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RNS

Annual Financial Report

Released 07:00 03-May-2018

RNS Number : 9360M
Aberdeen New Thai Inv Trust PLC
03 May 2018
 

ABERDEEN NEW THAI INVESTMENT TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 28 FEBRUARY 2018

 

STRATEGIC REPORT

 

Financial Highlights

 

Ordinary share price total return {A}


Net asset value per Ordinary share
total return {A}

 

2018

+18.4%


2018

+17.7%

 

2017

 

+27.8%


 

2017

 

+26.5%



Stock Exchange of Thailand Index total return

Earnings per Ordinary share (revenue)






2018

+21.6%


2018

11.12p 

 

2017

 

+36.5%


 

2017

 

10.31p






Dividend per Ordinary share









2018

11.10p




 

2017

 

10.30p





{A} Alternative Performance Measure (see note 20 to the Financial Statements)

 

Overview

 

Launched in 1989, Aberdeen New Thai Investment Trust PLC (the "Company") is an investment trust, with its Ordinary shares listed on the premium segment of the London Stock Exchange, which aims to provide shareholders with a high level of long-term, above average capital growth through investment in Thailand.

 

The Company is governed by a board of directors, all of whom are independent, and has no employees. Like most other investment companies, it outsources its investment management and other administration to third party providers. The Company has appointed Aberdeen Fund Managers Limited ("AFML", the "Manager", or "AIFM") as its alternative investment fund manager, which has in turn delegated certain responsibilities, including investment management, to Aberdeen Asset Management Asia Limited ("AAMAL" or the "Investment Manager"). AFML and AAMAL are subsidiaries of Standard Life Aberdeen plc.

 

The Company does not have a fixed life but there is a discount monitoring period which operates annually during the last 12 weeks of the Company's financial year. In the 12 weeks ending 28 February 2018, the Ordinary shares traded at an average discount of 14.7% to the underlying net asset value per share (including income), therefore no special resolution to wind up the Company will be put to shareholders at the forthcoming AGM.

 

Financial Calendar

31 May 2018

Ex-dividend date for proposed Final Ordinary dividend

1 June 2018

Record date for proposed Final Ordinary dividend

21 June 2018

Annual General Meeting at 11.30am at Bow Bells House, 1 Bread Street, London EC4M 9HH

26 June 2018

Payment date for proposed Final Ordinary dividend

October 2018

Announcement of results for the six months ending 31 August 2018, including declaration of initial interim dividend

April 2019

Announcement of results for year ending 28 February 2019

 

 

CHAIRMAN'S STATEMENT

Results

Once again, the Thai market performed well in the year ended 28 February 2018, with the Stock Exchange of Thailand index ("SET Index") providing a total return of 21.6% in Sterling terms, comfortably outperforming most of its regional peers for the second year running. Towards the year end, global markets exhibited heightened volatility amid concerns that rising inflation and faster-than-anticipated interest rate hikes from the Federal Reserve could derail the US economy, notwithstanding well-received US domestic tax reforms. Global confidence was also shaken by worsening trade tensions as President Donald Trump ratcheted up his protectionist rhetoric. Against this background, foreign investors were net sellers of Thai stocks but local investors, benefiting from a surfeit of domestic liquidity, drove the market higher.

 

However, while the value of your Company's portfolio rose substantially, it failed to keep up with the market as a whole. The net asset value per Ordinary share rose by 17.7% on a total return basis (in Sterling), some 3.9% behind the benchmark SET Index. Your Ordinary share price fared slightly better, rising by 18.4% on a total return basis to 592.0p, reflecting a small tightening of the discount to the net asset value from 15.0% to 14.8%. The underperformance partly reflects our Manager's highly selective style - it applies a bottom-up, stock-picking approach - at a time when the Thai market was buoyed by fairly indiscriminate speculative buying, boosting quality and non-quality stocks alike.

 

Over five years too, while there have been substantial absolute gains for investors, the Company's net asset value performance has lagged the benchmark. The Ordinary share price has continued to trade at a discount to net asset value, notwithstanding significant buybacks by the Company over the last two years.

 

Proposed Changes

Against this backdrop, the Board has consulted the Manager and together we have identified a number of changes designed to improve returns to shareholders over time. The Board and the Manager are optimistic about investing in Thailand, given its proven resilience in the face of political and other uncertainties, the quality of many of its companies and the access to excellent regional growth prospects that it provides. We believe the changes set out below will further enhance the attractions of your Company.

 

Investment Policy

A cornerstone of your Company's investment record over the last 28 years has been the detailed research undertaken by the Bangkok-based team, supported by offices across the Asia-Pacific region and beyond. Every quoted company in which the Company invests is subject to a rigorous vetting process before any investment decision is made. In the succeeding years, a process of constant monitoring and contact is implemented to ensure that expectations are fulfilled with progress reviewed and logged. This disciplined investment process has resulted in a portfolio where the turnover of stocks is low.

 

The search for new, and the retention of existing, investments is based on the criteria of good management, strong balance sheets and excellent prospects. The Board has recently carried out a strategic review with the Manager to establish if there are any opportunities in Thailand which would yield additional returns in the years ahead. The review revealed that the Manager does, from time to time, receive requests to invest in unquoted companies in the period leading up to a flotation on the SET Index that it cannot currently participate in due to the parameters of the Company's investment remit. While these opportunities only occur occasionally, they would give the Manager the ability to achieve good returns. As a result, your Board believes it would be beneficial to shareholders if the Company's investment policy was adjusted to allow a modest proportion of the portfolio to be invested in unquoted companies that are either at, or near, flotation. Accordingly, the Board is seeking shareholders' approval to a change to the investment policy designed to provide this flexibility by permitting investment in unquoted equities provided that such investment be limited to 10%, in aggregate, of the Company's net assets at the time an investment is made.

 

As well as the change described above, your Board is also taking the opportunity to update the investment policy so that it better reflects current market practice and clarify elements of the existing policy for shareholders including on diversification of risk and gearing. 

 

While your Board is satisfied that the proposed changes described above do not represent a significant change in the way the Company's portfolio is managed, the changes are deemed material under the UKLA's Listing Rules and therefore may only be introduced with shareholder approval and the prior approval of the Financial Conduct Authority.  Accordingly, an Ordinary Resolution to approve the change to the investment policy will be proposed at the AGM.

 

The proposed changes to the Investment Policy are highlighted in full below.

 

Increasing Small Cap exposure

Whilst our portfolio currently has a range of small to large cap holdings identified by the Manager to be valuable long term investment propositions, there is no doubt that some smaller capitalisation Thai stocks ("Smallcaps") (in our case those with a market capitalisation under THB 50 billion) make for extremely interesting investments and have the potential to perform exceedingly well. Our current exposure to Smallcaps is approximately 35% of the overall portfolio and with its deep knowledge of the Thai market the Manager will seek to increase this exposure to interesting companies but always with an eye to management of overall portfolio liquidity.

 

Gearing

The Company has available a £10 million loan facility provided at a competitive margin rate over Libor (the London Interbank Offered Rate) which will in future be used more proactively by the Manager. Where valuations are deemed by the Manager to be less stretched gearing levels may be raised making more use of one of a closed ended company's structural advantages over OEICs. Of course this may lead to some short-term relative underperformance if we encounter falling markets but, over the long term, low cost gearing of this nature should enhance returns to shareholders. In pursuit of this objective, the Company increased the drawn down loan from £2.65m to £5.65m during February 2018. Even if fully drawn the quantum of the existing loan facility means that gearing should, at current market levels, remain materially below the Board-imposed limit of 15%.

 

Charging certain revenue costs to capital and introduction of interim dividend

Your Company has historically charged 100% of its total expenses to revenue in the Statement of Comprehensive Income. One of the features of the Company's structure is that, in the pursuit of such growth, we are able to charge a percentage of investment management fees and loan interest costs incurred directly to capital. This follows guidance contained in the AIC SORP. In line with the expected returns of our investment portfolio, the Board has decided to charge 75% of such expenses to capital with effect from 1 March 2018. This, whilst impacting to an extent the capital return, will enhance net revenue and increase the net earnings available to pay out to shareholders. In this continuing low interest environment with investors seeking regular income, the Board believes that any increase in yield will be welcomed by shareholders. In order to smooth the distribution of income to shareholders, the Board will also include in its Half-Yearly Report, due to be published in October 2018, the declaration of an initial interim dividend covering the six months to 31 August 2018.

 

Reduction in Management Fee

Lastly, I am pleased to report that an amendment to the management fee has been agreed with the Manager which became effective, retrospectively, on 1 March 2018. From that date the Manager is entitled to a management fee payable monthly in arrears based on an annual amount of 0.9% (previously 1.0%) of the Company's assets less liabilities.

 

Dividend

The revenue earnings per Ordinary share were 11.12p for the year ended 28 February 2018 (2017 - 10.31p) and the Board is proposing to shareholders a final dividend per Ordinary share, increased by 7.8%, of 11.1p (2017 - 10.3p), paying out the majority of the Company's earnings in keeping with its dividend policy. If approved at the Annual General Meeting ("AGM") on 21 June 2018, the final dividend will be paid on 26 June 2018 to shareholders on the register as at 1 June 2018. The ex-dividend date will be 31 May 2018.

 

Overview

The domestic Thai economy remained on a relatively sound footing underpinning gains over the financial year. Notwithstanding private investment and consumption being hampered by excess industrial capacity, low farm prices and high household debt, exports and tourism were buoyant. Indeed, the global recovery helped overseas shipments rise nearly 10% in calendar 2017, the highest in six years, on the back of good demand from the US, EU, Southeast Asia and China. Full-year GDP accelerated to 3.9%, emboldening the finance ministry, as well as most analysts, to raise their 2018 GDP forecasts upwards of 4%.

 

A number of positive political developments also aided sentiment. The transition to King Vajiralongkorn after the passing of his father King Bhumibol was relatively smooth and earlier fears of worsening tensions proved to be unfounded. Investors were also hopeful that economic activity would pick up after the royal cremation in October, as it marked an end to the year-long mourning period during which businesses operated with some restraint. Their optimism was not misplaced as recent data has been encouraging.

 

Meanwhile, former premier Yingluck Shinawatra absconded to Dubai ahead of her criminal conviction which allayed worries about an escalation of hostilities between her supporters and those of the establishment. However, these worries resurfaced in February 2018 after the military government delayed general elections yet again, this time from November 2018 to February 2019.

 

While the domestic backdrop was relatively stable, the same could not be said about external events. In a decision that unsettled global markets, President Trump announced import tariffs on aluminium and steel products, another salvo in his ongoing attempts to punish America's partners for the ballooning US trade deficit. The US accounts for around 30% of Thai steel exports by volume. Furthermore, fears that interest rates would normalise faster than expected led to a spike in global government bond yields towards the period-end. In February 2018, this caused a sharp equity sell-off worldwide, given concerns that higher borrowing costs could dent consumption and corporate earnings.

 

Outlook

An escalation of retaliatory measures in response to President Trump's 'America First' policy could have global repercussions. However, it is worth remembering that intra-regional trade in Asia continues to make great strides, supported by growing populations and rising disposable incomes. Over 60% of Thailand's exports go to its regional neighbours. This should shield the kingdom to some extent from any deterioration in demand for its products from further afield.

 

Meanwhile, the Baht's strengthening to a four-year high against the US Dollar is causing some concern. But on a trade-weighted basis against other major currencies, the appreciation is less severe, so this has not affected Thailand's competitiveness. Indeed, a manufacturing sector recovery in Asia and globally, notwithstanding the potential for more US trade barriers, should provide greater impetus for Thai exports in 2018. 

There is also scope for a more broad-based recovery in the new year. Private investment should increase, given the improving business sentiment. Public infrastructure spending should also pick up, as projects that were awarded in the previous year enter the construction phase. Aiding the process is the government's Eastern Economic Corridor ("EEC") plan, which is expected to benefit provinces in that region with much needed development. Foreign investment has been pouring into the EEC, notably from Japan, Singapore, China and Hong Kong. Over time, the influx of investment should translate into more jobs, better wage growth and higher consumer spending.

 

We should not, however, turn a blind eye to challenges that persist in the local economy. Besides having to digitalise operations, the banking sector is still struggling with non-performing loans, asset quality issues and pressures on fee income. Loan approvals remain strict and rejection rates elevated because of high household debt. On the positive side, local banks are not in distress and balance sheets remain healthy in general.

 

On the political front, the military government has allowed election-related activities, including the registration of new political parties, for the first time since it came into power in 2014. This boosts hopes that a general election will indeed take place by February 2019 and provides investors with a clearer timeline for the return to civilian rule. Yet, the military retains a lot of support and could remain a major player post-elections.

 

I remain confident about Thailand's prospects, and so does your Manager. The underlying holdings in your Company's portfolio are fundamentally sound, with robust business models, prudent management and healthy balance sheets that have underpinned dividends. This should allow them to tap the country's longer-term growth potential, as well as weather any challenges that may arise. Earnings are improving but with share prices appearing elevated, a market correction could help bring valuations to more sensible levels, while refocusing investors on the fundamentals.  Amid this, the disciplined and meticulous stock-picking approach favoured by your Manager remains more valuable than ever. Periods of market turbulence provide rich opportunities for your Manager to increase its exposure to these kind of companies at attractive valuations.

 

In addition, many of our Thai companies have growing operations overseas and are expanding into other markets that offer exciting opportunities like Cambodia, Indonesia, Myanmar, Philippines and Vietnam. Whilst some of these markets may be at an early stage in their development and lack the necessary depth and liquidity required by many investors, the Board believes that investment in Aberdeen New Thai provides a growing exposure to such interesting markets and underscores the belief that many of our investee companies are set fair for fascinating growth stories. You will find reviews on two of these companies, together with further details about your portfolio, in the Investment Manager's Report.

 

Discount

The Board continues to actively monitor the discount of the Ordinary share price to the NAV per Ordinary share (including income) and will continue to pursue a policy of selective buybacks of shares where to do so would be in the best interests of shareholders. In pursuit of this objective, during the year ended 28 February 2018 the Company bought back and cancelled 1,665,119 Ordinary shares (2017 - 1,331,650 Ordinary shares) at a cost of £9.0 million, representing 9.0% of the Company's issued share capital at the start of the year.

 

Promotional Activities

Your Board continues to promote the Company through the Manager's promotional activities and the Company contributed £66,000 (excluding VAT) during the year ended 28 February 2018 (2017 - £63,000). The Board reviews regularly these promotional activities.

 

Regulatory Changes

Investors should be aware that the Packaged Retail and Insurance-based Investment Products (PRIIPS) Regulation requires the Manager, as the Company's PRIIP "manufacturer," to prepare a key information document ("KID") in respect of the Company. This KID must be made available by the Manager to retail investors prior to them making any investment decision and is available via the Company's website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by the law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

 

The Criminal Finances Act 2017 has introduced a new corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion".  The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner.  The Board takes a zero-tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.

 

Data protection rights will shortly be harmonised across the European Union when the General Data Protection Regulation ("GDPR") - first adopted by the Parliament in April 2016 - applies in full from 25 May 2018.  The Board will take the necessary steps and seek the appropriate assurances from its third party service providers to ensure compliance with the new regulations.

 

Aberdeen Standard Investments

The Directors have received regular updates from the Manager on the progress of integration following the merger between Aberdeen Asset Management PLC and Standard Life plc that became effective in August 2017. The Board is reassured to note that the existing management and client servicing teams are unaffected by the merger and the Board will remain vigilant to ensure that the excellent service received from the Manager hitherto continues in the future. Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.

 

AGM

The AGM, which will, as usual, be held at Bow Bells House, 1 Bread Street, London EC4M 9HH from 11.30am on 21 June 2018, provides shareholders with an annual opportunity to meet the Board and to ask any questions that they may have of either the non-executive directors or the Manager.

 

The Board is happy to take general questions on the Annual Report and financial statements at the meeting but would advise that questions of a technical nature should be addressed in writing to the Company Secretaries, in advance.

 

I look forward to meeting as many shareholders as possible at the AGM which will be followed by a buffet lunch.

 

Nicholas Smith

Chairman

 

2 May 2018

 

 

OVERVIEW OF STRATEGY

Business Model

The business of the Company is that of an investment company which qualifies as an investment trust for UK capital gains tax purposes. The Directors do not envisage any change in this activity in the foreseeable future.

 

Investment Objective

The Company aims to provide shareholders with a high level of long-term, above average capital growth through investment in Thailand.

 

Investment Policy

The Company's assets are invested in a diversified portfolio of securities (substantially in the form of equities or equity-related securities such as convertible securities and warrants) in companies, spread across a range of industries, which are quoted on the Stock Exchange of Thailand.

 

The Board is proposing to amend the Investment Policy and further details may be found in the Chairman's Statement and below.

 

Risk Diversification

Delivering the Investment Policy

The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers and, accordingly, stock selection is usually the major source of added value. No stock is bought without the fund managers having first met management. The Investment Manager estimates a company's worth in two stages, quality then price. Quality is defined by reference to, amongst other factors, management, business focus, balance sheet strength and corporate governance. Price is calculated by reference to key financial ratios, the market, the peer group and business prospects. Top-down investment factors are secondary in the Manager's portfolio construction with diversification, rather than formal controls, guiding stock and sector weights. Investments are not limited as to market capitalisation or sector weightings within Thailand.

 

The Investment Manager is authorised to invest up to 10% of the Company's net assets in any single stock although circumstances may occasionally arise when it may be in shareholders' interests to make an investment that exceeds this level.

 

The Company complies with Section 1158 of the Corporation Tax Act 2010. The Company invests no more than 15% of its gross assets in other listed investment companies (including listed investment trusts).

 

Gearing

The Company's gearing policy is that borrowings are short-term in nature and particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy. At the year end there was net gearing of 1.5% which compares with a maximum Board-imposed limit of 15%.

 

Benchmark

The Company's benchmark is the Stock Exchange of Thailand Index ("SET Index").

 

Key Performance Indicators ("KPIs")

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy.  The main KPIs identified by the Board in relation to the Company, which are considered at each Board meeting, are as follows:

 

KPI

Description

Capital and total return of the Net Asset Value ("NAV") relative to SET Index

 

The Board considers the Company's NAV capital and total return figures, relative to the SET Index, to be the best indicator of performance over time.  The figures for this year and for the past three and five years are set out in Performance.

Discount to NAV

The discount at which the Company's share price trades relative to the NAV per share, including income, is closely monitored by the Board.

Ongoing charges

The Board regularly monitors the Company's operating costs and their composition with a view to assessing value-for-money. Ongoing charges for this year and the previous year are disclosed in Financial Highlights.

 

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial position, performance and prospects. The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance and solvency. The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the AIFM, both of which are available from the Company's website: newthai-trust.co.uk.

 

The principal risks and uncertainties faced by the Company are reviewed annually by the Audit and Management Engagement Committee in the form of a detailed risk matrix and heat map and they are described in the table below, together with any mitigating actions.

 

Description

Mitigating Action

Discount volatility - being the risk that the Company's share price may fluctuate and vary considerably from the underlying NAV of the Ordinary shares. External factors which may influence the discount include market conditions, general investor sentiment and the interaction of supply and demand for the Ordinary shares.

 

The Board has agreed with Aberdeen certain parameters within which Aberdeen may buy-back the Company's own shares bearing in mind that the Company's operating costs would be spread across a reduced number of shares. These parameters are reviewed on an ongoing basis. Any shares repurchased may be either cancelled or held in treasury.

 

Dividends - the Company will only pay a dividend on the Ordinary shares to the extent that it has profits or revenue reserves available for that purpose. The ability of the Company to pay a dividend, and any future dividend growth, will depend primarily on the level of income received from its investments. Accordingly, the amount of the dividends paid to Ordinary shareholders may fluctuate.

 

The Board monitors this risk by reviewing, at each meeting, short and longer-term income forecasts prepared by the Investment Manager covering portfolio investment yield as well as the expected operating costs of the Company.

 

The Company benefits from revenue reserves which may be drawn upon to smooth dividends payable to shareholders where there is a shortfall in revenue returns.

 

Financial and regulatory - the financial risks associated with the portfolio could result in losses to the Company. In addition, failure to comply with relevant regulation (including the Companies Act, the Financial Services and Markets Act, the Alternative Investment Fund Managers Directive, accounting standards, investment trust regulations and the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules) may have an adverse impact on the Company. 

 

Any change in the Company's tax status or in taxation legislation (including the tax treatment of dividends or other investment income received by the Company) could affect the value of the investments held by the Company and the Company's ability to provide returns to shareholders or alter the post-tax returns to shareholders.

 

The financial risks associated with the Company include market risk, liquidity risk and credit risk, all of which are mitigated by the Investment Manager. Further details of the steps taken to mitigate the financial risks associated with the portfolio are set out in note 15 to the financial statements. The Board is responsible for ensuring the Company's compliance with applicable regulations. Monitoring of this compliance, and regular reporting to the Board thereon, has been delegated to the Manager. The Board receives updates from the Manager and AIC briefings concerning industry changes. From time to time, the Company also employs external advisers covering specific areas of compliance.

Foreign exchange risks - the Company accounts for its activities and reports its results in Sterling while investments are made and realised in Thai Baht; bank borrowings are presently denominated in Sterling. It is not the Company's present intention to engage in currency hedging although it reserves the right to do so. Accordingly, the movement of exchange rates between Sterling, Thai Baht and other currencies in which the Company's borrowings may be drawn down from time to time may have a material effect, unfavourable as well as favourable, on the total return otherwise experienced on the investments made by the Company, including the level of investment income.

 

The Company's multi-currency bank facility permits the borrowings to be drawn down in non-Sterling currencies if required. The Board monitors the Thai Baht/Sterling exchange rate at each meeting.

 

Gearing - whilst the use of gearing should enhance the total return on the Ordinary shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is less than the cost of borrowing, further reducing the total return on the Ordinary shares. A fall in the value of the Company's investment portfolio could result in a breach of bank covenants and trigger demands for early repayment.

 

The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Investment Manager.

 

Borrowings are short term in nature and particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy. The Board has agreed certain gearing restrictions with the Manager and reviews compliance with these guidelines at each Board meeting. Loan agreements are entered into following review by the Company's lawyers.

 

Investment objective - the setting of an unattractive strategic proposition to the market and the failure to adapt to changes in investor demand may lead to the Company becoming unattractive to investors, a decreased demand for its shares and a widening discount.

The Board keeps the investment objective and policy under regular review. An annual strategy meeting is held by the Board including the review of reports from the Investment Manager's investor relations team and updates on the market from the Company's broker.

 

Liquidity risk - this is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

 

In addition, the Company, and/or its Investment Manager may accumulate investment positions which represent more than normal daily trading volumes which may make it difficult to realise investments quickly.

 

Liquidity risk is not considered to be significant as, whilst liquidity is limited in certain stocks which the Company holds, the majority of the Company's assets comprise readily realisable securities which can be sold to meet funding requirements if necessary.

 

The Board reviews, at each meeting, the liquidity profile of the Company's investment portfolio.

 

Market risk - being the risk that the portfolio, managed by the Investment Manager, suffers a fall in its market value which would have an adverse effect on shareholders' funds. The Company's investments are subject to normal market fluctuations and the risks inherent in the purchase, holding or selling of equity securities and there can be no assurance that appreciation in the value of those investments will occur.

 

The Investment Manager's investment process concentrates on a company's business strategy, management, financial strength, ownership structure as well as corporate governance, with a view to seeking companies that it can invest in for the long term. This quality test means that there are stocks listed on the SET Index which the Investment Manager will not invest in due to a perceived lack of transparency or poor corporate governance.

 

The Investment Manager seeks to diversify market risk by investing in a wide variety of companies with strong balance sheets and the earnings power to pay increasing dividends. In addition, investments are made in diversified sectors in order to reduce the risk of a single large exposure; at present the Investment Manager may not invest more than 10% of the Company's net assets in any single stock. The Investment Manager believes that diversification should be looked at in absolute terms rather than relative to the SET Index. The performance of the portfolio relative to the SET Index and the underlying stock weightings in the portfolio against their index weightings are monitored closely by the Board.

 

Operational - the Company has contracted with third parties for the provision of all systems and services (in particular, those of the Standard Life Aberdeen Group) and any control failures and gaps in these systems and services could result in a loss or damage to the Company.

The Board receives reports from the AIFM throughout the year on internal controls and risk management and receives equivalent assurances from all its other significant service providers on at least an annual basis. This includes monitoring by the Manager, on behalf of the Board, of service providers' planning for business continuity and disaster recovery, together with their policies and procedures designed to address the risk posed to the Company's operations by cyber-crime. Further details of the internal controls which are in place are set out in the Audit and Management Engagement Committee's Report. The depositary, BNP Paribas Securities Services, presents at least annually on the Company's compliance with AIFMD.

 

Political risk and exchange controls - in common with the majority of Asian stockmarkets, investments in Thailand are subject to a greater degree of political risk than that with which investors might be familiar.

 

In addition, investments purchased by the Company may be subject, in the future, to exchange controls or withholding taxes in the Thai jurisdiction. In the event that exchange controls or withholding taxes are imposed with respect to any of the Company's investments, the effect will generally be to reduce both the income received by the Company from its investments and/or the capital value of the affected investments.

 

Given the nature of the risks to which the Company's investments are subject, which are those inherently associated with a single-country fund, there are limited options available to the Board for mitigating these risks.  The Board believes that mitigation is best effected by careful selection of the constituents of the Company's portfolio with high-calibre, financially-sound companies, with good management and excellent growth potential.

 

Investment in Thai equities involves a greater degree of risk than that usually associated with investment in major securities markets. Through regular interaction with the Manager and other commentators, the Board stays up-to-date with the latest political and economic news in Thailand.

 

 

 

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to, and participation in, the promotional programme run by the Standard Life Aberdeen Group on behalf of a number of investment companies under its management. The Company's financial contribution to the programme is matched by the Standard Life Aberdeen Group. Representatives of the Standard Life Aberdeen Group report quarterly to the Board with analysis of the promotional activities as well as updates on the shareholder register and any changes in the composition of that register.

 

The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Standard Life Aberdeen Group's investor relations programme which involves regional roadshows as well as promotional and public relations campaigns. 

 

Board Diversity

The Board recognises the importance of having a range of skilled and experienced individuals with sufficient and appropriate knowledge to allow the Board to fulfill its obligations. As at 28 February 2018 there were two male Directors and two female Directors (2017: three male Directors and two female Directors).

 

Environmental, Social and Human Rights Issues

The Company has no employees as the Board has delegated day to day management and administrative functions to AFML. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.

 

Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. Notwithstanding this, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter.

 

Socially Responsible Investment Policy

The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner. The Board has noted the corporate stewardship and sustainability programme of the AIFM's parent company, Standard Life Aberdeen PLC, can be found at -

https://www.standardlifeaberdeen.com/corporate-stewardship-and-sustainability

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

 

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board does formally consider risks and strategy on at least an annual basis. The Board considers the Company, with no fixed life, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.

 

Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this report. In making this assessment, the Board has considered that matters such as a large economic shock, a period of significant stock market volatility, a significant reduction in the liquidity of the portfolio or changes in regulations and investor sentiment, could have an impact on its assessment of the Company's prospects and viability in the future.

 

In particular the Board recognises that this assessment makes the assumption that the Company's average discount to the NAV per Ordinary share (including income) for the 12 weeks ended 28 February 2019 and 12 weeks ended 28 February 2020, individually, does not exceed 15% which negates the requirement to put to shareholders at the AGMs to be held in either 2019 or 2020, a special resolution to wind up the Company.

 

Future

The Board expects the Company to continue to pursue its investment objective and accepts that this may involve divergence from the SET Index. The companies which make up the investment portfolio are considered by the Investment Manager to demonstrate resilience in the context of the complicated Thai political situation and to offer opportunities for investors to benefit from the development of the broader Thai economy.

 

Further details on the package of changes proposed by the Board as well as the Directors' expectations regarding the future, may be found in the Chairman's Statement whilst the Investment Manager's views are included in its Report below.

 

On behalf of the Board

 

Nicholas Smith

Chairman

 

2 May 2018

 

 

Proposed Amendment to Investment Policy

 

The Company's current Investment Policy is disclosed above.

 

It is proposed to adopt the investment policy set out below as the Investment Policy of the Company and approval is sought from shareholders at the AGM. The proposed changes are marked up, separately, for ease of identification.

 

"Investment Policy

The Company's investment policy is flexible enabling it to invest in a diversified portfolio of securities (substantially in the form of equities or equity-related securities such as convertible securities and warrants but which may also include debt securities) issued by companies, spread across a range of industries, which are either (i) quoted on the Stock Exchange of Thailand or (ii) that are unquoted and at, or near, initial public offering stage. There are no restrictions on which market segment or geographical region within Thailand that the Company may invest nor whether its investments are in small, mid or large capitalisation companies.

 

Risk Diversification

The Company's portfolio will comprise no less than 10 holdings and the Investment Manager will at all times have due regard to the spread of investment risk.

 

The Investment Manager is authorised to invest up to 10% of the Company's net assets in the securities of any single company although circumstances may occasionally arise when it may be in shareholders' interests to make an investment that exceeds this level.

 

The Investment Manager is authorised to invest in unquoted securities provided that such investment, in aggregate, is limited to 10% of the Company's net assets at the time any investment is made.

 

The Company complies with Section 1158 of the Corporation Tax Act 2010. The Company will not invest more than 10%, in aggregate, of the value of its gross assets in investment trusts or investment companies admitted to the Official List, provided that this restriction does not apply to investments in any such investment trusts or investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other investment trusts or investment companies admitted to the Official List. In any event, the Company invests no more than 15% of its gross assets in other listed investment companies (including listed investment trusts).

 

In addition, the Company will not:

 

-     invest in physical commodities;

-     enter into derivative transactions for speculative purposes;

-     take legal or management control of any of its investee companies; or

-     conduct any significant trading activity.

 

Gearing

The Board is responsible for setting the gearing limits in place for the Company subject to a maximum level of 25% of net assets (measured when new borrowings are incurred). It is intended that this power should be used to leverage the Company's portfolio in order to enhance returns when and to the extent that it is considered appropriate to do so. Gearing will be tactical in nature and used in relation to specific opportunities or circumstances. The Directors will take care to ensure that borrowing covenants permit maximum flexibility of investment policy."

 

Investment Policy (with proposed changes identified)

The Company's investment policy is flexible enabling it to invest in a diversified portfolio of securities (substantially in the form of equities or equity-related securities such as convertible securities and warrants but which may also include debt securities) issued by companies, spread across a range of industries, which are either (i) quoted on the Stock Exchange of Thailand or (ii) that are unquoted at, or near, initial public offering stage. There are no restrictions on which market segment or geographical region within Thailand that the Company may invest nor whether its investments are in small, mid or large capitalisation companies.

 

Risk Diversification

 

Delivering the Investment Policy

The Investment Manager follows a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers and, accordingly, stock selection is usually the major source of added value. No stock is bought without the fund managers having first met management. The Investment Manager estimates a company's worth in two stages, quality then price. Quality is defined by reference to, amongst other factors, management, business focus, balance sheet strength and corporate governance. Price is calculated by reference to key financial ratios, the market, the peer group and business prospects. Top-down investment factors are secondary in the Manager's portfolio construction with diversification, rather than formal controls, guiding stock and sector weights. Investments are not limited as to market capitalisation or sector weightings within Thailand.

 

The  Company's portfolio will comprise no less than 10 holdings and the Investment Manager will at all times have due regard to the spread of investment risk.

 

The Investment Manager is authorised to invest up to 10% of the Company's net assets in the securities of any single company stock  although circumstances may occasionally arise when it may be in shareholders' interests to make an investment that exceeds this level.

 

The Investment Manager is authorised to invest in unquoted securities provided that such investment, in aggregate, is limited to 10% of the Company's net assets at the time any investment is made.

 

The Company complies with Section 1158 of the Corporation Tax Act 2010. The Company will not invest more than 10%, in aggregate, of the value of its gross assets in investment trusts or investment companies admitted to the Official List, provided that this restriction does not apply to investments in any such investment trusts or investment companies which themselves have stated investment policies to invest no more than 15% of their gross assets in other investment trusts or investment companies admitted to the Official List. In any event, the Company invests no more than 15% of its gross assets in other listed investment companies (including listed investment trusts).

 

In addition, the Company will not:

 

-      invest in physical commodities;

-      enter into derivative transactions for speculative purposes;

-      take legal or management control of any of its investee companies; or

-      conduct any significant trading activity.

 

Gearing

The Company's gearing policy is that borrowings are short-term in nature and particular care is taken to ensure that any bank covenants permit maximum flexibility of investment policy

 

The Board is responsible for setting the gearing limits in place for the Company subject to a maximum level of 25% of net assets (measured when new borrowings are incurred). It is intended that this power should be used to leverage the Company's portfolio in order to enhance returns when and to the extent that it is considered appropriate to do so. Gearing will be tactical short-term in nature and used in relation to specific opportunities or circumstances. The Directors will take care to ensure that borrowing covenants permit maximum flexibility of investment policy.

 

 

INVESTMENT MANAGER'S REPORT

Overview

Thai equities had a solid run over the year ended 28 February 2018 with larger capitalisation stocks rallying in the second half of the Company's year. Optimism about both global and domestic growth buoyed the market, as did a worldwide run-up in key stock market indices on the back of US President Donald Trump's implementation of tax reforms.

 

Annual GDP growth in Thailand accelerated to 3.9% in 2017, buttressed by the twin pillars of exports and tourism despite a strengthening Thai Baht. Domestic consumption and private investments continued to lag, although both showed signs of improvement towards the year-end. Stockmarket sentiment was also lifted by indications that the political backdrop was stabilising, in the wake of Yingluck Shinawatra absconding just prior to her criminal conviction. Her action alleviated fears of violence that might have ensued if she had not fled to Dubai, from where she cannot be extradited. Meanwhile Prime Minister Prayuth Chan-ocha expressed a commitment to returning the kingdom to democratic rule, albeit elections keep being delayed.

 

As part of its investment process, the Investment Manager applies a quality test which can exclude stocks quoted in the Stock Exchange of Thailand Index ("SET Index") based on the Manager's perception of a lack of transparency or poor corporate governance. Not holding these stocks, which may be subject to momentum-driven increases in value can hurt the Company's performance relative to the SET Index over certain reporting periods.

 

Not holding sufficient amounts of resources-sector companies proved costly for the portfolio, as they did well in tandem with the rising energy prices. In particular, the positive contribution from our holding in PTT Exploration and Production was overshadowed by the lack of exposure to its parent PTT which saw a share price hike of over 40%.

 

Also, within the energy sector, non-holding Energy Absolute hurt relative portfolio performance, largely on the back of speculative activity as its share price saw a massive 170% gain. Our convictions were validated somewhat as its shares fell after the year ended.

 

The portfolio's lack of exposure to Airports of Thailand also impacted relative performance as the company saw its shares buoyed by healthy tourism data. We do not hold the company in view of its stretched valuations, ongoing concerns over large investment budgets and transparency issues.

 

Finally, not holding CP All hurt the portfolio as the convenience-store operator posted good results on the back of a reasonable uptick in domestic consumption. On the flipside, not holding CP Foods helped, as the food business suffered from poor domestic sales. We remain wary of the CP Group of companies, because of its history of weak corporate governance.

 

Portfolio

Over the year ended 28 February 2018, the  SET Index rose by 21.6% in Sterling, total return terms. Your portfolio also posted solid double-digit growth, returning 17.7% in net asset value Sterling total return terms.

 

Despite lagging the SET Index, which had another very strong year with the resources sector leading gains driven mainly by higher commodity prices, the portfolio performed well in several areas.

 

We saw positive performance in the financials sector from stock selection. Aeon Thana Sinsap more than recovered from a period of softness, reporting healthy earnings as loan growth picked up and asset quality improved. New regulations on credit cards proved beneficial, allowing Aeon Thana to select good clients with higher credit limits. Meanwhile, Tisco Financial's profits were similarly impressive, and investors were cheered at the potential for growth coming from its acquisition of Standard Chartered's local retail business. We remain overweight compared to the index as our research and conversations with management have shown that the bank is well-capitalised, benefits from a conservative provisioning policy, and is run well by a team that understands how to navigate uncertainties. We also maintain an overweight to the financials sector, as we anticipate improvements in loan demand, asset quality and the provisioning cycle.

 

The underweight exposure to the agricultural and food industry served the Company well, as this sector was one of the main laggards over the review period. Among our food industry holdings, soft drinks manufacturer Haad Thip lifted relative returns, as it rode the market rally in early 2018. Meanwhile, despite an overall underweight to the technology sector, Advanced Info Service contributed as revenue grew and telcos became more rational, competing less on subsidies and thus improving margins. Hana Microelectronics also had positive absolute returns, on optimism following the US elections and better utilisation at its semiconductor business. These stocks outperformed non-holdings Delta Electronics and KCE Electronics, which were hampered by challenging company-specific operating conditions, as well as the appreciating Baht and higher copper prices.

 

We participated in TOA Paint's initial public offering  ("IPO") as a cornerstone investor. Thailand's leading paints manufacturer and distributor, TOA has significant operations throughout the region, including in Vietnam. The initiation has benefited the Company, with TOA  not only adding a new dimension to the portfolio but also with its share price enjoying a good run following its October listing. The shares listed at 24 Baht per share and had risen to 34.5 Baht by the end of February, a very healthy 44% increase.

 

This type of investment is exactly the sort of opportunity that we hope to find in coming years through detailed research and due diligence by seeking to invest in unquoted companies in the period leading up to an IPO as explained in the Chairman's Statement.

 

Retail-property developer Central Pattana and home improvement retailer Home Product Center were also two steady businesses that continued to reward the patient shareholder. Both companies are good at following through with their strategies and maintaining operational efficiencies to turn a profit. Central Pattana was also boosted by capital reallocation, a successful one-off fire insurance claim, and robust tourism.

 

Elsewhere, the lack of exposure to Group Lease was beneficial, as the company was hurt by fraud allegations.

 

Another holding, BEC World, suffered from a tough operating environment and this was reflected in its earnings when its share price came under pressure after management said it expected softer advertising revenues. Elsewhere, Alucon was hurt by higher ingot prices, while Dynasty Ceramic was hampered by heavy competition in the tiles industry. We are encouraged by the low-cost producer's strategy to expand capacity through consolidation.

 

In portfolio activity, we accepted Berli Jucker's tender offer for all of Big C Supercenter's outstanding shares; Big C is now privatised. We felt the majority owner of the hypermarket operator offered a fair price for the asset.

 

Growing regional exposure - two examples

Here, we would like to highlight two holdings with regional exposure which we believe will contribute healthy returns to the portfolio over the long term.

 

Aeon Thana Sinsap

The first is Aeon Thana Sinsap, mentioned above. This consumer lender for household products is a subsidiary of Japan's Aeon Group, a well-respected parentage that allows the cross-sharing of capabilities among regional units. For example, Aeon Thana recently entered the domestic used-car market as it expects more consumers to buy second-hand vehicles due to favourable pricing and tax conditions. For the local business endeavour, the Thai company emulated Aeon Malaysia's model by targeting existing customers with low borrowing rates, and the strategy appears to be working well.

 

This cross-sharing of expertise has also allowed Aeon Thana to expand its retail financing network in the growing markets of Cambodia, Myanmar and Laos. The company entered these markets only in the last few years but they have contributed significant growth, particularly in terms of loans income.

 

Although there is some way to go for these countries to catch up with their more advanced peers, we think Aeon Thana is in a very good position to take advantage of still-low penetration rates in these countries for financial products and rising middle-class aspirations. The share of revenues from Cambodia, Myanmar and Laos, currently at under 5%, is not large but it is growing fast, and we expect the contribution to reach 10% of the company's total revenues by 2020.

 

Siam City Cement

Another holding we believe worth highlighting is Siam City Cement. This company had a tough year in 2017 due to oversupply challenges in the domestic Thai business but overseas expansion has helped to mitigate the drop in total earnings. This includes recently completed acquisitions in Vietnam, where it already has a sizeable 20% market share, as well as Sri Lanka where it is the market leader despite price controls implemented by the government. The company is also expanding capacity in Cambodia with a new plant and growing its small but nascent presence in Bangladesh.

 

As Siam City Cement benefits from its growing overseas operations, it has not neglected its domestic business. To maintain profitability, it plans to pare back its exposure to low-performing segments of the market and improve its product mix. It has also managed to lock in a large part of its fuel costs for 2018, which should remove the risks associated with raw material prices and help the bottom line.

 

We believe this combination of improving domestic efficiency whilst diversifying its sources of income beyond Thailand will help boost cash generation and sustainable growth over the long term.

 

Outlook

Thai equities continue to outpace their regional peers and remain resilient in the face of a renewed shake-up in global markets. With local capital driving the market, this could result in domestic stocks being even better protected from global volatility.

 

Recent upgrades to growth forecasts bode well for the country's near-term development. Although exports and tourism cannot be expected to prop up the entire economy in the long term, a positive outlook for these segments seems a good sign. Improvements to consumption and ongoing public investments, such as the US$45 billion Eastern Economic Corridor initiative, could also help sustain growth. As inflation remains at manageable levels, there is no pressure for the central bank to alter the direction of monetary policy.

 

On the corporate front, valuations appear fairly stretched relative to historical averages, which is something we are continually monitoring, but against the region, they remain competitive. We continue to manage the portfolio through a fundamentals-focused investment process, by seeking and holding businesses with experienced management and solid balance sheets that have the potential to retain profitability over the long term.

 

Aberdeen Asset Management Asia Limited

Manager

 

2 May 2018

 

 

 PERFORMANCE

1 year return

3 year return

5 year return


%

%

%

Total return (capital return plus dividends reinvested)




Share price{A}

+18.4

+37.3

+21.2

Net asset value{A}

+17.7

+34.8

+32.3

SET Index

+21.6

+46.7

+45.6





Capital return




Share price

+16.1

+29.2

+10.1

Net asset value

+15.8

+28.1

+22.0

SET Index

+17.9

+33.2

+24.0





{A} Alternative Performance Measure (see Note 20 to the Financial Statements).








Source: Standard Life Aberdeen Group/Morningstar & Lipper




 

 

FINANCIAL HIGHLIGHTS

 


28 February 2018

28 February 2017

% change

Total assets (£'000)

122,818

113,862

+7.9

Equity shareholders' funds (net assets) (£'000)

117,168

111,212

+5.4

Market capitalisation (£'000)

99,832

94,496

+5.6





Ordinary share price (mid-market)

592.00p

510.00p

+16.1

Net asset value per Ordinary share

694.80p

600.22p

+15.8





Discount to net asset value

14.8%

15.0%


Stock Exchange of Thailand ("SET") Index

42.31

35.90

+17.9

(Sterling adjusted, capital return)




Net gearing{A}

1.52%

1.68%






Dividends and earnings




Revenue return per share

11.12p

10.31p

+7.9

Proposed final dividend per share

11.10p

10.30p

+7.8

Dividend cover

1.00

1.00


Revenue reserves (prior to payment of proposed final dividend) (£'000)

4,137

4,026






Operating costs




Ongoing charges ratio{B}

1.35%

1.39%



{A}      Calculated in accordance with AIC guidance "Gearing Disclosures post RDR".

{B}       Considered to be an Alternative Performance Measure. The ongoing charges ratio is calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year (see calculation in note 20).

 

 

DIVIDENDS


Rate

Ex-dividend date

Record date

Payment date

Proposed final dividend 2018

11.10p

31 May 2018

1 June 2018

26 June 2018

Final dividend 2017

10.30p

1 June 2017

2 June 2017

3 July 2017

 

 

TEN YEAR FINANCIAL RECORD

 

Year to 28 February

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Total revenue (£'000)

1,845

1,766

2,652

2,961

2,934

3,715

3,546

3,573

3,894

3,945

Per share (p)











Net revenue return

4.86

5.15

8.28

8.87

7.39

8.73

8.20

8.89

10.31

11.12

Net dividends proposed

3.50

5.10

8.00

8.00

7.00

8.00

8.20

8.50

10.30

11.10

Net asset value - basic

139.67

222.99

306.57

387.73

569.58

418.64

542.49

483.03

600.22

694.80

Ordinary share price

120.00

171.50

241.25

311.25

537.50

353.75

458.25

408.00

510.00

592.00

Equity shareholders' funds (£'000)

25,273

39,835

56,530

72,106

120,873

87,175

112,640

95,932

111,212

117,168

 

 



INVESTMENT PORTFOLIO - TEN LARGEST INVESTMENTS

As at 28 February 2018

 



Valuation

Total

Valuation



2018{A}

assets

2017{A}

Company

Sector (Thai SET)

£'000

%

£'000

Advanced Info Service





Thailand's largest and leading provider of wireless communication services with over 50% revenue market share and 44 million subscribers.

Information & Communication Technology

6,645

5.4

5,742

Siam Cement





Thailand's largest industrial conglomerate encompassing petrochemicals, cement, paper and building materials with operations in Bangladesh, Cambodia, Sri Lanka and Vietnam as well as in Thailand.

Construction Materials

6,071

4.9

6,681

Bangkok Insurance





One of the country's largest non-life insurance companies, affiliated with Bangkok Bank.

Insurance

6,000

4.9

5,698

Kasikornbank





Fourth largest commercial bank in terms of assets, founded by the Lamsam family. Formerly known as Thai Farmers Bank.

Banking

5,890

4.8

5,470

Home Product Center





Retailer of building materials and home improvement products.

Commerce

5,844

4.8

4,033

Aeon Thana Sinsap





Consumer financial services provider offering hire purchase and personal loans.

Finance & Securities

5,791

4.7

4,281

Central Pattana





Thailand's largest developer of shopping malls, with related businesses in offices and more recently residential property development. It is a unit of conglomerate Central Group.

Property Development

5,589

4.6

3,414

PTT Exploration & Production





Exploration & production company arm of PTT Plc with reserves mainly in Thailand.

Energy & Utilities

5,350

4.4

3,967

Siam Commercial Bank





Third largest commercial bank in terms of assets. Crown Property Bureau is a major shareholder.

Banking

5,062

4.1

5,345

Thai Stanley Electric





A Thai-Japanese joint venture that manufactures automotive lighting equipment. It has a well-established domestic presence as well as a growing regional business.

Automotive

4,355

3.5

3,594

Top ten investments


56,597

46.1


{A} Purchases and/or sales effected during the year will result in 2017 and 2018 values not being directly comparable.









 



INVESTMENT PORTFOLIO - OTHER INVESTMENTS

As at 28 February 2018

 



Valuation

Total

Valuation



2018{A}

assets{B}

2017{A}

Company

Sector (Thai SET)

£'000

%

£'000

Banpu

Energy & Utilities

4,253

3.5

3,367

Electricity Generating

Energy & Utilities

3,791

3.1

3,528

Land & Houses{B}

Property Development

3,591

2.9

1,785

Bangkok Bank

Banking

3,377

2.8

2,821

Eastern Water Resources Development & Management

Energy & Utilities

3,331

2.7

3,126

Minor International

Food & Beverage

3,320

2.7

2,826

Siam City Cement

Construction Materials

3,314

2.7

3,027

Hana Microelectronics

Electronic Components

3,310

2.7

3,883

Tisco Financial Group

Banking

3,003

2.4

2,954

Bangkok Dusit Medical Services

Health Care Services

2,718

2.2

2,462

Top twenty investments


90,605

73.8


Dynasty Ceramic

Construction Materials

2,649

2.1

2,789

Toa Paint

Construction Materials

2,532

2.1

-

Kiatnakin Bank

Banking

2,528

2.1

2,225

Bumrungrad Hospital

Health Care Services

2,287

1.9

1,955

Tesco Lotus Retail Growth Freehold & Leasehold Property Fund (Local market shares)

Property Fund & REITS

2,279

1.8

2,168

Alucon

Packaging

1,887

1.5

2,698

LPN Development

Property Development

1,853

1.5

1,663

Banpu Power

Energy & Utilities

1,823

1.5

1,406

Thai Reinsurance

Insurance

1,744

1.4

1,992

Thaire Life Assurance

Insurance

1,679

1.4

1,247

Top thirty investments


111,866

91.1


Muang Thai Insurance

Insurance

1,609

1.3

1,555

Goodyear (Thailand)

Automotive

1,517

1.2

1,998

Haad Thip

Food & Beverage

1,507

1.2

1,022

Sammakorn

Property Development

1,440

1.2

1,675

BEC World

Media & Publishing

952

0.8

2,422

MFC Asset Management

Finance & Securities

917

0.8

1,330

Mega Lifesciences

Commerce

617

0.5

-

Krungthai Car Rent & Lease

Finance & Securities

118

0.1

-

Interhides

Automotive

51

-

-

Prakit Holdings

Media & Publishing

49

-

1,143

Total investments


120,643

98.2


Net current assets{C}


2,175

1.8


Total assets{A}


122,818

100.0


{A}    Purchases and/or sales effected during the year will result in 2017 and 2018 values not being directly comparable.

{B}    Holding includes investment in both common stock and non-voting depositary receipts.

{C}    Excludes bank loans of £5,650,000.

Note: Unless otherwise stated, foreign stock is held.

 

 

DIRECTORS' REPORT

The Directors present their Report and the audited financial statements of the Company for the year ended 28 February 2018, taking account of any events between the year end and the date of approval of this Report.

 

Results and Dividend

The Directors recommend that a final dividend per share of 11.1p (2017 - 10.3p per share) is paid on 26 June 2018 to shareholders on the register on 1 June 2018. The ex-dividend date is 31 May 2018. A resolution in respect of the final dividend will be proposed at the forthcoming AGM.

 

Investment Trust Status

The Company is registered as a public limited company in England & Wales under registration number 02448580 and has been accepted by HM Revenue & Customs as an investment trust for accounting periods beginning on or after 1 March 2012, subject to the Company continuing to meet the eligibility conditions of s1158 of the Corporation Tax Act 2010 (as amended) and S.I. 2011/2099.

 

Individual Savings Account

In the opinion of the Directors, the Company's affairs have been conducted in a manner to satisfy these conditions and enable it to continue to qualify as an investment trust for the year ended 28 February 2018. The Company intends to manage its affairs so that its shares will be qualifying investments for the stocks and shares component of an Individual Savings Account.

 

Capital Structure, Buybacks and Voting Rights

During the year ended 28 February 2018 the Company bought back and cancelled 1,665,119 Ordinary shares (2017 - 1,331,650 Ordinary shares). As at 28 February 2018, the Company's issued share capital consisted of 16,863,513 Ordinary shares (2017 - 18,528,632 Ordinary shares) with each share holding one voting right in the event of a poll. An additional 106,111 Ordinary shares were bought back between 1 March 2018 and the date of approval of this Annual Report resulting in 16,757,402 Ordinary shares in issue, with voting rights.

 

Ordinary shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares carry a right to receive dividends. On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law and regulation.

 

Manager and Company Secretary

The Company has appointed Aberdeen Fund Managers Limited ("AFML"), a member of the Standard Life Aberdeen Group, as its alternative investment fund manager ("AIFM"). AFML has been appointed to provide the Company with investment management, risk management, administration and company secretarial services as well as promotional activities.  The Company's portfolio is managed by Aberdeen Asset Management Asia Limited ("AAMAL") by way of a group delegation agreement in place between AFML and AAMAL. 

 

Until 28 February 2018, the management fee was charged to the Company on the following basis: a monthly fee, payable in arrears, calculated at an annual rate of 1.0% of total assets less current liabilities, with a rebate to the Company for any fees received in respect of any investments by the Company in investment vehicles managed by the Standard Life Aberdeen Group (see note 4 to the financial statements). With effect from 1 March 2018, the management fee has been reduced to 0.9% of total assets less current liabilities and is otherwise calculated on the same basis as previously.

 

The fees payable to the Standard Life Aberdeen Group during the year ended 28 February 2018 are disclosed in Notes 4 and 5 to the financial statements. The investment management fees and bank loan interest costs were charged 100% to revenue during the year ended 28 February 2018 but will be charged 25% to revenue and 75% to capital with effect from 1 March 2018.

 

The management agreement is terminable by either party on not less than 12 months' notice. In the event of termination on less than the agreed notice period, compensation is payable in lieu of the unexpired notice period. There are no performance fee arrangements.

 

The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Board on an annual basis. The Board also undertakes a review of the management fees in comparison with other funds and believes that the Company's current level of management fees, as reduced from 1 March 2018, remains competitive.  Accordingly, the Board believes that the continuing appointment of the Investment Manager (through the Manager) on the terms agreed is in the interests of shareholders as a whole.

 

In addition, AFML has sub-delegated promotional activities to Aberdeen Asset Managers Limited ("AAM") and administrative and secretarial services to Aberdeen Asset Management PLC.

 

Corporate Governance

The Company is committed to high standards of corporate governance. The Board is accountable to the Company's shareholders for good governance and, as required by the Listing Rules of the UK Listing Authority, this statement describes how the Company applies the principles identified in the UK Corporate Governance Code published in April 2016 (the "UK Code") for the year ended 28 February 2018. The UK Code is available on the Financial Reporting Council's ("the FRC") website: frc.org.uk.

 

The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance as published in July 2016 ("the AIC Code") by reference to the AIC Corporate Governance Guide for investment Companies ("the AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts. The AIC Code and AIC Guide are available on the AIC's website: theaic.co.uk

 

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders.

 

The Board confirms that, during the year, the Company complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below.

 

The UK Code includes provisions relating to:

-     the role of the chief executive (A.1.2);

-     executive directors' remuneration (D.1.1 and D.1.2); and

-     the need for an internal audit function (C.3.6).

 

For the reasons set out in the AIC Guide and UK Code, the Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. The full text of the Company's Statement of Corporate Governance can be found on its website: newthai-trust.co.uk

 

Directors

The current Board consists of a non-executive Chairman and three non-executive Directors, all of whom held office throughout the year under review. Hugh Young retired as a Director on 28 June 2017. The Senior Independent Director is Clare Dobie.

 

The names and biographies of each of the Directors are shown in the Annual Report and indicate their range of experience as well as length of service. Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper stewardship of the Company.

 

The Directors attended Board and Committee meetings during the year ended 28 February 2018 as follows (with their eligibility to attend the relevant meeting in brackets):

 

Director

Board Meetings

Audit and Management Engagement Committee Meetings

Nomination Committee Meetings

Nicholas Smith

7 (7)

3 (3)

2 (2)

Clare Dobie

7 (7)

3 (3)

2 (2)

Andy Pomfret

7 (7)

3 (3)

2 (2)

Sarah MacAulay

7 (7)

3 (3)

2 (2)

Hugh Young (A)

2 (2)

-

-

 

(A)  Hugh Young retired as a Director on 28 June 2017

 

Three of the seven Board meetings held during the year were devoted to strategic matters including review of the relevance to investors of the Company's investment objective and policy, consideration of feedback from retail and institutional shareholders, an assessment of the future prospects for the Company and a review of the Company's longer term performance and the associated terms of the management agreement with AFML.

 

All of the Directors will retire at the AGM in accordance with corporate governance best practice. Nicholas Smith, Clare Dobie, Andy Pomfret and Sarah MacAulay, being eligible, offer themselves for individual re-election as Directors of the Company. The Board as a whole believes that each Director standing for re-election remains independent of the AIFM and free of any relationship which could materially interfere with the exercise of his or her independent judgement on issues of strategy, performance, resources and standards of conduct and confirms that, following formal performance evaluations, each Director's individual performance continues to be effective and demonstrates commitment to the role. The Board therefore has no hesitation in recommending at the AGM the re-election as Directors of Nicholas Smith, Clare Dobie, Andy Pomfret and Sarah MacAulay.

 

Directors' Insurances and Indemnities

The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. Furthermore, each Director of the Company is entitled to be indemnified out of the assets of the Company to the extent permitted by law against all costs, charges, losses, expenses and liabilities incurred by them in the actual or purported execution and/or discharge of their duties and/or the exercise or purported exercise of their powers and/or otherwise in relation to or in connection with their duties, powers or office. These rights are included in the Articles of Association of the Company and the Company has granted indemnities to each Director on this basis.

 

Substantial Interests

As at 28 February 2018 the following were registered, or had notified the Company, as being interested in 3% or more of the Company's Ordinary share capital:

 

Shareholder

Number of shares held

% held

City of London

3,591,561

21.2

Funds managed by Standard Life Aberdeen Group

3,106,385

18.4

Lazard Asset Management

3,080,050

18.2

Aberdeen Investment Trust ISA and Share Plans (non-discretionary)

1,831,532

10.9

Hargreaves Lansdown (non-discretionary)

656,400

3.9

 

The above share interests were unchanged as at the date of approval of this Report other than notifications to the Company by Lazard Asset Management on 2 March 2018 of a holding of 3,000,050 shares, equivalent to 17.8% of the Company's issued share capital, and by City of London on 5 March 2018 of a holding of 3,754,168 shares, equivalent to 22.3% of the Company's issued share capital.

 

Management of Conflicts of Interest and Anti-Bribery Policy

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, the Directors prepare a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his/her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his/her wider duties is affected. Each Director is required to notify the Company Secretaries of any potential, or actual, conflict situations which will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

 

No Director has a service contract with the Company although Directors are issued with letters of appointment upon taking up office. There were no contracts with the Company during, or at the end of the year, in which any Director was interested other than as set out in note 17 to the financial statements relating to Hugh Young.

The Board takes a zero tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Standard Life Aberdeen Group also takes a zero tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.

 

In relation to the corporate offence of failing to prevent tax evasion, it is the Company's policy to conduct all business in an honest and ethical manner. The Company takes a zero-tolerance approach to facilitation of tax evasion whether under UK law or under the law of any foreign country and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships. 

 

Board Committees

The Directors have appointed a number of Committees as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website and from the Company Secretaries, on request.

 

Audit and Management Engagement Committee

The Audit and Management Engagement Committee's Report may be found in the published Annual Report.

 

Nomination Committee

All appointments to the Board of Directors are considered by the Nomination Committee which comprises the whole Board and was chaired during the year by Nicholas Smith.

 

The Committee's overriding priority in appointing new Directors to the Board is to identify the candidate with the optimal range of skills and experience to complement the existing Directors. The Board also recognises the benefits, and is supportive, of the principle of diversity in its recruitment of new Directors.

 

As the Company has no employees and the Board is comprised wholly of non-executive Directors and, given the size and nature of the Company, the Board has not established a separate Remuneration Committee. Directors' remuneration is determined by the Nomination Committee.

 

Accountability and Audit

The responsibilities of the Directors and the Auditor in connection with the financial statements may be found in the published Annual Report.

 

The Directors who held office at the date of this Report each confirm that, so far as he or she is aware, there is no relevant audit information of which the Company's Auditor is unaware, and that he or she has taken all the steps that he or she could reasonably be expected to have taken as a Director in order to make him or her aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. Additionally there have been no important events since the year end which warrant disclosure. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2016.

 

The Directors have reviewed the level of non-audit services provided by the Auditor during the year, together with the Auditor's procedures in connection with the provision of such services, and remain satisfied that the Auditor's objectivity and independence is being safeguarded.

 

Going Concern

The Directors have undertaken a rigorous review and consider both that there are no material uncertainties and that the adoption of the going concern basis of accounting is appropriate. The Company's investments consist entirely of equity shares in companies listed on the Stock Exchange of Thailand which are, in most circumstances, realisable within a short timescale.

 

The Board has set limits for borrowing and regularly reviews the level of any gearing, cash flow projections and compliance with banking covenants. On 28 October 2015, the Company entered into a three-year multi-currency revolving loan facility ("the Facility") with Scotiabank (Ireland) Limited for £10m. As at 28 February 2018, £5.65m (2017: £2.65m) had been drawn down under the Facility.

 

The Directors have also considered the maturity of the Company's Facility in October 2018. The Company will enter into negotiations with its bankers in advance of renewal in October 2018. If acceptable terms are available from the existing bankers, or any alternative, the Company would expect to continue to access a bank loan facility. However, should suitable terms not be forthcoming, any outstanding borrowing will be repaid through the proceeds of equity sales.

 

The Directors are mindful of the principal risks and uncertainties disclosed in Overview of Strategy and in note 15 to the financial statements. After making enquiries, including a review of forecasts detailing revenue and liabilities, the Directors have a reasonable expectation that the Company possesses adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the financial statements.

 

Continuance of the Company

The Company does not have a fixed life. However, under Article 156 of the Articles of Association, if, in the 12 weeks preceding the Company's financial year-end (28 February), the Ordinary shares have been trading, on average, at a discount in excess of 15% to the underlying NAV per share over the same period, notice will be given of a special resolution to be proposed to wind up the Company. In the 12 weeks ended 28 February 2018, the Ordinary shares traded at an average discount of 14.7% to the underlying NAV per share (including income), therefore no such resolution will be put to the Company's shareholders at the forthcoming AGM. In October 2016 the Directors announced that the relevant NAV for these purposes would be calculated including undistributed net revenue for the period.

 

Independent Auditor

As explained in the Audit and Management Engagement Committee's Report, the Directors will place resolutions before the AGM to re-appoint Deloitte LLP as auditor for the year to 28 February 2019 and to authorise the Directors to determine Deloitte LLP's remuneration.

 

Disclosures in Strategic Report

The Company has chosen, in accordance with section 414C(11) of the Companies Act 2016 to include in the Strategic Report, information relating to the Company's greenhouse gas emissions, and in the Strategic Report and in note 15 to the financial statements, information concerning the Company's use of financial instruments.

 

The UK Stewardship Code and Proxy Voting

Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the AIFM which has sub-delegated that authority to the Investment Manager. The full text of the Company's response to the Stewardship Code may be found on the Company's website.

 

Relations with Shareholders

The Directors place great importance on communication with shareholders. The Annual Report is widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up-to-date information on the Company through its website, newthai-trust.co.uk, or via the Standard Life Aberdeen Group's Customer Services Department. The Company responds to shareholder correspondence.

 

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the Standard Life Aberdeen Group in situations where direct communication is required and representatives from the Board offer to meet with major shareholders on an annual basis in order to gauge their views.

 

In addition, members of the Board accompany the Manager when undertaking a series of meetings with institutional shareholders.

 

The Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds, as appropriate, on behalf of the Board.

 

The Notice of AGM included within the Annual Report is normally sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Investment Manager at the Company's AGM.

 

Special Business at the AGM

The AGM will be held on 21 June 2018 and the AGM Notice, related notes and Appendix may be found in the published Annual Report. Resolutions relating to the following items of special business will be proposed at the forthcoming AGM:-

 

Amendment to Investment Policy

Resolution 10 is an Ordinary Resolution proposing an amendment to the Company's investment policy.  Further details of the proposed changes are contained in the Chairman's Statement and may be found above.

 

Authority to Allot Relevant Securities

Ordinary Resolution No. 11 in the Notice of AGM will renew the authority to allot the unissued share capital up to 10% of the Company's issued share capital as at the date of the passing of the resolution (equivalent to approximately 1.6m Ordinary shares). Such authority will expire on the date of the next AGM or on 27 August 2019, whichever is earlier. This means that the authority will have to be renewed at the next AGM.

 

Limited Disapplication of Pre-emption Provisions

Resolution 12, which is a Special Resolution, will, if passed, renew the Directors' existing authority to make limited allotments of shares for cash other than according to the statutory pre-emption rights which require all shares issued for cash to be offered first to all existing shareholders provided such allotments are made at a price per Ordinary share above the prevailing NAV per Ordinary share. This authority includes shares that the Company sells or transfers out of Treasury which have been previously bought back into Treasury (if any) pursuant to the authority conferred by Resolution 13 below. The Board will only consider buying in Ordinary shares for cancellation, or for holding in Treasury, at a price which represents a discount to their prevailing NAV. In line with the authority sought under Resolution 11, Resolution 12 will, if passed, give the Directors power to allot, for cash, securities up to 10% of the total issued share capital at the date of the passing of the resolution (equivalent to approximately 1.6m Ordinary shares) other than according to the statutory pre-emption rights.

 

The authorities being sought under Resolutions 11 and 12, which will expire on the date of the earlier of the AGM in 2019 or 27 August 2019, will give the Board flexibility to take advantage of any opportunities to issue new Ordinary shares within a shorter period than would otherwise be the case.

 

Directors' Authority to Purchase the Company's Ordinary Shares

Resolution 13, a Special Resolution, will be proposed to renew the Directors' authority to make market purchases of the Company's Ordinary shares, in accordance with the provisions contained in the Companies Act and the Listing Rules of the UK Listing Authority.

 

Accordingly, the Company is seeking authority, under Resolution 13, to purchase up to a maximum of approximately 2.5m Ordinary shares, or if less, that number of Ordinary shares equivalent to 14.99% of the issued Ordinary share capital at the date of the passing of the Resolution at a minimum price of not less than 25p per Ordinary share (being the nominal value) and a maximum price of not more than the higher of (i) an amount equal to 5% above the average of the middle market quotation for an Ordinary share taken from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Ordinary share is purchased; and (ii) the higher of the price of the last independent trade and the current highest independent bid on the stock market where the purchase is carried out.

 

If passed, Resolution 13 will permit the Company to purchase Ordinary shares under the guidelines described above. Any Ordinary shares purchased in this way will either be cancelled, and the number of Ordinary shares in issue reduced accordingly or, under the power granted by Resolution 13, may be held in Treasury. The authority sought under Resolution 13 will expire on the earlier of date of the AGM in 2019 and 27 August 2019, whichever is earlier, unless renewed prior to such time.

 

Recommendation

The Board considers each of Resolutions 10,11,12 and 13 under Special Business at the AGM to be in the best interests of the Company and its members as a whole and is likely to promote the success of the Company for the benefit of its members as a whole. Accordingly, the Board unanimously recommends that shareholders should vote in favour of the resolutions to be proposed under Special Business at the AGM, as they intend to do in respect of their own shareholdings, amounting to 16,264 Ordinary shares.

 

On behalf of the Board

 

Nicholas Smith

Chairman

 

2 May 2018

 

 

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 the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of 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 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; and 

-     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.  

 

The Directors are responsible for keeping proper accounting records that 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 have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

 

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

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website but not for the content of any information included on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility Statement of the Directors in respect of the Annual Financial Report

 

We confirm to the best of our knowledge, that:

 

-     the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

-     the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

 

We consider that the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

On behalf of the Board

 

Nicholas Smith

Chairman

 

2 May 2018

 

 



STATEMENT OF COMPREHENSIVE INCOME

 

 



Year ended 28 February 2018

Year ended 28 February 2017



Revenue

Capital

Total

Revenue

Capital

Total


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Gains on investments

10

-

15,033

15,033

-

21,390

21,390

Income

3

3,945

-

3,945

3,894

-

3,894

Management fee

4

(1,132)

-

(1,132)

(1,044)

-

(1,044)

Administrative expenses

5

(400)

-

(400)

(427)

-

(427)

Currency losses


-

(89)

(89)

-

(65)

(65)



______

______

_____

______

______

______

Net return before finance costs and taxation


2,413

14,944

17,357

2,423

21,325

23,748









Finance costs

6

(59)

-

(59)

(59)

-

(59)



______

______

_____

______

______

______

Return before taxation


2,354

14,944

17,298

2,364

21,325

23,689









Taxation

7

(367)

-

(367)

(361)

-

(361)



______

______

_____

______

______

______

Return after taxation


1,987

14,944

16,931

2,003

21,325

23,328



______

______

_____

______

______

______









Return per Ordinary share (pence)

9

11.12

83.64

94.76

10.31

109.78

120.09



______

______

_____

______

______

______









The total column of this statement headed "Total" represents the profit and loss account of the Company.

All revenue and capital items in the above statement are derived from continuing operations.

The accompanying notes are an integral part of the financial statements.

 

 



STATEMENT OF FINANCIAL POSITION

 

 



As at

As at



28 February 2018

28 February 2017


Notes

£'000

£'000

Non-current assets




Investments at fair value through profit or loss

10

120,643

113,164



___________

___________

Current assets




Debtors and prepayments

11

605

457

Money market funds


3,376

201

Cash at bank and in hand


488

578



___________

___________



4,469

1,236



___________

___________

Creditors: amounts falling due within one year




Bank loans

12

(5,650)

(2,650)

Other creditors

12

(2,294)

(538)



___________

___________



(7,944)

(3,188)



___________

___________

Net current liabilities


(3,475)

(1,952)



___________

___________

Net assets


117,168

111,212



___________

___________

Share capital and reserves




Called-up share capital

13

4,216

4,632

Share premium account


19,391

19,391

Capital redemption reserve


1,319

903

Capital reserve


88,105

82,260

Revenue reserve


4,137

4,026



___________

___________

Equity shareholders' funds


117,168

111,212



___________

___________





Net asset value per Ordinary share (pence)

14

694.80

600.22



___________

___________

 

 



STATEMENT OF CHANGES IN EQUITY

 

 

Year ended 28 February 2018









Share

Capital





Share

premium

redemption

Capital

Revenue



capital

account

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

Balance at 28 February 2017

4,632

19,391

903

82,260

4,026

111,212

Purchase of own shares for cancellation

(416)

-

416

(9,099)

-

(9,099)

Return after taxation

-

-

-

14,944

1,987

16,931

Dividend paid (see note 8)

-

-

-

-

(1,876)

(1,876)


_____

_______

______

______

______

_____

Balance at 28 February 2018

4,216

19,391

1,319

88,105

4,137

117,168


_____

_______

______

______

______

_____








Year ended 28 February 2017









Share

Capital





Share

premium

redemption

Capital

Revenue



capital

account

reserve

reserve

reserve

Total


£'000

£'000

£'000

£'000

£'000

£'000

Balance at 28 February 2016

4,965

19,391

570

67,304

3,702

95,932

Purchase of own shares for cancellation

(333)

-

333

(6,369)

-

(6,369)

Return after taxation

-

-

-

21,325

2,003

23,328

Dividend paid (see note 8)

-

-

-

-

(1,679)

(1,679)


_____

_______

______

______

______

_____

Balance at 28 February 2017

4,632

19,391

903

82,260

4,026

111,212


_____

_______

______

______

______

_____








The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.

The accompanying notes are an integral part of the financial statements.

 

 



STATEMENT OF CASHFLOWS

 

 



Year ended

Year ended



28 February 2018

28 February 2017


Notes

£'000

£'000

Operating activities




Net return before finance costs and taxation


17,357

23,748

Adjustment for:




Gains on investments


(15,033)

(21,390)

Decrease/(increase) in accrued dividend income


15

(4)

Decrease in other debtors excluding tax


1

4

Increase in other creditors


7

29

Stock dividends included in investment income


(50)

-

Overseas withholding tax


(368)

(361)



_______

_______

Net cash flow from operating activities


1,929

2,026





Investing activities




Purchases of investments


(7,781)

(8,057)

Sales of investments


17,008

14,485



_______

_______

Net cash from investing activities


9,227

6,428





Financing activities




Interest paid


(58)

(60)

Equity dividends paid

8

(1,876)

(1,679)

Loan drawn down


3,000

-

Buyback of Ordinary shares

13

(9,137)

(6,369)



_______

_______

Net cash used in financing activities


(8,071)

(8,108)



_______

_______

Increase in cash and cash equivalents during the year


3,085

346



_______

_______

Analysis of changes in cash and cash equivalents during the year




Opening balance


779

433

Increase in cash and cash equivalents as above


3,085

346



_______

_______

Closing balances


3,864

779



_______

_______

 

 



NOTES TO THE FINANCIAL STATEMENTS:

 

1.

Principal activity


The Company is a closed-end investment company, registered in England & Wales No 02448580, with its Ordinary shares being listed on the London Stock Exchange.

 

2.

Accounting policies


(a)

Basis of accounting



The financial statements have been prepared in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the "SORP") issued in November 2014 and updated in February 2018 with consequential updates. The financial statements are prepared in Sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted.






The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statement for the reasons outlined in the Directors' Report, as above. Further detail is included in the Statement of Corporate Governance on the Company's website.






Critical accounting judgements and key sources of estimation uncertainty



The preparation of financial statements requires the use of certain significant accounting judgements, estimates and assumptions which requires management to exercise its judgement in the process of applying the accounting policies and are continually evaluated. The Board considers that there are no accounting judgements, estimates and assumptions which would significantly impact the financial statements.





(b)

Investments



Investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised on the trade date at cost. Subsequent to initial recognition, investments are valued at fair value which for listed investments is deemed to be the bid market price. Gains and losses arising from changes in fair value are included as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve.





(c)

Income



Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time apportioned basis so as to reflect the effective yield on these shares. Other returns on non-equity shares are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves. Interest receivable on bank balances is accounted for on an accruals basis.





(d)

Expenses



Expenses and interest payable are accounted for on an accruals basis. Expenses are charged through the revenue account except where they directly relate to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Such transaction costs are disclosed in accordance with the SORP.





(e)

Taxation



The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the  Statement of Comprehensive Income because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are never taxable or deductible (see note 7 for a more detailed explanation). The Company has no liability for current tax.






Deferred taxation is provided on all timing differences that have originated, but not reversed, at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Statement of Financial Position date, measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets 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. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.





(f)

Nature and purpose of reserves



Share premium account



The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity share capital comprising ordinary shares of 25p.






Capital redemption reserve



The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital.






Capital reserve



Gains and losses on realisation of investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve.






Revenue reserve



This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.





(g)

Foreign currency



Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Statement of Financial Position date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Statement of Comprehensive Income and are then transferred to the capital reserve.






The Company's investments are made in Thai Baht, 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 regulated in the United Kingdom, principally having its shareholder base in the United Kingdom and also pays dividends and expenses in Sterling. Consequently, the Board also considers the Company's presentational currency to be Sterling.





(h)

Dividends payable



Final dividends are dealt with in the period in which they are paid.

 



2018

2017

3.

Income

£'000

£'000


Income from investments




Overseas dividends

3,891

3,890


Stock dividends

50

-



_______

_______



3,941

3,890



_______

_______


Other income




Interest from money market funds

4

4



_______

_______


Total income

3,945

3,894



_______

_______

 



2018 

2017



Revenue

Capital

Total

Revenue

Capital

Total

4.

Management fee

£'000

£'000

£'000

£'000

£'000

£'000


Management fee

1,132

-

1,132

1,044

-

1,044



_______

_______

_______

_______

_______

_______










For the year ended 28 February 2018 management and secretarial services were provided by Aberdeen Fund Managers Limited ("AFML").




The management fee is payable monthly in arrears and was based on an annual amount of 1% of the net asset value of the Company valued monthly. The agreement is terminable on one year's notice. The total of the fees paid and payable during the year to 28 February 2018 was £1,132,000 (2017 - £1,044,000) and the balance due to AFML at the year end was £193,000 (2017 - £184,000). There were no commonly managed funds held in the portfolio during the year to 28 February 2018 (2017 - none).




Following a review, a revision of the management fee arrangements has been agreed by the Company and the Manager. With effect from 1 March 2018, the management fee will be based on an annual amount of 0.9% of the net asset value of the Company valued monthly and payable monthly in arrears.

 



2018

2017

5.

Administrative expenses

£'000

£'000


Promotional activities

66

63


Directors' fees

103

104


Auditor's fees for:




Statutory audit

23

19


Other assurance services

3

1


Custody fees

58

62


Legal & professional fees

36

69


Listing fees

15

14


Directors' and officers' insurance

6

6


Printing and stationery

16

17


Registrar's fees

15

14


Savings scheme expenses

10

9


Other expenses

49

49



_______

_______



400

427



_______

_______






The management agreement with AFML also provides for the provision of promotional activities. The total fees paid and payable under the management agreement in relation to promotional activities were £66,000 (2017 - £63,000) with a balance of £11,000 (2017 - £11,000) being payable to AFML at the year end. The Company has an agreement with AFML for the provision of company secretarial services and administration services; no separate fee is charged to the Company in respect of this agreement.

 




2018



2017




Revenue

Capital

Total

Revenue

Capital

Total

6.

Finance costs

£'000

£'000

£'000

£'000

£'000

£'000


On bank loans

59

-

59

59

-

59



_______

_______

_______

_______

_______

_______

 




2018



2017




Revenue

Capital

Total

Revenue

Capital

Total

7.

Taxation

£'000

£'000

£'000

£'000

£'000

£'000


(a)

Analysis of charge for the year









Overseas withholding tax

367

-

367

361

-

361




_______

_______

_______

_______

_______

_______



Total tax charge

367

-

367

361

-

361




_______

_______

_______

_______

_______

_______











(b)

Factors affecting tax charge for the year



The UK corporation tax rate was reduced from 20% to 19% with effect from 1 April 2017, giving an effective standard rate for the year of 19.08% (2017 - standard rate of 20%).The tax assessed for the year is lower than the effective rate of corporation tax in the UK. The differences are explained below:







2018

2017




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Net return before taxation

2,354

14,944

17,298

2,364

21,325

23,689












Corporation tax at effective rate of 19.08% (2017 - standard rate of 20%)

449

2,851

3,300

473

4,265

4,738



Gains on investments not taxable

-

(2,868)

(2,868)

-

(4,278)

(4,278)



Currency losses not taxable

-

17

17

-

13

13



Non-taxable overseas income

(752)

-

(752)

(778)

-

(778)



Overseas withholding tax

367

-

367

361

-

361



Loan relationships not utilised

10

-

10

11

-

11



Excess management expenses not utilised

293

-

293

294


294




_______

_______

_______

_______

_______

_______



Total tax charge

367

-

367

361

-

361




_______

_______

_______

_______

_______

_______











(c)

Factors that may affect future tax charges



At the year end, the Company has an unrecognised deferred tax asset of £1,841,000 (2017 - £1,848,000) arising as a result of accumulated unrelieved management expenses and loan relationship deficits of £10,830,000 (2017 - £9,241,000). A deferred tax asset in respect of this has not been recognised and will only be utilised if the Company has profits chargeable to corporation tax in the future.

 



2018

2017

8.

Dividends on equity shares

£'000

£'000


Amounts recognised as distributions to equity holders in the year:




Final dividend 2017 - 10.30p (2016 - 8.50p)

1,876

1,679



_______

_______






The proposed final dividend for 2018 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.




Set out below is the final dividend proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £1,987,000 (2017 - £2,003,000).







2018

2017



£'000

£'000


Proposed final dividend 2018 - 11.10p (2017 - 10.30p)

1,860

1,876



_______

_______






Subsequent to the year end the Company has purchased for cancellation a further 106,111 Ordinary shares; therefore the amounts reflected above for the cost of the proposed final dividend for 2018 are based on 16,757,402 in issue, being the number of Ordinary shares in issue at the date of approval of this Report.

 



2018

2017

9.

Return per Ordinary share

£'000

p

£'000

p


Revenue return

1,987

11.12

2,003

10.31


Capital return

14,944

83.64

21,325

109.78



_______

_______

_______

_______


Total return

16,931

94.76

23,328

120.09



_______

_______

_______

_______


Weighted average number of Ordinary shares in issue


17,867,486


19,424,811




_________


_________

 



2018

2017

10.

Investments at fair value through profit or loss

£'000

£'000


Opening fair value

113,164

98,079


Opening investment holding gains

(50,551)

(34,693)



_______

_______


Opening book cost

62,613

63,386


Movements in the year:




Purchases at cost

9,616

8,329


Sales - proceeds

(17,170)

(14,634)


Sales - realised gains

9,546

5,532



_______

_______


Closing book cost

64,605

62,613


Closing investment holding gains

56,038

50,551



_______

_______


Closing fair value

120,643

113,164



_______

_______


Investments listed on a recognised stock exchange

120,643

113,164



_______

_______


Gains on investments




Realised gains on sales

9,546

5,532


Increase in investment holding gains

5,487

15,858



_______

_______


Gains on investments

15,033

21,390



_______

_______






Transaction costs








2018

2017



£'000

£'000


Purchases

24

20


Sales

10

17



_______

_______



34

37



_______

_______

 



2018

2017

11.

Debtors: amounts falling due within one year

£'000

£'000


Prepayments and accrued income

183

195


Amounts due from brokers

413

251


Other debtors

9

11



_______

_______



605

457



_______

_______

 

12.

Creditors: amounts falling due within one year


(a)

Bank loan



In October 2015 the Company entered into a three year £10 million multi-currency revolving credit facility with Scotiabank (Ireland) Limited. At the year end, £5,650,000 (2017 - £2,650,000) had been drawn down at an all-in rate of 1.52338% (2017 - 1.28538%) which matured on 23 March 2018 (2017 - 28 March 2017). As of the latest date prior to the signing of this Report the £5,650,000 loan has been rolled over to 23 May 2018 at an all-in interest rate of 1.588%.






The terms of the loan facility with Scotiabank (Ireland) Limited contain a covenant that the borrowings should not exceed 20% of the adjusted net asset value of the Company, where borrowings are defined as debt and other secured liabilities plus net liabilities under all derivatives determined on a mark to market basis. Adjusted net asset value is defined as total net assets less the aggregate value of all excluded assets, excluded assets being, without double counting, the value of any unquoted investments, all investments issued by a single issuer in excess of 10% of total net assets and the aggregate value of all investments in any single MSCI industry in excess of 30% of total net assets of the Company. The loan facility agreement also contains a covenant that the Net Asset Value will not fall below £28 million. The Company met both these covenants throughout the period for which the loan facility was utilised with Scotiabank (Ireland) Limited.









2018

2017


(b)

Other creditors

£'000

£'000



Amounts due to brokers

2,019

272



Sundry creditors

275

266




_______

_______




2,294

538




_______

_______

 



2018

2017

13.

Called-up share capital

£'000

£'000


Allotted, called up and fully paid:




Opening balance of 18,528,632 (2017 - 19,860,282) Ordinary shares of 25p each

4,632

4,965


Repurchase of 1,665,119 (2017 - 1,331,650) Ordinary shares of 25p each for cancellation

(416)

(333)



_______

_______


Closing balance of 16,863,513 (2017 - 18,528,632)

4,216

4,632



_______

_______






During the year ended 28 February 2018, the Company bought back and cancelled 1,665,119 Ordinary shares of 25p each (2017 - 1,331,650) for a total consideration of £9,099,000 (2017 - £6,369,000). This represented 9.9% of the Company's issued Ordinary share capital as at 28 February 2018.




Subsequent to the year end the Company bought back and cancelled a further 106,111 Ordinary shares of 25p each for a total consideration of £611,000.

 

14.

Net asset value per share


The net asset value per share and the net assets attributable to Ordinary shares at the end of the year calculated in accordance with the Articles of Association were as follows:







2018

2017


Net assets attributable (£'000)

117,168

111,212


Number of Ordinary shares in issue

16,863,513

18,528,632


Net assets per share (p)

694.80

600.22

 

15.

Financial instruments

 


Risk management

 


The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. The Company's financial instruments comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income.

 



 


The Board has delegated the risk management function to Aberdeen Fund Managers Limited ("AFML") under the terms of its management agreement with AFML (further details of which are included under note 4). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the Manager's approach to the management of each type of risk, are summarised below. Such approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors.

 



 


Risk management framework

 


The directors of AFML collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.

 



 


AFML is a fully integrated member of the Standard Life Aberdeen Group, which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to Aberdeen Asset Management Asia Limited, which is responsible for ensuring that the Company is managed within the terms of its investment guidelines and the limits set out in its pre-investment disclosures to investors (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the Company.

 



 


The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the co-CEOs of the Group. The Risk Division achieves its objective through embedding the Risk Management Framework throughout the organisation using the Group's operational risk management system ("SWORD").

 



 


The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's co-CEOs and to the Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.

 



 


The Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.

 



 


Risk management

 


The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and price risk), (ii) liquidity risk and (iii) credit risk.

 



 


Market risk

 


The fair value of or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and price risk. 

 



 


Interest rate risk

 


-      Interest rate movements may affect:

 


-      the level of income receivable on cash deposits;

 


-      interest payable on the Company's variable rate borrowings.

 



 


Management of the risk

 


The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

 



 


The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate, revolving, and uncommitted facilities. The fixed rate facilities are used to finance opportunities at low short-term fixed rates and, the revolving and uncommitted facilities to provide flexibility in the short-term. Current bank covenant guidelines state that the total borrowings will not exceed 20% of the adjusted net assets of the Company as defined in note 12.

 



 


Interest risk profile

 


The interest rate risk profile of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the Statement of Financial Position date was as follows:

 



 



Weighted




 



 average




 



period for

Weighted



 



which rate

average

Fixed

Floating

 



is fixed

interest rate

rate

rate

 


At 28 February 2018

Years

%

£'000

£'000

 


Assets





 


Sterling

-

0.22

-

488

 



_______

_______

_______

_______

 


Liabilities





 


Bank loans -  Sterling

0.08{A}

1.52

(5,650)

-

 



_______

_______

_______

_______

 







 



 Weighted




 



  average




 



period for

 Weighted



 



which rate

average

Fixed

Floating

 



is fixed

interest rate

rate

rate

 


At 28 February 2017

Years

%

£'000

£'000

 


Assets





 


Sterling

-

-

-

578

 



_______

_______

_______

_______

 


Liabilities





 


Bank loans -  Sterling

0.08{A}

1.29

(2,650)

-

 



_______

_______

_______

_______

 


{A} Equivalent to one month.





 







 


The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity date of the Company's loan is shown in note 12.

 


The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.

 


The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables.

 



 


Interest rate sensitivity

 


Movements in interest rates would not have a material direct impact on net assets attributable to the Company's shareholders and total profit due to the relatively low exposure to cash and bank loans.

 



 


Foreign currency risk

 


All of the Company's investment portfolio is invested in overseas securities and the Statement of Financial Position, therefore, can be significantly affected by movements in foreign exchange rates.

 



 


Management of the risk

 


It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings.

 



 


The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk.

 



 


Risk exposure by currency of denomination:

 



 



 28 February 2018

28 February 2017

 




Net

Total


Net

Total

 



Overseas

monetary

currency

Overseas

monetary

currency

 



investments

assets

exposure

investments

assets

exposure

 



£'000

£'000

£'000

£'000

£'000

£'000

 


Thailand Baht

120,643

(1,606)

119,037

113,164

17

113,181

 


Sterling

-

(1,869)

(1,869)

-

(1,969)

(1,969)

 



_______

_______

_______

_______

_______

_______

 


Total

120,643

(3,475)

117,168

113,164

(1,952)

111,212

 



_______

_______

_______

_______

_______

_______

 









 


Foreign currency sensitivity

 


There is no sensitivity analysis included as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within the price risk sensitivity analysis so as to show the overall level of exposure.

 




Price risk


Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.

 




Management of the risk


It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are all listed on the Stock Exchange of Thailand ("SET").

 




Price risk sensitivity


If market prices at the Statement of Financial Position date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 28 February 2018 would have increased/(decreased) by £12,064,000 (2017 - increased/(decreased) by £11,316,000) and equity reserves would have increased/(decreased) by the same amount.

 




Market prices may indirectly be affected by political instability within Thailand from time to time which constitutes political risk.

 




Liquidity risk


This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

 




Management of the risk


Liquidity risk is not considered to be significant as, whilst liquidity is limited in certain stocks the Company holds, the majority of the Company's assets comprise readily realisable securities which can be sold to meet funding requirements if necessary.

 




Short-term flexibility is achieved through the use of loan facilities, details of which can be found in note 12. Under the terms of the loan facility, the Manager provides the lender with loan covenant reports on a monthly basis, to provide the lender with assurance that the terms of the facility are not being breached. The Manager will also review the credit rating of a lender on a regular basis.

 




The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise a revolving multi-currency credit facility. The Board has imposed a maximum gearing level, after netting off cash equivalents, of 15% of net assets. Details of borrowings at 28 February 2018 are shown in note 12.

 




Liquidity risk exposure


At 28 February 2018 the Company's bank loan, amounting to £5,650,000 (2017: £2,650,000), was due for repayment or roll-over within one month.

 




Credit risk


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

 




Management of the risk

 


-      investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker;

 


-      he risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the Custodian's records are performed on a daily basis to ensure discrepancies are picked up. The Manager's Compliance department carries out periodic reviews of the Depositary's operations and reports its findings to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;

 


-      the risk of counterparty exposure due to stock lending (when conducted) is mitigated by the review of collateral positions provided daily by the various counterparties involved; and

 


-      where cash is held on deposit, the institutions concerned are reviewed regularly.

 


 


In summary, compared to the amounts in the Statement of Financial Position, the maximum exposure to credit risk at 28 February was as follows:

 





2018

2017

 



Statement of


Statement of


 



Financial

Maximum

Financial

Maximum

 



Position

exposure

Position

exposure

 


Current assets

£'000

£'000

£'000

£'000

 


Loans and receivables

605

605

457

457

 


Money market funds

3,376

3,376

201

201

 


Cash at bank and in hand

488

488

578

578

 



_______

_______

_______

_______

 



4,469

4,469

1,236

1,236

 



_______

_______

_______

_______

 



 


None of the Company's financial assets is past due or impaired.

 



 


Fair values of financial assets and financial liabilities

 


The fair value of the short term loan is shown in note 12 to the financial statements.  The book value of cash at bank and bank loan included in these financial statements approximate to fair value because of their short-term maturity. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity.

 

 

16.

Fair value hierarchy


FRS 102 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following classifications:





Level 1:

unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.


Level 2:

inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.


Level 3:

inputs are unobservable (ie for which market data is unavailable) for the asset or liability.





The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:





Level 1

Level 2

Level 3

Total


As at 28 February 2018

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss






Quoted equities

119,126

1,517

-

120,643



_______

_______

_______

_______


Net fair value

119,126

1,517

-

120,643



_______

_______

_______

_______









Level 1

Level 2

Level 3

Total


As at 28 February 2017

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss






Quoted equities

113,164

-

-

113,164



_______

_______

_______

_______


Net fair value

113,164

-

-

113,164



_______

_______

_______

_______








Quoted equities






The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. During the year the Company's holding in Goodyear (Thailand) of £1,517,000 (2016 - £1,998,000) has been reclassified as Level 2 from Level 1 due to the lack of active trading in the stock.

 

17.

Related party transactions


Directors' fees and interests


Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors' Remuneration Report in the published Annual Report.




Hugh Young, who retired as a Director of the Company on 28 June 2017, is a director of Aberdeen Asset Management Asia Limited which, along with Aberdeen Fund Managers Limited ("AFML") and Aberdeen Asset Managers Limited are wholly-owned subsidiaries of Aberdeen Asset Management PLC. Standard Life Plc and Aberdeen Asset Management PLC merged to form Standard Life Aberdeen Plc on 14 August 2017.




Transactions with the Manager


The Company has agreements with AFML for the provision of investment management, secretarial, accounting and administration and promotional activity services. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 4 and 5. Details of a revision to the management fee arrangements agreed by the Company and the Manager after the reporting date are contained in the Directors' Report, as above.

 

18.

Capital management policies and procedures


The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.




The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: 


-      the planned level of gearing which takes account of the views on the market;


-      the level of equity shares in issue;


-      the extent to which revenue in excess of that which is required to be distributed should be retained.




The Company does not have any externally imposed capital requirements.

 

19.

Subsequent events


With effect from 1 March 2018 the management fee and finance costs will be allocated 25% to revenue and 75% to capital (previously 100% to revenue). All other administrative expenses will continue to be allocated 100% to revenue.

 

20.

Alternative performance measures


Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC SORP.




The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. Total return is considered to be an alternative performance measure. NAV total return involves investing the same net dividend in the NAV of the Company with debt at fair value on the date on which that dividend was earned. Share price total return involves reinvesting the net dividend in the month that the share price goes ex-dividend.




The tables below provide information relating to the NAVs and share prices of the Company on the dividend reinvestment dates during the years ended 28 February 2018 and 28 February 2017.








Dividend


Share


2018

rate

NAV

price


28 February 2017

N/A

600.22p

510.00p


1 June 2017

10.30p

609.63p

516.25p


28 February 2018

N/A

694.80p

592.00p


Total return


17.7%

18.4%








Dividend


Share


2017

rate

NAV

price


28 February 2016

N/A

483.03p

408.00p


2 June 2016

8.50p

465.08p

385.00p


28 February 2017

N/A

600.22p

510.00p


Total return


26.5%

27.8%




Ongoing charges


Ongoing charges is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses and expressed as a percentage of the average net asset values throughout the year.



2018

2017


Investment management fees (£'000)

1,132

1,044


Administrative expenses (£'000)

400

427


Less: non-recurring charges (£'000)

(1)

(21)



_______

_______


Ongoing charges (£'000)

1,531

1,450



_______

_______


Average net assets (£'000)

113,362

104,295



_______

_______


Ongoing charges ratio

1.35%

1.39%



_______

_______

 

The Annual Financial Report announcement is not the Company's statutory accounts. The above results for the year ended 28 February 2018 are an abridged version of the Company's full statutory accounts which will be filed with the Registrar of Companies in due course.

 

The statutory accounts for the years ended 28 February 2017 and 28 February 2018 received unqualified reports from the Company's independent auditor and did not include any reference to matters to which the independent auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for the year ended 28 February 2017 is derived from the statutory accounts which have been filed with the Registrar of Companies.

 

The Annual Report, enclosing the Notice of Annual General Meeting, will be posted to shareholders in May 2018 and will also be available from the Company's website: newthai-trust.co.uk. The Company's Annual General Meeting will be held at 11.30am on 21 June 2018 at Bow Bells House, 1 Bread Street, London EC4M 9HH.

 

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements.  Investors may not get back the amount they originally invested.

 

END

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Annual Financial Report - RNS