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RNS

Annual Financial Report

Released 12:43 25-May-2017

RNS Number : 2566G
Martin Currie Asia Uncnst Trust PLC
25 May 2017
 

MARTIN CURRIE ASIA UNCONSTRAINED TRUST PLC (the "company")

 

Annual Financial Results

Year to 31 March 2017

 

The financial information set out below does not constitute the company's statutory accounts for the year ended 31 March 2017 or financial period ended 31 March 2016 but is derived from those accounts.  Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the company's annual general meeting. 

 

The auditor's have reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

 

A copy of the annual report and accounts has also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.do

 

The annual general meeting of the company will be held at the offices of Martin Currie, 1 Bartholomew Lane, London, EC2N 2AX on Wednesday, 5 July 2017 at 12.30pm.  Full notice of the meeting can be found on the company's website (www.martincurrieasia.com).

 

The unedited full text of those parts of the annual report and accounts for the year ended 31 March 2017, which are required to be published are set out on the following pages.

 

Financial Highlights

 

Key data

 


As at
31 March 2017

As at
31 March 2016

% change

Net asset value per share (cum income)

427.0p

326.8p

30.7

Net asset value per share (ex income)

421.5p

322.5p

30.7

Share price

364.5p

280.0p

30.2

Discount

14.6%

14.3%


 

Total returns (including reinvested dividends)

 


Year ended

31 March 2017

Year ended

31 March 2016

Net asset value per share#

33.5%

(7.9%)

Share price

33.5%

(10.3%)

 

Income

 


Year ended

31 March 2017

Year ended

31 March 2016

% change

Revenue return per share

8.10p

6.68p

21.3

Dividend per share*

16.28p

7.75p

110.1

Gross income from investments

£3,927,000

£3,526,000

11.4

Yield**

4.47%

2.77%


 

 

 

Ongoing charges***

 


Year ended

31 March 2017

Year ended

 31 March 2016

Ongoing charges

1.1%

1.2%

 

Source: Martin Currie Investment Management Limited.

‡ Figures are inclusive of income in line with the Association of Investment Companies ('AIC') guidance.

† The combined effect of the rise or fall in the net asset value or share price, together with any dividends paid.

# The net asset value is exclusive of income with dividends re-invested.

*The dividend per share for the year ended 31 March 2017 includes 8.43p to be paid from capital. See Chairman's statement for more information.

** The yield is calculated using the dividend per share divided by the year end share price.

*** Ongoing charges are calculated as a percentage of shareholders' funds using average net assets over the year and calculated in line with AIC's recommended methodology. All expenses are included in the ongoing charges calculation.

 

Chairman's statement

 

Performance

 

I am pleased to report a much stronger set of results for the year to 31 March 2017; the best annual return for five years. Over the year, the net asset value ('NAV') on a total-return basis increased by 33.5% while the share price kept pace by also rising 33.5%. Breaking this down, the capital return on net assets was 30.7%, while the revenue return grew by 21.3%. Admittedly some of these gains are attributable to the weakness of sterling, particularly after the UK's referendum vote on European Union membership in June 2016. Sterling fell by 13% against the US$ over the year and its depreciation against Asian currencies boosted performance.

 

The company implemented the Asia Long-Term Unconstrained, ('ALTU'), mandate in August 2014 as an investment strategy developed by our investment manager, Martin Currie, to capture capital growth commensurate with economic growth in Asia. Since then, a total return of 38.4% has been achieved, exceeding the Asian ex Japan nominal GDP growth rate of 33%. After a torrid 2015, in which we saw an indiscriminate sell-off in Asian markets, recent performance has been much better. We may have fractionally underperformed the MSCI Asia ex Japan Index over the last year, but index comparatives are not really pertinent in evaluating a longterm, value-driven, unconstrained approach. Asian markets particularly North Asia and India, have at last started to outperform developed markets reflecting improving world trade, economic recovery in China and reflationary promises in the USA.

 

Proposed new dividend policy

 

On 4 April 2017, the board announced important proposals to change the company's dividend policy, by making a payment from capital to be set at 2% of the company's year end ex-income NAV. This will have the effect of increasing the full-year yield to approximately 4.5% of the closing share price at the year end, 31 March 2017. It is the intention to repeat the capital distribution in future years, to be paid on an annual basis, along with the final dividend, and set by reference to 2% of the prior year-end ex-income NAV.

 

The change of policy and the resulting payment of dividends out of capital are conditional upon amendments of the company's Articles of Association being approved by shareholders by Special Resolution at the company's AGM on 5 July 2017.

 

The board expects this new dividend policy to endure, but it will remain subject to review in the event that there is a change in market conditions or shareholder expectations, and in the event that the company has incurred a capital loss in any financial year.

 

Rationale behind the new policy

 

I want to explain the rationale behind this proposal. The board has been continually frustrated by the discount hovering around 15% for an extended period of time. Clearly, the jury was out on performance, but there was still no sign of improvement - despite much better recent investment returns and a rapidly approaching continuation vote in July 2018. While we have not been buying back shares since June 2016, we were active when the market was depressed in the second half of 2015 with little effect on the discount. The board has concluded that buying back shares merely facilitates sellers, further erodes liquidity and shrinks the size of the company. The challenge was to find a way to narrow the discount, reward loyal shareholders for their patience and attract new, particularly retail, buyers to broaden the shareholder register. Since retail investors appear to have an insatiable appetite for premium income streams, we considered how we might further improve the dividend. It was clear there was little latitude to make increases from revenue, as reserves have been mostly utilised.

 

Feedback from our shareholders through our brokers, Peel Hunt, indicated broad support for more income and a higher yield. The law changed in 2012 to allow investment trusts to make payments out of capital and the board concluded that this was an attractive option for shareholders. The board and the manager considers that the capital element of the dividend has been set at a level at which the distribution is manageable from an investment perspective and allowing for continuing future capital growth.

 

No change to investment policy

 

Of course, the change of dividend policy may have some effect on future investment returns but there are positive counter balances. The investment manager will have greater flexibility in executing the mandate, being released from any income considerations in stock selection. Furthermore, the capital drawdown will impose a more rigorous discipline of selling stocks that are not performing, as the manager will have to allocate capital more efficiently.

 

There is no change to investment policy. The portfolio will continue to be invested in high quality businesses characterised by sustainable growth. The ALTU strategy is an unconstrained and differentiated approach, relying on deep forensic research to identify companies whose franchises will grow and provide accretive returns to shareholders over the long term. The objective is to provide secular growth over time with low portfolio turnover. Given intrinsic stockmarket volatility in Asia, there are periods when the strategy will underperform but historically it has outperformed in down markets.

 

Discount control

 

The board's intention is that the new dividend policy should reduce and stabilise the level of discount. I am pleased to report that since the announcement of the new dividend policy, the discount has narrowed from 15% to fluctuating between 9.5%-13% since the date of the announcement.

 

Although no share buy backs have been undertaken by the company since June 2016, the board reserves the right to buy back shares to hold in Treasury and is asking shareholders to renew the power at this year's AGM.

 

Articles of Association

 

Following the change in law in 2012 which allows investment trusts to make payment of dividends out of capital, amendments were made to the company's Articles of Association ('Articles') to remove certain restrictions of this type. In consideration of the board's intention, with effect from August 2017, to commence the payment of dividends to include a capital element, it is proposed to make further changes to the Articles to facilitate the new policy. The change of policy and the resulting payment of dividends out of capital is conditional upon a revision of the Articles with appropriate provisions being approved by shareholders by Special Resolution at the company's AGM in July 2017.

 

Personal circumstances

 

The board acknowledge that there may be a small proportion of shareholders holding stock in their own name that may be disadvantaged by changes in dividend tax being implemented by HMRC from April 2018, but that most individual holders and new buyers prefer to hold shares in tax-free wrappers such as SIPPs and ISAs. We advise individual shareholders who hold shares in their own name outside tax wrappers to consult their stockbroker or financial adviser.

 

Dividend details

 

The board commends the new dividend policy and recommends shareholders to vote in favour of the Special Resolution which amends the Articles at the AGM. This will broadly benefit existing shareholders, while making the shares more attractive to new buyers and, in particular, retail investors, who will be able to participate in the potential for capital growth as well as receiving an attractive yield.

 

Subject to the amendments to the Articles being approved, the board intends to pay a final dividend of 13.68p, including 8.43p from capital, on 11 August 2017, which will be paid to shareholders on the register as at 21 July 2017. A final dividend of 13.68p would represent a 161% increase over last year's final dividend of 5.25p and a 110% increase in the full-year distribution of 16.28p (2016: 7.75p). If the amendments to the Articles are not approved, the company will not be able to pay part of the dividend from capital in which case the board intends to pay a final dividend of 5.25p per share.

 

Gearing

 

The company has recently extended its revolving bank facility with RBS from £10 million to £15 million, which is available to draw down in a variety of currencies. The structural gearing put in place in November 2015 remains at a level of approximately £5 million.

 

Regulation   

 

The investment industry is grappling with the introduction of the largely unwelcome arrival of the European Union's MIFID II legislation due to be implemented in January 2018. The board is in the process of consultation with Martin Currie regarding the detail, including the cost of provision of sell-side research. Preparation for the implementation of Key Information Documents ('KIDs') is also already underway.

 

Outlook for markets 

 

Markets have been spurred on since November by the Trump 'reflation trade' and perhaps by years of global quantitative easing finally having some effect. While global debt might remain as the great deflator, China's recovery appears broad based with nominal GDP growth rising from 7% per annum in the first quarter of 2016 to 11.8% per annum in the first quarter of 2017. While credit concerns seem more manageable, fears have recently resurfaced over the extent of lending in the shadow banking sector particularly on the back of tightening measures directed at the property market. Certainly the renminbi and capital outflows have stabilised and supply side reforms have cut bloated manufacturing capacity in the state owned enterprise sector. Industrial profits have rebounded with commodity prices and a much improved producer price index. ('PPI'). However, Chinese infrastructure investment is growing 18% year on year which raises familiar questions over renewed debt expansion and sustainability. Nevertheless, the likes of the One Belt One Road are huge initiatives and are redolent of the opportunities created by

fiscal stimulus elsewhere in the region. World trade has picked up with recovery in Asian exports building on indigenous growth in Asian inter-regional flows.

 

All this is feeding through to consensus Asian earnings which are forecast to grow by around 12% in 2017. The region's markets command undemanding valuations, with evidence of better governance leading to improved capital management - to the benefit of minority shareholders. Indeed, Asian markets have started to outperform developed markets after a lengthy period in the doldrums with the MSCI Asia ex Japan rising 13% in the first quarter of 2017 (in US dollar terms), significantly outperforming the S&P500. While China takes the headlines, India may be the best structural growth story in Asia with Modi's strong BJP mandate enacting an unprecedented era of radical largely free market reforms including an important housing programme amidst an attractive demographic backdrop auguring well for real increases in disposable income.

 

Every silver lining has a dark cloud and Asia's growth trajectory depends very much on a stable political backdrop.

 

While one might have expected Kim Jong-un in North Korea to test an incoming US administration, his rhetoric and behaviour is increasingly volatile, while the new incumbent in the White House is clearly unpredictable. Still, it is positive that Trump is prepared to flex American muscle after years of retreat from foreign policy engagement proselytised by Obama. We must hope that this more robust approach does not unbalance the geopolitical landscape. Equally, Trump's economic policies could usher in a period of protectionism although the recent 10 point US-China 'meat' trade pact is indicative that common sense rather than election or negotiating rhetoric may prevail.

 

Summary

 

Since inception in its open ended form in 2012, ALTU has provided an annualised return of 14.9%.  The board is confident that this record can be replicated within our closed end company over the long term where we will have a three year track record in August 2017.

 

Shareholders should note the improved performance and recalibration of the dividend policy, allowing for a generous yield while having every expectation of future capital growth.

 

Keep in touch

 

I encourage you to visit www.martincurrieasia.com and register for email updates that will keep you abreast of information relating to your company. You can also receive alerts to update you with announcements including interviews with the investment manager, articles and the monthly factsheet.

 

I would like to thank you again for your continued support. Please contact me or the investment manager if you have any questions regarding the company.

 

Harry Wells

Chairman

25 May 2017

 

 

Manager's review 

 

Market review   

 

The endeavour of investing has a habit of providing those thus engaged with plenty of opportunities to practice humility; not least through the writing of 'outlook statements'. Reviewing my own 'Outlook' from the previous Asia Unconstrained Trust annual report, it is interesting to reflect on what I had anticipated.

My concerns were with the direction of US monetary policy, Chinese economic adjustment and the vulnerability of exchange rates. Donald Trump and 'Brexit' were not even mentioned. Within two months of that outlook being written, data would emerge pointing to a recovery in global growth that would ignite investor interest in shares of basic materials, energy and industrial cyclical stocks in Asia and most other markets. Most market analysts were bearish, whereas I was cautiously optimistic - given cheap Asian valuations and pessimistic expectations. I did not foresee that the UK referendum result would contribute to huge gains for UK-based investors in overseas equities. The MSCI Asia ex Japan index produced a total return of just over 35% for the period in sterling terms.

 

Why mention all of this? To make a point. On any particular day, we are besieged by headlines, opinions, facts (and 'alternative' facts), company results, economic statistics and reams of other data - some accurate and some less so. As investors, the temptation might be to respond to these by switching around exposures, or in some other way attempt to time or predict markets. But the truth is, it is very hard to predict the outcome of single events, and nigh on impossible to do this consistently over multiple events. When you are using much the same information as everyone else, the window of opportunity to arbitrage any information gaps, is very narrow indeed. I doubt if anyone in April 2016 would have guessed correctly the outcomes of these key events. And for any that did, would they have then gone on to predict how the markets would respond? Are there any implications here for how we should think about investment? More on this later.

 

In Asia, the Chinese economy began to stabilise and then show signs of improvement which gathered pace as the year progressed. This was largely the result of government efforts and a resurgent property market, but was accompanied by a further large accumulation of debt in the economy. More activity in China coincided with stabilisation and recovery in other economies throughout the region, although banking systems were generally still dealing with credit-quality problems. Growth was therefore more subdued than it might otherwise have been. However, this meant that pentup demand is building and, as the various banking systems work through their credit quality issues, this will feed into economic activity in due course.

 

India surprised with a massive policy gamble in November, when the authorities withdrew the vast bulk of the cash currency from circulation (about 25% of notes by volume but over 85% by value) for replacement with new bank notes, in an apparent attempt to shrink the black economy. The lack of notice, combined with a shortage in the availability of new notes, created chaotic scenes across the country as well as severe short term disruption to the economy from which it is only now recovering. Incredibly, Prime Minister Narendra Modi and his party emerged essentially unscathed and have subsequently enjoyed significant electoral success.

 

More positively, earnings expectations bottomed during the year with a rebound in the ratio of earnings upgrades to downgrades. Given that Asian valuations were already attractive, recovering earnings and earnings expectations certainly played a part in the better outcome for investors in Asian equities over the last financial year.

 

Performance

 

Net asset value expanded by 33.5% for the year; this takes total return since the company adopted Martin Currie's Asia Long Term Unconstrained strategy to 38.4%, compared with 33% Asia ex Japan nominal GDP growth over the same period. This is in line with the goal to deliver a total return that exceeds the region's nominal GDP growth over the longer term. Of course, equity markets are more volatile than the GDP data series and we fully expect that in any given year portfolio returns can undershoot nominal growth. However, over longer periods, the goal is to accumulate superior performance, making us competitive versus conventional indices.

 

The company's investments in the technology sector were the largest contributor to returns, followed by those in the financials and consumer discretionary sectors. At the individual stock level, the three largest contributors were technology stocks - Samsung Electronics, Taiwan Semiconductor Manufacturing Company (TSMC) and Tencent. However, Indian auto manufacturer Maruti Suzuki and the two largest financial sector investments, HSBC Holdings and AIA Group, also generated good returns.

 

The share price of South Korean technology giant Samsung Electronics performed well, rising 84.6% (in sterling terms) over the year. Fourth quarter results demonstrated strength in its core businesses, particularly in semiconductors, leading to significant upward revisions of analysts' earnings estimates. The recently unveiled Galaxy S8 handset will be crucial, as it is the first major launch since the battery

troubles of the Note 7. Quality and safety are paramount, as another mistake would cause great harm to the brand. Investors have also chosen to look through the arrest of Vice Chairman Lee Jae-yong (the de facto head of the Samsung Group) for involvement in the political bribery scandal which has brought down South Korea's president. Instead they are looking for improvements in corporate governance, a manifestation of which is better capital management - including the initiation of a treasury share cancellation scheme, improved dividend payouts and share buy back programmes.

 

Tencent, purchased in May 2016, has delivered good business results over the year with strong growth in advertising revenues, as well as in mobile gaming, online payments, video subscriptions and cloud services. The company has an attractive position as the leading online community in China, with its communication platforms, QQ and Weixin, increasingly able to cross-sell services and at the same time enhance the 'stickiness' of customers' business. For some time, Tencent's strategy has been to create the best user experience in the market, while becoming more involved in wider aspects of daily life. This will require further investment; payments and video content are two areas currently seeing rapid growth, but carry a cost in the early stages. This was evident in the latest business results, which revealed lower profit margins, but great underlying operations data. The stock market clearly regards this as an investment in the future of the business and the share price response has been positive. We will nonetheless monitor margins over the coming year, to gauge the extent to which margin compression is within management's control and offset by future potential from these new investments.

 

Five stocks generated negative returns for the company over the period. With the exception of Genting Berhad, these stocks accounted for a small percentage of the investment portfolio, so the damage to overall returns was very limited. Two of the stocks, M1 Limited and Tsingtao Brewery, were sold early in the period, due to deteriorating fundamentals. A third, British American Tobacco Malaysia, was sold early in the final quarter. The price of Matahari Department Stores, a new holding, also fell. This has provided us with an opportunity to increase our holding.

 

Genting Berhad shares disappointed during the year as the company's two largest casino and leisure complexes, one in Singapore and one in Malaysia, reported lacklustre operating results. The former was suffering from cyclically depressed activity, coupled with the final clean-up of losses on customer credit. The latter, meanwhile, was undergoing a major refurbishment and therefore operating at a much-reduced capacity. Singapore is already showing signs of recovery and the project in Malaysia completes in stages over the next 18 months. Earnings are set to recover and, in anticipation of this, the share price has rebounded recently.

 

The investment in Indian IT services firm Infosys also failed to generate a positive return. Results have been somewhat soft against a backdrop of cyclically depressed demand in the key US market. This was compounded by Brexit, as Infosys has exposure to the UK and Europe. Despite weaker demand we believe that the market is confusing cyclical factors with structural concerns and we are seeing some signs of improving demand. The picture has been complicated by the US government's plans to review its temporary work visa (H1-B) programme. This will place some cost on all Indian IT service firms but the sector and Infosys still represent an attractive growth opportunity at a very compelling valuation.

 

Activity

 

The company has sold out of three holdings and purchased three new ones, including the Tencent investment discussed above, as well as some additions to and trims of existing investments.

 

We had patiently followed the two other new purchases for some time until temporary business challenges pushed their share prices down to attractive levels. Matahari Department Store, a leading Indonesian retailer has been on the radar for almost two years. Disappointing third-quarter results provided an excellent entry point into a very profitable and cash-generative business. We expect it to be a beneficiary of growing wealth and consumption among Indonesians. The stores, which are focused on apparel, are already nationwide, but there is still ample room to grow their footprint over time.

 

An initial position was established in Coway, the Korean market leader in 'home-wellness' appliances, such as water and air purifiers, as well as related services. A highly cash-generative business and a strong balance sheet enables Coway to fund domestic growth, pay an attractive dividend and invest in business development in overseas markets. The latter do not yet contribute much to earnings but should do so in the future and the share price does not reflect that opportunity. The company should be able to generate steady growth over the next few years, underpinned by the still relatively low penetration levels of 'wellness' products in the region.

 

The holdings of M1 Limited, a Singapore mobile-telecom company, and Tsingtao Brewery, a Chinese brewer, were sold. In M1's case, the possibility of a new entrant into a previously rational oligopolistic market structure threatens to be highly disruptive. Much bigger competition was also a problem for Tsingtao with Anheuser-Busch InBev providing increased competition in China. We became increasingly concerned Tsingtao's business would remain depressed for longer than we had originally thought.

 

We sold British American Tobacco Malaysia as it has struggled to cope with the growth in market share of illegally imported cigarettes in it's home market, a trend exacerbated by large excise-duty hikes. The company is well run and has been very effective at managing capital but, in the absence of a sustained effort by the Malaysian government to shrink the size of the illegal market, we were left with a decent dividend yield but little growth.

 

We topped up holdings in Dairy Farm, Genting Berhad, Global Logistic Properties and LG Household & Health Care on share price weakness. We also trimmed positions in Samsonite, Television Broadcasts, Hong Kong & China Gas and TSMC on strength.

 

Outlook

 

We have seen good momentum in Asian markets. The regional index (the MSCI AC Asia Free ex Japan) rose 13.4% in US dollar terms during the March quarter, the best start to a calendar year since 1992. Foreign inflows, particularly into Emerging Asia, have been strong and earnings revisions turned positive at the start of the year. They continue to move higher at the time of writing. The regional index has re-rated but still trades at a discount to global developed markets. The resumption of earnings growth means that despite higher index levels, forward valuation multiples are not extended and, depending on the measure, are either a little above (e.g. price-to-earnings) or a little below (e.g. price-to-book value) long term averages.

 

This much is good. However, in my view many of the things that worried me this time last year still concern me today. And there are some new worries. In geopolitical terms, President Trump has already shown himself to be unpredictable and domestic policy fumbles call into question the extent to which his domestic growth agenda can be enacted. The global 'reflation trade' has also lost some of its momentum, as reflected in recent weakness across the commodities chain. If global growth expectations were to change seriously for the worse, this would have negative implications for the Asian region. The Chinese economy appears to be in decent health and depreciation pressure on the renminbi has abated, as controls on cross- border capital flows and other policy measures have taken effect. However, there is a tricky path to navigate; the People's Bank of China is moving away from its policy loosening bias and the country's debt challenges have not evaporated. Indeed, each incremental unit of GDP growth requires much more debt than in the past; interest rate cuts and debt restructuring may help to alleviate debt service costs in the short term, but ultimately a new growth model is needed.

 

Although the effect of demonetisation has largely dissipated, economic activity in India is still subdued, as illustrated by recent soft loan growth data. However, Prime Minister Modi's strengthening power base has instilled greater confidence that he can push through his reform agenda.

 

Elsewhere in the region, we see efforts to step up infrastructure investment, as well as more policies to ease the red tape that stifles business expansion. However, it is difficult to escape the sense that policy uncertainty, whether economic or political, appears elevated globally relative to recent years and I have been surprised by the lack of equity market volatility.

 

As I intimated at the beginning of this report, trying to predict the outcome of events and trying to construct a portfolio that is somehow positioned for them is a fruitless task. At the portfolio level, it is my strong conviction that we are best served by taking advantage of the unconstrained nature of our investment mandate and by focusing our lens on longer-term time horizons. By being unconstrained we can deploy funds to the businesses in which we see genuine opportunity, without reference to a backward-looking stockmarket index. By trying to be genuinely long-term in our thinking, at the price of some additional uncertainty, we can exploit less crowded investment opportunities where market pricing is less efficient. This helps us to find and invest in good businesses, at prices offering a reasonable-to- good risk/reward trade-off. There is no shortage of ideas for us to pursue, and thus we remain enthusiastic about the opportunities available in Asia.

 

Further to the chairman's comments regarding an annual distribution from capital, I would like to reiterate that this proposal does not affect the company's investment strategy. Indeed, it is the nature of this strategy and the 'opportunity set' in Asia that lends conviction to the board's decision. The company is investing in well-managed businesses that we anticipate will deliver an attractive blend of capital and income growth over time. What is changing is how some of this incremental capital will be deployed. It is our expectation that the underlying value creation of the firms in which the company is invested will deliver a total return sufficient to fund this new distribution from capital in addition to the regular dividend as well as to cover the company's ongoing expenses and charges. Indeed, while the value of shares can go up or down in any one year, we expect the long-term total return from investments to exceed outflows due to capital and income distribution, enabling shareholders to compound an attractive return, while enjoying enhanced income.

 

Andrew Graham

25 May 2017      

 

 

Portfolio Summary 

 

Portfolio distribution as at 31 March 2017 (%) 

 


China & Hong Kong

India

Singapore

South Korea

Taiwan

Malaysia

Thailand

Indonesia

Total

Financials

11.9

-

8.1

-

-

-

3.5

-

23.5

Consumer goods

3.9

6.7

-

9.4

-

-

-

-

20.0

Technology

5.7

9.5

-

-

5.7

-

-

-

20.9

Consumer services

9.0

-

-

-

-

3.6

-

1.6

14.2

Telecommunications

5.0

-

3.9

-

-

-

-

-

8.9

Industrials

3.5

-

3.4

-

-

-

-

-

6.9

Utilities

5.6

-

-

-

-

-

-

-

5.6

Total portfolio

44.6

16.2

15.4

9.4

5.7

3.6

3.5

1.6

100.0

Total portfolio (31.03.2016)

40.0

19.6

17.5

6.6

6.9

5.9

           3.5

-

100.0

 

By asset class 


31 March 2017 %

31 March 2016 %

Equities

102.1

103.0

Cash

2.3

                                       1.2

Borrowings

(4.4)

(4.2)


                                   100.0

100.0




  Top ten holdings   


31 March 2017   Market value    £000

31 March 2017   % of total    portfolio

31 March 2016    Market value    £000

31 March 2016 % of total    portfolio

AIA Group            

11,079

7.0

9,249

7.5

Samsung Electronics

10,665

6.8

5,996

4.9

Tencent Holdings

9,026

5.7

-

-

Taiwan Semiconductor Manufacturing Company

8,948

5.7

8,511

6.9

China Mobile               

7,955

5.0

7,049

5.7

HSBC Holdings

7,682

4.9

5,114

4.1

Tata Consultancy Services

7,581

4.8

6,749

5.5

Infosys

7,447

4.7

8,082

6.5

Global Logistic Properties

6,721

4.3

3,958

3.2

Singapore Telecommunications

6,156

3.9

5,415

4.4

Total

83,260

52.8

60,123

48.7











  Portfolio holdings 


Sector

Market value    £000

% of total portfolio

China & Hong Kong


70,229

44.6

AIA Group                  

Financials

11,079

7.0

Tencent Holdings

Technology

9,026

5.7

China Mobile

Telecommunications

7,955

5.0

HSBC Holdings

Financials

7,682

4.9

Samsonite International

Consumer goods

6,121

3.9

ENN Energy

Utilities

5,610

3.6

Johnson Electric Holdings

Industrials

5,574

3.5

Television Broadcasts

Consumer services

4,816

3.1

Dairy Farm International Holdings

Consumer services

3,997

2.5

Cafe De Coral Holdings

Consumer services

3,084

2.0

Hong Kong & China Gas

Utilities

3,078

2.0

SJM Holdings

Consumer services

2,207

1.4





India           


25,634

16.2

Tata Consultancy Services Limited

Technology

7,581

4.8

Infosys

Technology

7,447

4.7

Hero Motocorp

Consumer goods

6,145

3.9

Maruti Suzuki India

Consumer goods

4,461

2.8





Singapore


24,192

15.4

Global Logistic Properties

Financials

6,721

4.3

Singapore Telecommunications

Telecommunications

6,156

3.9

United Overseas Bank

Financials

5,980

3.8

Jardine Matheson Holdings

Industrials

5,335

3.4





Taiwan


8,948

5.7

Taiwan Semiconductor Manufacturing Company

Technology

8,948

5.7





South Korea


14,773

9.4

Samsung Electronics

Consumer goods

10,665

6.8

LG Household & Health Care

Consumer goods

2,975

1.9

Coway

Consumer goods

1,133

0.7





Malaysia


5,731

3.6

Genting Berhad

Consumer goods

5,731

3.6





Thailand


5,435

3.5

Siam Commercial Bank

Financials

5,435

3.5





Indonesia


2,595

1.6

Matahari Department Store

Consumer services

2,595

1.6

Total portfolio 


157,537

100.0

 

Principal risks and uncertainties     

 

Risk and mitigation 

 

The company's business model is longstanding and resilient to most of the short term uncertainties that it faces, which the board believes are effectively mitigated by its internal controls and the oversight of the investment manager, as described below. The principal risks and uncertainties are therefore largely longer term and driven by the inherent uncertainties of investing in equity markets. The board believes that it is able to respond to these longer term risks and uncertainties with effective mitigation so that both the potential impact and the likelihood of these seriously affecting shareholders' interests are materially reduced. 

 

Risks are regularly monitored at board meetings and the board's planned mitigation measures are described below.  

 

The board has identified the following principal risks to the company: 

 

Risk

Mitigation

Loss of S1158-9 tax status

Loss of S1158-9 tax status would have serious consequences for the attractiveness of the company's shares. The board considers that, given the regular oversight of this risk carried out by the investment manager and reviewed by it, the likelihood of this risk occurring is minimal.

Long term investment underperformance

The board manages the risk of investment underperformance by relying on the integrity of the investment manager's investment process.

 

The board monitors the implementation and results of the investment process with the portfolio manager, who attends all board meetings, and reviews data that shows statistical measures of the company's risk profile. Please see the chairman's statement and manager's review above for further details on investment performance and outlook.

Gearing risk

From time to time the company finances its operations through bank borrowings. The board monitors such borrowings (gearing) closely. Details of the current gearing are provided in notes 11, 13 and 14 to the financial statements below. There were no debt securities held at 31 March 2017 and the company's investment portfolio is only indirectly exposed to interest rate risk.

Market, financial and interest rate risk

Although the company is based in the UK, its portfolio of investments principally consists of overseas stocks.

 

In addition to the overseas investments, during the year the company also had non-sterling cash deposits and a multi-currency loan facility. At 31 March 2017 the company held a balance of £39,000 in Malaysian Ringgit (31 March 2016: £4,000 in Taiwanese dollars). As at 31 March 2017 the company had borrowings in Hong Kong dollars and Singapore dollars. Details are given in note 14 below.

 

As a result, the company's sterling statement of financial position and statement of comprehensive income can be significantly affected by movements in the local currencies of these stocks.

 

Currency risk is inherent in all investment decisions and the portfolio manager applies his skills and experience to mitigate this risk within tolerances.

Outsourcing risk

The company has outsourced its entire operational infrastructure to third party providers. Please see the annual report for a list of the company's advisers. Contracts and service level agreements have been defined to ensure that the service provided by each third party provider is of a sufficiently professional and technically high standard. The board receives and reviews control reports from all service providers. The board carries out an annual evaluation of the investment manager and gives feedback to the investment manager through the management engagement committee. Periodically the board requests that representatives from other third party service providers also attend board meetings to give the board the opportunity to examine the controls that are in place so that service should be delivered to a standard to meet the company's requirements.

Counterparty risk

Most transactions are made delivery versus payment on recognised exchanges. The risk to the company of default is therefore minimised.

Investment transactions are only carried out with approved brokers. Counterparty risk indicators are regularly reviewed by the investment manager and appropriate action taken, including, if necessary, removing brokers from the approved list.

Cash is held only with approved counterparties.

Failure to manage shareholder relations

The board recognises the importance of managing shareholder relations. The board reviews feedback from the investment manager and the company's brokers based on meetings and interaction with shareholders. Where appropriate the chairman or other director is available to address shareholder questions. At each meeting the board monitors the constituency and changes to the shareholder register. Shareholders are encouraged to give their views by using the email address noted on the back page of the annual report.

Major external marketwide disruption

There is a risk that a major external marketwide disruption, war event, natural disaster or cyber attack could impact the company's business and underlying portfolio. Board members keep abreast of political, market and industry issues, meet regularly and have the ability to call ad hoc meetings to discuss and take appropriate action should such disruption arise. Martin Currie has a dedicated cyber security defence programme.

 

 

Directors' Responsibilities  

 

Statement of directors' responsibilities    

 

The directors of the company 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 United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) including FRS 102 'The Financial Reporting Standard applicable to 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 assets, liabilities, financial position and performance of the company for that year.   

 

In preparing those 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 are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 

 

Each of the directors confirms that, to the best of his or her knowledge:

 

·      the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and performance of the company; and 

·      the strategic review, the report of the directors and manager's review includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that it faces. 

 

Going concern status 

 

The company's business activities, together with the factors likely to affect its future development, performance and position are set out in the chairman's statement, manager's review, strategic report and the report of the directors.   

 

The financial position of the company as at 31 March 2017 is shown on the statement of financial position below. The statement of cashflow of the company and the statement of comprehensive income are also set out below.

 

Note 14 below sets out the company's risk management policies, including those covering market risk, liquidity risk and credit risk. 

 

During the financial year, the company increased its loan facility from £10,000,000 to £15,000,000 of which £6,825,000 was drawn down at the year-end date. The facility expires on 31 August 2018. The purpose of the facility is to enable the manager to enhance the return for shareholders by borrowing and investing where the return is expected to exceed the cost of borrowing. The company has adequate financial resources in the form of readily realisable listed securities and as a result the directors assess that the company is able to continue in operational existence without the facility.

 

In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk issued in October 2009, the directors have undertaken a rigorous review of the company's ability to continue as a going concern. The company's assets consist of a diversified portfolio of listed equity shares which, in most circumstances, are realisable within a very short timescale.    

 

The directors are mindful of the principal risks and uncertainties set out above and have reviewed revenue forecasts and they believe that the company has adequate financial resources to continue its operational existence for the foreseeable future and for at least one year from the date of the annual report.  As required by the company's articles of association, an ordinary resolution will be proposed at the AGM in 2018 and every third year thereafter for the continuation of the company.  Accordingly, the directors continue to use the going concern basis in the preparation of the accounts. 

 

Viability Statement 

 

The company's business model is designed to achieve returns commensurate with Asia ex Japan nominal GDP growth through investing in companies across the Asian region that are capable of producing high and sustainable returns. In accordance with the company's Articles, a continuation resolution is proposed to shareholders every three years, with the next vote due to take place in 2018 and successive votes at three year intervals.

 

The board has assessed its viability in accordance with provision C.2.2 of the 2014 UK Corporate Governance Code. The board considers that five years is the period which should be considered in the context of its long term objective but which is limited by the inherent and increasing uncertainties involved in assessment over a longer period. This longer-term viability statement is contingent upon shareholders voting to support the continuation vote in 2018 and thereafter.

 

In making this assessment the directors have considered the following risks to its ongoing viability: 

 

·      The principal risks and uncertainties and the mitigating actions set out above; 

·      The ongoing relevance of the company's investment objective in the current environment; 

·      The level of income forecast to be generated by the company and the liquidity of the company's portfolio; 

·      The level of fixed costs and limited debt relative to its liquid assets; 

·      The current loan facility is due to expire on 31 August 2018. The board is not aware of any reason why it would not be able to renew the loan facility at that date or indeed repay the loan if preferred; and

·      The expectation is that the current portfolio could be liquidated to the extent of 96% within 7 days.   

 

Based on the results of their analysis and the company's processes for monitoring each of the factors set out above, the directors have a reasonable expectation that the company will be able to continue in operation and meet its liabilities over the next five years. 

 

Statement of Comprehensive Income 

 



Year ended 31 March 2017

Year ended 31 March 2016


Note

Revenue £000

Capital £000

Total £000

Revenue £000

Capital £000

Total

 £000

Dividend Income

2

3,927

-

3,927

3,526

-

3,526

Interest on deposits

2

-

-

-

7

-

7

Net gains/(losses) on investments

8

-

37,301

37,301

-

(12,624)

(12,624)

Net currency losses


31

(684)

(653)

(19)

(249)

(268)



3,958

36,617

40,575

3,514

(12,873)

(9,359)

Investment management fee


(348)

  (696)

  (1,044)

  (295)

  (591)

  (886)

Other expenses

4

(506)

(5)

(511)

(557)

3

(554)

Net return on ordinary activities before finance costs and taxation


3,104

  35,916

  39,020

  2,662

(13,461)

  (10,799)

Interest payable and similar charges

3

(37)

(75)

(112)

(42)

(84)

(126)

Net return on ordinary activities before taxation


  3,067

  35,841

  38,908

  2,620

(13,545)

  (10,925)

Taxation on ordinary activities

5

(134)

-

(134)

(100)

-

(100)

Net return attributable to shareholders


2,933

35,841

38,774

2,520

(13,545)

(11,025)

Net return per ordinary share

7

8.10p

99.03p

107.13p

6.68p

(35.93p)

(29.25p)

 

The total columns of this statement are the profit and loss accounts of the company. 

The revenue and capital items are presented in accordance with the Association of Investment Companies Statement of Recommended Practice ('SORP') 2014.

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

No operations were acquired or discontinued in the year ended 31 March 2017. 

The net return attributable to shareholders is the profit/(loss) for the financial period and there was no other comprehensive income. 

 

The notes below form part of these financial statements. 

 

Statement of Financial Position 



As at 31 March 2017

As at 31 March 2016


Note

£000

£000

£000

£000

Fixed assets






Investments at fair value through profit or loss

8


157,537


123,602

Current assets






Receivables

9

509


427


Cash at bank

10

3,575


1,479




4,084


1,906


Current liabilities






Payables

11

(7,358)


(5,750)


Net current liabilities



(3,274)


(3,844)

Total assets less current liabilities



154,263


119,758

Share capital and reserves






Called-up share capital

12

19,753


19,753


Share premium reserve


6,084


6,084


Capital redemption reserve


3,428


3,428


Capital reserve*


122,538


88,130


Revenue reserve*


2,460


2,363


Total shareholders' funds



154,263


119,758

Net asset value per ordinary share of 50p

7


427.0p


326.8p

 

* These reserves are distributable.

 

The notes below form part of these financial statements.

Martin Currie Asia Unconstrained Trust plc is registered in Scotland, company number SC092391. 

The financial statements were approved by the board of directors on 25 May 2017 and signed on its behalf by Harry Wells, Chairman.    

 

 

Statement of Changes in Equity 

Year ended 31 March 2017

      Note

Called up share capital £000

Share premium reserve £000

Capital redemption account £000

Capital reserve* £000

Revenue reserve* £000

Total £000

At 1 April 2016


19,753

6,084

3,428

88,130

2,363

119,758

Net return attributable to shareholders**

7

-

-

-

35,841

2,933

38,774

Ordinary shares bought back into treasury

12

-

-

-

(1,433)

-

(1,433)

Dividends paid

6

-

-

-

-

(2,836)

(2,836)

At 31 March 2017


19,753

6,084

3,428

122,538

2,460

154,263









 

 

 

Year ended 31 March 2016

 

 

 

Note

 

Called up share capital 

£000

Share premium reserve £000

Capital redemption account £000

 

Capital reserve* £000

 

Revenue reserve* £000

 

 

Total £000

At 1 April 2015


19,753

6,084

3,428

105,400

2,675

137,340

Net return attributable to shareholders**

7

-

-

-

(13,545)

2,520

(11,025)

Ordinary shares bought back into treasury

12

-

-

-

(3,725)

-

(3,725)

Dividends paid

6

-

-

-

-

(2,832)

(2,832)

At 31 March 2016


19,753

6,084

3,428

88,130

2,363

119,758

 

* These reserves are distributable.

** The company does not have any other income or expenses that are not included in the 'Net return attributable to shareholders' as disclosed in the Statement of Comprehensive Income and therefore is also the 'Total comprehensive income for the year'. 

The notes below form part of these financial statements.

 

Statement of Cashflow 

 


Note

Year ended

31 March 2017

Year ended

31 March 2016



£000

£000

£000

£000

Cash flows from operating activities






Profit/ (loss) before tax



38,908


(10,925)

Adjustments for:






(Gains)/losses on investments

8

(37,301)


12,624


Purchases of investments*


(11,143)


(11,987)


Sales of investments*


14,636


4,855


Finance costs


112


126


Dividend revenue

2

(3,927)


(3,526)


Interest revenue

2

-


(7)


Dividend received


3,817


3,479


Interest received


-


7


Decrease/(increase) in other receivables


28


(9)


Increase/(decrease) in other payables


47


(40)


Overseas withholding tax suffered

5

(134)


(100)





(33,865)


5,422

Net cash flows from operating activities



5,043


(5,503)

Cash flows from financing activities






Repurchase of ordinary share capital


(1,699)


(3,459)


Net movement in short term borrowing

13

1,923


5,014


Exchange movement on short term borrowing

13

(217)


105


Movement in interest expense and similar charges


(118)


(124)


Equity dividends paid

6

(2,836)


(2,832)


Net cash flows from financing activities



(2,947)


(1,296)

Net increase/(decrease) in cash and cash equivalents



2,096


(6,799)

Cash and cash equivalents at the start of the year



1,479


8,278

Closing cash and cash equivalents



3,575


1,479

 

* Receipts from the sale of and payments to acquire investment securities have been classified as components of cash flows from operating activities because they form part of the company's investing activities.

The notes below form part of these financial statements. 

 

 

Notes to the Financial Statements

 

Note 1. Accounting policies 

 

(a)     Basis of preparation - For the year ended 31 March 2017, the company is applying FRS 102 - The Financial Reporting Standard applicable in the UK and Republic of Ireland respectively, which forms part of the revised Generally Accepted Accounting Practice ('UK GAAP') issued by the Financial Reporting Council (FRC) in 2015.

 

These financial statements have been presented on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS 102 issued by the FRC in 2015 and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('SORP') issued by the AIC in November 2014.

 

Functional currency - the company is required to nominate a functional currency, being the currency in which the company predominately operates. The board has determined that £ sterling is the company's functional currency, which is also the currency in which these financial statements are presented.

 

Statement of estimation uncertainty - in the application of the company's accounting policies, the board is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not always readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may vary from these estimates. There have been no significant judgements, estimatesor assumptions for the year.

 

(b)    Income from investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted, when the company's right to receive payment is established. Franked investment income is stated net of the relevant tax credit. Other income includes any taxes deducted at source. Special dividends are credited to capital or revenue, according to the circumstances. Scrip dividends are treated as unfranked investment income; any excess in value of the shares received over the amount of the cash dividend is recognised as a capital item in the Statement of Comprehensive Income.

 

(c)     The management fee and finance costs in relation to debt are recognised two-thirds as a capital item and one-third as a revenue item in the Statement of Comprehensive Income in accordance with the board's expected long-term split of returns in the form of capital gains and income, respectively. Interest receivable and payable, and management expenses are treated on an accruals basis. All other expenses are charged to revenue except where they directly relate to the acquisition or disposal of an investment, in which case, they are treated as described in note 1(e).

 

(d)     Investments - Investments have been designated upon initial recognition as at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. Movements in the fair value of investments and gains/losses on the sale of investments are taken to the Statement of Comprehensive Income as a capital item.

 

The company's listed investments are valued at bid price. Further details on investments are disclosed in note 8 below.

 

(e)    Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Statement of Comprehensive Income.

 

(f)    Monetary assets and liabilities expressed in foreign currencies are translated into sterling at rates of exchange ruling at the date of the statement of financial position. Non-monetary items expressed in foreign currencies held at fair value are translated into sterling at rates of exchange ruling at the date the fair value is measured. Transactions in foreign currencies are converted to sterling at the rate ruling at the date of transaction. Exchange gains and losses are taken to the income statement as a capital or revenue item depending on the nature of the underlying item.  

 

(g)     All financial assets and liabilities are recognised in the financial statements at fair value, with the exception of short-term assets and liabilities, which are held at nominal value that approximates to fair value, and loans that are initially recognised at the fair value of the consideration received, less directly attributable costs, and subsequently recognised at amortised cost.

 

(h)     Dividends payable - Interim dividends are recognised once the directors are obligated to pay the dividend. Final dividends are recognised in the period which they are declared/approved as disclosed in note 6 below.   

 

(i)      Capital reserve - capital expenses, gains or losses on realisation of investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. Share buybacks are funded through the capital reserve, with details of buybacks disclosed in note 12. The capital reserve is distributable. It is proposed that an element of the dividend will be deducted from capital reserve.

 

Revenue reserve - the net revenue for the year is transferred to the revenue reserve and dividends paid are deducted from the revenue reserve.

 

Capital redemption reserve - the nominal value of the shares bought back for cancellation are transferred to the capital redemption reserve.

 

Share premium reserve - this represents the surplus of subscription monies after expenses over the nominal value of the issued share capital.

 

(j)     Taxation - the tax effect of different items of income/gains and expenditure/losses is allocated between revenue and capital on the same basis as the particular item to which it relates, under the marginal method, using the company's effective rate of tax. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the reporting date where transactions of events that result in an obligation to pay more or a right to pay less tax in future have occurred at the reporting date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the company's taxable profits and its results as stated in the accounts which are capable of reversal in one of more subsequent periods.

 

 

Note 2. Revenue from investments 


Year ended

31 March 2017

£000

Year ended

31 March 2016

£000

Revenue from listed investments



Overseas equities

3,927

3,526







Other revenue



Interest on deposits

-

7


3,927

3,533

Total income comprises:



Dividends

3,927

3,526

Interest

-

7


3,927

3,533

 

The company received no capital dividends during the year ended 31 March 2017 (31.03.16: £289,000).      

 

 

Note 3. Interest payable and similar charges 


Year ended 31 March 2017

Year ended 31 March 2016


Revenue £000

Capital £000

Total £000

Revenue £000

Capital £000

Total £000

Interest expense on bank loans and overdrafts

37

75

112

42

84

126

 

 

Note 4. Other expenses   


Year ended

31 March 2017

 £000

Year ended

31 March 2016 

£000

AIFMD Depositary fees

35

38

Bank charges

9

2

Custody fee

79

66

Directors' fees

115

108

Legal and professional fees

28

25

Printing and postage

14

17

Public relations

55

75

Registration fees

28

21

Secretarial fee

81

91

Miscellaneous revenue expenses

41

93


485

536

Auditor's remuneration



Payable to Ernst & Young LLP for the audit of the company's annual financial statements

19

19

Payable to Ernst & Young LLP for non-audit services

2

2


21

21

Miscellaneous capital expenses*

5

(3)


511

554

 

* The expense for 31 March 2017 relates to project costs (31.03.16 prior year tender offer expense accrual write-off).

Details of the contract between the company and Martin Currie for provision of investment management and secretarial services are given in the report of the directors.   

The non-audit services relate to the assessment of 'ready to tag' accounts and design process for iXBRL purposes.

 

 

Note 5. Taxation on ordinary activities 

 


Year ended 31 March 2017

Year ended 31 March 2016


Revenue £000

Capital £000

Total £000

Revenue £000

Capital £000

Total £000

Overseas tax suffered

134

-

134

100

-

100

 

The effective UK corporation tax rate was 20% (31.03.2016: 20%). The tax charge for the year differs from the charge resulting from applying the standard rate of corporation tax in the UK for an investment trust company. The differences are explained below.

 


Year ended

31 March 2017

£000

Year ended

31 March 2016

£000

Net return before taxation

38,908

(10,925)

UK corporation tax at effective rate of 20% (31.03.2016: 20%)

7,782

(2,185)

Adjustments:



Franked investment income

-

(1)

Currency gains not taxable

137

54

(Gains)/ losses on investments not taxable

(7,460)

2,525

Non taxable overseas dividends

(792)

(706)

Overseas tax suffered

134

100

Excess management expenses not utilised

333

313

Total tax charge

134

100

 

At the year end, after offset against income taxable on receipt, there is a potential deferred tax asset of £2,102,000 (31.03.16: £2,031,000) in relation to surplus tax reliefs. It is unlikely that, due to excess management expenses brought forward, the company will utilise these amounts and therefore no deferred tax asset has been recognised.

 

Due to the company's status as an investment trust and the intention to continue to meet the conditions required to maintain investment trust status in the foreseeable future, the company has not provided deferred tax on capital gains and losses arising on the revaluation or disposal of investments.

 

 

Note 6. Equity dividends 


Year ended

31 March 2017   

£000

Year ended

31 March 2016

  £000

Year ended 31 March 2017 - interim dividend of 2.60p

939

-

Year ended 31 March 2016 - final dividend of 5.25p

1,897

-

Year ended 31 March 2016 - interim dividend of 2.50p

-

943

Year ended 31 March 2015 - final dividend of 5.00p

-

1,889


2,836

2,832

 

Set out below are the total dividends payable in respect of the financial period which forms the basis on which the requirements of s1158-9 of the Corporation Taxes Act 2010 are considered.    

 


Year to 31 March 2017 £000

Year to 31 March 2016 £000

Proposed final dividend of 7.85p for the year ended 31 March 2017

1,897

-

Proposed final dividend from capital of 8.43p for the year ended 31 March 2017

3,045

-

Interim dividend of 2.60p for the year ended 31 March 2017

939

-

Final dividend of 5.25p for the year ended 31 March 2016

-

1,889

Interim dividend of 2.50p for the year ended 31 March 2016

-

943


5,881

2,832

 

The company has not bought back any shares between 1 April 2017 and 22 May 2017; therefore the final dividend for 2017 is based on 36,124,496 ordinary shares in issue.

 

 

Note 7. Returns and net asset value 


Year ended

31 March 2017

Year ended

31 March 2016

The return and net asset value per ordinary share are calculated with reference to the following figures:    Revenue return



Revenue return attributable to ordinary shareholders

£2,933,000

£2,520,000

Weighted average number of shares in issue during year*

36,191,940

37,703,625

Return per ordinary share

8.10p

6.68p

Capital return



Capital return attributable to ordinary shareholders

£35,841,000

(£13,545,000)

Weighted average number of shares in issue during year*

36,191,490

37,703,265

Return per ordinary share

99.03p

(35.93p)

Total return



Total return per ordinary share

107.13p

(29.25p)

 


As at 31 March 2017

As at 31 March 2016

Net asset value per share



Net assets attributable to shareholders

£154,263,000

£119,758,000

Number of shares in issue at the year end*

36,124,496

36,644,179

Net asset value per share

427.0p

326.8p

  *Calculated excluding shares held in treasury. 

 

 

Note 8. Investments at fair value through profit and loss 

 


As at 31 March 2017 £000

As at 31 March 2016 £000

Opening valuation

123,602

129,094

Opening unrealised fair value gains on investments

(10,740)

(23,492)

Opening cost

112,862

105,602

Add: additions at cost

11,270

11,987


124,132

117,589

Less: disposals at cost

(12,523)

(4,727)

Closing cost

111,609

112,862

Closing unrealised fair value gains on investments

45,928

10,740

Closing valuation

157,537

123,602

 

Gains/(losses) on investments

Year ended 31 March 2017 £000

Year ended 31 March 2016 £000

Realised gains for the current period

2,113

128

Movement in unrealised fair value gains/(losses) on investments

35,188

(12,752)

Gains/(losses) on investments

37,301

(12,624)

 

Transaction costs

 

During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within net gains/(losses) on investments in the Statement of Comprehensive Income. The total costs were as follows:

 


Year ended 31 March 2017 £000

Year ended 31 March 2016 £000

Purchases

31

22

Sales

48

8


79

30

 

 

Note 9. Receivables: amounts falling due within one year 

 


As at 31 March 2017 £000

As at 31 March 2016 £000

Dividends receivable

497

387

Other receivables

12

40


509

427

 

None of the company's trade receivables are past due or impaired.

 

 

Note 10. Cash at bank 


As at 31 March 2017 £000

As at 31 March 2016 £000

Sterling

3,536

1,475

Malaysian Ringgit

39

-

Taiwanese Dollar

-

4


3,575

1,479

 

 

Note 11. Payables - amounts falling due within one year 


As at 31 March 2017 £000

As at 31 March 2016 £000

Interest expense and similar charges

10

16

Due to brokers for repurchase of ordinary shares

-

266

Due to brokers for open trades

127

-

Due to Martin Currie Investment Management Ltd

284

224

Revolving bank loan

6,825

5,119

Other payables

112

125


7,358

5,750

 

For interest rate risk analysis in respect of receivables and payables refer to note 14. 

 

The company has a £15,000,000 (31.03.16: £10,000,000) loan facility with the Royal Bank of Scotland, which expires on 31 August 2018.   

 

As at 31 March 2017 and 31 March 2016, the drawdowns were as shown below, with a maturity date of 7 June 2017 (31.03.16: 5 May 2016). 

  

 As at 31 March 2017

 

Currency

Interest rate

£1,400,000

1.11%

HKD 25,657,070 (£2,640,000)

1.69%

SGD 4,864,800 (£2,785,000)

1.69%

 

 As at 31 March 2016

 

Currency

Interest rate

£1,400,000

1.34%

HKD 23,618,070 (£2,100,000)

1.42%

SGD 3,096,900 (£1,600,000)

1.99%

 

All payables are due within three months.   

 

 

Note 12. Called up share capital 


As at

31 March 2017 

£000

As at

31 March 2016 

£000

Authorised:



66,000,000 (2016 - 66,000,000) Ordinary shares of 50p each - equity

33,000

33,000

Allotted, called up and fully paid:



36,124,496 (2016 - 36,644,179) Ordinary shares of 50p each - equity

18,062

18,322

Treasury shares:



3,381,376 (2016 - 2,861,693) Ordinary shares of 50p each - equity

1,691

1,431

Total

19,753

19,753

 

The company bought back 519,683 shares of 50p each during the year to 31 March 2017 (31.03.16: 1,380,908) at a cost of £1,433,000 (31.03.16: £3,725,000) to be held in treasury.     

 

The company has an authorised share capital of 66,000,000 ordinary shares of 50p each, which rank equally.  Shareholders are entitled to dividends, which are paid bi-annually, and to attend and vote at all general meetings of the company.  On a winding-up, and after satisfying all liabilities of the company, shareholders will be entitled to all the remaining assets of the company.   

 

 

Note 13.  Analysis of net debt 


At 1 April 2016 

£000

Cash flows £000

Exchange movements

£000

At 31 March 2017

 £000

Analysis of net debt





Cash at bank

1,479

2,749

(653)

3,575

Revolving bank loan

(5,119)

(1,923)

217

(6,825)


(3,640)

826

(436)

(3,250)

 

For interest rate risk and currency risk analyses refer to note 14 below.    

 

 

Note 14. Financial instruments   

 

The company's financial instruments comprise securities and other investments, cash balances, loans and receivables and payables that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and receivables for accrued income. The company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, for the purpose of managing currency and market risks arising from the company's activities. No derivative transactions were undertaken during the year. As at the year end, the company held no derivatives (31.03.16: None held).     

 

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

 

The board regularly reviews and agrees policies for managing each of these risks. The investment manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term receivables and payables, other than for currency disclosures as they are deemed immaterial.    

 

(a)  Market price risk

 

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

 

(i) Market risk arising from interest rate risk

 

Interest rate movements may affect the level of income receivable on cash deposits/payable on short term borrowings.   

   

Interest risk profile

 

The interest rate risk profile of the portfolio of financial assets and liabilities at the statement of financial position date was as follows: 

 

 

As at 31 March 2017

Interest rate   %

Local currency '000

Foreign   exchange rate

Sterling   equivalent £000

Assets





Sterling

0.01

3,536

1.000

3,536

Malaysian Ringgit

n/a

215

5.534

39

Total




3,575

Liabilities





Loan - GBP Sterling

1.11

1,400

1.000

1,400

Loan - Hong Kong Dollar

1.69

25,657

9.718

2,640

Loan - Singapore Dollar

1.69

4,865

1.747

2,785

Total




6,825

 

As at 31 March 2016

Interest rate   %

Local currency '000

Foreign   exchange rate

Sterling   equivalent £000

Assets





Sterling

0.25

1,475

1.000

1,475

Taiwanese Dollar

n/a

192

46.258

4

Total




1,479

Liabilities

Loan - GBP Sterling

Loan - Hong Kong Dollar Loan - Singapore Dollar

 

 1.34

  1.99 

1.42

 

1,400 

23,618 

3,097

 

 1.000

11.148 

1.935

 

1,400 

2,119 

1,600

Total




5,119

 

 

Interest rate sensitivity 

 

The sensitivity analyses below have been determined based on the exposure to interest rates for financial instruments at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

 

If interest rates had been 25 basis points (31.03.16: 100 basis points) higher or lower and all other variables were held constant, the company's profit for the year to 31 March 2017 would increase/decrease by £9,000 (31.03.16: increase/decrease by £15,000). This is mainly attributable to the company's exposure to interest rates on its floating rate cash balances.

 

As at 31 March 2017 an interest rate of 0.25% is used, given the prevailing Bank of England base rate is 0.25%. This level is considered possible based on observations of market conditions and historic trends.

 

(ii) Market risk arising from foreign currency risk 

 

The company's investment portfolio is invested mainly in foreign securities and the Statement of Financial Position can be significantly affected by movements in foreign exchange rates. It is not the company's policy to hedge this risk on a continuing basis but the company may, from time to time, match specific overseas investment with foreign currency borrowings.

 

The Statement of Comprehensive Income is subject to currency fluctuation arising on overseas income.

 

Foreign currency risk profile

 

Foreign currency risk exposure by currency of denomination:   

 


As at 31 March 2017

As at 31 March 2016


Investment exposure   £000

Net   monetary exposure   £000

Total currency exposure £000

Investment exposure £000

Net   monetary   exposure £000

Total currency exposure £000

Hong Kong Dollar

66,233

(2,644)

63,589

49,571

 (2,122)

47,449

Indian Rupee

25,633

-

25,633

24,241

-

24,241

Indonesian Rupiah

2,595

-

2,595

--

-

-

Korean Won

14,773

143

14,916

8,038

88

8,126

Malaysian Ringgit

5,731

40

5,771

7,233

-

7,233

Singaporean Dollar

18,857

(2,787)

16,070

15,393

(1,605)

13,788

Taiwanese Dollar

8,948

-

8,948

8,511

4

8,515

Thai Baht

5,435

-

5,435

4,287

-

4,287

US Dollar

9,332

354

9,686

6,328

299

6,627

Total

157,537

(4,894)

152,643

123,602

(3,336)

120,266

 

The asset allocation between specific markets can vary from time to time based on cumulative invested positions of the portfolio of equity holdings listed in special stock markets.  

 

Foreign currency sensitivity   

 

The following table details the company's sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies and the resultant impact that any such increase or decrease would have on net return before tax and equity shareholders' funds.  The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.

 

 


31 March 2017

 £000

31 March 2016 £000

Malaysian Ringgit

4

-

Total

4

-

 

(iii) Market risk arising from other price risk

 

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

 

It is the board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets to international markets as detailed above, 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 listed on various stock exchanges worldwide. 

 

Other price risk sensitivity

 

If market prices at the reporting date had been 15% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders at the year to 31 March 2017 would have increased/decreased by £23,631,000 (31.03.16: increase/decrease of £18,540,000) and capital reserves would have increased/decreased by the same amount.  The calculations are based on the portfolio valuations, as at the respective reporting dates, and are not representative of the year as a whole. 

 

(b)   Liquidity risk

 

This is the risk that the company will encounter difficulty in meeting obligations associated with financial liabilities.  All payables are due within three months.

 

Liquidity risk is not considered to be significant as the company's assets mainly comprise readily realisable securities, which can be sold to meet funding commitments if necessary.

 

(c) Credit risk      

 

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

 

The risk is managed as follows:   

 

·      Investment transactions are carried out with a large number of brokers, whose credit ratings are reviewed periodically by the portfolio manager. Limits are set on the exposure to any one broker. The risk to the company of default is therefore minimised.

·      Most transactions are made delivery versus payment on recognised exchanges. 

·      Cash is held only with reputable banks.  

 

None of the company's financial assets are secured by collateral or other credit enhancements.   

 

The maximum credit risk exposure as at 31 March 2017 was £4,084,000 (31.03.2016: £1,906,000). This was due to receivables and cash as per notes 9 and 10 above.    

 

Fair values of financial assets and financial liabilities  

 

All financial assets and liabilities are recognised in the financial statements at fair value, with the exception of short-term assets and liabilities, which are held at nominal value that approximates to fair value, and loans that are initially recognised at the fair value of the consideration received, less directly attributable costs, and subsequently recognised at amortised cost. 

 

 

Note 15. Capital management policies and procedures 

 

The company's capital management objectives are:  

 

·      to ensure that the company will be able to continue as a going concern; and

·      to maximise the revenue and capital return to its equity shareholders through an appropriate balance of equity capital and debt.

 

The company's capital as at 31 March 2017 comprised: 


31 March 2017

 £000

31 March 2016

 £000

Equity share capital

19,753

19,753

Retained earnings and other reserves

134,510

100,005

Total

154,263

119,758

 

The board, with the assistance of the investment manager and the AIFM, monitors and reviews the broad structure of the company's capital on an ongoing basis. These reviews include:

 

·      the planned level of gearing, which takes account of the manager's views on the market;

·      the need to buy back equity shares for cancellation or to hold in treasury, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium); 

·      the need for new issues of equity shares; and 

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

 

The company's objectives, policies and processes for managing capital are unchanged from the

preceding accounting period.   

 

The company had 102% net gearing at the year end (31.03.16: 103%).   

 

 

Note 16. Fair value hierarchy 

 

The company has early adopted the amendments to FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' where an entity is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:

     

·      Level 1: The unadjusted quoted price 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 (i.e. developed using market data) for the asset or liability, either directly or indirectly.   

·      Level 3: Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

 

The financial assets and liabilities measured at fair value through the profit and loss in the financial statements are grouped into the fair value hierarchy as follows: 

 

 


At 31 March 2017


Level 1 £000

Level 2 £000

Level 3 £000

Total £000

Financial assets at fair value through profit or loss





Quoted equities

157,537

-

-

157,537

Net fair value

157,537

-

-

157,537

 


At 31 March 2016

 


Level 1 £000

Level 2 £000

Level 3 £000

Total £000

Financial assets at fair value through profit or loss





Quoted equities

123,602

-

-

123,602

Net fair value

123,602

-

-

123,602

 

 

Note 17. Alternative Investment Fund Managers ('AIFM') Directive

 

In accordance with the AIFM Directive, information in relation to the company's leverage and the remuneration of the company's AIFM, Martin Currie Fund Management ('MCFM'), is required to be made available to investors. In accordance with the Directive, the AIFM's remuneration policy is available from MCFM on request (see contact details in the annual report).  

 

The company's maximum and actual leverage levels at 31 March 2017 are shown below:   

 

Leverage Exposure

Gross method

Commitment method

Maximum permitted limit

275%

175%

Actual

102%

105%

 

The leverage limits are set by the AIFM and approved by the board and are in line with the maximum leverage levels permitted in the company's articles of association. The AIFM is also required to comply with the gearing parameters set by the board in relation to borrowings.

 

 

Note 18. Related party transactions

 

With the exception of management fees, directors' fees director's shareholdings and secretarial fees there were no related party transactions to report throughout the financial year.

 

 

Website

 

The Company has its own dedicated website at www.martincurrieasia.com.  This offers shareholders, prospective investors and their advisors a wealth of information about the Company.  Updated daily it includes the following: latest prices, performance data, latest factsheet, research, portfolio information, press releases and articles, the manager's latest views and annual and half yearly reports.

 


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