responsible Individual
For and on behalf of KPMG Audit LLC
Chartered Accountants and Recognised Auditors
Heritage Court
41 Athol Street
Douglas
Isle of Man
IM1 1LA
13 September 2022
Income Statement
Note Year ended 30 June 2022 Year ended 30 June
2021
US$'000 US$'000
Income
Net (loss)/income in investment at fair value through profit or (11,947) 39,419
loss
Dividend received from subsidiary 28,570 -
Interest income on loan 212 1,169
Other income 1 -
Total net income 16,836 40,588
Expenses
Expenses 7 653 925
Total operating expenses 653 925
Profit before tax 16,183 39,663
Income tax expense - -
Profit for the year 16,183 39,663
Basic earnings per share (cents) 4 34.09 53.21
Diluted earnings per share (cents) 4 34.09 53.21
The Directors consider that all results derive from continuing activities.
Statement of Comprehensive Income
Year ended 30 June 2022 Year ended 30 June 2021
US$'000 US$'000
Profit for the year 16,183 39,663
Other comprehensive income - -
Items that are or may be reclassified subsequently to profit or loss:
Currency translation differences - -
Total items that are or may be reclassified subsequently to profit or loss - -
Other comprehensive income for the year - -
Total comprehensive income for the year 16,183 39,663
Statement of Financial Position
Note At 30 June 2022 At 30 June 2021
US$'000 US$'000 US$'000 US$'000
Assets
Investment at fair value through profit or loss - comprising: 1(a)
- equity interest in subsidiary 76,705 88,652
- loan to subsidiary 6,500 1,934
83,205 90,586
Other receivables and prepayments 65 332
Cash and cash equivalents 67 127
Total assets 83,337 91,045
Equity
Issued share capital 5 411 576
Reserves 82,853 90,375
Total equity 83,264 90,951
Current liabilities
Other payables and accrued expenses 6 73 94
Total current liabilities 73 94
Total equity and liabilities 83,337 91,045
The financial statements were approved by the Directors on 13 September 2022
and signed on their behalf by:
Anderson
Whamond
David Humbles
Chairman
Director
Statement of Changes in Equity
Share capital Reserves Total
US$'000 US$'000 US$'000
Balance at 1 July 2020 925 113,018 113,943
Total comprehensive income for the year
Profit for the year - 39,663 39,663
Total comprehensive income for the year - 39,663 39,663
Contributions by and distributions to owners
Dividends paid - (1,553) (1,553)
Shares subject to tender offer (349) (60,372) (60,721)
Tender offer expenses - (381) (381)
Total contributions by and distributions to owners (349) (62,306) (62,655)
Balance at 30 June 2021 576 90,375 90,951
Share capital Reserves Total
US$'000 US$'000 US$'000
Balance at 1 July 2021 576 90,375 90,951
Total comprehensive income for the year
Profit for the year - 16,183 16,183
Total comprehensive income for the year - 16,183 16,183
Contributions by and distributions to owners
Dividends paid - (2,418) (2,418)
Shares subject to tender offer (165) (20,947) (21,112)
Tender offer expenses - (340) (340)
Total contributions by and distributions to owners (165) (23,705) (23,870)
Balance at 30 June 2022 411 82,853 83,264
Statement of Cash Flows
Year ended 30 June 2022 Year ended 30 June 2021
US$'000 US$'000
Cash flows from operating activities
Dividend received from subsidiary 28,570 -
Interest income from loan to subsidiary 197 2,571
Loan to subsidiary (4,566) 61,220
Operating expenses paid (391) (1,226)
Net cash generated from operating activities 23,810 62,565
Financing activities
Dividends paid (2,418) (1,553)
Cash used in tender offer (21,112) (60,721)
Tender expenses (340) (381)
Net cash used in financing activities (23,870) (62,655)
Net decrease in cash and cash equivalents (60) (90)
Effects of exchange rate changes on cash and cash equivalents - -
Cash and cash equivalents at beginning of the year 127 217
Cash and cash equivalents at end of the year 67 127
Notes to the Financial Statements
1(a) Investment at fair value through profit or loss
30 June 2022 30 June 2021
US$'000 US$'000
Equity interest in subsidiary 76,705 88,652
Loan to subsidiary 6,500 1,934
Total investment in subsidiary 83,205 90,586
The Company has one subsidiary, Epicure Qatar Opportunities Holdings Limited
("the Subsidiary"), which holds the portfolio of investments and has the
investment management and custodian agreements. The investment in subsidiary
is stated at fair value through profit or loss in accordance with the IFRS 10
Investment Entity Consolidation Exception. The fair value of the investment in
Subsidiary is based on the year-end net asset value of the Subsidiary as
reported by the Administrator. The loan to Subsidiary, with an aggregate
principal amount of US$6,500,000 (2021: US$1,934,378), is included within this
balance. The loan is subject to interest on the aggregate principal amount
drawn down from 1 January 2011, at the US prime rate per annum. All loan
repayments made by the Subsidiary will first be deducted from the outstanding
loan interest before being applied to the principal balance. The loan is
secured by fixed and floating charges over the assets of the Subsidiary and is
repayable on demand. Additions and disposals regarding the investment in
subsidiary are recognised on trade date.
1(b) Financial assets at fair value through profit or loss
held by the Subsidiary
The Subsidiary holds a portfolio of quoted equities and P-Notes which are
classified as fair value through profit or loss. The fair value for quoted
equities is based on the current bid price ruling at the year-end without
regard to selling prices. The fair value of P-Notes is based on the quoted
year-end bid price of the underlying equity to which they relate. P-Notes are
promissory notes issued by certain counterparty banks that are designed to
offer the holder a return linked to the performance of a particular underlying
equity security or market and used where direct investment in the relevant
underlying equity security or market is not possible for regulatory or other
reasons. To the extent dividends are received on the securities to which the
P-Notes are linked, these are taken to investment income.
At 30 June 2022 the Subsidiary held 17 P-Notes (2021: 21) with a value of
US$28,259,031 (2021: US$41,621,442), held to obtain exposure to Saudi Arabia
where direct investment in equities is not possible for foreign investors.
Purchases and sales of investments are recognised on trade date - the date on
which the Company commits to purchase or sell the asset. Investments are
initially recorded at fair value, and transaction costs for all financial
assets and financial liabilities carried at fair value through profit and loss
are expensed as incurred.
Gains and losses (realised and unrealised) arising from changes in the fair
value of the financial assets are included in the income statement in the year
in which they arise.
Investments held by the Subsidiary
30 June 2022: Financial assets at fair value through profit or loss; all
quoted equity securities or P-Notes:
Security name Number US$'000
Commercial Bank of Qatar (CBQK QD) 4,376,921 8,226
Qatar Gas Transport (QGTS QD) 6,896,794 7,084
Qatar Navigation (QNNS QD) 2,133,250 4,900
Emaar Properties Company (EMAAR UH) 3,018,122 4,272
National Commercial Bank* 239,000 4,197
Air Arabia 6,400,182 3,606
Saudi Telecom* 130,500 3,377
Qatar National Bank (QNBK QD) 552,152 3,022
Dubai Islamic Bank (DIB UH) 1,924,164 3,012
Middle East Healthcare* 345,000 2,947
United International Transportation Co* 230,304 2,759
Security name Number US$'000
Emirates NBD USD Stock* 748,978 2,671
Emirates National Bank of Dubai (ENBD UH) 715,000 2,550
Integrated Holding Company 1,850,000 2,398
Maharah Human Resources* 128,963 2,093
Mannai Corporation (MCCS) 893,705 2,044
Alinma Bank* 191,000 1,700
Almarai Co. Ltd* 120,000 1,676
Gulf International Services (GISS QD) 2,850,000 1,629
Saudi Airlines Catering Co* 71,000 1,343
Al Hammadi Company* 132,000 1,263
Aldrees Petroleum and Transport Serv Co* 69,000 1,217
Vodaphone Qatar 2,758,493 1,205
Barwa Real Estate (BRES QD) 960,000 872
Saudi International Petrochemical* 60,000 801
Fawaz Abdulaziz Al* 260,000 788
Qatar International Islamic Bank (QIIK) 263,401 771
Qatar Gas Transport USD* 402,256 413
Abdullah Al Othaim Markets Co* 15,000 413
Banque Saudi Fransi - SHAMAL* 24,000 303
Arab National Bank - Shamal* 38,000 299
73,851
*P-notes
Investments held by Subsidiary
30 June 2021: Financial assets at fair value through profit or loss; all
quoted equity securities or P-Notes:
Security name Number US$'000
Commercial Bank of Qatar (CBQK QD) 4,044,953 5,815
Emaar Properties Company (EMAAR UH) 4,982,411 5,628
Al Khaleej Bank (KCBK QD) 8,161,138 4,910
Industries Qatar (IQCD QD) 1,228,580 4,470
Air Arabia 11,095,071 4,017
Saudi International Petrochemical Co (2310)* 480,000 3,911
Dubai Islamic Bank (DIB) 2,863,030 3,756
Saudi Ceramic Company (2040)* 240,000 3,637
Qatar National Bank (QNBK USD)* 730,000 3,598
Qatar Navigation (QNNS QD) 1,681,970 3,399
Company for Co-op Insurance (8010)* 146,973 3,241
Aramex (ARMX) 2,981,259 3,165
Qatar Insurance (QATI QD) 4,624,360 3,145
Al Moammar Information Systems Co. (7200)* 87,262 2,928
Saudi Ground Services (4031)* 301,500 2,906
Jarir Marketing Co (4190)* 50,252 2,826
Saudi Co for Hardware* 136,179 2,698
Saudi Arabian Fertiliser Co* 84,127 2,661
Qatar Gas Transport (QGTS QD) 3,126,287 2,575
Qatar National Bank (QNBK QD) 506,110 2,494
Ras Al Khaimah Ceramics Co 3,404,330 2,039
Saudi Arabian Mining Co* 100,000 1,683
Yanbu Cement* 135,000 1,600
Industries Qatar (IQCD USD)* 400,000 1,455
Saudi British Bank (1060)* 159,938 1,342
30 June 2021: Financial assets at fair value through profit or loss; all
quoted equity securities or P-Notes (continued):
Security name Number US$'000
Banque Saudi Fransi* 128,618 1,315
Jazeera Airways 570,313 1,221
Fawaz Abdulaziz Al (4240)* 180,000 1,203
Seera Group Holdings* 200,000 1,156
National Industrialisation Co* 185,000 951
Leejam Sports Co (1830)* 38,608 800
Yamama Cement* 80,000 730
Riyad Bank* 91,000 642
Emaar Properties Co (EMAAR USD)* 300,000 339
Jazeera Airways RTS 310,994 138
88,394
*P-Notes.
1(c) Risks relating to financial instruments
Risks relating to financial instruments comprise market price risk, credit
risk, interest rate risk, liquidity risk and foreign currency risk. These are
detailed below and in notes 2, 6 and 8.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company.
Credit risk continued
The carrying amounts of financial assets best represent the maximum credit
risk exposure at the statement of financial position date. This relates also
to financial assets carried at amortised cost.
At the reporting date, the financial assets exposed to credit risk comprised
the following:
30 June 2022 30 June 2021
US$'000 US$'000
Loan to subsidiary 6,500 1,934
Cash and cash equivalents 67 127
Other receivables 28 332
6,595 2,393
The maximum exposure to credit risk is represented by the carrying amount of
each financial asset in the statement of financial position. Management does
not expect any counterparty to fail to meet its obligations and there are no
debts past their due dates as at the year-end. All amounts are due within one
month of the year end.
Investments held by the subsidiary are held by the Custodian, HSBC Bank
(Middle East) Ltd.
P-Notes held by the Company's subsidiary are issued by counterparty financial
institutions and therefore the Company is exposed to credit risk in relation
to these financial institutions. The value of P-Notes held at the year-end
is disclosed in note 1(a). The counterparties are Merrill Lynch International
& Co C.V. (guaranteed by Bank of America Corporation), EFG-Hermes MENA
Securities Limited (guaranteed by EFG-Hermes Holding S.A.E.) and HSBC Bank
Middle East (guaranteed by HSBC Bank plc).
The credit ratings of the financial institutions are as follows:
Merrill Lynch international A+
Bank of America Corporation A-
HSBC Bank
plc
A+
The ratings for Merrill Lynch and Bank of America are from Standard and Poors
and the rating for HSBC is from Fitch.
EFG Hermes MENA Securities Limited and EFG Hermes Holding S.A.E. do not have a
credit rating. However, the Board and Investment Advisor have reviewed their
credit worthiness and consider it to be
acceptable.
The investments in P-Notes, which are over-the-counter equity linked
instruments, expose the Company to the risk that the counterparties to the
instruments might default on their obligations to the Company. The Directors
consider the risk to be insignificant.
The Subsidiary uses the banking services of HSBC Bank (Middle East) Ltd and
Barclays (Isle of Man) PLC. HSBC has a credit rating of A2 assigned by Moody
and Barclays has a credit rating of A- from Standard and Poors.
Other receivables principally relate to loan interest receivable from the
Subsidiary.
Interest rate risk
The Company's loan to subsidiary bears interest and is stated at fair value,
which is considered to be equivalent to cost as the loan is repayable on
demand, bears interest at floating rate and there is negligible credit risk.
The underlying portfolio held by the Subsidiary comprises equities or equity
linked securities. Cash held is invested at short-term market interest rates.
As a result, the Company is not subject to fair value interest rate risk due
to fluctuations in the prevailing
levels of market interest rates. However, it is subject to cash flow risk
arising from changes in market interest rates with respect to cash balances
held by the Company and the Subsidiary.
The table below summarises the Company's exposure to interest rate risks. It
includes the Company's financial assets and liabilities at the earlier of
contractual re-pricing or maturity date, measured by the carrying value of
assets and liabilities:
30 June 2022 Less than 1month 1-3 months 3 months 1-5 years Over 5 Non-interest Total
to 1 year years bearing
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial assets
Equity interest in subsidiary - - - - - 76,705 76,705
Loan to subsidiary 6,500 - - - - - 6,500
Other receivables and prepayments - - - - - 28 28
Cash 67 - - - - - 67
Total financial assets 6,567 - - - - 76,733 83,300
Financial liabilities
Other payables and accrued expenses - - - - - 73 73
Total financial liabilities - - - - - 73 73
Total interest rate sensitivity gap 6,567 - - - -
30 June 2021 Less than 1month 1-3 months 3 months 1-5 years Over 5 Non-interest Total
to 1 year years bearing
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial assets
Equity interest in subsidiary - - - - - 88,652 88,652
Loan to subsidiary 1,934 - - - - - 1,934
Other receivables and prepayments - - - - - 332 332
Cash 127 - - - - - 127
Total financial assets 2,061 - - - - 88,984 91,045
Financial liabilities
Other payables and accrued expenses - - - - - 94 94
Total financial liabilities - - - - - 94 94
Total interest rate sensitivity gap 2,061 - - - -
All interest received on cash balances are at variable rates. A sensitivity
analysis for changes in interest rates on cash balances has not been provided
as it is not deemed significant.
2 Fair value hierarchy
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has the following levels:
• Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The investment in subsidiary held by the Company is classified as level 2 in
the fair value hierarchy - being based on the net asset value of the
Subsidiary.
All the underlying listed equity investments held by the Subsidiary are
classed as level 1 investments. The P-Notes held by the Subsidiary are classed
as level 2. The analysis of investments held by the Subsidiary between level 1
and level 2 is as follows:
Financial assets at fair value through profit or loss at 30 June 2022 Level 1 Level 2 Level 3 Total
US$'000 US$'000 US$'000 US$'000
Assets:
Equity investments 45,591 - - 45,591
P-Notes - 28,260 - 28,260
45,591 28,260 - 73,851
Financial assets at fair value through profit or loss at 30 June 2021 Level 1 Level 2 Level 3 Total
US$'000 US$'000 US$'000 US$'000
Assets:
Equity investments 46,772 - - 46,772
P-Notes - 41,622 - 41,622
46,772 41,622 - 88,394
The fair value of other financial instruments both held by the Company and the
Subsidiary, including cash and short-term receivables and payables is a
reasonable approximation of fair value.
Market price risk
The Company's strategy for the management of investment risk is driven by the
Company's investment objective. The main objective of the Company is to
capture the opportunities for growth offered by the Gulf Cooperation Council
region ("GCC") by investing in GCC countries.
All investments present a risk of loss of capital through movements in market
prices. The Investment Manager and Investment Adviser moderate this risk
through a careful selection of securities within specified limits. The
Investment Manager and the Investment Adviser review the position on a
day-to-day basis and the Directors review the position at Board meetings.
The Company's market price risk is managed through the diversification of the
underlying investment portfolio held by the Subsidiary. Approximately 89%
(2021: 97%) of the net assets attributable to holders of Ordinary Shares is
invested in equity securities and P-Notes held by the Subsidiary, on a look
through basis.
At 30 June 2022, if the market value of the investment portfolio held by the
Subsidiary had increased/decreased by 5.1% (as per the movement in the
SEMGGCPD Index post year-end measured at 1 September 2022) with all other
variables held constant, this would have increased/decreased net assets
attributable to shareholders by approximately US$3.77 million (30 June 2021 :
1.00% : US$0.88 million). Market price volatility is expected to increase due
to geo-political uncertainty and global inflationary pressures.
3 Net asset value per share
The net asset value per share as at 30 June 2022 is US$2.0256 per share (30
June 2021: US$1.7552) based on 41,105,216 (30 June 2021: 51,817,824) Ordinary
shares in issue as at that date. This differs from the published net asset
value per share at this date US$2.0261 owing to an audit adjustment which
included a trade which was received after the original valuation cut-off.
4 Earnings per share
Basic and diluted earnings per share are calculated by dividing the profit
attributable to equity holders of the Company by the weighted average number
of Ordinary shares in issue during the year.
30 June 2022 30 June 2021
Profit attributable to equity holders of the Company (US$'000) 16,183 39,663
Weighted average number of Ordinary shares in issue (thousands) 47,474 74,534
Basic and diluted earnings per share (cents per share) 34.09 53.21
5 Share capital
30 June 2022 30 June 2021
US$'000 US$'000
Authorised 500,000,000 Ordinary shares of US$0.01 each 5,000,000 5,000,000
Issued, called-up and fully-paid:
41,105,216 (2021: 51,817,824) Ordinary shares of US$0.01 each in issue, with 411 518
full voting rights
Nil (2021: 5,757,536) Ordinary shares of US$0.01 each held in treasury - 58
Issued share capital 411 576
On 3 November 2021 the Company completed the purchase of 5,497,652 Tendered
Shares and on 11 May 2022 the Company completed the purchase of 5,214,956
Tendered Shares. This was in accordance with the Tender Offer launched on 23
November 2020. These Tendered Shares were cancelled. The issued share capital
is now 41,105,216 shares with no shares held in treasury. As a result, the
total number of shares with voting rights is 41,105,216.
Capital management
The Board's policy is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of
the Company. The Board manages the Company's affairs to achieve Shareholder
returns.
through capital growth rather than income and monitors the achievement of this
through growth in net asset value per share.
Capital comprises share capital and reserves. Neither the Company nor the
Subsidiary is subject to externally imposed capital requirements.
6 Other payables and accrued expenses
30 June 2022 30 June 2021
US$'000 US$'000
Administration fee payable 39 39
Accruals and sundry creditors 34 55
73 94
Liquidity risk
The Company manages its liquidity risk by maintaining sufficient cash for
operations and the ability to realise market positions. The Company's
liquidity position is monitored by the Investment Manager and the Board of
Directors.
The residual undiscounted contractual maturities of financial liabilities are
in the table below:
30 June 2022 Less than 1-3 3 months to 1 year 1-5 years Over 5 years No stated maturity
1 month months
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial liabilities
Other creditors and accrued expenses 73 - - - - -
73 - - - - -
30 June 2021 Less than 1-3 3 months to 1 year 1-5 years Over 5 years No stated maturity
1 month months
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial liabilities
Other creditors and accrued expenses 94 - - - - -
94 - - - - -
7 Expenses
30 June 2022 30 June 2021
US$'000 US$'000
Administrator and Registrar's fees (see below) 161 189
Audit fees 35 34
Custodian fees (see below) 3 3
Directors' fees and expenses* 151 178
Directors' insurance cover 51 29
Broker fees 58 54
Other expenses 194 438
653 925
*Directors fees amounted to US$130,055 and Directors expenses were US$20,518.
Investment management fees and custodian fees borne by the Subsidiary were
US$752,984 and US$87,304 respectively (2021: US$921,971 and US$160,223
respectively).
Investment manager's fees
Annual fees
The Investment Manager was entitled to an annual management fee of 1.25% of
the Net Asset Value of the Company, calculated monthly and payable quarterly
in arrears. The Investment Management Agreement was subject to termination on
31 October 2013 with a revised agreement coming into effect from 1 November
2013. Under the revised agreement the annual fee reduced to 1.05% of the net
asset value of the Company and further reduced to an annual fee of 0.90% of
the net asset value of the Company from 1 November 2016. This was due for
termination on 31 October 2019 but was rescinded and the fee continues at a
rate of 0.80% which was effective from 1 January 2021.
Annual management fees for the year ended 30 June 2022 amounted to US$752,984
(30 June 2021: US$921,971) and the amount accrued but not paid at the year-end
was US$180,013 (30 June 2021: US$189,524). This fee is borne by the
Subsidiary.
Administrator and Registrar fees
The Administrator is entitled to receive a fee of 12.5 basis points per annum
of the net asset value of the Company between US$0 and US$100 million, 10
basis points of the net asset value of the Company above US$100 million.
This is subject to a minimum monthly fee of US$12,000, payable quarterly in
arrears. The Administrator receives an additional fee of US$1,200 per month
for providing monthly valuation data to the Association of Investment
Companies.
The Administrator assists in the preparation of the financial statements of
the Company and provides general secretarial services.
The Administrator may utilise the services of a CREST accredited registrar for
the purposes of settling share transactions through CREST. The cost of this
service will be borne by the Company. It is anticipated that the cost will
be in the region of £12,000 per annum subject to the number of CREST settled
transactions undertaken.
Administration fees paid for the year ended 30 June 2022 amounted to
US$161,493 and US$17,047 for additional services (30 June 2021: US$189,045 and
US$18,554 respectively). Outstanding Administration fees at the year-end
amounted to US$39,600 (30 June 2021: US$39,106).
Custodian fees
The Custodian is entitled to receive fees of US$7,200 per annum and US$25 per
processed transaction.
In addition the Custodian is entitled to receive fees of 8 basis points per
annum in respect of Qatari securities held by the Subsidiary and 10 basis
points per annum in respect of non-Qatari, GCC securities held by the
Subsidiary and $45 per settled transaction (Qatar)/$50 per settled transaction
(GCC excluding Qatar). From 1 March 2013 the custodian agreed to a 25%
reduction in custodian fees relating to the Qatari market.
Custodian and sub-custodian fees for the year ended 30 June 2022 amounted to
US$90,254 (30 June 2021: US$162,898) and the amount accrued but not paid at
the year-end was US$7,173 (30 June 2021: US$6,536). This fee is borne by the
Subsidiary.
8 Foreign currency translation
The US Dollar is the currency in which the financial statements are presented
("the presentational currency") as reporting to shareholders is in US Dollars
and the shares are quoted in US Dollars. The US Dollar is also the functional
currency.
Monetary assets and liabilities denominated in foreign currencies as at the
date of these financial statements are translated to US Dollar at exchange
rates prevailing on that date. Income and expenses are translated into US
Dollar based on exchange rates on the date of the transaction. All resulting
exchange differences are recognised in the income statement at the exchange
rate prevailing on the statement of financial position date. Items of income
and expense are translated at exchange rates on the date of the relevant
transactions or an average rate.
Foreign exchange risk
The Company's operations, via the Subsidiary, are conducted in jurisdictions
which generate revenue, expenses, assets and liabilities in currencies other
than US Dollar. As a result, the Company is subject to the effects of
exchange rate fluctuations with respect to these currencies. The Company's
policy is not to enter into any currency hedging transactions.
At the reporting date the Company had the following exposure, including assets
and liabilities held by the Subsidiary:
Currency 30 June 2022 30 June 2021
% %
Qatari Riyal 38.91 30.32
US Dollar 35.42 46.76
UAE Dirham 20.02 20.52
Kuwaiti Dinar 5.44 2.28
Saudi Arabia Riyal 0.14 0.03
British Pound 0.07 0.09
The following table sets out the Company's total exposure to foreign currency
risk and the net exposure to foreign currencies of the monetary assets and
liabilities, including those held by the Subsidiary:
30 June 2022 Assets Liabilities Net exposure
US$'000 US$'000 US$'000
US Dollar 32,644 (3,156) 29,488
Qatari Riyal 32,394 - 32,394
UAE Dirham 16,670 - 16,670
Kuwait Dinar 4,797 (265) 4,532
British Pound 62 - 62
Saudi Arabia Riyal 118 - 118
86,685 (3,421) 83,264
30 June 2021 Assets Liabilities Net exposure
US$'000 US$'000 US$'000
US Dollar 42,817 (287) 42,530
Qatari Riyal 27,573 - 27,573
UAE Dirham 18,666 - 18,666
Kuwait Dinar 2,074 - 2,074
British Pound 82 - 82
Saudi Arabian Riyal 26 - 26
91,238 (287) 90,951
Foreign currency sensitivity risk (Company)
At 30 June 2022 had the US Dollar weakened/strengthened by 1% (2021 :
weakened/strengthened 1%) in relation to all currencies, with all other
variables held constant, net assets attributable to equity holders of the
Company would have increased/decreased by the amounts shown below:
Foreign currency sensitivity risk on a look through basis, including the
Subsidiary.
30 June 2022 US$'000
British Pound -
Kuwaiti Dinar 45
UAE Dirham 167
Saudi Arabia Riyal -
Effect on net assets 212
30 June 2021 US$'000
British Pound -
Kuwaiti Dinar 21
UAE Dirham 187
Saudi Arabia Riyal -
Effect on net assets 208
The Qatari Riyal is pegged to the US Dollar.
9 Taxation
Isle of Man taxation
The Company is resident for taxation purposes in the Isle of Man by virtue of
being incorporated in the Isle of Man and is subject to taxation at the rate
of 0% in the Isle of Man.
10 Related party transactions
Parties are considered to be related if one party has the ability to control
the other party or to exercise significant influence over the other party in
making financial or operational decisions.
The Investment Adviser is Qatar Insurance Company S.A.Q. The Subsidiary holds
shares in Qatar Insurance Company S.A.Q. (see note 1(b)). The Investment
Adviser's fees are paid by the Investment Manager.
The Investment Manager, Epicure Managers Qatar Limited, is a related party by
virtue of its ability to make operational decisions for the Company (via the
Subsidiary) and through common Directors. Fees paid and payable to the
Investment Manager are disclosed in notes 6 and 7.
Epicure Managers Qatar Limited is a wholly owned subsidiary of the Investment
Adviser, Qatar Insurance Company S.A.Q.
11 The Company
Gulf Investment Fund plc (the "Company") was incorporated and registered in
the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 26 June
2007 as a public company with registered number 120108C.
Pursuant to an Admission Document dated 25 July 2007 there was an original
placing of up to 171,355,000 Ordinary Shares, with Warrants attached on the
basis of 1 Warrant to every 5 Ordinary Shares. Following the placing on 31
July 2007, 171,355,000 Ordinary Shares and 34,271,000 Warrants were issued.
The warrants expired on 16 November 2012.
The shares of the Company were admitted to trading on the AIM market of the
London Stock Exchange ("AIM") on 31 July 2007, when dealings also commenced.
As a result of a further fund raising in December 2007, a further 76,172,523
Ordinary Shares were issued, which were admitted for trading on AIM on 13
December 2007.
On 4 December 2008, the Share premium arising from the placing of shares was
cancelled and the amount of the Share Premium account transferred to Retained
earnings.
The shares of the Company were admitted to trading on the Main Market of the
London Stock Exchange on 13 May 2011. On 19 May 2021 the Company transferred
to the Specialist Fund Section of the Main Market of the London Stock
Exchange.
On 7 October 2021, the Company concluded a tender offer for 5,497,652 shares
at a price of US$1.7877 per share. These shares were purchased by the Company
and the funds paid to tendering shareholders on 3 November 2021.
On 1 April 2022, the Company concluded a tender offer for 5,214,956 shares at
a price of US$2.1639 per share. These shares were purchased by the Company and
the funds paid to tendering shareholders on 11 May 2022.
In the Circular published by the Company on 25 March 2021 the Board announced
the implementation of an enhanced dividend policy targeting an annual dividend
equivalent to 4 per cent. of Net Asset Value at the end of the preceding year,
to be paid in semi-annual instalments.
The Net Asset value per Share at 30 June 2020 was US$1.2323 per share and
pursuant to the above stated policy, the directors declare a first interim
dividend for the year ended 30 June 2021 of 2.46 cents per ordinary share.
The dividend was paid on 17 September 2021 to ordinary shareholders on the
register as at 20 August 2021 (the "Record Date").
The shareholders also approved a dividend of 2.47 cents per share on 31
December 2021. This was paid to shareholders on 11 March 2022.
The Company's agents and the Investment manager perform all significant
functions. Accordingly, the Company itself has no employees.
Duration
The Company currently does not have a fixed life but the Board considers it
desirable that Shareholders should have the opportunity to review the future
of the Company at appropriate intervals. Accordingly, it was resolved that
shareholders are able to participate in bi-annual tender offers for up to 100%
of the share capital.
12 The Subsidiary
The Company has the following subsidiary company:
Country of incorporation Percentage of shares held
Epicure Qatar Opportunities Holdings Limited British Virgin Islands 100%
Epicure Qatar Opportunities Holdings Limited is a wholly owned subsidiary of
the Company and was incorporated in the British Virgin Islands on 4 July 2007
under the provisions of the BVI Companies Act 2001, as a limited liability
company with registration number 1415393. The principal activity of the
Subsidiary is holding investments on behalf of the Company.
13 Significant accounting policies
Accounting policies for certain items have been included in the relevant
note.
13.1 Basis of preparation
Principal activities
The Company's principal activities, investment objective and strategy and
principal risks and uncertainties and the planned tender offers in 2022 are
described in the Chairman's Statement, Business Review, Investment Policy and
Corporate Governance Report.
Statement of compliance
These financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and Isle of Man Companies Act 1931 to
2004.
In accordance with IFRS 10, 'Consolidated financial statements', the Directors
have concluded that the Company falls under the definition of an investment
entity because the Company has the following characteristics:
· the Company has obtained funds for the purpose of providing
investors with investment management services;
· the Company's investing policy, which was communicated directly
to investors, is investment solely for returns from capital appreciation and
investment income; and
· the performance of investments is measured and evaluated on a
fair value basis.
As a result, the Company does not consolidate its subsidiaries, instead it is
required to account for these subsidiaries at fair value through profit or
loss in accordance with IFRS 9, 'Financial instruments' and prepares separate
company financial statements only.
Basis of measurement
The financial statements have been prepared under the historic cost
convention, as modified by the revaluation of financial assets held at fair
value through profit or loss, which are stated at fair value.
Going concern
These financial statements have been prepared on the going concern basis, as
the Board of Directors has a reasonable expectation that the Company has the
resources to continue in business for the foreseeable future. In making this
assessment, the Directors have considered a wide range of information relating
to present and future conditions, including the 100% bi-annual tender offers.
The Company has implemented a programme of bi-annual tender offers in March
and September each year, in each case for up to 100 per cent. of each
Shareholder's holding of Shares as at the relevant Record Date (each a
"Contractual Bi-Annual Tender Offer"), subject to a minimum size condition
that the post Tender Offer share capital is not less than 38 million shares.
In the event the Minimum Size Condition is not met in respect of any Tender
Offer, that Tender Offer will not proceed. The Directors will instead put
forward proposals to Shareholders for the Company to be wound up with a view
to returning cash to Shareholders or to enter into formal liquidation.
Shareholders on the Register at the relevant Record Date will be invited to
either (i) continue their full investment in the Company; or (ii) save for
Restricted Shareholders, tender some or all of their Shares held at that date.
The Directors believe that the implementation of the Contractual Bi-Annual
Tender Offers should provide those Shareholders who want it with the
additional liquidity they require going forward.
Subject to the result of the Tender Offer, the Company would not be able to
continue in operation if the Shareholders approve the proposal to wind up or
liquidate the Company. This represents a material uncertainty that may cast
significant doubt upon the Company's ability to continue as a going concern
and, therefore, to continue realising its assets and discharging its
liabilities in the normal course of business. The financial statements do not
include any adjustments that would result from the basis of preparation being
inappropriate.
It is also noted that there was a planned continuation vote at the annual
general meeting in 2021 and every third year thereafter. However, in light of
the bi-annual tender offers this continuation vote has been deferred to 2023.
As that is more than 12 months from approval of these financial statements it
therefore does not impact the going concern assessment for that period.
Functional and presentation currency
These financial statements are presented in USD Dollar, which is the Company's
presentational and functional currency. All financial information presented in
USD Dollar has been rounded to the nearest thousand dollar.
Disclosure on changes in significant accounting policies
The accounting policies applied in the Company financial statements are the
same as those applied in the Company financial statements for the year ended
30 June 2021.
Disclosure on changes in significant accounting policies continued
The following new and revised IFRSs, which become effective for annual periods
beginning on or after 1 January 2021, have been adopted in these financial
statements.
Effective date New standards or amendments
01 January 2021 IFRS 9 Financial Instruments - Amendments regarding replacement issues in the
context of IBOR reform.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires the Board of
Directors to exercise its judgement in the process of applying the Company's
accounting policies. The financial statements do not contain any critical
accounting estimates.
13.2 Consolidated financial statements
Consolidated financial statements have not been presented in order to comply
with the requirements of the IFRS 10 Investment Entity Consolidation
Exception. The Directors have also applied the exemption from the preparation
of consolidated accounts available under the Isle of Man Companies Act 1982,
section 4(2)(i), on the grounds that they would be of no real value to members
of the Company, in view of the insignificant amounts involved. This is on the
basis that the profit and net asset value reported in the consolidated
accounts would be the same as they are reported in the Company accounts.
13.3 Segment reporting
The Company is organised into one operating segment, comprising the investment
in a portfolio of equity securities in the GCC region via the wholly owned
subsidiary. The financial performance of this portfolio is presented to and
monitored by the Board of Directors, being the chief operating decision makers
as defined under IFRS 8. All of the Company's activities are interrelated, and
each activity is dependent on the others. Accordingly, all significant
operating decisions are based upon analysis of the Company as one segment. The
financial results from this segment are equivalent to the financial statements
of the Company as a whole.
13.4 Investment in and loan to subsidiary
Investment in subsidiary is stated at fair value through profit and loss based
on the net asset value of the Subsidiary as reported by the Administrator. The
loan to subsidiary is included within this valuation. Interest income on the
loan to subsidiary is recognised in the Income Statement using the effective
interest method.
13.5 Treasury shares
When shares recognised as equity are repurchased, the amount of the
consideration paid, which includes directly attributable costs, is recognised
as a deduction from equity. Repurchased shares that are not cancelled are
held as treasury shares and have no voting rights and do not receive
dividends. When treasury shares are sold or reissued subsequently, the amount
received is recognised as an increase in equity and the resulting surplus or
deficit on the transaction is presented within reserves.
13.6 Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are
short-term highly liquid investments that are readily convertible to known
amounts of cash and that are subject to an insignificant risk of changes in
value.
13.7 Future changes in accounting policies
New and amended IFRSs in issue but not yet effective and not early adopted
The following new standards, amendments and interpretations are in issue but
not yet effective for these financial statements and have not been early
adopted by the Company. The following amended standards are not expected to
have a material impact on the Company's results:
· Onerous contracts - Cost of fulfilling a contract (amendments to
IAS 37) - effective from January 2022.
· 2022 Annual improvements to IFRS standards 2018 - 2020 -
effective from January 2022.
· Property, plant and equipment: proceeds before intended use
(amendments to IAS 16) - effective from January 2022.
· Reference to the conceptual framework (amendments to IFRS 3) -
effective from January 2022.
· IFRS 17 insurance contracts - effective from January 2023.
· Classification of liabilities as current or non-current
(amendments to IAS S1) - effective from January 2023.
· Amendments to IFRS 17 - effective from January 2023.
· Disclosure of accounting policies (amendments to IAS1 and IFRS
practice statement 2) - effective from January 2023.
· Definition of accounting estimate (amendments to IAS 8).
· Deferred tax related asset and liabilities arising from a single
transaction - amendments to IAS 12 income taxes - effective 1 January 2023.
· Sale or contribution of assets between an investor and its
associate or joint ventures (amendments to IFRS 10 and IAS 28).
There are no other standards, amendments or interpretations to existing
standards that are not yet effective, that would have a material impact on the
Company's reported results.
14 Post balance sheet events
The first interim dividend of 3.51 cents per share, for the year ended 30 June
2022, was announced on 1 September 2022 with a payment date of 21 October
2022.
Appendix
Unaudited consolidated financial information
Consolidated Income Statement
Year ended 30 June 2022 Year ended 30 June 2021
US$'000 US$'000
Income
Dividend income on quoted equity 3,487 2,308
investments
Realised gain on sale of financial assets at fair 26,906 28,346
value through profit or loss
Net changes in fair value on financial assets at fair value through profit or (12,607) 11,130
loss
Interest income 13 -
Net foreign exchange loss (67) (51)
Total net income 17,732 41,733
Expenses
Investment manager's fees 752 922
Other expenses 771 1,124
Total operating expenses 1,523 2,046
Profit before tax 16,209 39,687
Income tax expense 26 24
Profit for the year 16,183 39,663
Basic earnings per share (cents) 34.09 53.21
Diluted earnings per share (cents) 34.09 53.21
Notes:
1) Consolidated information has been presented to assist the user in
interpreting the results of the Company and to be consistent with previous
years. This information consolidates the results of the Subsidiary with the
Company. It is based on IFRS requirements that would apply if the IFRS 10
consolidation exception for investment entities did not apply to the Company.
2) Where relevant to understanding the risks of financial instruments
held by the Company certain disclosures relating to the subsidiary's assets
and liabilities have been given in the notes to the Financial Statements and
would be relevant to understanding the consolidated position presented in this
appendix.
Appendix
Unaudited consolidated financial information
Consolidated Statement of Comprehensive Income
Year ended 30 June 2022 Year ended 30 June 2021
US$'000 US$'000
Profit for the year 16,183 39,663
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Currency translation differences - -
Total items that are or may be reclassified subsequently to profit or loss - -
Other comprehensive income for the year - -
Total comprehensive income for the year 16,183 39,663
Appendix
Unaudited consolidated financial information
Consolidated Statement of Financial Position
At 30 June 2022 At 30 June 2021
US$'000 US$'000
Assets
Financial assets at fair value through profit or loss 73,851 88,394
Other receivables and prepayments 2,731 1,080
Cash and cash equivalents 6,951 1,802
Total assets 83,533 91,276
Equity
Issued share capital 411 518
Reserves 82,853 90,433
Total equity 83,264 90,951
Current liabilities
Other payables and accrued expenses 269 325
Total current liabilities 269 325
Total equity and liabilities 83,533 91,276
Consolidated Statement of Changes in Equity
Share capital Distributable Retained earnings Foreign currency translation reserve Capital redemption reserve Total
reserves
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 July 2021 576 15,096 73,601 (221) 1,899 90,951
Total comprehensive income for the year
Profit for the year - - 16,183 - - 16,183
Other comprehensive income
Foreign exchange translation differences - - - - - -
Total other comprehensive expense - - - - - -
Total comprehensive income for the year - - 16,183 - - 16,183
Contributions by and distributions to owners
Dividends paid - - (2,418) - - (2,418)
Shares subject to tender offer (165) (21,112) - - 165 (21,112)
Tender offer expenses - (340) - - - (340)
Total contributions by and distributions to owners (165) (21,452) (2,418) - 165 (23,870)
Balance at 30 June 2022 411 (6,356) 87,366 (221) 2,064 83,264
Appendix
Unaudited consolidated financial information
Balance at 1 July 2020 925 76,198 35,491 (221) 1,550 113,943
Total comprehensive income for the year
Profit for the year - - 39,663 - - 39,663
Other comprehensive income
Foreign exchange translation differences - - - - - -
Total other comprehensive expense - - - - - -
Total comprehensive income for the year - - 39,663 - - 39,663
Contributions by and distributions to owners
Dividends paid - - (1,553) - - (1,553)
Shares subject to tender offer (349) (60,721) - - 349 (60,721)
Tender offer expenses - (381) - - - (381)
Total contributions by and distributions to owners (349) (61,102) (1,553) - 349 (62,655)
Balance at 30 June 2021 576 15,096 73,601 (221) 1,899 90,951
Appendix
Unaudited consolidated financial information
Consolidated Statement of Cash Flows
Year ended 30 June 2022 Year ended 30 June 2021
US$'000 US$'000
Cash flows from operating activities
Purchase of investments (227,246) (186,166)
Proceeds from sale of investments 254,051 244,280
Dividends received 3,394 2,486
Operating expenses paid (1,283) (2,460)
Interest received 13 -
Net cash generated from/(used in) operating activities 28,929 58,140
Financing activities
Dividends paid (2,418) (1,553)
Cash used in tender offer (21,112) (60,721)
Tender expenses (340) (381)
Net cash used in financing activities (23,870) (62,655)
Net (decrease)/increase in cash and cash equivalents 5,059 (4,515)
Effects of exchange rate changes on cash and cash equivalents 90 (116)
Cash and cash equivalents at beginning of the year 1,802 6,433
Cash and cash equivalents at end of the year 6,951 1,802
Glossary
Alternative performance measures (APM)
An APM is a measure of performance or financial position that is not defined
in applicable accounting standards and cannot be directly derived from the
financial statements. The Company's APMs are set out below and are
cross-referenced where relevant to the financial inputs used to derive them as
contained in other sections of the Annual Financial report.
Ongoing charges ratio
Ongoing charges (%) = Annualised ongoing charges divided by Average undiluted
net asset value in the period
Ongoing charges are those expenses of a type which are likely to recur in the
foreseeable future, whether charged to capital or revenue, and which relate to
the operation of the investment company as a collective fund. Ongoing charges
are based on costs incurred in the year as being the best estimate of future
costs and include the annual management charge. As recommended by the AIC in
its guidance, ongoing charges are calculated using the Company's annualised
revenue and capital expenses (excluding finance costs, direct transaction
costs, custody transaction charges, non-recurring charges and taxation)
expressed as a percentage of the average daily net assets of the Company
during the year. The inputs that have been used to calculate the ongoing
charges percentage are set out in the following table:
Ongoing charges calculation* 30 June 2022 30 June 2021
US$'000 US$'000
Management fee 752 922
Other operating expenses 793 1,148
Total management fee and other operating expenses 1,545 2,070 a
Average net assets in the year 92,533 109,292 b
Ongoing charges (c=a/b) 1.67% 1.89% c
*Including expenses of the Subsidiary.
Discount and premium
Shares can frequently trade at a discount to net asset value (NAV). This
occurs when the share price (based on the mid-market share price) is less than
the NAV and investors may therefore buy shares at less than the value
attributable to them by reference to the underlying assets. The discount is
the difference between the share price and the NAV, expressed as a percentage
of the NAV. As at 30 June 2022, the share price was 2.0200c and the audited
NAV per share was 2.0256c, giving a discount of 0.3%. A premium occurs when
the share price (based on the mid-market share price) is more than the NAV and
investors would therefore be paying more than the value attributable to the
shares by reference to the underlying assets.
Year to date net asset value
This is the fall or rise, calculated as a percentage, in value of the
Company's assets attributable to one ordinary share since 31 December 2021.
The net asset value per share is calculated by dividing 'equity shareholders'
funds' by the total number of ordinary shares in issue (excluding treasury
shares). The rise in year-to-date NAV is set out in the table below:
Date Equity Number of ordinary shares in issue Net asset value per share
31 December 2021 87,483,487 46,320,172 1.8887 a
30 June 2022 83,264,663 41,105,216 2.0256 b
YTD Change in NAV (c=(b-a)/a) 7.25% c
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