Annual Report for the Year Ended 31 January 2024
30/04/2024 07:30
LONDON STOCK EXCHANGE ANNOUNCEMENT
Pacific Assets Trust plc
(the “Company”)
Final Results for the Year Ended 31 January 2024
The Company's annual report for the year ended 31 January 2024 (the “Annual
Report”), which includes the notice of the Company’s forthcoming annual
general meeting, has been submitted to the UK Listing Authority, and will
shortly be available in full, unedited text for inspection on the National
Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report will be posted to shareholders on 9 May 2024. Members of the
public may obtain copies by writing to Frostrow Capital LLP, 25 Southampton
Buildings, London WC2A 1AL or from the Company’s website at
www.pacific-assets.co.uk where up to date information on the Company,
including daily NAV, share prices and fact sheets, can also be found.
Frostrow Capital LLP, Company Secretary
0203 709 8734
30 April 2024
Company Performance
Performance Summary
As at As at
31 January 31 January
2024 2023
Shareholders’ funds £464.8m £473.7m
Market capitalisation £422.1m £433.0m
One year to One year to
31 January 31 January
Performance 2024 2023
Share price total return 1 2 (1.9)% 5.9%
Net asset value per share total return 1 2 (1.3)% 5.7%
CPI +6% 3 10.4% 17.3%
MSCI All Country Asia ex Japan Index total return, sterling adjusted 1 (10.5)% (2.2)%
Average discount of share price to net asset value per share 1 2 6.4% 10.1%
Ongoing charges 2 1.1% 1.1%
Revenue return per share 4 4.3p 2.5p
Dividend per share 4.0p 2.3p
1 Source: Morningstar
2 Alternative Performance Measure (see Glossary)
3 The Company’s Performance Objective (see Glossary)
4 See Glossary
Chair’s Statement
Introduction and Results
The net asset value total return for the year ended 31 January 2024 was (1.3)%
(2023: +5.7%). While this is a disappointing result relative to the
performance objective set by the Board, your Portfolio Manager is to be
commended that the Company’s performance over the year was the best of the
peer group of four other trusts and an exchange traded fund, all of which also
suffered negative returns, with a collective average NAV decline of 9.0%
(2023: average decline of 3.0%).
Over longer periods we consider investment return against the UK CPI plus 6%
as we believe that our largely UK-based investors are seeking to protect their
capital in real terms while extracting a premium over their home markets from
the faster growing Asian economies. Over the last five years, our annualised
NAV total return of 7.6% has fallen behind the annualised CPI plus 6% figure
of 10.8%. This is a result of the rise and persistence of inflation in Western
economies in recent years and we believe that the performance objective
remains appropriate.
While the Board would like to see a higher rate of return from our investments
in Asia, we note the negative total return (sterling adjusted) of the MSCI All
Country Asia ex Japan Index of (10.5)%, as well as the strong relative
outperformance over the peer group mentioned above. This pleasing relative
performance reflects the Portfolio Manager’s emphasis on long term returns
and capital preservation. It also reflects, as my predecessor remarked last
year, that Asia Pacific markets have not recently delivered the premium return
over developed markets, that the asset allocation models suggest should be the
case.
Again, the Company’s high exposure to India was helpful to returns: seven of
the top ten principal contributors to the return in the year were Indian
companies, including CG Power & Industrial Solutions, Tube Investments, and
Cholamandalam Financial Holdings. By contrast, China’s weakened economic
outlook and lacklustre performance is reflected in the Company’s principal
detractors, six of which were companies based in China and Hong Kong including
Vitasoy, Glodon and Wuxi Biologics.
Further analysis of the Company’s performance can be found in the Portfolio
Manager’s Review.
Sustainability
Shareholders will be well aware that Stewart Investors have long since adopted
a sustainable investment strategy and are considered to be amongst the leaders
in this field. In selecting the investments that make up the Company’s
portfolio, their process aims to generate strong, long-term, risk-adjusted
returns by investing in the shares of companies that they consider to be
high-quality and particularly well positioned to contribute to and benefit
from sustainable development in the Asia Pacific Region.
Pursuant to the Company’s Environmental, Social and Governance (“ESG”)
Policy, the Board has chosen to adopt and endorse Stewart Investors’
approach to integrating sustainability into portfolio construction and
investee company engagement. This means that, in effect, the Company has a de
facto sustainability objective: to achieve long-term capital appreciation by
investing in companies which both contribute to, and benefit from, sustainable
development, achieving positive social and environmental sustainable outcomes.
Given this long-standing sustainable investment strategy which has been
applied in managing the Company’s portfolio, the Company reports against a
high standard of sustainability disclosures (Article 9) under the EU
Sustainable Finance Disclosure Regulations (“SFDR”) which must be complied
with due to the Company being marketed in Ireland. The Company’s annual SFDR
Article 9 report, produced by Stewart Investors, begins on page 82 of the
Annual Report.
Due to genuine concerns over ‘greenwashing’, in November and after a long
delay, the FCA published its Policy Statement on the UK Sustainability
Disclosure Requirements (“SDR”), which confirmed that it would be possible
for investment companies which met certain qualifying criteria to apply one of
four sustainable investment ‘labels’. One of the requirements of the SDR
is that any “product” qualifying for a label must have an explicit
sustainability objective as part of its investment objective. While
sustainability has been and continues to be one of the defining features of
Stewart Investors’ strategy, and the de facto sustainability objective is
recognised in the Company’s own ESG policy, the Company’s formal,
published investment objective does not explicitly reference sustainability.
The Company would therefore need to amend its published investment objective
and policy in order to utilise a UK SDR label. The Company’s legal advisers
have confirmed that the changes envisaged to explicitly reference
sustainability in the objective would be expected to constitute material
changes, requiring shareholder approval at a general meeting. This is despite
the fact that it has long been the case that the Company only invests in
companies that the Portfolio Manager believes are sustainable/have
sustainability characteristics.
The Board wishes to understand better whether the adoption of a UK SDR label
will bring real benefits to the Company, and have time to consider relevant
guidance published by the Association of Investment Companies (the “AIC”),
before recommending any changes. Given the proximity of this material change
to the Company’s year end, the Board believes it is prudent to take the
necessary time to consider if and how the Company’s published investment
objective and policy should be developed, rather than formally proposing any
changes to shareholders at the AGM in July. As a result, the Company will not
apply a sustainability label under UK SDR for the time being.
The Board wishes to emphasise to shareholders that UK SDR will not change
Stewart Investors’ strategy in managing the Company’s portfolio. We would
also highlight, for the avoidance of doubt, that we have been advised that our
existing disclosures are sufficient for maintaining the Company’s
classification under Article 9 of the EU SFDR. If any shareholders wish to
discuss the implications of the UK SDR with the Board, they are encouraged to
contact me through the Company Secretary.
Share price performance
The Company’s shares traded at an average discount to the net asset value
per share of 6.4% through the year to the end of January (2023: 10.1%). This
was again narrower than the peer group average discount of 9.3%. In line with
the investment trust sector generally, the discount narrowed towards the end
of December, and at one point the shares briefly traded at a small premium,
before the discount widened again towards the end of the financial year to
close at 9.2% (2023: 8.6%).
The Board has continued its work to improve the visibility of the Company
throughout the year. We wish to bolster our long-standing wealth manager base
by attracting a broader range of shareholders, including retail investors who
represent a smaller proportion of our shareholder base. The Board has
established a new standing subcommittee, the Sales, Marketing and
Communications Committee (the “SMCC”), which is chaired by Edward
Troughton. The Board has delegated to the SMCC responsibility, together with
the Portfolio Manager, for developing and overseeing the marketing and
promotional strategy for the Company. It will review all the marketing
activities taken by and on behalf of the Company by third parties. The
intention is that this will be helpful in increasing wider demand for the
Company’s shares. Strong relative performance will assist investor
sentiment, as will the Portfolio Manager’s high level of credibility as a
sustainable investor; offering an appealing prospect to shareholders who are
seeking exposure to Asia through genuinely responsible investing.
Dividend
The Company generated a revenue return of 4.3p per share during the year
(2023: 2.5p per share) and, as a result, the Board recommends to shareholders
the payment of a final dividend to allow the Company to comply with the
investment trust rules regarding distributable income and the Company’s
policy to pay out the majority of income earned in any one year.
Subject to shareholder approval at the AGM, a final dividend of 4.0p per share
will be paid on 12 July 2024 to shareholders on the register on 14 June 2024.
The associated ex-dividend date will be 13 June 2024.
The increased revenue return arose as a result of increased dividend receipts
from several companies, most notably Bank OCBC and Overseas Chinese Banking
Corporation, in which the Company’s position was increased during the year.
We would like to remind shareholders that the Company’s policy is to pursue
capital growth, with income being a secondary consideration. Accordingly,
shareholders should not expect this higher dividend rate to be maintained.
The Board
During the year, as reported in the Company’s half yearly report, James
Williams retired from the Board and I succeeded him as Chair.
In October, we announced the appointment of Nandita Sahgal to the Board,
effective 1 January 2024. We were delighted to welcome a Director with
extensive expertise both in the financial sector and in Indian and emerging
markets. It is intended that Nandita will succeed Charlotta Ginman as Chair of
the Audit Committee after Charlotta retires at the conclusion of the AGM in
2024.
In anticipation of her retirement, I would like to extend my sincere gratitude
to Charlotta for her dedicated service and incisive contributions during her
tenure as Audit Committee Chair. Charlotta’s expertise, professionalism and
commitment to upholding the highest standards of financial integrity and
governance have been invaluable to the Board.
We adhere to good corporate governance principles that directors should not
serve on the Board for over nine years. Accordingly, the Board has appointed
an executive search firm to assist in the appointment of a director to replace
Sian Hansen when she steps down at the AGM in 2025.
The Annual General Meeting
As some shareholders will be aware, the Company is incorporated in Scotland
and our Portfolio Manager, Stewart Investors, have an office in Edinburgh. The
Board has decided that this year, the AGM will return to Edinburgh, having
last been held there in 2004. The AGM will be held at 12 noon on Tuesday, 9
July 2024, at the Royal College of Physicians of Edinburgh, 11 Queen Street,
Edinburgh EH2 1JQ.
As well as the formal proceedings, there will be an opportunity for
shareholders to meet the Board and the Portfolio Manager, and to receive an
update on the Company’s performance and its key investments.
The meeting, including the Portfolio Manager’s presentation, will be live
streamed by Investor Meet Company for the benefit of those shareholders who
are unable to attend in person. Shareholders joining the meeting remotely will
not be able to speak or vote through the platform but will be able to submit
written questions. Full details of how to participate this way are set out on
page 104 of the Annual Report.
I encourage all shareholders to exercise their right to vote at the AGM. The
Board strongly encourages shareholders to register their votes online in
advance. Registering your vote in advance will not restrict shareholders from
attending and voting at the meeting in person should they wish to do so. The
Board recommends that shareholders vote in favour of all the resolutions set
out in the Notice of AGM, as the directors intend to do ourselves.
Outlook
It is always difficult, if not impossible, to predict the short-term future of
a region as diverse as the Asia Pacific. However, there is a general
expectation that, despite heightened geopolitical tensions and economic
challenges, the region will continue its long-term growth trajectory. Key
drivers include technological advancements, infrastructure development and
increasing consumer demand from the growing middle classes. Ever-present risks
posed by trade disputes, currency fluctuations, climate change events and
regulatory changes will need to be closely monitored. Notwithstanding these
risks, our Portfolio Manager aims to invest for the long term, selecting
companies with skilled, successful and experienced management teams, strong
balance sheets and sustainable businesses.
Andrew Impey
Chair
29 April 2024
Investment Portfolio
as at 31 January 2024
Company Country Sector Value £’000 % Total Investments
Mahindra & Mahindra India Consumer Discretionary 25,830 5.5%
Tube Investments of India India Consumer Discretionary 25,749 5.5%
CG Power & Industrial Solutions India Industrials 23,346 4.9%
Oversea-Chinese Banking Corporation Singapore Financials 14,660 3.1%
UniCharm Japan Consumer Staples 13,975 3.0%
Samsung Electronics South Korea Information Technology 13,471 2.9%
Marico India Consumer Staples 13,373 2.8%
Hoya Corporation Japan Health Care 13,370 2.8%
Voltronic Power Technology Taiwan Industrials 13,039 2.8%
Midea Group China Consumer Discretionary 12,622 2.7%
Top 10 Investments 169,435 36.0%
Cholamandalam Financial Holdings India Financials 11,700 2.5%
Shanthi Gears India Industrials 11,486 2.4%
Elgi Equipments India Industrials 10,644 2.3%
HDFC Bank India Financials 10,595 2.3%
Tata Consumer Products India Consumer Staples 10,064 2.1%
Taiwan Semiconductor Manufacturing Taiwan Information Technology 9,658 2.1%
Shenzhen Inovance Technology China Industrials 9,356 2.0%
Bank OCBC NISP Indonesia Financials 9,309 2.0%
Koh Young Technology South Korea Information Technology 7,770 1.7%
Tokyo Electron Japan Information Technology 7,714 1.6%
Top 20 Investments 267,731 57.0%
Selamat Sempurna Indonesia Consumer Discretionary 7,403 1.6%
Kotak Mahindra Bank India Financials 7,215 1.5%
Chroma ATE Taiwan Information Technology 7,144 1.5%
Sheng Siong Group Singapore Consumer Staples 6,902 1.5%
Humanica Thailand Industrials 6,900 1.5%
Tata Consultancy Services India Information Technology 6,650 1.4%
Triveni Turbine India Industrials 6,507 1.4%
Advantech Taiwan Information Technology 6,306 1.3%
Tech Mahindra India Information Technology 6,232 1.3%
Kalbe Farma Indonesia Health Care 6,004 1.3%
Top 30 Investments 334,994 71.3%
Company Country Sector Value £’000 % Total Investments
Delta Electronics Taiwan Information Technology 5,809 1.2%
Aavas Financiers India Financials 5,758 1.2%
Tata Communications India Communication Services 5,520 1.2%
Cyient India Information Technology 5,472 1.2%
Dr. Lal PathLabs India Health Care 4,969 1.1%
Vinda International Holdings China Consumer Staples 4,876 1.0%
Godrej Consumer Products India Consumer Staples 4,813 1.0%
Advanced Energy Solution Holding Taiwan Industrials 4,796 1.0%
Philippine Seven Corporation Philippines Consumer Staples 4,688 1.0%
Vitrox Malaysia Information Technology 4,587 1.0%
Top 40 Investments 386,282 82.2%
Dr. Reddy’s Laboratories India Health Care 4,474 1.0%
Samsung Biologics South Korea Health Care 4,138 0.9%
Dabur India India Consumer Staples 4,016 0.9%
Tarsons Products India Health Care 3,967 0.8%
Amoy Diagnostics China Health Care 3,922 0.8%
UniCharm Indonesia Indonesia Consumer Staples 3,866 0.8%
Vitasoy International Hong Kong Consumer Staples 3,789 0.8%
RBL Bank India Financials 3,751 0.8%
Telkom Indonesia Indonesia Communication Services 3,730 0.8%
Zhejiang Supor China Consumer Discretionary 3,668 0.7%
Top 50 Investments 425,603 90.5%
Glodon China Information Technology 3,487 0.7%
Unilever Indonesia Indonesia Consumer Staples 3,461 0.7%
Indiamart Intermesh India Industrials 3,453 0.7%
Wuxi Biologics China Health Care 3,278 0.7%
Marico Bangladesh Bangladesh Consumer Staples 3,171 0.7%
Hangzhou Robam China Consumer Discretionary 3,152 0.7%
Airtac International Taiwan Industrials 2,898 0.6%
Yifeng Pharmacy Chain China Consumer Staples 2,798 0.6%
Industri Jamu dan Farmasi Sido Muncul Indonesia Consumer Staples 2,716 0.6%
Pigeon Corporation Japan Consumer Staples 2,649 0.6%
Kasikornbank Thailand Financials 2,571 0.6%
Syngene International India Health Care 2,481 0.5%
Guangzhou Kingmed Diagnostics China Health Care 2,035 0.4%
Silergy China Information Technology 1,973 0.4%
Centre Testing International China Industrials 1,965 0.4%
Pentamaster International Malaysia Information Technology 1,231 0.3%
DBH Finance Bangladesh Financials 1,187 0.3%
Total Investments 470,109 100.0%
Portfolio Manager’s Review
Our Investment Philosophy in Action
Risk as loss of client capital Long term time horizon Quality and sustainability positioning
Active share 89% Average name turnover 10% Holdings with stewards 80%
Outperformance in down months 80% Average holding period of top ten 10 years Holdings with net cash 75%
Downside capture 63% Average age of holdings 44 years Carbon footprint relative to benchmark -86%*
Source: Stewart Investors and ISS ESG solutions as at 31 December 2023 and *as
at 30 September 2023. Data shown is for a representative Stewart Investors
Asia Pacific Sustainability account and the Stewart Investors Asia ex-Japan
Sustainable Equity Composite. Please refer to the Glossary for further
information on these metrics.
The table above highlights key outcomes of our philosophy; outcomes that have
been consistent across the 14 years Stewart Investors have had the privilege
of managing the Company. An explanation of the terms used and how the
statistics are calculated is provided in the Glossary. It should be noted that
the statistics above are for a representative Stewart Investors Asia Pacific
sustainability account and the Stewart Investors Asia ex-Japan Sustainable
Equity Composite (a weighted average of a group of accounts managed in a
similar way by the same portfolio management team). However, as we are
consistent in our investment approach, the outcomes for the Company will be
broadly similar.
We believe consistency in the application of this philosophy is critical in
preserving the trust we are required to earn, and maintain, as stewards of
this precious capital. We publish these outcomes so clients may “hold our
feet to the fire” should any material changes in these metrics appear.
Over the short term we have very little control over our performance, but over
the longer term, periods of over five years, we believe the characteristics
presented above have been foundational to the returns, in good times and bad,
that the Company has been able to deliver to its shareholders.
Risk as loss of client capital
In most industries there is a standard definition of risk. In the construction
of a bridge, engineers would agree that risk is the prospect of the bridge
collapsing and lives being lost. In surgery, surgeons see risk in terms of the
potential negative health outcomes, including death, which may arise from the
procedure. In contrast, the investment industry has failed to settle on such a
fundamental concept.
At Stewart Investors we have always seen risk as the possibility of losing
clients’ capital rather than deviation from a benchmark. Each of the data
points within the “Risk as a loss of client capital” column above are
reflections of how we approach the management of risk. Seeing risk in
absolutes frees us to build the portfolio bottom-up with a blank sheet of
paper. When done with authenticity this should, usually, lead to a high active
share: we do not start with an index and work backwards or start with a macro
view and work down.
Today, the Company continues to have a material weight invested in India. This
is not the result of a “macro overlay”, a view on politics or a desire to
gain exposure to a particular theme. Very simply, India is where we continue
to find the greatest opportunity to protect and grow the Company’s capital
by backing high quality people running great franchises which are wonderfully
well-positioned for long-term growth.
Across Asia, the companies in the index (both at the regional and country
levels) are not the opportunity set for the long-term, active investor. In
India this is very much the case with roughly 75% of the top 100 companies in
the MSCI India Index being uninvestible to us due to concerns around quality
or sustainability positioning.
Valuations in India are a hot topic. There are certainly pockets of the market
where valuation multiples have run far ahead of fundamentals and the risk of
mediocre (at best) returns from here feel high. However, our active approach,
one with a belief that valuations matter, provides us the freedom to go
hunting for long-term value wherever we can find it. Thankfully for the
Company’s future returns, the Indian market is wonderfully deep in the
treasures it offers the active investor.
Value, for us, is the opportunity to generate attractive returns over the next
ten years. This view does not confine us to a particular price/earnings ratio
or valuation rule of thumb. We own companies in India on less than 20x price
to earnings ratio and others on 50x. In each, we are appraising the long-term
potential to create value relative to today’s price. Below we have listed a
collection of our Indian holdings lined up against their global peers. Each of
these names is potentially a very large company hidden in a small market
capitalisation. None of these appear as material weights in the MSCI India
Index but they all offer the potential for very attractive returns over the
next ten years, and beyond.
Industry Company Market cap (USDbn)
Farm equipment Mahindra & Mahindra 25
John Deere 110
Industrial conglomerate Tube Investments 9
Danaher 177
Air compressors Elgi Equipments 2
Atlas Copco 76
Diagnostics Dr. Lal PathLabs 3
Quest Diagnostics 14
Business Supplies IndiaMART 2
WW Grainger 44
Companies held in the Company.
Source for market capitalisation: FactSet as at 31 January 2024.
In China, due to the dominance of explicitly state-owned or implicitly
state-controlled companies and the critical misalignment between the State and
minority shareholders, our investable universe is not as deep as in India.
However, we would stress that despite the Company long having only a marginal
allocation to China, we have not ignored the market. Working our way through
China’s listed universe over the last 20 years has occupied a lot of
research bandwidth with Chinese meetings and reports accounting for a far
higher percentage of our workload than the portfolio allocation would
initially suggest. For a team of analysts who crave meeting new people and
studying new businesses, it’s been a wonderfully enjoyable experience.
Today, we have roughly 20 Chinese companies that we see as investible but for
much of recent history they’ve not been attractively priced. Despite the
MSCI China Index being valued on very low multiples, the types of companies we
get excited about have traded on very high valuations while typically earning
margins in excess of comparable companies overseas: we saw this combination as
entailing too much risk to the Company’s capital. Things are beginning to
change. Since the beginning of the year, Chinese stocks have come under
extreme pressure with no real delineation being made between what companies
do, what their balance sheets look like, who owns them or their valuation. All
their share prices looked the same. This is the type of environment that
excites us as bottom-up stockpickers!
As above, we have some of our China holdings paired against their global
peers.
Industry Company Market cap (USDbn)
Third party verification Centre Testing International 2
SGS 17
Software for building industry Glodon 2
Autodesk 54
Industrial automation and electrification Shenzhen Inovance Tech 18
Siemens 145
Pharmacy chains Yifeng Pharmacy Chain 5
CVS 94
Analog semiconductors Silergy Corp 5
Texas Instruments 146
Companies held in the Company.
Source for market capitalisation: FactSet as at 31 January 2024.
In each of these companies we are backing local entrepreneurs, supported by
high quality management teams, often boasting multinational experience, to
build businesses that will play a key role in China’s development while,
vitally, allowing minority shareholders to benefit from their value creation.
If the current environment endures, we expect the Company’s weighting in
China will continue to increase.
Outperformance in down markets
Our focus on quality, long-term growth and absolute risk leads the Company to
own companies that tend not to lose a lot of their value in times of stress.
Over the last 14 years, in over 75% of months when the market has lost value,
the Company has outperformed. In value terms, the Company has tended to fall
less than two-thirds of the comparable losses of the Index and has done so
with less volatility. Protecting capital in such periods means our companies
have less ground to make up before they can get back to long-term compounding:
this has served as a vital foundation in the long-term protection and growth
of the Company’s capital.
Notably, these outcomes are not the result of any successful predication on
our part. We have failed to envision any of the major headline grabbing events
over the last 14 years. And in Asia, there have been a lot! We don’t believe
we add any value in this kind of forecasting. Instead, we seek to ensure the
Company’s portfolio is constructed of companies that are suitably
diversified from a cash flow perspective (not a MSCI sector) and that their
quality and long-term growth positioning means they have a strong likelihood
of surviving, and prospering, in most macroeconomic and political
environments.
It is important to note that adhering to an investment philosophy that
emphasises the minimisation of loss does not preclude the Company from owning
companies whose share price can go up multiple fold: we care as much about
capital growth as we do about capital protection. We have been fortunate to
own numerous such companies across the region over the last 14 years and we
hope there are many more in the portfolio today. Crucially, minimising losses
in times of stress has allowed our winners to create a lot of value for the
Company as their gains have not been diluted by substantial losses elsewhere
in the portfolio.
We have always endeavoured to be the best long-term investors in Asia. We just
choose to come at the problem of generating great long-term returns from a
different angle to many others.
Time horizon
Like the companies we own, we feel very fortunate to be able to take a
long-term view. This feels a very advantaged position to hold in a world where
US corporate executives now enjoy an average tenure of less than four years
and average holding periods of stocks in the US and China are measured in
days.
Our average holding period is ten years. With this time horizon, we are not
forced to guess what our companies will earn next quarter or which way central
banks will lean. As investors allocating capital over the long-term, our
philosophy focuses on, and heavily weights, information that:
* Is enduring and doesn’t change quarter to quarter.
* Is heavily qualitative.
* Has a material bearing on long-term outcomes.
This leads us to think about the quality of a business and how it is
positioned relative to the many headwinds, tailwinds and evolving profit pools
created by the shift to a more sustainable form of development. In our eyes,
well positioned, high quality companies have the strongest stream of future
cash flows: it is these cash flows that drive share prices over long term.
This belief has been a foundational component of our philosophy for over
thirty years, long before the advent of ESG or the Sustainable Development
Goals.
Our time horizon and view of risk leads to 80% of the companies in the
portfolio having some form of economic steward, whether that be an
entrepreneur, family or foundation. We feel very fortunate to be able to hand
the Company’s precious capital to people who not only have their own money
invested alongside us but their family’s legacy on the line. In some cases,
they literally have the family’s name above the door and on the product!
Simply, they too think about risk in absolutes. For the companies lacking in
an economic steward, we are handing the Company’s capital to cultures that
exhibit a similar owner’s mindset. These stewards are fanatical about
building businesses that solve some of Asia’s deepest problems. Crucially,
they do so with a time horizon measured in decades, not quarters. We believe
this mindset creates one of the most enduring competitive advantages.
World-class stewards and quality, cash generative, businesses enable many
companies in the portfolio to build, and hold, net cash balance sheets. These
balance sheets provide enormous value when the inevitable unanticipated event
comes along. Whether that be recession, political transition or pandemic. In
investing, and in life, all time is not created equal. Some moments matter a
lot more than others. Our companies, thanks to institutional memory, greatly
appreciate this. On average they are over four decades old. They understand
that being able to act independently, and not at the behest of creditors, in
times of unavoidable extreme stress, allows them to continue to pay their
staff; continue to act as partners with their suppliers, and continue to
invest in future growth. Paranoia about surviving extreme events paired with
passion for building something of extreme value over the long-term is a rare
but vital foundation of great companies. It tends not to be too prevalent with
professional management teams incentivised with lucrative short-term stock
packages or sleepy state-owned cooperate executives.
We hope our companies continue to go into down-cycles stronger than peers and
emerge in an even more advantageous position. This is one of the strongest and
simplest examples of how a focus on “not losing” sets the foundation for
extreme long-term outperformance. It also frees us of having to predict when
the next cycle is coming. When it comes, we know our companies will be
prepared.
Investment Returns
Over the year to 31 January, the net asset value of the Company was down 1.3%.
As a reference, the MSCI AC Asia ex Japan Index (the “Index”) was down
10.5%.
Extending the time frame of performance to three, five and seven years –
time periods more in-line with our investment horizon – the Company has
delivered satisfactory levels of capital appreciation.
Cumulative Performance Since inception 7 years 5 years 3 years 1 year
(% in GBP) to 31 January 2024 (01/07/2010)
NAV 265.6 69.6 44.2 13.8 -1.3
Share Price 267.4 62.7 33.4 6.9 -1.9
CPI + 6% 230.6 97.1 66.3 44.3 10.4
MSCI AC Asia ex Japan Index (Net) 110.1 27.9 9.1 -20.5 -10.5
Source: Lipper IM/Bloomberg/Frostrow. The NAV performance data is calculated
on a net basis after deducting all fees (e.g. investment management fee) and
costs (e.g. transaction and custody costs) incurred by the Company. The NAV
includes dividends reinvested on a net of tax basis. Source for comparator
benchmark index: FactSet. Table data is shown versus the MSCI AC Asia ex Japan
Index, calculated on an income reinvested net of tax basis. Source for
Consumer Price Index (“CPI”) + 6% data: FactSet. CPI data is quoted on a
one month lag. Performance calculated from when Stewart Investors became
Portfolio Manager of the Trust on 30 June 2010.
Contribution by investment for the year ended 31 January 2024
Top 10 contributors to and detractors from absolute performance (%)
Contributors
During the year under review, the Company’s material ownership of Indian
companies, especially those with exposure to capital spending and industrial
growth, was a key contributor to absolute performance.
CG Power & Industrial Solutions
(India: Industrials)
Contribution: 2.4%
The Company acquired CG Power in the first quarter of 2021, very quickly after
Tube Investments took a controlling stake. Previous owners had abused their
power resulting in their creditors taking control of the company, putting it
up for sale, and Tube Investments subsequently taking ownership. CG Power is
the leading manufacturer of motors in India, a high-quality franchise with
fantastic long-term avenues for growth. It has performed well thanks to the
opportunities provided by Tube Investments’ ownership as well as very
attractive levels of underlying growth. Had we not followed quality people
would not have identified CG Power as a potential investment. It certainly
would not have appeared in a very favourable light had it been put through a
quantitative screen.
Tube Investments of India
(India: Consumer Discretionary)
Contribution: 1.9%
The Company has owned Tube for close to ten years but materially increased its
position in 2017 when a new CEO took over this fourth generation family
company. His intention was to evolve Tube away from its existing businesses -
parts for the auto and rail industries, as well as bicycles - to an industrial
conglomerate with leadership positions across higher value industries. This
was to be done in a manner similar to that achieved by the high performing
conglomerates we have studied in the USA or Europe: taking free cash flow from
existing businesses and expanding, both organically and through mergers and
acquisitions (“M&A”), into higher quality industries. Since 2017, Tube has
grown its sales at more than 20% a year, its free cash flow at a higher rate,
while improving its return on capital employed from 22% to 47%1. We have also
seen the company embark on high quality M&A while organically entering the
fields of electric mobility and manufacturing in the IT industry – most
recently in semiconductor inspection.
1 Source: Tube Investments, 2021-22 Annual Report and FactSet
Cholamandalam Financial Holdings
(India: Financials)
Contribution: 1.1%.
Chola Financial is a holding company that owns stakes in a non-banking
financial company and a general insurance business. Like CG Power and Tube
Investments, Chola Financial is owned and stewarded by the well-respected
Murugappa family. The company provides financial services products to around
2.5 million customers in India. They provide vehicle loans for income yielding
assets such as trucks, tractors, and business loans plus home loans where they
aim to reach lower middle income families in urban and semi-urban markets.
Chola’s insurance business provides a safety net for those using it,
preventing families from falling (back) into poverty after experiencing a
shock.
In their 2022 financial year, the finance business entered into a new segment
of consumer and small enterprise loans and micro, small and medium enterprise
loans. Their small enterprise loans aim to reach an underpenetrated market and
provide economic benefit by specialising in loans for manufacturing, trading
and services sectors. During the reporting period the company saw strong
growth in the incumbent vehicle financing business as well as new businesses.
Detractors
During the year under review the most significant detractors were companies
with substantial business interests in China.
Vitasoy International Holdings
(Hong Kong: Consumer Staples)
Contribution: -1.5%
The Company has owned Vitasoy since Stewart Investors became Portfolio Manager
in June 2010. We have written about this family-owned, Hong Kong listed,
plant-based beverage provider repeatedly over the years. At Stewart Investors
we commit to our Hippocratic Oath2 – a set of principles for effective
stewardship. One of these principles is “not to succumb to irrational
exuberance in good times, nor to unjustified gloom in bad times”. This is
exemplified by Vitasoy. In the Company’s half yearly report in July 2019,
when Vitasoy was the strongest contributor to returns by more than 100 basis
points, we wrote that we believed valuations had become excessive after the
company had become included in a global index. Moreover, we reminded
shareholders that companies are much more than just a line on a graph: “If
Vitasoy had been viewed merely as a stock ticker, and not a quality business
going through a tough time, it would have been very easy to have been scared
out of the company at the height of the fear in 1997”. Vitasoy is going
through another tough time but now, as then, sober analysis has led us to
conclude that there has not been a significant deterioration in the quality of
the company and that the current gloom is unjustified.
2 https://www.stewartinvestors.com/uk/en/private-investor.html
Glodon
(China: Information Technology)
Contribution: -1.3%
Glodon designs products and software services for the entire product life
cycle of buildings and large-scale construction projects. They provide
customers with an enduring cost saving proposition – equivalent to a 1%
margin and help to expedite project completion by a third, without
compromising on safety. Gloomy headlines on the Chinese economy and the
property sector in particular are commonplace. The share price has weakened as
investor interest in the property related companies has ebbed. However, Glodon
exhibits two important differences from the Chinese property developers making
negative headlines. The first is the strength of the balance sheet. Glodon has
around USD340 million of net cash. The second is a much quicker cash
conversion cycle. Indeed, Glodon has a negative working cycle, meaning that
cash comes into the business faster than it goes out. This financial strength
is allowing quality stewards to invest in new, exciting and resilient services
despite the currently weak operating environment. It is this commitment to the
long term that deepens our conviction in the quality of stewardship and the
franchise.
Wuxi Biologics
(China: Health Care)
Contribution: -0.9%
Wuxi is a contract research, development and manufacturing organisation
offering end-to-end solutions that enable partners to discover, develop and
manufacture biologic drugs – from concept to commercialisation. This
benefits patients worldwide. Since purchasing Wuxi in the fourth quarter of
2023 the share price has been volatile, mostly weak, driven by speculation of
increased political discord between the USA and China that could negatively
impact the company. Since then, management have issued statements correcting
misperceptions about the company and its founder. To match words with action,
management also proposed a share repurchase programme. Wuxi has almost USD500
million in net cash on the balance sheet, a strong/multi-year customer
relationship and management team who exhibit honesty and competence. In our
opinion these are some of the key assets necessary to overcome current
difficulties and prosper in the future.
Significant Transactions
Over the course of the year, the portfolio turnover3 of the Company was 18.3%.
3 See Glossary for definition of portfolio turnover.
New investments
There was a slightly greater number of new initiations than in previous years
partly because valuations were lower, particularly in China. During the year,
the Company made new purchases in: Cyient (India: Information Technology),
Hangzhou Robam (China: Consumer Discretionary), Midea (China: Consumer
Discretionary), Telkom Indonesia (Indonesia: Communications), RBL Bank (India:
Financials), Samsung Electronics (South Korea: Information Technology),
Samsung Biologics (South Korea: Health Care), Triveni Turbines (India:
Industrials) and Wuxi Biologics. As usual there is no theme or top-down
allocation explaining these purchases. The commonality is high quality
companies that are well positioned to contribute to, and benefit from,
sustainable development at attractive valuations.
Additions
The comparative weakness in many Chinese company shares allowed us to further
add to Midea. We also added to Samsung Electronics, HDFC Bank (India:
Financials), Triveni Turbines and Voltronic Power (Taiwan: Industrials).
Reductions
To control country and company position size we reduced CG Power, Tube
Investments and Elgi Equipments (India: Industrials). We also reduced Syngene
(India: Health Care) over concerns about franchise development.
Disposals
We identified deteriorating quality and sold out of BRAC Bank (Bangladesh:
Financials), Foshan Haitian Flavouring & Food (China: Consumer Staples),
Public Bank (Malaysia: Financials) and Techtronic Industries (Hong Kong:
Industrials). For reasons of valuation, we sold out of Info Edge (India:
Communication Services). We retain the greatest respect and admiration for
Infosys (India: Information Technology) but we sold the position as we
identified superior risk-adjusted returns elsewhere. Finally, we sold Vinda
International (Hong Kong: Consumer Staples) due to news of it being acquired.
ESG Backlash
A quick perusal of financial headlines suggests a dramatic fall from grace
for, so called, ‘environmental, social and governance’ investing. Sayings
like ‘the darling of Wall Street’4 have been replaced by disapproving
commentaries containing words like ‘backlash’, ‘unravelling’ or even
‘weaponised’. The latter highlights the peculiar and unhelpful conflation
of partisan politics with investing, particularly in the US.
4 Kori Hale, Forbes Magazine. The US$300m unravelling of ESG investing on
corporate diversity. November 2023.
‘Anti-ESG’ articles often mention vogue and politicised topics such as
‘culture wars’ and the ‘woke’. Depending on the author there is often
a hint of schadenfreude against ESG promoting fund groups or funds which have
seen falling sales in recent times. Part of the cause for this dramatic shift
in rhetoric rests with the investment industry and the worrying prioritisation
of asset accumulation over a principled investment philosophy.
At Stewart Investors we recall at all times the stricture: “those who stand
for nothing, fall for anything”. Our investment philosophy of investing in
high quality companies that contribute to, and benefit from, sustainable
development is sacrosanct. It takes precedence over fund sales and short-term
asset growth. In 2020, before the height of ESG enthusiasm we wrote an
article5 outlining concerns about ESG driven marketing campaigns and
convoluted messaging designed to drive new sales. At first glance this seems
like a peculiar article for an investment group with a focus on sustainable
development to write. But there is no contradiction or hypocrisy. This is
because ESG and sustainability are connected but distinct, with sustainability
being a more holistic concept than the ESG metrics supplied by misaligned
third-party research providers.
5 https://www.stewartinvestors.com/uk/en/private-investor/insights/challenging-the-greenwash.html
We define sustainability as human development with minimal resource depletion.
This is a more encompassing concept than ESG because it considers the utility
and purpose of a company’s product or services rather than just detailing
the externalities of its operations. The example of a tobacco company may help
to clarify the difference. The ESG report from a tobacco company is often very
appealing but omits that the product is harmful for people’s health. This
highlights the limitations of ESG as an analytical tool, its inadequacy as an
investment strategy and its inappropriateness as the bedrock of a marketing
campaign.
In the above-mentioned article, we urged savers to be aware of a cynical
industry using ESG enthusiasm as a theme to drive asset growth. We raised the
possibility of miss-selling. This was not prescience, just a consideration of
the misaligned incentives in the investment industry that prioritises fund
sales over investment discipline. It is these misaligned incentives which
perpetuate cycles in fund sales that are inevitable but inconsequential to our
investment philosophy and process.
Against this backdrop of greater scrutiny around greenwashing and wishing to
provide shareholders with more transparency on how their capital is being
deployed, in 2020 we developed an interactive online tool, now known as
Portfolio Explorer6. For every investment held in the Company, users can learn
about the investment rationale, stewardship and contribution the company makes
to climate solutions and human development. Critically, it provides a balanced
view of the companies, not only highlighting the positive contributions, but
also the risks and areas to improve. We believe this goes some way to
demonstrate the Company’s and Stewart Investors’ commitment to
transparency and tells the stories of the investee companies rather than
merely attributing quantitative ESG metrics as part of a broader marketing
campaign.
6
https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html
A more comprehensive description of our investment philosophy and approach to
sustainable investing is set out on pages 21 to 24 of the Annual Report.
Looking Forward
Views on investment opportunities in Asia have not changed; on behalf of the
Company we continue to look to invest in high-quality companies that are
aligned with sustainable development. We seek stewards who are low profile,
competent, long-term decision makers, franchises free from political agendas
and financials that are resilient, not frail, with the aim to protect and grow
the Company’s capital over the long term.
Stewart Investors
Portfolio Manager
29 April 2024
Sustainability and ESG
The Company’s Environmental, Social & Governance Policy
The Board believes that consideration of environmental, social and governance
issues within the Company’s operations is of importance to shareholders and
other stakeholders, not least because long-term returns are much more likely
to be generated by companies that have embedded corporate governance
strengths, and which respect the environment and the society in which they
operate. The Board believes that this investment approach is readily
applicable in the markets in Asia in which the Company invests.
As the Company delegates the management of the portfolio to Stewart Investors,
the Board has chosen to adopt and endorse their approach to integrating
sustainability into portfolio construction and investee company engagement.
Accordingly, the Company seeks to achieve long-term capital appreciation by
investing in companies which both contribute to, and benefit from, sustainable
development, achieving positive social and environmental sustainable outcomes.
Stewart Investors’ approach is described in detail in the following section.
As part of this focus on sustainability, the Board expects sustainability and
ESG concerns to be a key topic of engagement with investee companies. The
Company expects to maintain, through its Portfolio Manager, a continuous
constructive dialogue with the owners and the managers of the companies where
it owns shares. Such a relationship is enhanced by the long-term nature of the
investment inherent in the Portfolio Manager’s investment approach.
In the same way as the Board expects the Portfolio Manager to challenge
investee companies on their sustainability and ESG credentials, the Board will
also assess the Company’s principal service providers. The Board asks for
assurances that a service provider has taken the necessary steps to mitigate
any material negative environmental impact their operations might have, to
ensure that their internal governance is compliant with expected high
standards, and that they strive to avoid negative social impacts resulting
from their activities.
Similarly, the Board itself strives to uphold the highest ESG standards. The
Board’s operations mainly consist of governance-related matters, where it is
important to the Directors to be at the forefront of best practice.
A corporate governance report for the year, beginning on page 38, forms part
of the Annual Report. A description of how the Board has taken the interests
of key stakeholders into account in their decision-making is included on pages
32 and 33 of the Annual Report.
As best practice, regulation and disclosure are constantly evolving in this
area both for the Company and for the companies in which it invests, the Board
regularly discusses sustainability, including ESG policy and practice, with
the Portfolio Manager, encouraging where possible further enhancements in both
the policy and in reporting to shareholders.
On behalf of the Board
Andrew Impey
Chair
29 April 2024
Stewart Investors’ Approach to Sustainable Investing
Sustainability is core to Stewart Investors’ investment philosophy and
integrated into our investment process. We do not have a separate team that
looks at sustainability – every investment team member analyses the
sustainability positioning of a business and is also responsible for engaging
and voting activities.
Stewart Investors only invest in high-quality companies that contribute to,
and benefit from, sustainable development. We define development as
sustainable if it furthers human development and has an ecological footprint
that respects planetary boundaries. All members of the investment team sign
the Stewart Investors Hippocratic Oath1, pledging to uphold the principles of
stewardship.
1
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/sustainable-investing/our-hippocratic-oath.html
We approach sustainability as a means to mitigate risks and as a driver of
investment returns. Integrating sustainability into our analysis is a natural
extension of having a long-term investment horizon; the sustainability
headwinds and tailwinds that affect companies are different from the
shorter-term risks that businesses face.
Our consideration of sustainability is holistic; it includes ESG but is more
than ESG. We consider financial sustainability – conservatism around the
balance sheet, for example – and stewardship by management – the treatment
of all stakeholders through a crisis, for example – to be as essential to
the sustainability positioning of a company as the product or service the
company sells.
When assessing a company’s sustainability we ask ourselves the following
questions:
* Products and services – Do the products and services make a valuable
contribution to sustainable development?
* Context – Can the company benefit from sustainability tailwinds and
navigate headwinds?
* Company ethos – Do the culture and values embody sustainability and
continuous improvement?
* Operational impact – Is the company trying to reduce impacts from its
operations?
In addition, we assess the contribution of the Company’s investments to
positive social and environmental outcomes by reference to two frameworks
described below.
Positive social outcomes – Human Development Pillars
Stewart Investors assesses positive social outcomes by reference to the below
human development pillars. We have developed these human development pillars
by reference to, amongst other things, the UN Human Development Index.
* Health and well-being – improved access to and affordability of nutrition,
healthcare and hygiene, water and sanitation
* Physical infrastructure – improved access to and affordability of energy
and housing
* Economic welfare – safe employment offering a living wage and
opportunities for advancement, access to finance and improved standards of
living
* Opportunity and empowerment – improved access to and affordability of
education and information technology
Further information about how we use the human development pillars is
available on our website2
2
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/our-approach/human-development-pillars.html
Positive environmental outcomes – Project Drawdown climate solutions
Stewart Investors assesses positive environmental outcomes by reference to the
climate solutions developed by Project Drawdown3, a non-profit organisation
that has mapped, measured and modelled over 90 different climate solutions
that it believes will contribute to reaching drawdown – i.e. the point in
the future when emissions stop increasing and start to decline.
3 Any reference to Project Drawdown is to describe the publicly available
materials utilised by Stewart Investors in formulating its sustainability
analysis framework. It is not intended to be, and should not be, read as
constituting or implying that Project Drawdown has reviewed or otherwise
endorsed the Stewart Investors framework. For the list of Project Drawdown
climate solutions please go to
https://drawdown.org/solutions/table-of-solutions.
Below is a list of climate solutions together with corresponding examples we
believe lead to positive environmental outcomes:
* Food system – sustainable farming, food production and distribution of
food-related products and services
* Energy – adoption of renewable energy and other clean energy and related
technologies
* Circular economy and industries – improved efficiency, reduced waste, and
new business models for closing resource loops in linear value chains and
production processes
* Human development – advancement of human rights and education that drive
environmental conservation and sustainable use of resources
* Transport – efficient transport technologies and growth in fossil
fuel-free transportation options
* Buildings – products and services which reduce the environmental footprint
of the built environment, including energy efficiency, electrification,
improved design, and use of alternative materials
* Water – less energy-intensive methods for treating, transporting and
heating water
* Conservation and restoration – supporting deforestation-free and
environmentally regenerative supply chains, operations and end-of-life impacts
Further information about how we use the Project Drawdown climate solutions is
available on our website4
4
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/our-approach/climate-solutions.html
Assessment
In assessing whether a company “contributes to and benefits from”
sustainable development, we will consider whether:
1. there is either a direct5 or enabling6 link between the activities of the
company and the achievement of a positive social or environmental outcome;
5 A direct link would arise where the goods an entity produces or the services
it provides are the primary means through which the positive social or
environmental outcome can be achieved (e.g. solar panel manufacturers or
installers).
6 An enabling link would arise if the goods a company produces or services it
provides enable other companies to contribute towards the achievement of the
positive social or environmental outcome (e.g. manufacturers of critical
components that are used as inputs in the manufacture of solar panels).
1. any contribution to positive social or environmental outcomes has resulted
from revenue or growth drivers inherent in the company’s business model,
strategic initiatives that are backed by research and development or capital
expenditure, or from the company’s strong culture and sense of stewardship
e.g. for equity and diversity; and
2. the company recognises potential negative social or environmental outcomes
associated with its product or services and works towards minimising such
outcomes, e.g. a company that sells affordable nutritious food products in
plastic packaging, but is investigating alternative packaging options.
We avoid companies that do not contribute to sustainable development and
engage with companies to improve sustainability outcomes.
We have established a materiality threshold for harmful or controversial
activities at 5% of revenues (0% for tobacco production and controversial
weapons). We explicitly seek to invest in companies that are making a positive
contribution to society. Full details of the activities and practices we find
inconsistent with our investment philosophy are available on our website7.
7
https://www.stewartinvestors.com/uk/en/private-investor/insights/our-position-on-harmful-and-controversial-products-and-services.html
Stewart Investors employ the services of an external ESG research provider,
Sustainalytics, to provide a quarterly check on the Company to ensure investee
companies meet global norms for best practices and raise no exceptions against
our thresholds for harmful activities. We also receive controversy reporting
from RepRisk.
Issues such as climate change, biodiversity and water, human rights and modern
slavery, and diversity and inclusion are integrated into our investment
selection and engagement and voting processes. Our approach to climate change
is explained in detail in our climate statement8, climate report9 and Annual
Stewardship Review10. Our approach to biodiversity and water is reflected in
our selection of companies that mitigate their impact on the natural
environment or provide services/products that improve efficiencies. We have
engaged on a number of related issues such as palm oil, deforestation, plastic
waste and the use of harmful chemicals. Human rights and modern slavery are a
risk throughout the supply chain of our investee companies. Our approach is to
focus on quality companies that treat their employees well and manage the
risks in their supply chain effectively. Where we identify problems, we
engage. Our recent collaborative engagement on conflict minerals in the semi-
conductor supply chain is a good example of this. Our approach to diversity is
explained in our statement11 and we provide an update on what we have done in
our Annual Stewardship Review. We will provide updates on these issues,
amongst others, in our quarterly shareholder updates.
8
https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
9
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/PASSET-Climate-2021.pdf
10
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/regulations-and-reports.html
11
https://www.stewartinvestors.com/uk/en/private-investor/insights/diversity-statement.html
Transparency
As part of our focus on improved transparency, we have developed a Portfolio
Explorer tool12 which provides the contribution that each investee company
makes to climate solutions and human development, as well as the investment
rationale, Sustainable Development Goals, key risks, and areas for
improvement. The company holdings information is updated on a quarterly basis.
12
https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html?tabs-anchor=Pacific%20
Assets%25Trust&active-tab=Portfolio%20Explorer
Sustainable Finance Disclosure Regulation
Our report on how the Company has met its sustainable investment objective, in
accordance with the requirements of the SFDR, begins on page 85 of the Annual
Report.
Thematic Engagement Example – Conflict Minerals
Stewart Investors are progressing with a collaborative engagement initiative
on conflict minerals (tantalum, tin, tungsten, gold and cobalt) in the
semiconductor supply chain. These minerals are vital materials for the
semiconductor industry. Poor traceability along complex supply chains can lead
to the inadvertent financing of armed conflict and the abuse of human rights.
The initiative is supported by 160 investors representing US$6.6 trillion of
assets under management. In 2022 Stewart Investors wrote to 29 companies
encouraging them to develop and invest in traceability technology, to increase
transparency/reporting from mine to product, to collaborate to improve
industry practices, to impose/ enforce harsher sanctions on non-compliance and
to reduce demand for new materials by improving recycling.
* As part of the engagement, we have engaged with industry and civil bodies.
We attended the Responsible Minerals Initiative (“RMI”) annual conference
in 2022, and understand we are the first known investor to have done so. In
2023, we were the first investor to speak at the Responsible Business Alliance
(“RBA”) and RMI’s Annual Conference in Santa Clara, California on the
positive role of capital and we hosted a closed-door workshop, endorsed by the
RMI, with 16 leading electronic companies. Stewart Investors commissioned Kumi
Consulting Ltd (Kumi) to deepen our knowledge, contacts and engagements with
companies, trade bodies and organisations like the OECD and with their help
developed engagement guidelines for initiative supporters, and other
investors, to improve their interactions with companies.
Finally, members of the RMI debated, over a number of months, whether they
should allow investors to join their trade body. There were some initial
reservations, however a number of company representatives and steering
committee members of the RMI and RBA Board Liaison have been strong
supporters. There is a growing feeling amongst RMI members that investors
could bring a new and constructive perspective to help influence improvements
along mineral supply chains. Representatives of the companies and other RMI
members believe: “there is a big role for investors, they have a different
point of leverage”.
We are delighted that the RMI has taken the significant step of allowing
investors to become members of their trade body which was one of our main
objectives in 2023. We became the inaugural investor member in 2024 and are
now seeking to establish an investor working group.
Case Study – Godrej
Website: https://www.godrejcp.com/
Company profile: Leading emerging markets consumer goods company.
Stewardship: Family. Founded by Ardeshir Godrej in 1897. The Godrej family are
the controlling shareholder. Adi Godrej is Chair of the Godrej Group and Nisa
Godrej is Chair of Godrej Consumer.
What we like:
* The company is a leading supplier of affordable soap and household
insecticides, helping millions of people in tropical climates curtail the
spread of waterborne diseases, malaria and other diseases.
* The Godrej family provide long-term stewardship and continue to be actively
involved in the business, which is run by a capable and professional
management team.
* The business culture is built on integrity and trust and the impressive
‘Godrej Good and Green’ strategy offers a vision for a more inclusive and
sustainable India.
* The franchise is highly cash-generative, ambitious and innovative. Revenues
are split evenly between India and international markets, with positive growth
momentum in Asia, Africa and Latin America.
Risks: We believe that risks for the company include product quality/safety
issues and succession challenges.
How the company is contributing to social outcomes:
Godrej Consumer Products is a consumer goods company which manufactures and
markets personal care and household products in India. They have over 1.2bn
customers. Their main soap and household insecticide products (c.75% of
profits) improve health outcomes in India and wider. A lack of regular
handwashing spreads diarrheal and waterborne diseases in homes and
communities. Poor sanitation has a knock-on effect, hindering development as
workers suffer from illnesses, live shorter lives, produce and earn less and
are unable to afford education for their children. They also have a range of
brands focused on home care, personal care, hair care and baby products.
Godrej’s flagship social initiative, Salon-I, is a vocational training
programme for women. It is designed entirely in-house to train young women in
basic skills involving beauty, skin, hair care, and mehndi application. In
addition, life skills and entrepreneurship development modules enable women to
take up jobs or pursue self-employment depending on their unique skill sets
and circumstances. The programme includes 500-hours of training with
audio-visual modules, life skills and entrepreneurship training aimed at women
between 18 and 30 years for employment or entrepreneurship. The programme
focuses on urban and peri-urban, socio-economically weaker sections of
society. Since 2012, more than 220,000 women have been trained. Around 50% of
trainees take up some form of employment.
How the company is contributing to environmental outcomes
As part of their strategic pillar for building an inclusive and greener world,
Godrej has a goal of zero waste to landfill, which they aim to continue to
achieve. As part of their extended producer responsibility commitment, Godrej
collects 100% post-consumer plastic packaging waste. They have signed up to
the India Plastics Pact and are a plastic neutral company which means they
take back the equivalent amount of plastic (c. 20,000 metric tons) that they
send to consumers. The company is also reducing plastic use by improving
product packaging, developing new products and reducing waste. The Goodknight
coil bags made from Post-Consumer Recycled plastic from their own solid waste
had a successful trial and would replace 600 tonnes of virgin plastic when
implemented more widely. Their ‘Magic’ hand and body wash ready-to-mix
powders reduce plastic usage. The body wash uses 16% plastic by weight and the
company plan to reduce this to 8% in the future.
Relevant Sustainable Development Goals (“SDGs”):
SDG No. 3 – Good health and well being
Godrej’s personal care products and household insecticides help curtail the
spread of malaria and diarrheal diseases plus other waterborne diseases. They
sell insecticide solutions for less than one rupee. Since 2015, they have
commissioned projects in Madhya Pradesh, Uttar Pradesh and Chhattisgarh to
help eliminate mosquito borne endemic diseases, by improving the knowledge and
awareness of communities through behaviour change campaigns. Malarial cases in
Madhya Pradesh dropped by 96% between 2016 and 2021 and the state is on the
path to meeting the goal of malaria elimination. By 2026 the three projects
aim to protect 30 million people against vector-borne diseases.
SDG No. 12 – Responsible consumption and production
As a signatory of the Indian Plastics Pact, they have ambitious goals to
reduce energy use, waste and address the issue of plastic packaging. They are
already plastic neutral and by 2025 aim to reduce packaging consumption per
unit of production by 20%; ensure that 100% of their packaging material is
recyclable, reusable, recoverable or compostable and use at least 10%
Post-Consumer Recycled content in their plastic packaging.
Stewart Investors
Portfolio Manager
29 April 2024
Business Review
The Strategic Report, set out on pages 1 to 35 of the Annual Report, contains
a review of the Company’s business model and strategy, an analysis of its
performance during the financial year and its future developments as well as
details of the principal risks and challenges it faces. Its purpose is to
inform shareholders and help them to assess how the Directors have performed
their duty to promote the success of the Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the time of their approval of this report. Such
statements should be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying any such
forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are
listed on the premium segment of the Official List and traded on the main
market of the London Stock Exchange.
The purpose of the Company is to achieve long-term growth in its
shareholders’ capital by providing a vehicle for investors to gain exposure
to a portfolio of companies in the Asia Pacific region and the Indian
sub-continent (but excluding Japan, Australia and New Zealand), through a
single investment.
The Company’s strategy is to create value for shareholders by addressing its
investment objective.
As an externally managed investment trust, all of the Company’s day-to-day
management and administrative functions are outsourced to service providers.
As a result, the Company has no executive directors, employees or internal
operations.
The Company employs Frostrow Capital LLP (“Frostrow”) as its Alternative
Investment Fund Manager (“AIFM”) and they provide corporate management,
risk management, company secretarial and administrative services. The Company
employs Stewart Investors as its Portfolio Manager.
The Board remains responsible for all aspects of the Company’s affairs,
including setting the parameters for monitoring the investment strategy and
the review of investment performance and policy. It also has responsibility
for all strategic policy issues, including share issuance and buybacks, share
price and discount/ premium monitoring, corporate governance matters,
dividends and gearing.
Further information on the Board’s role and the topics it discusses with the
Portfolio Manager is provided in the Corporate Governance report.
Investment Objective and Policy
The Company aims to achieve long-term capital growth through investment in
selected companies in the Asia Pacific region and the Indian sub-continent,
but excluding Japan, Australia and New Zealand (the “Asia Pacific
Region”). Up to a maximum of 20% of the Company’s total assets (at the
time of investment) may be invested in companies incorporated and/or listed
outside the Asia Pacific Region (as defined above); at least 25% of their
economic activities (at the time of investment) are within the Asia Pacific
Region with this proportion being expected to grow significantly over the long
term.
The Company invests in companies which Stewart Investors believe will be able
to generate long-term growth for shareholders.
The Company invests principally in listed equities although it is able to
invest in other securities, including preference shares, debt instruments,
convertible securities and warrants. In addition, the Company may invest in
open and closed-ended investment funds and companies.
The Company is only able to invest in unlisted securities with the Board’s
prior approval. It is the current intention that such investments are limited
to those which are expected to be listed on a stock exchange or which cease to
be listed and the Company decides to continue to hold or is required to do so.
Risk is diversified by investing in different countries, sectors and stocks
within the Asia Pacific Region. No more than 45% of the Company’s total
assets (at the time of investment) may be invested in any single jurisdiction.
If the proportion of the Company’s total assets invested in a single
jurisdiction exceeds 49% at any time, the AIFM and the Portfolio Manager
should, as soon as reasonably practicable, seek to re-balance the Company’s
portfolio below this threshold.
No single investment may exceed 7.5% of the Company’s total assets at the
time of investment. This limit is reviewed from time to time by the Board and
may be revised as appropriate.
No more than 10% of the Company’s total assets may be invested in other
listed closed-ended investment companies unless such investment companies
themselves have published investment policies to invest no more than 15% of
their total assets in other closed-ended investment companies, in which case
the limit is 15%.
When deemed appropriate, the Company may borrow for investment purposes up to
the equivalent of 10% of the net asset value of the Company at the time of
drawdown of such borrowing.
The use of derivatives is permitted with prior Board approval and within
agreed limits. However, Stewart Investors are unlikely to use derivatives as
they do not form part of their investment strategy.
Performance Measurement
The Board measures Stewart Investors’ performance against a performance
objective, which is to provide shareholders with a net asset value total
return in excess of the UK Consumer Price Index (“CPI”) plus 6%
(calculated on an annual basis) measured over three to five years (the
“Performance Objective”). The Board also monitors the Company’s
performance against its peer group. Please refer to the Chair’s Statement
and the Glossary for further information.
Dividend Policy
It is the Company’s policy to pursue capital growth for shareholders with
income being a secondary consideration. This reflects that the Portfolio
Manager is frequently drawn to companies whose future growth profile is more
important than the generation of dividend income for shareholders.
The Company complies with the United Kingdom’s investment trust rules which
require investment trusts to retain no more than 15% of their distributable
income each year. The Company’s dividend policy is that the Company will pay
a dividend as a minimum to maintain investment trust status.
The Board
At the date of this report, the Board of the Company comprises Andrew Impey
(Chair), Charlotta Ginman (Chair of the Audit Committee), Sian Hansen (Chair
of the Engagement and Remuneration Committee), Robert Talbut, (the Senior
Independent Director) Edward Troughton (the Chair of the Sales, Marketing and
Communications Committee) and Nandita Sahgal. All of these Directors are
non-executive, independent Directors. They all served throughout the year
except for Nandita Sahgal who joined the Board with effect from 1 January
2024.
Further information on the Directors can be found on pages 36 and 37 of the
Annual Report and information on the Board’s diversity can be found in the
Corporate Governance Report.
Key Performance Indicators (“KPIs”)
The Board of Directors reviews performance against the following KPIs, which
are unchanged from the prior year.
* NAV total return against the Performance Objective*^
* NAV per share total return against the peer group*^
* Average discount/premium of share price to NAV per share over the year^
* Ongoing charges ratio^
* Calculated on an annual basis and measured over three to five years
^ Alternative Performance Measure (see Glossary)
NAV per share total return – Performance Objective
The Directors regard the Company’s net asset value total return as being the
overall measure of value generated by the Portfolio Manager over the long
term. Total return reflects both the net asset value growth of the Company and
the dividends paid to shareholders. The performance objective of the Company
is inflation (represented by the Consumer Price Index) plus 6%, measured over
three to five years. The 6% represents what the Board considers to be a
reasonable premium on investors’ capital, which investing in the faster
growing Asian economies ought to provide over time. The Performance Objective
is designed to reflect that the Portfolio Manager’s approach does not
consider index composition when building and monitoring the portfolio.
During the year under review, the NAV per share total return was (1.3)%
underperforming the Performance Objective by 11.7% (2023: NAV per share total
return of 5.7%, underperforming the Performance Objective by 11.6%). Over the
past three years, the annualised NAV per share total return was 4.4%,
underperforming the Performance Objective by 8.6%. Over five years, the
annualised NAV per share total return was 7.6%, underperforming the
Performance Objective by 3.2% per annum.
A full description of performance during the year under review is contained in
the Portfolio Manager’s Review.
NAV total return – peer group
The Board also monitors the Company’s performance against its peer group of
four other investment trusts with similar investment mandates and one exchange
traded fund.
Over the one, three and five years ended 31 January 2024, the Company ranked
1st, 1st and 3rd, respectively, in its peer group. The Company’s performance
is discussed in the Chair’s Statement; further information can be found in
the Portfolio Manager’s Review.
Average discount/premium of share price to NAV per share
The Board believes that the principal drivers of an investment trust’s share
price discount or premium over the long term are investment performance and a
proactive marketing strategy. However, there can be volatility in the discount
or premium during the year. Therefore, the Board takes powers each year to buy
back and issue shares with a view to limiting the volatility of the share
price discount or premium, in normal market conditions.
During the year under review no new shares were issued or bought back by the
Company. The Company’s share price discount to the NAV per share was
narrower this year, in comparison with last year, and usually narrower than
the peer group average. The Board keeps the level of the discount under close
review.
Average discount of share price to NAV per share*^ during the year ended
31 January 2024 31 January 2023
6.4% 10.1%
Peer group average Peer group average
discount 9.3% discount 8.9%
Ongoing charges ratio
Ongoing charges represent the costs that the Company can reasonably expect to
pay from one year to the next, under normal circumstances. The Board continues
to be conscious of expenses and seeks to maintain a sensible balance between
high quality service and costs.
The Board therefore considers the ongoing charges ratio to be a KPI and
reviews the figure both in absolute terms and in relation to the Company’s
peers.
Ongoing charges ratio^
31 January 2024 31 January 2023
1.1% 1.1%
Peer group average 0.9% Peer group average 0.9%
^ Alternative Performance Measure (see Glossary).
The Board believes that the Company’s relatively low turnover, and the
absence of any costs associated with gearing, will mean that the Company’s
overall running costs – should these costs be factored into the calculation
– are not necessarily as high as some other investment vehicles. It should
also be noted that the Company does not have a performance fee. Performance
fees are not included in the peer group average ongoing charges ratio.
Risk Management
The Board is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established procedures to
manage risk, to review the Company’s internal control framework and to
establish the level and nature of the principal risks the Company is prepared
to accept in order to achieve its long-term strategic objective. The Board,
meeting as the Audit Committee, has carried out a robust assessment of the
principal and emerging risks facing the Company with the assistance of the
AIFM. A process has been established to identify and assess risks, their
likelihood and the possible severity of their impact.
These principal risks are set out below with a high-level summary of their
management through mitigation and status arrows to indicate any change in
assessment during the year. The risks faced by the Company have been
categorised under three headings as follows:
* Investment and financial risks
* Strategic risks
* Operational risks
* Source: Morningstar
^ Alternative Performance Measure (see Glossary)
A summary of these risks and their mitigation is set out below:
Principal Risks and Uncertainties Mitigation Change in risk assessment over the last financial year
Investment and Financial Risks
Market and Foreign Exchange Risk Unchanged
The Company’s portfolio is exposed to fluctuations in market To an extent, this risk is accepted as being inherent to the Company’s activities. However, the Board has set limits in the investment policy which ensure that the portfolio is diversified, reducing the risks associated with individual stocks and markets. Compliance with the investment objective and policy limits is monitored daily by Frostrow and Stewart Investors and reported to the Board monthly. Stewart Investors report at each Board meeting on the performance of the Company’s portfolio, including the impact of wider market trends and events. As part of its review of the viability of the Company, the Board also considers the sensitivity of the Company to changes in market prices and foreign exchange rates (see note 14), how the portfolio would perform during a market crisis, and the ability of the Company to liquidate its portfolio if the need arose. Further details are included in the Going Concern and Viability Statements.
prices (from both individual security prices and foreign
exchange rates) in the regions and sectors in which it invests.
Emerging markets in the Asia Pacific region, in which the
portfolio companies operate, are expected to be more volatile
than developed markets.
Investment Performance Unchanged
Investment performance may not achieve the Company’s investment To manage this risk, the Board: * reviews and challenges reports from Stewart Investors, which cover portfolio composition, asset allocation, concentration and performance at each Board meeting;
objective. Stewart Investors’ investment strategy and approach * reviews investment performance over the long term against the Company’s performance objective and peer group;
is expected to lead to performance that will deviate from that * monitors Stewart Investors’ performance against set KPIs;
of both market indices and other investment companies investing * formally reviews Stewart Investors’ appointment, including their performance, service levels and contractual arrangements, each year.
in the Asia Pacific Region.
Principal Risks and Uncertainties Mitigation Change in assessment of risk over the last financial year
Strategic Risks
Geopolitical Risk Unchanged
Geopolitical events may have an adverse impact on the Company’s The Board regularly discusses global geopolitical issues and general economic conditions and developments. Political changes in recent years, particularly in the US and Asia Pacific region and more recently in the Middle East, as well as Ukraine and Eastern Europe, have increased uncertainty and volatility in financial markets. The Board discusses such developments and how they may impact decision making with Stewart Investors. The Board’s discussions with the Portfolio Manager often focus on geopolitical themes or trends that affect social and environmental sustainability, in particular e.g. conflict minerals and water scarcity. These are often subjects on which the Portfolio Manager engages with investee companies.
performance by causing exchange rate volatility, changes in tax
or regulatory environments, a reduced investment universe and/or
a fall in market prices.
Climate Change Risk Unchanged
The Board is cognisant of risks arising from climate change and The Board regularly reviews global environmental, geopolitical and economic developments with the Portfolio Manager and the implications of these risks and events on portfolio construction and the Company’s operations. Given Stewart Investors’ focus on sustainability, the Board considers the portfolio to be relatively well positioned in this regard.
the impact climate change events could have on portfolio
companies and their operations, as well as on service providers
to the Company.
Black Swan Risk Increased
A significant unpredictable event (e.g. a pandemic/war/closure The Board monitors emerging risks and the robustness of Stewart Investors’ and other service providers’ business continuity plans. Stewart Investors’ investment approach includes a focus on sustainability and stewardship, which emphasises quality investments with strong balance sheets, a proven track record in previous crises, and the protection of shareholders’ funds, leaving them relatively well positioned to deal with unforeseen events. All of the Company’s service providers are required to have business continuity / disaster recovery policies and test them at least annually. Service providers provide updates on contingency plans for coping with major disruption to their operations. In view of the number of extraordinary and unpredictable events in recent years, the Board considered that the likelihood of a Black Swan event had increased.
of a major shipping route) could lead to increased market
volatility, and in a worst-case scenario, major global trade and
supply chain breakdown resulting in significant
volatility/declines in market prices. The Company’s service
providers and their operational systems may also be affected.
Principal Risks and Uncertainties Mitigation Change in assessment of risk over the last financial year
Strategic Risks
Portfolio Management Key Persons Risk Unchanged
There is a risk that the team responsible for managing the The Board manages this risk by: * receiving regular reports from the Portfolio Manager, including any significant changes in the make-up of the portfolio management team;
Company’s portfolio may leave their employment or may be * meeting the wider team supporting the designated lead manager, at both Board meetings and at the Portfolio Manager’s offices; and
prevented from undertaking their duties. * delegating to the Engagement & Remuneration Committee responsibility to perform an annual review of the service received from the Portfolio Manager, including, inter alia, the team supporting the lead manager and their succession planning.
Share Price Risk Unchanged
The Company is exposed to the risk, particularly if the In managing this risk the Board: * reviews the Company’s investment objective and policy, and Stewart Investors’ investment approach, in relation to investment performance, market and economic conditions and the performance of the Company’s peers;
investment strategy and approach are unsuccessful, that the * regularly discusses the Company’s future development and strategy;
Company underperforms its peer group, fails to achieve its * undertakes a regular review of the level of the share price discount/premium to the NAV per share and considers ways in which share price performance may be enhanced, including the effectiveness of marketing, share issuance and share buybacks, where appropriate; and
Performance Objective and becomes unattractive to shareholders, * reviews an analysis of the shareholder register at each Board meeting and is kept informed of shareholder sentiment.
resulting in a widening of the share price discount to the NAV
per share.
Principal Risks and Uncertainties Mitigation Change in risk assessment over the last financial year
Operational Risk
Operational Risk Unchanged
As an externally managed investment trust, the Company is reliant on the systems of its service providers for dealing, trade To manage these risks the Board: * periodically visits all key service providers to gain a better understanding of their control environment, and the processes in place to mitigate any disruptive events;
processing, administration, financial and other functions. If such systems were to fail or be disrupted (including, for example, * receives a monthly report from Frostrow, which includes, inter alia, confirmation of compliance with applicable laws and regulations;
as a result of cyber-crime or a pandemic) this could lead to a failure to comply with applicable laws, regulations and * reviews internal control reports and key policies of its service providers, including disaster recover procedures and business continuity plans;
governance requirements and/or to a financial loss. Credit risk arising from the use of counterparties forms part of this risk. * maintains a risk matrix with details of the risks to which the Company is exposed, the approach to managing those risks, the key controls relied upon and the frequency of the controls operation;
If a counterparty were to fail, the Company could be adversely affected through either delay in settlement or loss of assets. * receives updates on pending changes to the regulatory and legal environment and progress towards the Company’s compliance with such changes;
* has considered the increased risk of cyber-attacks and received reports and assurance from its service providers regarding the information security controls in place;
* has reviewed the arrangements (including sub-custodial arrangements) and services provided by the Custodian to ensure that the security of the Company’s custodial assets is maintained; and
* reviews Stewart Investors’ approved list of counterparties, the process for monitoring and adding to the approved counterparty list, and the Company’s use of those counterparties.
Under the terms of the contract with J.P. Morgan Chase Bank, the Company’s investments are required to be segregated from J.P. Morgan Chase Bank’s own assets. Further information on credit risk and other financial risks can be found in note 14.
Emerging Risks
Emerging risks are discussed as part of the risk review process and also
throughout the year to try to ensure that new (as well as known) risks are
identified and, so far as practicable, mitigated. Current identified emerging
risks are as follows:
1. Supply chain disruptions have increased uncertainty over corporate
investment plans and may damage the growth prospects of companies in the Asia
Pacific Region.
2. As well as offering investment opportunities, the development and
exploitation of technological breakthroughs, such as artificial intelligence,
may challenge and damage the addressable market, revenue and operations of
portfolio companies to the extent that they no longer offer the promise of
returns consistent with the Company’s investment objective.
1. The risk that increasing water scarcity will affect economic development,
potentially leading to mass migration and political conflict in the Asia
Pacific Region. This is a particular threat in India, where a high proportion
of the Company’s assets are invested, and which the UN identifies as one of
the most water-stressed countries in the world.
2. The rise of ‘post-truth’ politics is characterised by rising concerns
about the perceived decay of political and social norms, the diminishing role
of generally accepted truth and reason, and the rise of misinformation, much
of it online. This trend appears to be encouraging mistrust in democratic
institutions and public discourse and the rise in many countries of more
extreme political parties. Businesses and brands can be drawn into such
debates which may have uncertain direct or indirect consequences for portfolio
companies.
Going Concern
The Company’s portfolio, investment activity, the Company’s cash balances
and revenue forecasts, and the trends and factors likely to affect the
Company’s performance are reviewed and discussed at each Board meeting. The
Board has considered a detailed assessment of the Company’s ability to meet
its liabilities as they fall due, including stress tests which modelled the
effects of substantial falls in portfolio valuations and liquidity constraints
on the Company’s NAV, cash flows and expenses. Further details of the stress
tests and scenarios considered can be found in the Audit Committee Report and
Notes 1 and 14 to the financial statements. Based on the information available
to the Directors at the date of this report, the conclusions drawn in the
Viability Statement (including the results of the stress tests undertaken)
below and the Company’s cash balances, the Directors are satisfied that the
Company has adequate financial resources to continue in operation for at least
the next 12 months from the date of signing this report and that, accordingly,
it is appropriate to continue to adopt the going concern basis in preparing
the financial statements.
Viability Statement
The Directors have carefully assessed the Company’s financial position and
prospects as well as the principal risks facing the Company and have formed a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
The Board has chosen a five year horizon in view of the long-term outlook
adopted by the Portfolio Manager when making investment decisions.
To make this assessment and in reaching this conclusion, the Audit Committee
has considered the Company’s financial position and its ability to liquidate
its portfolio and meet its liabilities as they fall due and notes the
following:
* The portfolio is comprised of investments traded on major international
stock exchanges. Based on historic analysis, it is estimated that
approximately 84% of the current portfolio could be liquidated within two
weeks (based on current market volumes with 20% participation).
* The Audit Committee has considered the viability of the Company under
various scenarios, including periods of acute stock market and economic
volatility. In view of the results of these tests, the Board has concluded
that it would expect to be able to ensure the financial stability of the
Company through the benefits of having a diversified portfolio of listed and
realisable assets. Further details of the stress tests can be found in Note 1
to the financial statements;
* With an ongoing charges ratio of 1.1%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no capital
commitments currently foreseen which would alter that position;
* The Board has considered the Company’s average cash balance over the past
three years and noted that the Company has consistently retained levels of
cash that are significantly higher than its annual operating expenses;
* The Company has no employees, only non-executive Directors. Consequently it
does not have redundancy or other employment related liabilities or
responsibilities; and
* The closed ended nature of the Company means that, unlike open ended funds,
it does not need to realise investments when shareholders wish to sell their
shares.
The Directors, as well as considering the potential impact of the principal
risks and various severe but plausible downside scenarios, have also made the
following assumptions in considering the Company’s longer-term viability:
* There will continue to be demand for investment trusts;
* The Board and the Portfolio Manager will continue to adopt a long-term view
when making investments, and anticipated holding periods will be at least five
years;
* The Company invests in the securities of listed companies traded on
international stock exchanges to which investors will wish to continue to have
exposure;
* Regulation will not increase to a level that makes running the Company
uneconomical; and
* The performance of the Company will continue to be satisfactory.
Stakeholder Interests and Board Decision-Making (Section 172 of the Companies
Act 2006)
The following disclosure, which is required by the Companies Act 2006 and the
AIC Code of Corporate Governance, describes how the Directors have had regard
to the views of the Company’s stakeholders in their decision-making.
STAKEHOLDER GROUP HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S STAKEHOLDERS
Investors The Board’s key mechanisms of engagement with investors include: * The Annual General Meeting
* The Company’s website which hosts reports, articles and insights, and monthly fact sheets
* One-to-one investor meetings
* Group meetings with professional investors
* The Annual and Half yearly Reports
The Portfolio Manager and the Company’s broker, on behalf of the Board, completed a programme of investor relations throughout the year, reporting to the Board on the feedback received. In addition, the Chair was (and remains) available to engage with the
Company’s shareholders.
Portfolio Manager The Board met regularly with Stewart Investors (the Portfolio Manager) throughout the year, both formally at quarterly Board meetings and informally, as required. The Board engaged with the portfolio management team, discussing the Company’s overall
performance and strategy, as well as developments in individual portfolio companies and wider macroeconomic developments. The Board periodically visits different countries and investee companies in Asia with the Portfolio Manager, to gain first-hand
insight into the Portfolio Manager’s investment process and engagement with portfolio companies. The Board considers these visits to be an important part of their oversight of the Portfolio Manager. For environmental and cost reasons, this year the Board
held a conference in London with the Portfolio Manager, engaging with representatives from portfolio companies and potential investee companies in online meetings.
Service Providers The Board met regularly with Frostrow (the AIFM), representatives of which attend every quarterly Board meeting to provide updates on risk management, accounting, administration, corporate governance and regulatory matters. The Board, meeting as the
Engagement and Remuneration Committee, reviewed the performance of all the Company’s service providers, receiving feedback from Frostrow in their capacity as AIFM and Company Secretary. The AIFM, which is responsible for the day-to-day operational
management of the Company, meets and interacts with the other service providers including the Depositary, Custodian and Registrar, on behalf of the Board, on a daily basis. This can be through email, one-to-one meetings and/or regular written reporting.
The Audit Committee met with BDO LLP to review the audit plan for the year, agree their remuneration, review the outcome of the annual audit and to assess the quality and effectiveness of the audit process. Please refer to the Audit Committee Report for
further information.
As an externally managed investment trust, the Company has no employees,
customers, operations or premises. Therefore, the Company’s key stakeholders
(other than its shareholders) are considered to be its service providers,
including its Portfolio Manager. The need to foster good business
relationships with service providers and maintain a reputation for high
standards of business conduct are central to the Directors’ decision-making
as the Board of an externally managed investment trust.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
Investors * Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. The Board and the Portfolio Manager provided updates on performance via RNS, the Company’s website and the usual financial reports and monthly fact sheets. The Board continued to monitor share price movements closely, both in absolute terms and in relation
* Share price performance. to the Company’s peer group. As the discount narrowed during the year, the Board did not initiate any share buybacks. While recognising that buybacks can generate shareholder value in the short term, the Board decided that buybacks were not in the long
* The Portfolio Manager’s approach to sustainable development and investment. -term interests of shareholders, as they would reduce the size of the Company, increase the ongoing charges ratio and reduce the liquidity of the Company’s shares. Instead, the Board continued to take steps to improve the visibility of the Company and the
Portfolio Manager’s sustainability credentials, in particular to retail investors. Further information is provided in the Chair’s Statement.
Portfolio Manager * Portfolio composition, performance, outlook and business updates. The Board agreed that high standards of research and decision-making have been maintained and the Portfolio Manager’s strategy has been implemented consistently, leading to good returns over the past year and over longer periods. The Board concluded that
* Matters relating to sustainability, including the sustainability credentials of the portfolio companies, and regulatory developments affecting the Company itself. it was in the interests of shareholders for Stewart Investors to continue in their role as Portfolio Manager on the same terms and conditions. The Board continued its focus on improving the marketing strategy of the Company, and established a new Sales,
* The promotion and marketing strategy of the Company. Marketing and Communications Committee to oversee this process. Further information is provided in the Chair’s Statement. The Board’s deliberations on the matter of new sustainability-related regulation are described in the Chair’s Statement. The Board
considered that the conference in London was successful. While it will not always be possible or practical to engage with portfolio companies remotely, in view of the environmental and cost benefits associated with reduced long-distance travel, the Board
agreed to alternate their due diligence trips to Asia with future London-based events.
Service Providers * Regulatory updates, in particular regarding the FCA’s Sustainability Disclosure Rules. The Board concluded that it was in the interests of shareholders for Frostrow to continue in their role as AIFM on the same terms and conditions. The Board approved the Audit Committee’s recommendation to propose to shareholders that BDO LLP be re
* The quality of service provision and the terms and conditions under which service providers are engaged. -appointed as the Company’s auditor for a further year. Please refer to the Audit Committee Report and the Notice of AGM for further information.
* The assessment of the effectiveness of the audit and the Auditor’s reappointment.
* The terms and conditions under which the Auditor is engaged.
Social, Human Rights and Environmental Matters
As an externally managed investment trust, the Company does not have any
employees or maintain any premises, nor does it undertake any manufacturing or
other physical operations itself. All its operational functions are outsourced
to third party service providers. Therefore the Company has no material,
direct impact on the environment or any particular community and, as a result,
the Company itself has no environmental, human rights, social or community
policies.
The Portfolio Manager engages with the Company’s underlying investee
companies in relation to their corporate governance practices and the
development of their policies on social, community and environmental matters.
The Portfolio Manager (under their parent, legal entity name, First Sentier
Investors) is a Tier 1 signatory to the UN Principles of Responsible
Investment, an investor signatory of Climate Action 100+ and an investor
member of the Institutional Investors Group on Climate Change.
Integrity and Business Ethics
The Board is committed to carrying out the Company’s business in an honest
and fair manner with a zero-tolerance approach to bribery, tax evasion and
corruption. As such, policies and procedures are in place to prevent this and
can be found on the Company’s website. In carrying out the Company’s
activities, the Board aims to conduct itself responsibly, ethically and
fairly, including in relation to social and human rights issues.
Taskforce for Climate-Related Financial Disclosures (“TCFD”)
The Company notes the TCFD recommendations on climate-related financial
disclosures. The Company is an investment trust and, as such, it is exempt
from the Listing Rules requirement to report against the TCFD framework.
Stewart Investors is committed to reporting annually on its progress against
its climate change objectives which are set out in its climate change
statement10. This reporting is modelled on TCFD recommendations to the degree
it is relevant to their activities and to support shareholders with their
reporting requirements.
10
https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
Stewart Investors have signed up to the Net Zero Asset Managers Initiative.
They published their first climate report11 in 2022 which provides details
about their plan; this will be updated annually. They are engaging with their
investee companies to set ambitious targets and have credible action plans to
achieve net zero by 2050. They are targeting outcomes that are aligned with
their commitment to the Net Zero Asset Managers Initiative and prioritising
engagement with companies that have inadequate disclosures and targets, and/or
rising emissions.
11
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate-
Report-2021.pdf
Climate reporting, at both the Stewart Investors12 and Pacific Asset Trust13
level, is available via the Company’s website.
12
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate-Report-2021.pdf
13
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/PASSET-Climate-2021.pdf
Performance and Future Developments
A review of the Company’s performance over the year and the outlook for the
Company can be found in the Chair’s Statement and in the Portfolio
Manager’s Review.
The Company’s overall strategy remains unchanged.
By order of the Board
Frostrow Capital LLP
Company Secretary
29 April 2024
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice, including FRS 102 ‘The Financial Reporting Standard applicable in
the UK and the Republic of Ireland’.
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the Directors are required
to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
* prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
* prepare a directors’ report, a strategic report and a directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are responsible for ensuring
that the Annual Report and financial statements, taken as a whole, are fair,
balanced, and understandable and provide the information necessary for
shareholders to assess the Company’s performance, business model and
strategy.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement which comply with that law and those
regulations.
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on the Company’s website, which is maintained
by the Portfolio Manager. Financial statements are published on the
Company’s website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company’s website is the responsibility of the Directors. The
Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this report confirm
that, so far as they are each aware, there is no relevant audit information of
which the Company’s auditor is unaware; and each Director has taken all the
steps that he/she might reasonably be expected to have taken as a Director to
make himself/ herself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Responsibility Statement of the Directors in respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and the return of the Company for the year ended 31 January
2024; and
* the Annual Report includes a fair review of the development and performance
of the business and the financial position of the Company, together with a
description of the principal risks and uncertainties that they face.
We consider the Annual Report, 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.
On behalf of the Board
Andrew Impey
Chair
29 April 2024
Income Statement
for the year ended 31 January 2024
Year ended 31 January 2024 Year ended 31 January 2023
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments 8 - (2,018) (2,018) - 27,434 27,434
Exchange differences - (642) (642) - 1,787 1,787
Income 2 7,861 - 7,861 5,541 - 5,541
Portfolio management
and AIFM fees 3 (1,123) (3,369) (4,492) (1,095) (3,283) (4,378)
Other expenses 4 (795) - (795) (813) - (813)
Return/(loss) before taxation 5,943 (6,029) (86) 3,633 25,938 29,571
Taxation 5 (772) (5,203) (5,975) (621) (3,656) (4,277)
Return/(loss) after taxation 5,171 (11,232) (6,061) 3,012 22,282 25,294
Return/(loss) per share (p) 7 4.3 (9.3) (5.0) 2.5 18.4 20.9
The Total column of this statement represents the Company’s Income
Statement. The Revenue and Capital columns are supplementary to this and are
prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the Income Statement derive from continuing
operations.
The Company had no recognised gains or losses other than those shown above and
therefore no separate Statement of Other Comprehensive Income has been
presented.
The accompanying notes are an integral part of these statements.
Statement of Changes in Equity
for the year ended 31 January 2024
Ordinary Capital
Share Share Redemption Special Capital Revenue
Capital premium reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 January 2022 15,120 8,811 1,648 14,572 404,220 6,295 450,666
Return after taxation - - - - 22,282 3,012 25,294
Ordinary dividends paid 6 - - - - - (2,298) (2,298)
At 31 January 2023 15,120 8,811 1,648 14,572 426,502 7,009 473,662
(Loss)/return after taxation - - - - (11,232) 5,171 (6,061)
Ordinary dividends paid 6 - - - - - (2,782) (2,782)
At 31 January 2024 15,120 8,811 1,648 14,572 415,270 9,398 464,819
The accompanying notes are an integral part of these statements.
Statement of Financial Position
as at 31 January 2024
2024 2023
Notes £’000 £’000 £’000 £’000
Fixed assets
Investments 8 470,109 474,399
Current assets
Debtors 9 1,032 333
Cash 6,191 10,535
7,223 10,868
Creditors (amounts falling due within one year) 10 (1,307) (1,855)
Net current assets 5,916 9,013
Total assets less current liabilities 476,025 483,412
Non-current liabilities
Provision for liabilities 11 (11,206) (9,750)
Net assets 464,819 473,662
Capital and reserves
Called up share capital 12 15,120 15,120
Share premium account 8,811 8,811
Capital redemption reserve 15 1,648 1,648
Special reserve 15 14,572 14,572
Capital reserve 15 415,270 426,502
Revenue reserve 15 9,398 7,009
Equity shareholders’ funds 464,819 473,662
Net asset value per Ordinary Share (p) 13 384.3p 391.6p
The financial statements were approved and authorised for issue by the Board
of Directors on 29 April 2024 and signed on its behalf by:
Andrew Impey
Chair
The accompanying notes are an integral part of these statements.
Pacific Assets Trust Public Limited Company – Company Registration Number:
SC091052 (Registered in Scotland)
Notes to the Financial Statements
1. Accounting Policies
A summary of the principal accounting policies adopted is set out below or as
appropriate within the relevant note to the financial statements.
(a) Basis of Accounting
These financial statements have been prepared under UK Company Law, FRS 102
‘The Financial Reporting Standard applicable in the UK and Ireland’, and
in accordance with guidelines set out in the Statement of Recommended Practice
(“SORP”), published in July 2022, for Investment Trust Companies and
Venture Capital Trusts issued by the Association of Investment Companies, the
historical cost convention, as modified by the valuation of investments at
fair value through profit or loss.
The Company has taken advantage of the exemption from preparing a Cash Flow
Statement under FRS 102, as it is an investment fund whose investments are
substantially highly liquid, carried at fair (market) value and provides a
statement of changes in equity.
The Board is of the opinion that the Company is engaged in a single segment of
business, namely investing in accordance with the Investment Objective, and
consequently no segmental analysis is provided.
Going concern
The Directors are required to make an assessment of the Company’s ability to
continue as a going concern and have concluded that the Company has adequate
resources to continue in operational existence for at least 12 months from the
date these financial statements were approved.
In making this assessment, the Directors have considered a wide variety of
emerging and current risks to the Company, as well as the mitigation
strategies that are in place. The Board has also reviewed stress-testing and
scenario analyses prepared by the AIFM. The stress tests and scenario analyses
considered the effect of various downturns, based on historic bear markets, on
the asset value and expenses of the Company. The tests modelled the impact of
decreases of up to and over 80% on the value of the investment portfolio and
decreases in current market liquidity of up to 80%.
These tests are carried out as an arithmetic exercise, which can apply equally
to any set of circumstances in which asset value and income are significantly
impaired. It was concluded that even in an extreme downside scenario, the
Company would be able to continue to meet its liabilities as they fell due.
Whilst the economic future is uncertain, the opinion of the Directors is that
there is no foreseeable downside scenario that would threaten the Company’s
ability to continue to meet its liabilities as they fall due.
Based on the information available to the Directors at the time of this
report, including the results of the stress tests and scenario analyses, and
having taken account of the liquidity of the investment portfolio, the
Company’s cash flow and borrowing position (the Company is not currently
geared), the Directors are satisfied that the Company has adequate financial
resources to continue in operation for at least 12 months from the date of
signing these financial statements and that, accordingly, it is appropriate to
adopt the going concern basis.
Significant Judgement
There is one significant judgement involved in the presentation of the
Company’s accounts, being the judgement on the functional currency of the
Company.
The Company’s investments are made in foreign currencies, however the Board
considers the Company’s functional currency to be sterling. In arriving at
this conclusion, the Board considered that the shares of the Company are
listed on the London Stock Exchange, it is incorporated in the United Kingdom
and pays dividends and expenses in sterling. All values are rounded to the
nearest thousand pounds (£’000) except where otherwise indicated.
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and
in accordance with the SORP, supplementary information which analyses the
Income Statement between items of a revenue and capital nature has been
presented alongside the Income Statement. The net revenue return is the
measure the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Section 1158 of the
Corporation Tax Act 2010.
(b) Foreign Currencies
Transactions denominated in foreign currencies are translated into sterling at
the exchange rates on the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate
ruling at the date of the Statement of Financial Position. Profits or losses
on the translation of foreign currency balances, whether realised or
unrealised, are taken to the capital or revenue column of the Income
Statement, depending on whether the gain or loss is of a capital or revenue
nature.
(c) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand deposits readily
convertible to known amounts of cash and subject to insignificant risk of
changes in value.
2. Income
2024 2023
£’000 £’000
Income from investments
Overseas dividends 7,701 5,504
Bank interest 160 37
7,861 5,541
Dividends receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the Company’s
right to receive payment is established. Foreign dividends are gross of
withholding tax.
Where the Company has elected to receive its dividends in the form of
additional shares rather than cash the amount of cash foregone is recognised
in the revenue column with any excess above this recognised in the capital
column.
3. Portfolio Management and AIFM Fees
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Portfolio management fee
– Stewart Investors 996 2,989 3,985 968 2,904 3,872
AIFM fee – Frostrow 127 380 507 127 379 506
1,123 3,369 4,492 1,095 3,283 4,378
Frostrow’s AIFM fee is for risk management, corporate management, company
secretarial and administrative services. Further information regarding Stewart
Investors and Frostrow’s fees can be found on pages 47 and 48 of the Annual
Report.
All expenses and interest are accounted for on an accruals basis. Expenses and
interest are charged to the Income Statement as revenue items except where
incurred in connection with the maintenance or enhancement of the value of the
Company’s assets and taking account of the expected long-term returns, when
they are split as follows:
Portfolio Management and AIFM fees payable have been allocated 25%
to revenue and 75% to capital.
Transaction costs incurred on the purchase and sale of investments
are taken to the Income Statement as a capital item, within gains on
investments held at fair value through profit or loss.
4. Other Expenses
2024 2023
£’000 £’000
Directors’ fees 189 183
Employers NIC on directors’ remuneration 15 14
Auditor’s remuneration for annual audit 46 44
Depository fees 57 56
Custody fees 175 190
Registrar fees 25 25
Broker retainer 38 32
Listing fees 24 36
Legal and professional fees 41 43
Other expenses 185 190
Total expenses 795 813
For accounting policy, see note 3.
5. Taxation
(a) Analysis of Charge in the Year
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas taxation 985 - 985 764 - 764
Indian capital gains tax charge (213) 5,203 4,990 (143) 3,656 3,513
772 5,203 5,975 621 3,656 4,277
Overseas tax arose as a result of irrecoverable withholding tax on overseas
dividends and Indian capital gains tax.
As an investment trust, the Company is generally not subject to UK tax on
capital gains. However, Indian capital gains tax arises on capital gains on
the sale of Indian securities at a rate of 15% on short-term capital gains
(defined as those where the security was held for less than a year) and 10% on
long-term capital gains. £1,456,000 (2023: £1,355,000) of the charge arose
on unrealised long-term capital gains on securities still held and is included
in deferred taxation on unrealised capital gains on Indian securities as set
out in note 11. £3,534,000 (2023: £2,158,000) of the charge relates to
capital gains tax paid on disposals during the year.
(b) Reconciliation of Tax Charge
The UK corporation tax rate was 19% until 31 March 2023 and 25% from 1 April
2023, giving an effective rate of 24.0% for the year (2023: 19%). The tax
assessed for the year is lower than the corporation tax rate. The differences
are explained below.
The differences are explained below:
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Total return on ordinary activities
before tax 5,943 (6,029) (86) 3,633 25,938 29,571
Corporation tax charged at 24.0%
(2023: 19.0%) 1,428 (1,449) (21) 690 4,928 5,618
Effects of:
(Losses)/gains on investment not subject to UK
corporation tax - 485 485 - (5,212) (5,212)
Non-taxable exchange differences - 154 154 - (340) (340)
Unutilised management expenses 422 810 1,232 356 624 980
Income not subject to corporation tax (1,851) - (1,851) (1,046) - (1,046)
Indian capital gains tax charge
(see note 5a) (213) 5,203 4,990 (143) 3,656 3,513
Overseas taxation 986 - 986 764 - 764
Tax charge for the year 772 5,203 5,975 621 3,656 4,277
As at 31 January 2024 the Company had unutilised management expenses and other
reliefs for taxation purposes of £62,974,000 (2023: £57,846,000). It is not
anticipated that these will be utilised in the foreseeable future and as such
no related deferred tax asset has been recognised.
In October 2022 it was confirmed that the main rate of corporation tax would
increase from 19% to 25% from April 2023. This rate has been enacted as at the
date of the Statement of Financial Position.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue as set out in this note. The standard
rate of corporation tax is applied to taxable net revenue. Any adjustment
resulting from relief for overseas tax is allocated to the revenue reserve.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position date where
transactions or events that result in an obligation to pay more, or right to
pay less, tax in future have occurred at the Statement of Financial Position
date. This is subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits from which
the future reversal of the underlying timing differences can be deducted.
Timing differences are differences arising between the Company’s taxable
profits and its results as stated in the accounts which are capable of
reversal in one or more subsequent periods. Deferred tax is measured without
discounting and based on enacted tax rates. Due to the Company’s status as
an investment trust, and the intention to meet the conditions required to
obtain approval under Section 1158 of the Corporation Tax Act 2010, the
Company has not provided for deferred UK tax on any capital gains and losses
arising on the revaluation or disposal of investments.
Deferred tax has been provided for on capital gains arising on Indian
securities as noted in 5(a) above.
6. Dividends
Amounts recognised as distributable to shareholders for the year ended 31
January 2024, were as follows:
2024 2023
£’000 £’000
Final dividend paid for the year ended 31 January 2023 of 2.3p per share 2,782 -
Final dividend paid for the year ended 31 January 2022 of 1.9p per share - 2,298
In respect of the year ended 31 January 2024, a final dividend of 4.0p per
share has been proposed and will be reflected in the Annual Report for the
year ending 31 January 2025. Details of the ex-dividend and payment dates are
provided on page 47 of the Annual Report.
The Board’s current policy is to pay dividends only out of revenue reserves.
Therefore the amount available for distribution as at 31 January 2024 is
£9,398,000 (2023: £7,009,000).
The dividends payable in respect of both the current and the previous
financial year, which meet the requirements of Section 1158 CTA 2010, are set
out below:
2024 2023
£’000 £’000
Revenue available for distribution by way of dividend for the year 5,171 3,012
Final dividend of 4.0p per share (2023: final dividend of 2.3p) (4,838) (2,782)
Transfer to revenue reserves 333 230
Dividends paid by the Company on its shares are recognised in the financial
statements in the year in which they are paid and are shown in the Statement
of Changes in Equity.
7. Return per Share
The return per share is as follows:
2024 2023
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Basic 4.3p (9.3)p (5.0)p 2.5p 18.4p 20.9p
The total return per share is based on the total loss attributable to
shareholders of £6,061,000 (2023: return of £25,294,000).
The revenue return per share is based on the net revenue return attributable
to shareholders of £5,171,000 (2023: £3,012,000).
The capital loss per share is based on the net capital loss attributable to
shareholders of £11,232,000 (2023: return of £22,282,000).
The total return, revenue return and the capital return per share are based on
the weighted average number of shares in issue during the year of 120,958,386
(2023: 120,958,386).
The calculations of the returns per Ordinary Share have been carried out in
accordance with IAS 33 Earnings per Share.
8. Investments
2024 2023
£’000 £’000
Investments
Cost at start of year 320,883 290,337
Investment holding gains at start of year 153,516 146,646
Valuation at start of year 474,399 436,983
Purchases at cost 84,889 77,305
Disposal proceeds (87,161) (67,323)
(Losses)/gains on investments (2,018) 27,434
Valuation at end of year 470,109 474,399
Cost at 31 January 352,944 320,883
Investment holding gains at 31 January 117,165 153,516
Valuation at 31 January 470,109 474,399
The Company received £87,161,000 (2023: £67,323,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£52,828,000 (2023: £46,759,000). These investments have been revalued over
time and until they were sold any unrealised gains/losses were included in the
fair value of the investments.
During the year the Company incurred transaction costs on purchases of
£110,000 (2023: £87,000) and transaction costs on sales of £169,000 (2023:
£142,000).
Valuation of Investments
Investments are measured initially and at subsequent reporting dates at fair
value. Purchases and sales are recognised on the trade date when a contract
exists whose terms require delivery within the time frame established by the
market concerned. For quoted securities fair value is either bid price or last
traded price, depending on the convention of the exchange on which the
investment is listed. Changes in fair value and gains or losses on disposal
are included in the Income Statement as a capital item.
In addition, for financial reporting purposes, fair value measurements are
categorised into a fair value hierarchy based on the degree to which the
inputs to the fair value measurements are observable and the significance of
the inputs to the fair value measurement in its entirety, which are described
as follows:
Level 1 – Quoted prices in active markets.
Level 2 – Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data), either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is
unavailable).
All investments are in equity shares and have been classified as Level 1
(2023: All Level 1).
9. Debtors
2024 2023
£’000 £’000
Amounts due from brokers 746 -
Accrued income 279 323
Other debtors 7 10
1,032 333
10. Creditors: Amounts Falling Due Within One Year
2024 2023
£’000 £’000
Amounts due to brokers - 481
Portfolio management fee – Stewart Investors 1,002 1,002
AIFM fee – Frostrow 128 129
Other creditors 177 243
1,307 1,855
11. Provisions for Liabilities
2024 2023
£’000 £’000
Deferred taxation on unrealised capital gains on Indian securities 11,206 9,750
See note 5 for further details and accounting policy.
12. Share Capital
2024 2023
£’000 £’000
Allotted and fully paid:
120,958,386 Ordinary shares of 12.5p each (2023: 120,958,386) 15,120 15,120
During the current and prior year, no Ordinary shares were issued or bought
back.
The capital of the Company is managed in accordance with its investment policy
which is detailed in the Strategic Report.
The Company does not have any externally imposed capital requirements.
13. Net Asset Value Per Share
The net asset value per share of 384.3p (2023: 391.6p) is calculated on net
assets of £464,819,000 (2023: £473,662,000) divided by 120,958,386 (2023:
120,958,386) shares, being the number of shares in issue at the year end.
14. Financial Instruments
The Company’s financial instruments comprise its investment portfolio, cash
balances, and debtors and creditors that arise directly from its operations.
As an investment trust, the Company holds an investment portfolio of financial
assets in pursuit of its investment objective.
Fixed asset investments (see note 8) are valued at fair value in accordance
with the Company’s accounting policies. The fair value of all other
financial assets and liabilities is represented by their carrying value in the
Statement of Financial Position.
The main risks that the Company faces arising from its financial instruments
are:
(i) market risk, including:
other price risk, being the risk that the value of investments will
fluctuate as a result of changes in market prices;
interest rate risk, being the risk that the future cash flows of a
financial instrument will fluctuate because of changes in interest rates;
foreign currency risk, being the risk that the value of financial
assets and liabilities will fluctuate because of movements in currency rates;
(ii) credit risk, being 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; and
(iii) liquidity risk, being the risk that the Company will not be able to
meet its liabilities when they fall due. This may arise should the Company not
be able to liquidate its investments. Under normal market trading volumes, the
majority of the investment portfolio could be realised within a week.
Other price risk
The management of other price risk is part of the portfolio management process
and is typical of equity investment. The investment portfolio is managed with
an awareness of the effects of adverse price movements through detailed and
continuing analysis with an objective of maximising overall returns to
shareholders. Further information on how the investment portfolio is managed
is set out on page 2 of the Annual Report. Although it is the Company’s
current policy not to use derivatives they may be used from time to time, with
prior Board approval, to hedge specific market risk or gain exposure to a
specific market.
If the investment portfolio valuation rose or fell by 10% at 31 January, the
impact on the net asset value would have been £46.3 million (2023: £46.7
million). The calculations are based on the investment portfolio valuation as
at the respective Statement of Financial Position dates and are not
necessarily representative of the year as a whole.
Interest rate risk
Floating rate
When the Company retains cash balances the majority of the cash is held in
overnight call accounts. The benchmark rate which determines the interest
payments received on cash balances is the bank base rate for the relevant
currency for each deposit.
Foreign currency risk
The Company invests in overseas securities and holds foreign currency cash
balances which give rise to currency risks. Foreign currency risks are managed
alongside other market risks as part of the management of the investment
portfolio. It is currently not the Company’s policy to hedge this risk on a
continuing basis but it can do so from time to time.
Foreign currency exposure:
2024 2023
Investments Cash Debtors Creditors/ Provisions Investments Cash Debtors Creditors/ Provisions
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Chinese renminbi 43,006 - - - 39,812 481 - (481)
Indian rupee 218,067 2,063 783 (11,206) 206,897 15 110 (9,750)
New Taiwanese dollar 51,623 5 - - 54,280 - 5 -
Hong Kong dollar 13,173 - - - 33,134 - - -
Philippine peso 4,688 - - - 4,835 - - -
Indonesian rupiah 36,489 - - - 36,718 - - -
Japanese yen 37,707 - 106 - 36,161 - 120 -
Bangladesh taka 4,358 - - - 6,106 - 1 -
Thai baht 9,471 - - - 12,001 - - -
Malaysian ringgit 4,586 - - - 10,231 - - -
Singapore dollar 21,562 688 - - 23,085 2,898 - -
US dollar - 464 - - - 3,100 - -
Korean won 25,379 - 95 - 11,139 - 67 -
Euro - 2 - - - - - -
Total 470,109 3,222 984 (11,206) 474,399 6,494 303 (10,231)
At 31 January 2024 the Company had £2,969,000 of sterling cash balances
(2023: £4,041,000).
During the year sterling strengthened by an average of 7.5% (2023: weakened by
1.6%) against all of the currencies in the investment portfolio (weighted for
exposure at 31 January). If the value of sterling had strengthened against
each of the currencies in the portfolio by 10%, the impact on the net asset
value would have been negative £52.9 million (2023: negative £53.4 million).
If the value of sterling had weakened against each of the currencies in the
investment portfolio by 10%, the impact on the net asset value would have been
positive £43.3 million (2023: positive £43.7 million). The calculations are
based on the investment portfolio valuation and cash balances as at the year
end and are not necessarily representative of the year as a whole.
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. The Portfolio Manager has in place a monitoring procedure in
respect of counterparty risk which is reviewed on an ongoing basis. The
carrying amounts of financial assets best represents the maximum credit risk
exposure at the Statement of Financial Position date, and the main exposure to
credit risk is via the Custodian which is responsible for the safeguarding of
the Company’s investments and cash balances.
At the reporting date, the Company’s financial assets exposed to credit risk
amounted to the following:
2024 2023
£’000 £’000
Cash 6,191 10,535
Debtors 1,032 333
7,223 10,868
All the assets of the Company which are traded on a recognised exchange are
held by J.P. Morgan Chase Bank, the Custodian. Bankruptcy or insolvency of the
Custodian may cause the Company’s rights with respect to securities held by
the Custodian to be delayed or limited. The Board monitors the Company’s
risk as described in the Strategic Report.
The credit risk on cash is controlled through the use of counterparties or
banks with high credit ratings (rated AA or higher), assigned by international
credit rating agencies. Cash is currently held at JP Morgan Chase Bank.
Bankruptcy or insolvency of such financial institutions may cause the
Company’s ability to access cash placed on deposit to be delayed, limited or
lost.
Liquidity risk
The Company’s liquidity risk is managed on an ongoing basis by the Portfolio
Manager. Substantially all of the Company’s portfolio would be realisable
within one week, under normal market conditions. There may be circumstances
where market liquidity is lower than normal. Stress tests have been performed
to understand how long the portfolio would take to realise in such situations.
The Board is comfortable that in such a situation the Company would be able to
meet its liabilities as they fall due.
Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be
able to continue as a going concern and to maximise the return to its equity
shareholders.
The Company’s policy on gearing and leverage is set out on page 26 of the
Annual Report. The Company had no gearing or leverage during the current or
prior year.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as shown in the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company’s capital on an ongoing
basis. This includes a review of:
* the need to buy back equity shares, either for cancellation or to hold in
treasury, in light of any share price discount to net asset value per share in
accordance with the Company’s share buy-back policy;
* the need for new issues of equity shares, including issues from treasury;
and
* the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company’s objectives, policies and processes for managing capital are
unchanged from the prior year.
15. Reserves
Capital redemption reserve
This reserve arose when ordinary shares were redeemed by the Company and
subsequently cancelled, at which point the amount equal to the par value of
the ordinary share capital was transferred from the ordinary share capital to
the Capital Redemption Reserve.
Special reserve
The Special Reserve arose following court approval in February 1999 to
transfer £24.2 million from the share premium account.
Capital reserve
The following are accounted for in this reserve: gains and losses on the
disposal of investments; changes in the fair value of investments; and
expenses and finance costs, together with the related taxation effect, charged
to capital in accordance with note 5. Any gains in the fair value of
investments that are not readily convertible to cash are treated as unrealised
gains in the capital reserve.
Revenue reserve
The Revenue Reserve reflects all income and expenses that are recognised in
the revenue column of the Income Statement.
Distributable reserves
The Revenue, Special and Capital Reserves are distributable. It is the
Board’s current policy to pay dividends only from the revenue reserve.
16. Related Party Transactions and Transactions with the Managers
The following are considered to be related parties:
* Frostrow Capital LLP (under the Listing Rules only)
* Stewart Investors (under the Listing Rules only)
* The Directors of the Company
Details of the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, are disclosed on pages 47 and 48 of the Annual Report.
During the year ended 31 January 2024, Frostrow earned £507,000 (2023:
£506,000) in respect of company management fees, of which £128,000 (2022:
£129,000) was outstanding at the year end.
The Company employs Stewart Investors as its Portfolio Manager. Details of
this arrangement are disclosed on page 47 of the Annual Report. During the
year ended 31 January 2024, Stewart Investors earned £3,985,000 (2023:
£3,872,000) in respect of portfolio management fees, of which £1,002,000
(2023: £1,002,000) was outstanding at the year end.
All material related party transactions have been disclosed in notes 3 and 4.
Details of the remuneration and the shareholdings of all Directors can be
found on page 59 of the Annual Report.
The figures and financial information for 2023 are extracted from the
published Annual Report for the year ended 31 January 2023 and do not
constitute the statutory accounts for that year. The Annual Report for the
year ended 31 January 2023 has been delivered to the Registrar of Companies
and included the Independent Auditor’s Report which was unqualified and did
not contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
The figures and financial information for 2024 are extracted from the Annual
Report and financial statements for the year ended 31 January 2024 and do not
constitute the statutory accounts for the year. The Annual Report for the
year ended 31 January 2024 includes the Independent Auditor’s Report which
is unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and financial
statements have not yet been delivered to the Registrar of Companies.
Glossary of Terms and Alternative Performance Measures (unaudited)
Absolute Performance
Absolute performance is the percentage (%) rise or fall in the share price of
the investment over the stated period. Relative performance, on the other
hand, is the difference between the absolute return and the performance of the
market (or other similar investments), which is gauged by a benchmark, or
index such as the MSCI AC Asia ex Japan Index.
AIFMD
The Alternative Investment Fund Managers Directive (the ‘Directive’) is a
European Union Directive that entered into force on 22 July 2013. The
Directive, which was retained in UK law following the withdrawal of the UK
from the European Union, regulates fund managers that manage alternative
investment funds (including investment trusts).
Where an entity falls within the scope of the Directive, it must appoint a
single Alternative Investment Fund Manager (‘AIFM’). The core functions of
an AIFM are portfolio and risk management. An AIFM can delegate one but not
both of these functions. The entity must also appoint an independent
depositary whose duties include the following: safeguarding and verification
of the ownership of assets; monitoring cashflows; and ensuring that
appropriate valuations are applied to the entity’s assets.
Average Discount
The average share price for the period divided by the average net asset value
for the period minus 1.
2024 2023
pence pence
Average share price for the year 363.1 335.9
Average net asset value for the year 388.0 373.8
Average Discount 6.4% 10.1%
Bottom-Up Approach
An investment approach that focuses on the analysis of individual stocks
rather than the significance of macroeconomic factors.
Discount or Premium
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is usually
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount.
Gearing
The term used to describe the process of borrowing money for investment
purposes. The expectation is that the returns on the investments purchased
will exceed the finance costs associated with those borrowings.
There are several methods of calculating gearing and the following has been
selected:
Total assets less current liabilities (before deducting any prior charges)
minus cash/cash equivalents divided by shareholders’ funds, expressed as a
percentage.
Net Asset Value (“NAV”)
The value of the Company’s assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also
described as “shareholders’ funds” per share. The NAV is often expressed
in pence per share after being divided by the number of shares which have been
issued. The NAV per share is unlikely to be the same as the share price which
is the price at which the Company’s shares can be bought or sold by an
investor. The share price is determined by the relationship between the demand
for and supply of the shares.
NAV Per Share Total Return
The total return on an investment over a specified period assuming dividends
paid to shareholders were reinvested at net asset value per share at the time
the shares were quoted ex-dividend. This is a way of measuring investment
management performance of investment trusts which is not affected by movements
in discounts or premiums.
31 January 31 January
2024 2023
NAV Total Return p p
Opening NAV 391.6 372.6
(Decrease)/increase in NAV (5.0) 20.9
Dividend paid (2.3) (1.9)
Closing NAV 384.3 391.6
(Decrease)/increase in NAV (1.3)% 5.6%
Impact of reinvested dividends 0.0% 0.1%
NAV Total Return (1.3)% 5.7%
Ongoing Charges
Ongoing charges are calculated by taking the Company’s annualised operating
expenses as a proportion of the average daily net asset value of the Company
over the year. The costs of buying and selling investments are excluded, as
are interest costs, taxation, cost of buying back or issuing ordinary shares
and other non-recurring costs.
31 January 31 January
2024 2023
£’000 £’000
Operating expenses 1 5,287 5,190
Average net assets during the year 469,515 452,081
Ongoing charges 1.1% 1.1%
1 See notes 3 and 4.
Performance Objective
The Company’s performance objective, against which the Portfolio Manager’s
performance is measured, is to provide shareholders with a net asset value
total return in excess of the UK Consumer Price Index (“CPI”) plus 6%
(calculated on an annual basis) measured over three to five years.
The Consumer Price Index is published by the UK Office for National
Statistics and represents inflation. The additional 6% is a fixed element to
represent what the Board considers to be a reasonable premium on investors’
capital which investing in the faster-growing Asian economies ought to provide
over time. The performance objective is designed to reflect that the Portfolio
Manager’s approach does not consider index composition when investing.
Total Return (annualised)
Share Price NAV CPI + 6%
(%) (%) (%)
One year to 31 January 2024 (1.9) (1.3) 10.4
Three years to 31 January 2024 2.3 4.4 13.0
Five years to 31 January 2024 5.9 7.6 10.8
Portfolio Turnover
Portfolio turnover is a measure of how quickly securities in a fund are either
bought or sold by the fund’s managers, over a given period of time. The rate
of turnover is important for potential investors to consider, as funds that
have a high rate will also have higher fees to reflect the turnover costs.
It is calculated as the average of the purchases and sales for the year
divided by the average net assets for the year.
Revenue Return per Share
The revenue return per share is calculated by taking the return on ordinary
activities after taxation and dividing it by the weighted average number of
shares in issue during the year (see note 7 for further information).
Share Price Total Return
The total return on an investment over a specified period assuming dividends
paid to shareholders were reinvested in the Company’s shares at the share
price at the time the shares were quoted ex-dividend.
31 January 31 January
2024 2023
Share Price Total Return p p
Opening share price 358.0 340.0
(Decrease)/increase in share price (6.7) 19.9
Dividend paid (2.3) (1.9)
Closing share price 349.0 358.0
(Decrease)/increase in share price (1.9)% 5.8%
Impact of reinvested dividends 0.0% 0.1%
Share Price Total Return (1.9)% 5.9%
Volatility
A measure of the range of possible returns for a given security or market
index.
Investment Philosophy
The graphic in the Portfolio Manager’s Review contains certain terms which
are defined/explained below. Each measure is calculated for a representative
Stewart Investors Asia Pacific sustainability account (managed by the same
portfolio management team as the Company), unless otherwise stated.
* Active share is the percentage of stock holdings in the portfolio that
differs from the MSCI AC Asia ex Japan Index, sterling adjusted with income
reinvested net of tax (the “Index”). A higher percentage reflects a higher
divergence from the Index.
* Average age of holdings refers to the average age of the companies held in
the portfolio.
* Holdings with net cash refers to companies whose total cash is greater than
its total liabilities.
* Holdings with stewards refers to companies primarily owned/controlled by
second or later generation of its founders, companies primarily
owned/controlled by its founder or founders and companies primarily
owned/controlled by an organisation, often established by an individual, whose
purpose is to support good causes.
* For emissions (footprint) reporting the Portfolio Manager has used the
Partnership for Carbon Accounting Financials (PCAF) methodology which
calculates a shareholder’s or lender’s share of scope 1 and 2 emissions
for each company it invests in. Scope 1 covers all direct greenhouse gas (GHG)
emissions from sources that are owned or controlled by the reporting entity.
Scope 2 covers indirect GHG emissions from the consumption of purchased
electricity, heat or steam. An investor’s share is based on the amount
invested over the Enterprise Value Including Cash (EVIC). For example if a
shareholder owns 10% of the company, it is allocated 10% of the company’s
emissions. For shareholders this is sometimes called ‘financed’ or
‘equity share’ of emissions. To calculate the benchmark comparisons for
Stewart Investors’ strategies, they have used the same approach by assuming
benchmarks hold the same total value of investments as comparable strategies.
They provide the total footprint, which is influenced by the size of the total
value of the investment strategy (shown in 1000s of tonnes of CO2-e) and on a
‘per $1 million invested’ basis, which is useful for comparison purposes.
* Outperformance in down months shows the proportion of months where the
Composite portfolio outperformed the Index, expressed as a percentage of the
total number of months where the Index fell. An outperformance in down months
of 80% indicates that the portfolio outperformed in 8 out of 10 months where
the Index fell. This measure is calculated using the Composite.
Source for Index: FactSet
* Downside capture is a measure of the Composite portfolio’s overall
performance in a down market relative to the Index. A down-market is defined
as a period in which the market return is less than 0. Downside capture
reflects the portfolio’s cumulative return when the Index was down, divided
by the Index’s cumulative return when it was down. A value of less than 100
indicates that the portfolio has lost less than the Index during periods of
negative returns for the Index. This measure is calculated using the
Composite.
* Average name turnover is a portfolio activity measure indicating how many
companies (stocks) have been sold and bought over a given period. This is thus
showing the turnover of the portfolio in terms of stock mutation. Data shown
is for the 10 years to 31 December 2023.
* Composite means the Stewart Investors Asia ex-Japan Sustainable Equity
composite, a weighted average group of accounts managed in a similar way by
the same portfolio management team that manages the Company’s portfolio. The
Composite portfolio performance is calculated on a net basis by subtracting a
model annual management fee of 0.85% from the gross performance figures. No
other expenses or costs have been taken into account when calculating the net
performance. Income is reinvested and is included on a net of tax basis.
Performance and measures are from the Composite inception on 1 February 2006
to 31 December 2023.
ANNOUNCEMENT ENDS
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