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RNS

Annual Financial Report

Released 16:51 07-Jun-2018

RNS Number : 7046Q
Martin Currie Asia Uncnst Trust PLC
07 June 2018
 

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

 

Annual Financial Results

Year to 31 March 2018

 

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 March 2018 or financial period ended 31 March 2017 but is derived from those accounts.  Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 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, 11 July 2018 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 2018, which are required to be published are set out on the following pages.

 

Financial Highlights

 

Key data

 


As at
31 March 2018

As at
31 March 2017

% change

Net asset value per share (cum income)

437.8p

427.0p

2.5

Net asset value per share (ex income)

431.9p

421.5p

2.5

Share price

384.0p

364.5p

5.3

Discount

12.3%

14.6%


 

Total returns 

 


Year ended

31 March 2018

Year ended

31 March 2017

Net asset value per share#

6.3%

33.5%

Share price

9.8%

33.5%

 

Income

 


Year ended

31 March 2018

Year ended

31 March 2017

% change

Revenue return per share

8.58p

8.10p

5.9

Dividend per share

16.70p

16.28p

2.6

Gross income from investments

£4,305,000

£3,927,000

9.6

Yield*

4.35%

4.47%


 

 

 

Ongoing charges**

 


Year ended

31 March 2018

Year ended

 31 March 2017

Ongoing charges

1.08%

1.14%

 

Source: Martin Currie Investment Management Limited ('Martin Currie', 'investment manager' or 'manager').

‡ 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 inclusive of income with dividends re-invested.

* 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

 

The results for the year to 31 March 2018 show that the Net Asset Value (NAV), adjusted for 16.38p per share of dividends paid during the year and measured on a total return basis, increased by 6.3% while the share price rose 9.8%. On a capital return basis, the NAV recorded an increase of 2.5%. The share price rose by 5.4% excluding income received. The revenue return per share increased by 5.9%. These

results are adrift of the investment objective of matching Asian nominal GDP growth, and the regional MSCI Asia ex Japan Index, which both increased by over 12% in sterling terms.

 

The 'Asia Long-Term Unconstrained' (ALTU) investment strategy developed by our investment manager, Martin Currie, is designed to capture capital growth commensurate with nominal economic growth in Asia. Over three years, the NAV on a total return basis has increased by 31.3% a shortfall against MSCI Asia ex Japan's gain of 39.1%, and benchmark Asian nominal GDP growth of 45.3%. However, since the ALTU mandate was adopted by the Company on 1 August 2014, the NAV has risen by 47.1% and the share price by 51%, again on a total return basis, exactly matching the rise of nominal Asian GDP over that period.

 

While returns have kept pace with the investment target since the mandate change, it is frustrating that this inimitably long-term strategy has performed less well than some competitors within the AIC Asia ex Japan peer group. Sterling's weakness has been a tailwind in previous years against the US dollar but, in the 12 months to the end of our financial year, the performance of sterling has created something of a headwind to performance. With a strategy that runs a concentrated portfolio of stocks, performance boils down to the efficacy of the investment process in successful stock selection. This has been unusually challenging as the market breadth in Asia has been abnormally narrow with a large number of stocks in the universe being ignored, irrespective of merit. Instead, spectacular returns have been concentrated in a few tech, internet and energy names. Partly, this reflects the tremendous growth prospects of the likes of Tencent, the second largest holding in the portfolio, but also the distortion of fund flows into index heavyweights from 'passively managed' exchange traded funds (ETFs). Our investment manager may not have captured all the upside in last year's strong bull market, but by investing in companies with demonstrable free cash flow growth and strong balance sheets, the returns are typically less volatile than the market. Some patience may be required until attractive, unfashionable but currently little known companies gain market recognition. These should provide the portfolio with defensive qualities in weathering weaker market conditions, particularly where holdings are not 'over-owned' by foreigners through 'passive' strategies.

 

Dividend policy

 

Shareholders overwhelmingly approved a special resolution at the Company's Annual General Meeting in July 2017 to allow the Company to make payments out of capital. The level of capital payment was set at 2% of the Company's year-end ex-income NAV. The Board expects this policy to endure, subject to review in the event that there is a change in market conditions or shareholder expectations, or the Company incurs a capital loss in any financial year.

 

Subject to approval by shareholders at this year's AGM, the Board recommends the payment of a final dividend of 14p per share, which will be paid on 10 August 2018 to shareholders on the register as at 20 July 2018. This represents a 2.3% increase over last year's final dividend and a 2.6% increase in the full-year distribution to 16.70p (2017: 16.28p). The distribution represents a 4.35% yield on the year-end closing share price at 31 March 2018.

 

The Board does not think the wider market has fully appreciated the change in dividend policy, although there has been some narrowing of the discount. The Board believes that this change is of broad benefit to existing shareholders, while making the shares more appealing to new buyers and retail investors, particularly those making use of tax-free wrappers (ISAs and SIPPS), who will be able to participate in the potential for capital growth, as well as receiving an attractive level of income.

 

Discount control

 

The Board's intention is that the recalibrated dividend policy should reduce and stabilise the level of discount. This appears to have had some effect, with the discount narrowing from 14.6% to 12.3% over the year to 31 March 2018. The average discount for the AIC peer group has widened over that period.

 

No share buy backs have been undertaken by the Company since June 2016. I commented on this in last year's annual report. Suffice to say, the Board's view is that buying back shares merely facilitates sellers, reduces the size of the Company and further erodes liquidity, whereas the incremental capital element of the dividend is designed to reward loyal shareholders.

 

The Board needs to preserve the flexibility to employ a right to buy back shares to be held in Treasury, and is seeking to renew this power by putting a resolution forward again at this year's AGM.

 

Continuation

 

Our continuation vote runs on a three-year cycle with a vote due at this year's AGM on 11 July 2018. The Board has reviewed the rationale for continuation and recommends that it is in the best interests of shareholders to vote in favour of the continuation resolution for the following reasons: 

 

·      The investment manager has broadly met the investment objective of matching Asian nominal GDP growth since the change of mandate on 1 August 2014.

·      The annualised total return of net assets from 31 July 2014 to 31 March 2018 is 11.1%.

·      Over the three years ended 31 March 2108 the total return of the Company's share price was 31.5%.

·      Recent feedback from shareholders has been consistently supportive.

·      The investment objective is a lower risk, long-term strategy designed to produce investment returns comparable to economic growth in Asia, which as a measure has outstripped the growth in regional indices over the last decade.

·      The new dividend policy was adopted last year to provide a premium income yield.

·      Both the Board and investment manager are confident of secular growth throughout the Asian region. Strong disposable income growth should drive consumption, while government spending is driving broad and large scale infrastructure spending.

·      The investment process employs rigorous screening in constructing a focused portfolio of high quality companies with strong financial positions, whose business models and ability to grow free cash flow should produce consistent returns to shareholders.

·      On a relative basis, the strategy may have underperformed against some others in the AIC Asia ex Japan peer group, but it is less valid to make comparisons with other trusts which have different investment objectives and levels of risk tolerance. Some deploy greater leverage and derivatives, wider geographical remits, index relative targets while others have a 'top down' process of thematic macro investing. This may produce higher returns but volatility may as a result be more closely aligned with the market.

·      The discount represents an opportunity to buy into a long-term strategy. The Board believes the discount can reduce over time, reflecting long term performance.

·      The Board has charged the investment manager and our broker, Peel Hunt, to promote the Company more effectively, so that the differentiated characteristics of the strategy, including the dividend policy, achieve wider market recognition.

·      We will have five-year numbers for 'ALTU' in August 2019, which will give the Board the opportunity to review the long-term credentials of the strategy.

 

Regulation

 

The Company is fully compliant with the MIFID II and PRIIPS regulations, which came into force in January 2018. The Board   welcomed Martin Currie's agreement to absorb the cost of   sell-side research through their own accounts in line with its MIFID II programme. All service agreements have been   reviewed and amended as necessary to comply with the   introduction of the new General Data Protection Regulation (GDPR) on 25 May 2018, while a GDPR Policy has been formulated and published on our website as an updated Privacy Notice. An update of the Alternative Investment Fund Managers Directive is also being proposed as 'AIFMD2' with details as yet unknown. This will undoubtedly represent yet another challenge to oversight bodies and your Board is committed to mitigating the cost of regulatory burden to   shareholders, while at the same time meeting expectations of   high compliance standards.  

 

Outlook for markets

 

2018 began with rising expectations, driven by synchronised global economic recovery hopes, strong upward momentum in corporate earnings revisions and euphoric readings on sentiment indicators. The IMF still expects global growth of 3.9% in 2018. Although fundamental data across the G10 economies remains strong, some recent data indicators have shown softening trends. The S&P 500 reached a record high of 2,872.87 on 26 January 2018 (up 7.5% from year-end 2017), but higher US wage growth reported in early February then saw world equity markets correct sharply on fears of resurging inflation and the prospect of a steepening interest rate trajectory. Trade war anxiety has heightened since March as America announced tariffs on Chinese steel and aluminium imports. The subsequent retaliation by China raised further concerns over protectionism. In fact, the proposed tariff increases affect only a small proportion of China exports. President Trump appears to be targeting China's digital economy and his bark may be worse than his bite, given his reported policy reversal to rejoin the Trans Pacific Trade Partnership. The President has a point in attempting to halt the infringement of intellectual copyright and there is some logic in trying to redress the trade balance. Still, the Americans may end up shooting themselves in the foot by picking fights with trade partners, as tariffs push up input and product prices, affecting both corporate margins and the consumer.

 

Fortunately, the US is not the only source of global demand. Inter-Asian trade is growing and consumption is rising on a secular trend, reflecting a rise in disposable income. For example, Chinese per capita incomes are on track to double between 2012 and 2020. Asian corporate earnings are now forecast to grow by approximately 13% this year. Regional equities still look attractive on the basis of reasonable valuations, after factoring in these growth expectations. However, a significant increase in US bond yields, as a corollary of the perception of increased inflation, could be a wrecking ball. The more the US Federal Reserve raises rates and shrinks its balance sheet, it is apparently planning a near 25% reduction over the next two years, the more asset prices are potentially at risk. Offshore US-dollar denominated debt has ballooned during quantitative easing, so increased interest rates and a strengthening US dollar would pressure emerging markets, including weaker Asian corporate credits. However, if the Fed miscalculates, they may be forced to perform a volte face to support markets.

 

Geopolitically, it is encouraging to see that relations with North Korea appear to be improving, with diplomacy replacing bellicose rhetoric and missile tests. Still, China continues to extend its sphere of influence around the region including the South China Sea and its relations with Taiwan have soured recently. The impasse over the Iran nuclear deal has serious implications for Middle Eastern stability and the oil price. Regardless of these concerns, volatility should generally present our investment manager with opportunities to buy equities cheaply, in cases where they hold strong conviction for future growth prospects. I anticipate that these opportunities may have a strong bias towards domestic consumption within the Asian region.

 

Keep in touch

 

I encourage you to visit www.martincurrieasia.com which is a comprehensive source of information and news on the Company together with perspectives on Asian markets. You can also register for our monthly email updates that will keep you abreast of the latest information relating to your

Company.

 

I would like to thank you again for your continued support. Please contact me or members of the investment management team if you have any questions regarding the Company.

 

Harry Wells

Chairman

7 June 2018

 

 

Manager's review 

 

Market review   

 

In the year under review, investors have largely ignored a plethora of  geopolitical scares (such as North  Korean missile tests, the eroding  commitment of the USA to key  international institutions and  agreements, the Syrian disaster,  etc) that would have rocked  markets in other years. The reason for this, of course, is that the underlying economic data  for the economies that matter  to markets was generally good,  at times better than expected,  which unleashed one of the most  powerful corporate earnings  upwards revision cycles of the  past 30 years.

 

Last year, was a better year for Asia too, especially North Asia, in terms of economic growth, corporate earnings and share prices. Unfortunately for UK investors this was dampened somewhat as sterling appreciated by over 10% against the US dollar and gained relative to most Asian currencies as well, eating into local currency gains in share prices. While the sources of earnings growth broadened as the year progressed and the level of earnings for the market broke to new highs, the bulk of the momentum was concentrated in a handful of sectors, most notably the large Chinese internet firms, semiconductors, Chinese real estate stocks, the energy and the materials sectors. This was also reflected in share price performance. At the end of the third quarter of the calendar year, two internet stocks, Tencent and Alibaba, accounted for approximately one fifth of the rally in the MSCI Asia ex Japan Index and the top five contributors accounted for over a third. This reflected the scale of their contribution to the market's earnings growth at that stage. At that time, market breadth (i.e. the proportion of stocks outperforming the market) was at its lowest level for 20 years. Encouragingly, the composition of earnings growth has broadened out somewhat since then, which has also been reflected in market performance, with an associated modest improvement in breadth.  

 

India has gradually emerged from the disruption brought on by the Modi government's demonetisation programme of November 2016 (which removed 85% of currency notes by value from circulation to be replaced with, initially, an insufficient supply of new notes), although the pace of recovery has been hampered by tax reform, in particular the introduction of a nationwide goods and services tax, and a combination of bad debts and serious under capitalisation at the country's public sector banks. The latter is being addressed and the consequent earlier drag is now gradually dissipating.

 

China's GDP growth remained robust and corporate earnings recovered. The 19th National Congress took place in October 2017, which set the stage for Communist Party leaders to renew their public commitment to raising living standards, cleaning up the environment and improving the quality of life. President Xi further set out an ambitious plan for China to become a top-ranked innovative nation. China has also removed its two-term limit on presidential service, securing President Xi Jinping's control for many years to come.

 

The five major economies of the ASEAN group of countries (Singapore, Indonesia, Thailand, Malaysia and the Philippines), proved to be resilient in the face of policy tightening by the US Federal Reserve. In fact, the aggregate real GDP growth of these economies recovered to its long term trend growth rate (around 5%) over the course of the year. Better than expected export performance coupled with low and stable inflation were factors in this, except for the Philippines where inflation has been higher and the current account weaker. In a healthy development, we also saw private sector deleveraging across the ASEAN-5, as private sector debt grew more slowly than nominal GDP, apart from the Philippines although the absolute level of household debt to GDP in the latter is very low relative to other major Asian and western economies.

 

Performance

 

Net asset value measured by total return increased by 6.3% over the year. This takes total return on net assets since the Company adopted Martin Currie's Asia Long-Term Unconstrained strategy to 47%, compared to 51% growth of Asia ex Japan nominal GDP growth over the same period (both in sterling terms; see chart below). As our investment strategy's principal objective is to deliver a long-term total return greater than Asia ex Japan region nominal GDP growth, it is disappointing when cumulative net asset value progression dips below this, as it has done recently. Share prices are typically more volatile than the nominal GDP data series, so it is reasonable to expect that there may be periods in which portfolio returns might undershoot nominal GDP growth.

 

For the second year running, the Technology sector was the top contributor to investment returns, followed by the Financial and Utilities sectors. At the individual stock level, the three largest contributors were Tencent, a leading Chinese online game and internet services firm, Asian life insurer AIA and Chinese gas utility company ENN Energy. Indian automobile manufacturer Maruti Suzuki was again a good performer, as were leading technology companies Samsung Electronics and Taiwan Semiconductor together with two banks, HSBC and Singapore's United Overseas Bank. These have all been long term holdings with only Tencent being a relatively recent purchase (May 2016).

 

Tencent, by a slender margin our second largest portfolio investment at the time of writing, has continued to enjoy very strong business growth. 2017 revenue grew 56% year on year (YoY) and operating profit by 61% as the company saw strong demand for its mobile and PC-based games, its mobile and online payment services, growth of advertising on its social networks and video streaming services, as well as good growth in digital content subscription revenue. After Chinese New Year, Tencent revealed that the combined monthly active user base of its Weixin/WeChat social network had exceeded 1 billion accounts (having grown by 11% over 2017 to 989 million). The company has multiple opportunities to continue growing revenue and profits, whether by further monetisation of well-established services or by rapidly expanding newer businesses that today have low (or no) margins and need to grow to achieve economies of scale.

 

Our largest portfolio investment is currently Hong Kong-listed AIA, which was a key contributor to performance over the past year. Operating in 18 countries across the region, AIA is Asia's largest independent listed life insurance company. It has been our firm belief that Asia has a large protection gap and the demand for life insurance, as a key element of long-term financial planning, will see significant growth for many years to come. With its broad regional footprint, AIA is extremely well positioned to meet the long-term savings and protection needs of Asia's growing population. The company already serves more than 30 million individual policy holders, as well as a further 16 million participants in group insurance schemes. This is a well-capitalised, profitable business that can fund its own growth while growing distributions to shareholders (the dividend grew 17% in the last fiscal year).

 

ENN Energy was the third largest positive contributor to investment performance. There is secular growth in demand for natural gas in China as a source of clean energy and ENN is one of the country's leading distributors, operating a network of city-level piped gas networks. The company is active in 172 projects across 17 provinces. Revenue growth comes from expanding the number of such city gas projects, adding new customer connections to its networks and increased gas consumption by existing customers. Gas volume growth drives network utilisation and profitability. As cash flow improves, we expect the company to increase distribution to shareholders. The dividend pay-out ratio was almost 35% for the year just ended and we believe this will rise steadily in future years.

 

Besides the negative currency translation effects caused by the strength of sterling, poorly performing stocks detracted some 500bps from performance over the year. The four largest negative contributors are discussed below.

 

China Mobile was the biggest detractor, causing almost a full percentage point drawdown in portfolio returns. The total return profile we expect for this investment consists of relatively low (most likely mid-to-high single digit) earnings growth combined with a rising dividend pay-out ratio to generate an annualized low double-digit total return. In 2017 the company delivered 7% revenue growth and 5% profit growth, while growing the underlying dividend by 17% year on year, with an increased pay-out ratio, as well as a special dividend. The stock, however, sold off over the year as investors chased higher earnings growth elsewhere. While the herd may have gone off in search of seemingly lusher pastures, we remain content to graze here in the knowledge that market environments have a habit of changing and the instincts of the herd with them. China Mobile ended 2017 with 1.229 billion connections to its networks (comprising 887 million mobile connections, 113 million wireline broadband connections and 229 million 'Internet of Things' / other data connections). The company recently projected that this will expand to 1.75 billion (+42%) by the end of 2020 helping it to generate revenue growth exceeding the average of major international peers over the same period. As it delivers, the China Mobile grass should start looking a lot greener.

 

PT Matahari Department Stores, discussed in the 2017 interim report, has continued to perform poorly. We accumulated our holding mostly in the first half of last year, in the knowledge that the prevailing operating environment was difficult. Primarily an apparel retailer to middle income Indonesians, this well-managed company derives growth from expansion of its retail footprint across the country and by increased customer spending at existing stores. The company is expanding on both fronts but the fruits of this were obscured last year by a weak retail environment and depressed consumer sentiment. If we were to wait for these to improve before investing, we would have to pay a much higher valuation. At the end of 2017, the company had 155 stores, of which just over 25% were in the greater Jakarta area, with a pipeline for an additional 34 stores to be built over the next few years. We expect the depressed consumption environment to gradually improve. Last year, this resulted in relatively weak existing store performance, with same-stores sales down slightly year-on-year (although this has been recovering recently). We will be continuing to monitor trading conditions closely but believe this stock still has the potential to be a very rewarding investment.

 

Television Broadcasts (TVB), our third worst performing stock, is the dominant free-to-air TV broadcaster in Hong Kong and is in an industry in the throes of profound structural change with the rapid profusion of digital media technologies changing forever the way people "consume" video entertainment. Ordinarily, this is something we would want to stay well away from. However, several factors have kept us invested in the stock, albeit with a reduced position. TVB has done a good job of disposing of non-core assets and is sitting on a sizeable net cash position (equivalent to 13% of its current market value) which can be returned to investors and management has shown some inclination to do so. At the same time, the company has aggressively adopted a next generation content distribution model via its own digital content platform "myTV SUPER". Thanks to rapid growth of user numbers, the platform is now running at breakeven despite large upfront costs and monetisation will commence in earnest this year. Meanwhile, the Hong Kong advertising market, which has been depressed, is finally showing signs of recovery (correlated with retail sales growth, which is now improving). Additionally, an interesting new growth engine has appeared in the form of content production for mainland Chinese online media customers. We see 2018 as being a recovery year. At the behest of a Chinese shareholder group, which controls a large stake in the company, TVB made a tender offer for 27% of outstanding shares, which was withdrawn later for regulatory reasons. That shareholder group was not participating in the tender and would therefore have seen its stake in TVB increase post-deal. They clearly saw value in the business, as we do too.

 

Café de Coral shares weakened as the Hong Kong-based quick service restaurant operator released softer-than expected first-half results. While overall sales growth was a solid 6.2% YoY, profit margins in its Hong Kong operations weakened. The source of weaker margins relates to additional staffing costs in its Hong Kong quick-service restaurant formats, where it is working to attract and retain talent in a highly competitive labour market. Management is now increasing the focus on menu reengineering, product improvements and customer satisfaction enhancements over the next six months, which will enable it to recoup these higher costs. We believe Hong Kong remains an attractive market, with good growth potential. Mainland China also represents a significant longer-term opportunity, particularly now that the company appears to have found the right format to achieve same-store sales growth and healthy margins after several years of experimentation.

 

Activity

 

Over the year the Company sold three holdings and purchased four new ones.

 

Global Logistic Properties, a Singapore-listed owner and developer of modern logistic facilities across China, North America, Japan and Brazil, received a takeover bid at a large valuation premium thereby endorsing the Company's long term patient investment process. The transaction closed in January 2018 at which point we sold our shares. We also sold our entire position in gas utility Hong Kong and China Gas. The stock had been a good performer but we felt that the valuation left little room for error. Our third sale was the Macau casino operator SJM Holdings. While the gaming sector in Macau had been recovering, we were worried that the Chinese government will continue to prioritise the control of capital outflows, which could restrain growth at Macau's operators just as new capacity is being added at a time when gaming licence renewals may offer distinct challenges.

 

In the first quarter we made an initial investment in Guangdong Investment (GDI), which we built up over the course of the year. Listed in Hong Kong, GDI provides water to Hong Kong, Shenzhen and Dongguan, giving it a stable core business, with the Hong Kong supply contract being the dominant source of income. This company is capable of mid-to-high single digit organic earnings growth. Given its healthy cash flow, we expect a continued increase in the dividend pay-out ratio which will further enhance the already attractive 4% dividend yield. The strong net cash balance sheet allows for potential bolt-on acquisitions within its core areas of competency (water, waste water treatment and real estate development), which will augment growth over time.

 

We have been following TravelSky Technologies, the provider of passenger and ticketing information to China's air travel industry, for some time and finally a dip in its share price provided an opportunity to initiate a small position at a reasonable price. It is a direct play on the solid growth of air travel in China and should also have defensive qualities. Despite market liberalisation, the company retains an effective monopoly in Chinese airline global distribution systems, with solid barriers to entry. We anticipate many years of growth in Chinese domestic air-passenger volumes and TravelSky is a major beneficiary of this; with globally competitive pricing and a good volume growth outlook, we think there is a wide 'moat' around the economics of its business.

 

Our other two new holdings are Indian companies. The first is HDFC Bank, India's leading private sector bank. HDFC Bank has been gaining market share in new loans out-competing the poorly capitalised public sector banks. The latter still have the largest share of outstanding loans in India but are hampered by poor credit underwriting and lax governance standards, as well as weak customer services. HDFC Bank, in contrast, has a strong retail deposit base, giving it low funding costs compared with peers, while its relatively low ratio of non-performing loans underlines the quality of its lending book. Operating efficiency has been improving and this trend should continue as additional scale efficiencies accrue from its branch network and greater volumes go through its digital banking infrastructure.

 

We also initiated a position in Vakrangee, a company that operates over 40,000 convenience stores for services (Kendras) across India via a franchisee model. Each Kendra offers basic banking and e-government services to underserved populations, specifically the rural and urban poor of India. Vakrangee is leveraging the captive customer base built from these core services to provide a wide range of additional services that are otherwise unavailable to these people, including assisted e-commerce (Amazon), insurance and logistics. There is significant potential to add other services over time, however even the current range of services is not yet fully rolled out across its network and in the poorest rural areas some of these services are still not viable today. Through our own fundamental research and accounting diagnostic work, which makes use of published company financial reports, we engaged with Vakrangee on a range of accounting and corporate governance-related questions. A core element of our investment process, to which all existing and prospective holdings are subjected, this generated a range of accounting and governance questions which helped deepen our understanding of the business. The responses provided by Vakrangee during this process, combined with the positive way in which the company engaged with us, built upon our assessment of business prospects and added to our conviction that this was an attractive business to invest in.

 

Post financial year update on Vakrangee

 

Since the end of our financial year in March 2018, the Vakrangee share price has fallen very sharply and our investment in the stock is sitting at a substantial unrealised loss relative to our initial purchase price. The primary reason for this was the resignation in late April 2018 of PwC from their position as the auditor of the company, although an online newspaper article published a couple of weeks earlier cast doubt on the existence of certain Kendras and the range of services on offer. That article, which contained inaccuracies and received a point-by-point rebuttal from the company, revealed nothing we were not already aware of from our own due diligence work conducted earlier. In addition to our visit to the company Head Office in Mumbai and site visits to some Kendras, our confidence was reinforced by Vakrangee's announcement that it had hired consultants Grant Thornton to perform an independent assessment of the current Kendra network focusing on franchisee and customer satisfaction, adherence to standards, etc.

 

In the wake of PwC's resignation, we are engaging with the company to understand fully the circumstances surrounding this. Publication of full year financial statements signed off by the newly appointed auditors will aid this process. Results for the second and third quarters of the last fiscal year were subject to an interim review (which is not a detailed audit) conducted by PwC who had at the time only recently been appointed as auditors. We are obviously very keen to understand their motivation to resign and it may be relevant to note that India's Securities and Exchange Board of India in late January 2018 banned PwC from auditing listed companies in India for two years, due to its failings as auditor in the Satyam Computer scandal, with a one-year reprieve for the financial year 2017-18. While we have no evidence that this was a factor in their decision to resign from the Vakrangee audit, it may have had some bearing on it. In addition to learning more about the resignation of PwC, we are investigating the status of the company's previously disclosed dividend and share buyback plan, announced in February of this year. Clarity on this could be a positive catalyst for the stock and, together with the release of audited results, could restore a more normal market in the shares. In the meantime, while this remains a highly fluid situation, we will continue to focus on achieving the best outcome for our Company as we proceed with our engagement with the board and management of Vakrangee.

 

Introduction of put options

 

Using the flexibility in the mandate and after a period of extended low volatility in markets, we introduced limited portfolio protection via 3 month listed put options on the Hang Seng Index and the Hang Seng China Enterprises Index. Due to the presence of gearing in the portfolio both portfolio beta and portfolio volatility for the Company is somewhat higher than for other portfolios managed according to the ALTU approach. As some of the largest contributors to portfolio volatility were Hong Kong stocks or Chinese 'H' shares listed in Hong Kong, it was logical to partially hedge this part of the portfolio while volatility was relatively low and the price of this protection reasonable. We initially purchased the puts in November and rolled them over at expiry in February. In both cases, this was intended to provide some downside protection. While the options offered this protection, the indices in question did not move to levels where the options acquired any meaningful intrinsic value and the options ultimately expired out of the money, with the total cost to the portfolio being the amount of premium paid for the options.

 

Outlook

 

Our major macro concern is the potential unwinding of the exceptional global monetary environment, characterised by quantitative easing (QE), which has prevailed for the past several years. Today we are only in the early stages of what is a significant directional shift. I am sure that central banks will attempt to make this as shock free a process as possible. However, as QE has been inflationary for share and bond prices, so it begs the question of what a reversal will bring. More volatility? Well, perhaps. We certainly had a taste of that in February of this year. Equally, the cost of capital assumptions must also rise which, other things being equal, will depress valuation multiples. These will also likely be more challenging times for high yield markets and the subprime borrowers who rely on them. Default rates at highly-leveraged firms have almost certainly been suppressed during QE, so now is not the time to be complacent.

 

Given the steady rise of US dollar LIBOR rates since the summer (the 12-month rate based on the US dollar has moved from just over 1.7% in August to over 2.7% at the time of writing), it's worth considering what the new range for LIBOR might be under a more "normalized" global monetary environment. Having been less than 1.5% for much of the period since 2009, will the 12-month rate settle in a 3-4% range? Could it be higher? I really don't know. What I do know is that there has been a large accumulation of debt by consumers and businesses around the world since the Global Financial Crisis; so, if a key benchmark interest rate (LIBOR) which influences the prices of trillions of dollars of loans, as well as financial and derivative products, jumps by nearly 60% in less than a year and remains elevated for an extended period, someone, somewhere is going to feel the impact.

 

Unfortunately, rising interest rates and higher volatility are not great bedfellows when it comes to leveraged investment strategies, especially those that have done very well out of a low interest rate and low volatility environment. This is an extremely complex area. However, if a recent Bloomberg article is to be believed, there is over US$2 trillion in strategies that have some sort of reliance on the persistence of such a low volatility and low interest rate backdrop. This means there must also be a chance that risk models, in a period of persistently higher volatility coupled with rising interest rates, force these strategies to unwind positions.

 

Of more immediate concern perhaps is the trade dispute between the USA and China. While one certainly should not be ignoring this, there are other things to worry about as noted above.

 

On the ground in Asia, business conditions are quite good overall. After last year's strong earnings growth with Asia ex Japan earnings increasing by an impressive 27% YoY (Source: Factset) the current market consensus on 2018 earnings is for a further 13% YoY growth. As we are now in the second year of this earnings recovery, it is natural that the scale and pace of upward estimate revisions by investment analysts should ease, which we have seen in recent weeks.

 

Against this backdrop of continued earnings expansion, valuations do not appear stretched: the prospective price to earnings ratio ("PER") for Asia ex Japan, based on the current 2018 consensus estimate, sits at 12.7x which is still only 9% above its 10-year average and implies a price/ earnings to growth ("PEG") ratio of less than 1.0, while the prospective price to book ratio ("PBR"), at 1.54x, is below its 10-year average (9% below). Given that return on equity (ROE) continues to improve in Asia, there certainly appears to be a valuation disconnect here that argues for continued exposure to the region and underlines its appeal relative to other regional markets. The economic environment today is supportive of further earnings growth and while the double-digit rate expected by analysts is certainly not fanciful, I am reminded that the long-term average earnings growth rate for the region has been about 6%.

 

There are also some secular dynamics at play that are truly positive for Asia. Asia's population of 3.7 billion (excluding Japan) is forecast to grow to 4.1 billion by the end of 2020, which would be four times the population size of the G7 countries. Looking even longer term, a recent report from the Carnegie Institute suggested that of the next 1 billion people who will enter the global middle-class cohort (currently approximately 3.2 billion people), nearly 90% will be living in Asia. At the same time, rapid technological innovation is lowering the cost and increasing the availability of goods and services to hundreds of millions of people across the region, while increasing urbanisation and the growth of intra-Asian trade is ushering in a new cycle of infrastructure investment.

 

We believe that the portfolio of businesses in which your Company is invested will continue to thrive. However, we must also strive to ensure that where businesses are not coping well, we identify them early and weed them out. If we do our job well, we will be finding new stocks with better prospects to replace them. Our holdings are represented by businesses that operate with conservative balance sheets and have good cash flow characteristics, much more so than the broader market. Even so, the collective ROE for our portfolio is estimated to be 15% for 2018 which is superior to the consensus estimate for the "market" ROE of 13%, which implicitly employs greater leverage. Therefore, we believe the portfolio is well positioned to create value for the long-term oriented, patient investor.

 

Andrew Graham

7 June 2018    

 

 

Portfolio Summary 

 

Portfolio distribution as at 31 March 2018 (%) 

 


China & Hong Kong

India

South Korea

Singapore

Taiwan

Malaysia

Thailand

Indonesia

Total

Financials

12.3

3.7

-

4.6

-

-

3.1

-

23.7

Consumer Goods

3.7

7.2

12.1

-

-

-

-

-

23.0

Technology

8.4

11.0

-

-

4.4

-

-

-

23.8

Consumer Services

4.6

-

-

-

-

3.6

-

2.0

10.2

Telecommunications

3.7

-

-

2.8

-

-

-

-

6.5

Utilities

8.0

-

-

-

-

-

-

-

8.0

Industrials

2.0

-

-

2.8

-

-

-

-

4.8

Total portfolio

42.7

21.9

12.1

10.2

4.4

3.6

3.1

2.0

100.0

Total portfolio (31.03.2017)

44.6

16.2

9.4

15.4

5.7

3.6

           3.5

1.6

100.0

 

By asset class 


31 March 2018 %

31 March 2017 %

Equities

100.5

102.1

Options*

(0.1)

-

Cash

2.6

2.3

Borrowings

(3.0)

(4.4)

Total

                                100.0

100.0

*Further details on the options can be in the portfolio holdings section below.

 

 Top ten holdings   


31 March 2018   Market value    £000

31 March 2018   % of total    portfolio

31 March 2017    Market value    £000

31 March 2017 % of total    portfolio

AIA Group            

11,936

7.5

11,079

7.0

Tencent Holdings

11,838

7.5

9,026

5.7

Samsung Electronics

9,928

6.3

10,665

6.8

HSBC Holdings

7,784

4.9

7,682

4.9

United Overseas Bank

7,347

4.6

5,980

3.8

Tata Consultancy Services

7,076

4.5

7,581

4.8

Taiwan Semiconductor Manufacturing Company

7,036

4.4

8,948

5.7

Infosys                       

6,770

4.3

7,447

4.7

Guangdong Investment

6,586

4.2

-

-

ENN Energy

5,985

3.8

5,610

3.6

Total

82,286

52.0

74,018

47.0











 

Portfolio holdings 


Sector

Market value    £000

% of total portfolio

China & Hong Kong


67,650

42.8

AIA Group                  

Financials

11,936

7.5

Tencent Holdings

Technology

11,838

7.5

HSBC Holdings

Financials

7,784

4.9

Guangdong Investment

Utilities

6,586

4.2

ENN Energy

Utilities

5,985

3.8

China Mobile  

Telecommunications

5,809

3.7

Samsonite International

Consumer Goods

5,787

3.7

Johnson Electric Holdings

Industrials

3,222

2.0

Television Broadcasts

Consumer Services

2,738

1.7

Dairy Farm International Holdings

Consumer Services

2,460

1.6

Cafe De Coral Holdings

Consumer Services

2,040

1.3

TravelSky Technology

Technology

1,465

0.9





India           


34,517

21.9

Tata Consultancy Services

Technology

7,076

4.5

Infosys

Technology

6,770

4.3

Hero Motocorp

Consumer Goods

5,954

3.8

Maruti Suzuki India

Consumer Goods

5,408

3.4

Vakrangee

Technology

3,508

2.2

HDFC Bank

Financials

2,948

1.9

HDFC Bank ADR

Financials

2,853

1.8





South Korea


19,214

12.1

Samson Electronics

Consumer Goods

9,928

6.3

Coway

Consumer Goods

5,263

3.3

LG Household & Health Care

Consumer Goods

4,023

2.5





Singapore


16,316

10.2

United Overseas Bank

Financials

7,347

4.6

Singapore Telecommunications

Telecommunications

4,488

2.8

Jardine Matheson Holdings

Industrials

4,481

2.8





Taiwan


7,036

4.4

Taiwan Semiconductor Manufacturing

Company

Technology

7,036

4.4





Malaysia


5,705

3.6

Genting Berhad

Consumer Services

5,705

3.6





Thailand


4,920

3.1

Siam Commercial Bank

Financials

4,920

3.1





Indonesia


3,108

2.0

Matahari Department Store

Consumer Services

3,108

2.0





Derivatives


(232)

(0.1)

HSCEI H Seng China Put 11800

Financials

(72)

-

HSI H Seng Index Put 29400

Financials

(160)

(0.1)

Total portfolio


158,234

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 in the table 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 risks seriously affecting shareholders' interests are materially reduced.

 

Risks are regularly monitored at Board meetings and the Board's planned mitigation measures are described in the table 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.

Failure to manage shareholder relations

 

The Board recognises the importance of managing shareholder relations. At each Board meeting, the Board monitors the constituency and changes to the shareholder register. The Board also reviews feedback from the investment manager and the Company's broker based on meetings and interaction with shareholders. Where appropriate the directors are available to address shareholder questions. Shareholders are encouraged to engage with the Company by using the email address noted on the back page of the Company's annual report.

Major external market disruption

There is a risk that a major external market 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. The investment manager has a dedicated cyber security defence programme and a Valuation Committee in place to support the continued production of the Company's NAV in the event that stock markets are closed for an extended period.

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 on above for further details on the investment performance and outlook.

Gearing risk

From time to time the Company finances its operations through bank borrowings. The Board regularly and actively considers such borrowings (gearing) closely, with regard to interest rates, market conditions and peer group activity. Details of the current gearing are provided in notes 11, 13 and 14 to the financial statements. There were no debt securities held at 31 March 2018 and the Company's investment portfolio is only indirectly exposed to interest rate risk. The Board also reviews analysis of lending counterparties, which includes counterparty risk, rates and other terms.

Market, financial and interest rate risk

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

 

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

 

Diversification via the countries and markets in which the portfolio is invested is a key mitigant of currency and market risk.

 

The investment manager oversees various risk factors inherent in the portfolio, including geographical concentration and, by extension, currency risk. It also stress tests the portfolio for significant currency and market risk.

 

The investment manager's investment process and investment risk framework are designed to manage inherent market risk and optimise portfolio positioning in reference to the investment objective.

 

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 2018 the Company had an overdraft of £2,000 equivalent in US dollars (31 March 2017: £39,000 equivalent in Malaysian Ringgit). As at 31 March 2018 the Company had borrowings in Hong Kong dollars and Singapore dollars. Details are given in note 14 below.

 

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.

Outsourcing risk

The Company has outsourced its entire operational infrastructure to third party providers. Contracts and service level agreements have been arranged 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. Periodically, the Board requests representatives from third party service providers to attend Board meetings to give the Board the opportunity to discuss the controls that are in place directly with the third party providers. The Board receives and reviews control reports from all service providers. The Board carries out an annual evaluation of its service providers and gives regular feedback to the investment manager through the management engagement committee.

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.

Strategic planning impacts on discount and liquidity

A Board strategy session is held annually to establish strategic priorities, which are subject to review and discussion at Board meetings.

 

The Board monitor factors impacting the overall size of the Company, including investment mandate and performance, investor sentiment and the Company's reputation.

 

The investment manager and the Company's broker assist in identifying commercial opportunities for the Company.

 

Discount management policy is regularly discussed and approved by the Board.

Failure to meet Company dividend policy

The Company's dividend policy is reviewed and approved by the Board, in line with the semi-annual dividend payment. As announced in 2017, the Board has discretion to make 2% NAV capital payment with the final dividend. The Board expects this new dividend policy to endure, but it remains 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.

 

Revenue estimates are presented to the Board at each meeting for the current and next financial year.

 

The shareholders have the opportunity to vote on the Company's final dividend annually.

 

 

 

Directors' Responsibilities  

 

Directors' confirmation

 

The financial statements are published on the website, www.martincurrieasia.com. The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Martin Currie, as delegated by the Board of directors.

 

Each of the directors, whose names and functions are listed in the Board of directors' section 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 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 it faces.

 

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, they are required 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;

·      assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·      use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

The maintenance and integrity of the website is, so far as it relates to the Company, the responsibility of Martin Currie, as delegated by the Board of directors. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

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 2018 is shown in 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.

 

The Company's loan facility, during the financial year, was £15,000,000 of which £4,788,000 was drawn down at the yearend 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 2016, 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 disclosed 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 this annual report.

 

As required by the Company's Articles of Association, an ordinary resolution will be proposed at this year's AGM for the continuation of the Company. The directors recommend that shareholders vote in favour of the continuation resolution and, based on initial discussions with shareholders, believe that the resolution is likely to be carried. 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 of Association, a continuation resolution is proposed to shareholders every three years, with the next vote due to take place at the Company's AGM in 2018 and successive votes at three year intervals.

 

The Board has assessed its viability in accordance with provision C.2.2 of the 2016 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 98.6% within 10 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 2018

Year ended 31 March 2017


 

Note

Revenue £000

Capital £000

Total £000

Revenue £000

Capital £000

Total

 £000

Dividend income

   2

4,305

-

4,305

3,927

-

3,927

Net gains on investments

8

-

7,207

7,207

-

37,301

37,301

Net currency gains/(losses)


(15)

364

349

31

(684)

(653)



4,290

7,571

11,861

3,958

36,617

40,575

Investment management fee


(395)

  (790)

  (1,185)

  (348)

  (696)

  (1,044)

Other expenses

4

(557)

-

(557)

(506)

(5)

(511)

Net return on ordinary activities before finance costs and taxation


 

 

3,338

 

 

6,781

 

 

10,119

 

 

3,104

 

 

35,916

 

 

 39,020

Interest payable and similar charges

   3

(40)

(76)

(116)

(37)

(75)

(112)

Net return on ordinary activities before taxation


  3,298

  6,705

10,003

3,067

35,841

  38,908

Taxation on ordinary activities

   5

(198)

-

(198)

(134)

-

(134)

Net return attributable to shareholders


3,100

6,705

9,805

2,933

35,841

38,774

Net return per ordinary share

   7

8.58p

18.56p

27.14p

8.10p

99.03p

107.13p

 

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').

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 2018. 

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


Note

£000

£000

£000

£000

Fixed assets






Equities at fair value through profit or loss

8


158,466


157,537

Current assets






Receivables

9

1,083


509


Cash at bank

10

4,053


3,575




5,136


4,084


Current liabilities






Derivative instruments at fair value through profit or loss

 

8

 

(232)


 

-


Payables

11

(5,219)


(7,358)


Net current liabilities



(315)


(3,274)

Total assets less current liabilities



158,151


154,263

Share capital and reserves






Called-up ordinary share capital

12

19,753


19,753


Share premium account


6,084


6,084


Capital redemption reserve


3,428


3,428


Capital reserve*


126,198


122,538


Revenue reserve*


2,688


2,460


Total shareholders' funds



158,151


154,263

Net asset value per ordinary share of 50p

7


437.8p


427.0p

 

* 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 7 June 2018 and signed on its behalf by Harry Wells, Chairman.    

 

Statement of Changes in Equity 

Year ended 31 March 2018

      Note

Called up share capital £000

Share premium reserve £000

Capital redemption reserve £000

Capital reserve* £000

Revenue reserve* £000

Total £000

At 1 April 2017


19,753

6,084

3,428

122,538

2,460

154,263

Net return attributable to shareholders**

 

7

-

-

-

6,705

3,100

9,805

Dividends paid from revenue

 

6

-

-

-

-

(2,872)

(2,872)

Dividends paid from capital***

 

6

-

-

-

(3,045)

-

(3,045)

At 31 March 2018


19,753

6,084

3,428

126,198

2,688

158,151









 

 

 

Year ended 31 March 2017

 

 

 

Note

 

Called up share capital 

£000

Share premium reserve

£000

Capital redemption reserve £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 from revenue

 

6

-

-

-

-

(2,836)

(2,836)

Dividends paid from capital

 

6

-

-

-

-

-

-

At 31 March 2017


19,753

6,084

3,428

122,538

2,460

154,263

 

* 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 dividend per share for the year ended 31 March 2017 was 13.68p per ordinary share including 8.43p which was paid from capital. The dividend was paid during the year ended 31 March 2018.

The notes below form part of these financial statements.

 

Statement of Cashflow 



Year ended

31 March 2018

Year ended

31 March 2017


Note

£000

£000

£000

£000

Cash flows from operating activities






Profit before tax



10,003


38,908

Adjustments for:






Gains on investments

8

(7,207)


(37,301)


Purchases of investments*


(28,255)


(11,143)


Sales of investments*


34,638


14,636


Finance costs


116


112


Dividend revenue

2

(4,305)


(3,927)


Dividend received


4,321


3,817


(Increase)/ decrease in receivables


(590)


28


Increase in other payables and amounts due to Martin Currie Investment Management Limited


25


47


Overseas withholding tax suffered

5

(198)


(134)





(1,455)


(33,865)

Net cash flows from operating activities



8,548


(5,043)

Cash flows from financing activities






Repurchase of ordinary share capital


-


(1,699)


Net movement in short-term borrowings

13

(1,593)


1,923


Exchange movement on short-term borrowings

13

(444)


(217)


Interest paid and similar charges


(116)


(118)


Equity dividends paid from revenue

6

(2,872)


(2,836)


Equity dividends paid from capital

6

(3,045)


-


Net cash flows from financing activities



(8,070)


(2,947)

Net increase in cash and cash equivalents



478


2,096

Cash and cash equivalents at the start of the year



3,575


1,479

Closing cash and cash equivalents



4,053


3,575

 

* 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 2018, 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).

 

These financial statements have been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, FRS102 issued by the FRC and the revised Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (SORP) issued by the AIC in November 2014 and updated in January 2017.

 

Functional currency - sterling is the Company's functional currency, which is also the currency in which these financial statements are prepared.

 

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.

 

(b)    Income from equity 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 exdividend 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) below.

 

(d)     Investments - investments have been classified 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.

 

(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.

 

(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. An element of the dividend is 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 and cancelled are transferred to the capital redemption reserve.

 

Share premium account - 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 or more subsequent periods.

 

(k)     The Company uses derivative financial instruments to manage the risk associated with foreign currency fluctuations arising on dividends received in currencies other than sterling. This is achieved by the use of forward foreign currency contracts. The Company does not hold or issue derivative financial instruments for speculative purposes. Derivative financial instruments are recognised initially at fair value on the contract date and subsequently remeasured to the fair value at each reporting date. The resulting gain or loss is recognised as revenue or capital in the statement of comprehensive income depending on the nature and motive of each derivative transaction.

 

During the year ended 31 March 2018 the Company commenced the purchasing of options. These derivatives are held at fair value based on the bid/offer prices of the options purchased to which the Company is exposed. The value of the option is subsequently marked-to-market to reflect the fair value of the option based on traded prices. The primary purpose behind the purchase of options is to protect the portfolio. When an option is closed out or exercised, the gain or loss is accounted for as a capital gain or loss.

 

(l)      Cash and cash equivalents comprise cash on hand and deposits.

 

(m)    Key judgements - the only key judgement is the functional currency of the Company. This is considered to be a key judgement as the Company invests in non-sterling investments, yet the functional currency is determined to be sterling.

 

The Board has determined that sterling is the Company's functional currency based on various considerations, including that it is the currency in which the Company's shares are denominated, as well as the currency in which dividends and the majority of expenses are paid.

 

 

Note 2. Revenue from investments 


Year ended

31 March 2018

£000

Year ended

31 March 2017

£000

From listed investments



Overseas equities

4,305

3,927


4,305

3,927

Total income comprises:



Dividends

4,305

3,927


4,305

3,927

 

The Company received a capital dividend of £40,727 from Singapore Telecommunications during the year ended 31 March 2018 (31.03.17: £nil).      

 

 

Note 3. Interest payable and similar charges 


Year ended 31 March 2018

Year ended 31 March 2017


Revenue £000

Capital £000

Total £000

Revenue £000

Capital £000

Total £000

Interest expense on bank loans and overdrafts

40

76

116

37

75

112

 

 

Note 4. Other expenses   


Year ended

31 March 2018

 £000

Year ended

31 March 2017 

£000

AIFMD Depositary fees

36

35

Bank charges

11

9

Custody fee

89

79

Directors' fees

127

115

Legal and professional fees

46

28

Printing and postage

5

14

Public relations

84

55

Registration fees

20

28

Secretarial fee

82

81

Miscellaneous revenue expenses

37

41


537

485

Auditor's remuneration



Payable to KPMG LLP for the audit of the Company's annual financial statements

20

-

Payable to Ernst & Young LLP for the audit of the

Company's annual financial statements

-

19

Payable to Ernst & Young LLP for non-audit services

-

2


20

21

Miscellaneous capital expenses*

-

5


557

511

 

* The expense for 31 March 2018 was nil (31.03.17 related to project costs).

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 in the annual report.   

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 2018

Year ended 31 March 2017


Revenue £000

Capital £000

Total £000

Revenue £000

Capital £000

Total £000

Irrecoverable overseas tax

198

-

198

134

-

134

 

The effective UK corporation tax rate was 19% (31.03.2017: 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 2018

£000

Year ended

31 March 2017

£000

Net return before taxation

10,003

38,908

UK corporation tax at effective rate of 19% (31.03.2017: 20%)

1,900

7,782

Adjustments:



Currency (gains)/losses not taxable

(69)

137

Gains on investments not taxable

(1,369)

(7,460)

Non taxable overseas dividends

(812)

(792)

Overseas tax suffered

198

134

Excess management expenses not utilised

350

333

Total tax charge

198

134

 

At the year end, after offset against income taxable on receipt, there is a potential deferred tax asset of £2,415,000 (31.03.17: £2,102,000) 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 its intention to continue to meet the conditions required to obtain approval 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 2018   

£000

Year ended

31 March 2017

  £000

Year ended 31 March 2018 - interim dividend from revenue of 2.70p

975

-

Year ended 31 March 2017 - final dividend from revenue of 5.25p

1,897

-

Year ended 31 March 2017 - final dividend from capital of 8.43p

3,045

-

Year ended 31 March 2017 - interim dividend from revenue of 2.60p

-

939

Year ended 31 March 2016 - final dividend from revenue of 5.25p

-

1,897


5,917

2,836

 

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 ended 31 March 2018

£000

Year ended 31 March 2017

£000

Proposed final dividend from revenue of 5.36p for the year ended 31 March 2018

1,936

-

Proposed final dividend from capital of 8.64p for the year ended 31 March 2018

3,121

-

Interim dividend from revenue of 2.70p for the year ended 31 March 2018

975

-

Final dividend of from revenue of 5.25p for the year ended 31 March 2017

-

1,897

Final dividend of 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


6,032

5,881

 

The Company has not bought back any shares between 1 April 2018 and 6 June 2018; therefore the final dividend for 2018 is based on 36,124,496 ordinary shares in issue.

 

 

Note 7. Returns and net asset value 


Year ended

31 March 2018

Year ended

31 March 2017

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

£3,100,000

£2,933,000

Weighted average number of shares in issue during year*

36,124,496

36,191,490

Return per ordinary share

8.58p

8.10p

Capital return



Capital return attributable to ordinary shareholders

£6,705,000

£35,841,000

Weighted average number of shares in issue during year*

36,124,496

36,191,490

Return per ordinary share

18.56p

99.03p

Total return



Total return attributable to ordinary shareholders

£9,805,000

£38,774,000

Weighted average number of shares in issue during year*

36,124,496

36,191,490

Total return per ordinary share

27.14p

107.13p

 


As at 31 March 2018

As at 31 March 2017

Net asset value per share



Net assets attributable to shareholders

£158,151,000

£154,263,000

Number of shares in issue at the year end*

36,124,496

36,124,496

Net asset value per share

437.8p

427.0p

  *Calculated excluding shares held in treasury. 

 

 

Note 8. Investments at fair value through profit and loss 

 


As at 31 March 2018

£000

As at 31 March 2017

£000

Overseas listed investments held at fair value through profit or loss

158,466

157,537

Total value of financial asset investments

158,466

157,537

Derivative financial instruments - options contracts

(232)

-

Valuation of investments and derivatives

158,234

157,537




Opening valuation

157,537

123,602

Opening unrealised fair value gains on investments

(45,928)

(10,740)




Opening cost

111,609

112,132

Add: additions at cost

28,128

11,270


139,737

124,862

Less: disposals at cost

(23,063)

(12,523)

Closing cost

116,674

111,609

Closing unrealised fair value gains on investments

41,560

45,928

Closing valuation

158,234

157,537

 

Gains on investments

Year ended 31 March 2018 £000

Year ended 31 March 2017 £000

Realised gains for the current period

11,575

2,113

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

(4,368)

35,188

Gains on investments

7,207

37,301

 

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 on investments in the statement of comprehensive income. The total costs were as follows:

 


Year ended 31 March 2018 £000

Year ended 31 March 2017 £000

Purchases

57

31

Sales

65

48


122

79

 

 

Note 9. Receivables: amounts falling due within one year 

 


As at 31 March 2018 £000

As at 31 March 2017 £000

Dividends receivable

481

497

Cash collateral held at broker for derivatives

600

-

Other receivables

2

12


1,083

509

 

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

Collateral is pledged until the expiry of the derivatives held.  There are no additional terms in relation to the cash pledged as collateral.

 

Note 10. Cash at bank 


As at 31 March 2018 £000

As at 31 March 2017 £000

Sterling

4,055

3,536

Malaysian Ringgit

-

39

US dollar

(2)

-


4,053

3,575

 

 

Note 11. Payables - amounts falling due within one year 


As at 31 March 2018 £000

As at 31 March 2017 £000

Interest expense and similar charges

10

10

Due to brokers for open trades

-

127

Due to Martin Currie Investment Management Limited

290

284

Revolving bank loan

4,788

6,825

Other payables

131

112


5,219

7,358

 

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

 

The Company has a £15,000,000 (31.03.17: £15,000,000) loan facility with the Royal Bank of Scotland, which expires on 31 August 2018.   

 

As at 31 March 2018 and 31 March 2017, the drawdowns were as shown below, with a maturity date of 7 June 2018 (31.03.17: 7 June 2017). 

  

 As at 31 March 2018

 

Currency

GBP

Interest rate

GBP*-

-

-

HKD 25,657,070

2,331,000

1.78%

SGD 4,520,400**

2,457,000

2.12%


4,788,000


 

 As at 31 March 2017

 

Currency

GBP

Interest rate

GBP 1,400,000

1,400,000

1.11%

HKD 25,657,070

2,640,000

1.69%

SGD 4,864,800

2,785,000

1.69%


6,825,000


 

*On 16 May 2017 the Company repaid £1,000,000 and on 2 June 2017 a further £400,000.

**On 5 June 2017 the Company repaid SGD 344,400.

All payables are due within three months.

 

 

Note 12. Called up share capital 

As at

31 March 2018 

£000

As at

31 March 2017 

£000

Authorised:



33,000

33,000

Allotted, called up and fully paid:



36,124,496 (31.03.17- 36,124,496) ordinary shares of 50p each - equity

18,062

18,062

Treasury shares:



1,691

1,691

19,753

19,753

 

The Company has not bought back any shares during the year ended 31 March 2018. The Company bought back 519,683 shares of 50p each during the year ended 31 March 2017 at a cost of £1,433,000 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 of the remaining assets of the Company.

 

Note 13.  Analysis of net debt 

 

Analysis of net debt

At 1 April 2017 

£000

Cash flows £000

Exchange movements

£000

At 31 March 2018

 £000






Cash at bank

3,575

573

(95)

4,053

Bank borrowings - sterling revolving loan

(6,825)

1,593

444

(4,788)


(3,250)

2,166

349

(735)

 

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

 

 

Note 14. Financial instruments   

 

The Company's financial instruments comprise securities, derivatives 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 receivables for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures and options, for the purpose of managing currency and market risks arising from the Company's activities.

 

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

 

The Board regularly reviews and agrees policies for managing each of these risks. The 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 2018

 

 

Interest rate   %

 

Local currency '000

 

Foreign   exchange rate

Sterling   equivalent £000

Assets





Sterling

0.01

4,055

1.000

4,055

US Dollar

0.28

(3)

1.403

(2)

Total




4,053

Liabilities





Loan - Hong Kong Dollar

1.78

25,657

11.010

2,331

Loan - Singapore Dollar

2.12

4,520

1.839

2,457

Total




4,788

 

 

 

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

Loan - Hong Kong Dollar Loan - Singapore Dollar

 

1.11

  1.69 

1.69

 

1,400

25,657

4,865

 

1.000

9.718

1.747

 

1,400 

2,640

           2,785

Total




6,825

 All cash balances are exposed to floating rates of interest. Both loan balances have fixed rates of interest until the next rollover date.

 

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 50 basis points (31.03.17: 25 basis points) higher or lower and all other variables were held constant, the Company's profit or loss for the year to 31 March 2018 would increase/decrease by £20,300 (31.03.17: increase/decrease by £9,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances.

 

As at 31 March 2018 an interest rate of 0.50% is used, given the prevailing Bank of England base rate is 0.50%. 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 almost entirely 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 2018

As at 31 March 2017


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

64,958

(1,560)

63,398

66,233

 (2,644)

63,589

Indian Rupee

31,663

-

31,663

25,633

-

25,633

Indonesian Rupiah

3,108

-

3,108

2,595

-

2,595

Korean Won

19,214

130

19,344

14,773

143

14,916

Malaysian Ringgit

5,705

46

5,751

5,731

40

5,771

Singaporean Dollar

11,834

(2,460)

9,374

18,857

(2,787)

16,070

Taiwanese Dollar

7,036

-

7,036

8,948

-

8,948

Thai Baht

4,920

-

4,920

5,435

-

5,435

US Dollar

9,796

129

9,925

9,332

354

9,686

Total

158,234

(3,715)

154,519

157,537

(4,894)

152,643

 

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. 

 


31 March 2018

 £000

31 March 2017 £000

Hong Kong Dollar              

6,340

6,359

Indian Rupee

3,166

2,563

Indonesian Rupiah

311

260

Korean Won

1,934

1,492

Malaysian Ringgit

575

577

Singaporean Dollar

937

1,607

Taiwanese Dollar

704

895

Thai Baht

492

544

US Dollar

993

969

 

(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. 

 

The Company's activity in derivates are used for mitigating market fluctuation.

 

Other price risk sensitivity

 

If market prices at the statement of financial position date had been 15% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders at the year ended 31 March 2018 would have increased/decreased by £23,770,000 (31.03.17: increase/decrease of £23,631,000) 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 which 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; and

·      Cash is held only with reputable banks.  

 

None of the Company's financial assets are secured by collateral or other credit enhancements, apart from the derivatives.

 

The maximum credit risk exposure as at 31 March 2018 was £5,136,000 (31.03.2017: £4,084,000). 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 2018 comprised: 


31 March 2018

 £000

31 March 2017

 £000

Equity share capital

19,753

19,753

Retained earnings and other reserves

138,398

134,510

Total

158,151

154,263

 

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;

·      whether 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); 

·      whether to issue new shares, or re-issue treasury 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 100% net gearing at the year end (31.03.17: 102%).   

 

 

Note 16. Fair value hierarchy 

 

Under FRS 102, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:     

 

·      Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

·      Level 2: other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc).

·      Level 3: significant unobservable input (including the Company's own assumptions in determining the fair value of investments). The financial assets measured at fair value through profit and loss in the financial statements are grouped into the fair value hierarchy as follows:

 

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 2018


Level 1 £000

Level 2 £000

Level 3 £000

Total £000

Financial assets at fair value through profit or loss





Quoted equities

158,466

-

-

158,466

Financial liabilities at fair value through profit or loss





Derivative instruments

(232)

-

-

(232)

Net fair value

158,234

-

-

158,234

 


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

 

 

Note 17. Related party transactions  

 

With the exception of directors' fees and directors' shareholdings, 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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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Annual Financial Report - RNS