Pacific Assets Trust Plc - Annual Report for the Year Ended 31 January 2024
(the “Company”)
Final Results for the Year Ended
The Company's annual report for the year ended
The Annual Report will be posted to shareholders on
0203 709 8734
Company Performance
Performance Summary
As at As at
31 January 31 January
2024 2023
Shareholders’ funds £464.8m £473.7m
Market capitalisation £422.1m £433.0m
One year to One year to
31 January 31 January
Performance 2024 2023
Share price total return1 2 (1.9)% 5.9%
Net asset value per share total return1 2 (1.3)% 5.7%
CPI +6%3 10.4% 17.3%
MSCI All Country Asia ex Japan Index total return, (10.5)% (2.2)%
sterling adjusted1
Average discount of share price to net asset value per 6.4% 10.1%
share1 2
Ongoing charges2 1.1% 1.1%
Revenue return per share4 4.3p 2.5p
Dividend per share 4.0p 2.3p
1 Source: Morningstar
2 Alternative Performance Measure (see Glossary)
3 The Company’s Performance Objective (see Glossary)
4 See Glossary
Chair’s Statement
Introduction and Results
The net asset value total return for the year ended
Over longer periods we consider investment return against the
While the Board would like to see a higher rate of return from our investments in
Again, the Company’s high exposure to
Further analysis of the Company’s performance can be found in the Portfolio Manager’s Review.
Sustainability
Shareholders will be well aware that
Pursuant to the Company’s Environmental, Social and Governance (“ESG”) Policy, the Board has chosen to adopt and endorse Stewart Investors’ approach to integrating sustainability into portfolio construction and investee company engagement. This means that, in effect, the Company has a de facto sustainability objective: to achieve long-term capital appreciation by investing in companies which both contribute to, and benefit from, sustainable development, achieving positive social and environmental sustainable outcomes.
Given this long-standing sustainable investment strategy which has been applied in managing the Company’s portfolio, the Company reports against a high standard of sustainability disclosures (Article 9) under the EU Sustainable Finance Disclosure Regulations (“SFDR”) which must be complied with due to the Company being marketed in
Due to genuine concerns over ‘greenwashing’, in November and after a long delay, the
The Company would therefore need to amend its published investment objective and policy in order to utilise a
The Board wishes to understand better whether the adoption of a
The Board wishes to emphasise to shareholders that
Share price performance
The Company’s shares traded at an average discount to the net asset value per share of 6.4% through the year to the end of January (2023: 10.1%). This was again narrower than the peer group average discount of 9.3%. In line with the investment trust sector generally, the discount narrowed towards the end of December, and at one point the shares briefly traded at a small premium, before the discount widened again towards the end of the financial year to close at 9.2% (2023: 8.6%).
The Board has continued its work to improve the visibility of the Company throughout the year. We wish to bolster our long-standing wealth manager base by attracting a broader range of shareholders, including retail investors who represent a smaller proportion of our shareholder base. The Board has established a new standing subcommittee, the
Dividend
The Company generated a revenue return of 4.3p per share during the year (2023: 2.5p per share) and, as a result, the Board recommends to shareholders the payment of a final dividend to allow the Company to comply with the investment trust rules regarding distributable income and the Company’s policy to pay out the majority of income earned in any one year.
Subject to shareholder approval at the AGM, a final dividend of 4.0p per share will be paid on
The increased revenue return arose as a result of increased dividend receipts from several companies, most notably
The Board
During the year, as reported in the Company’s half yearly report,
In October, we announced the appointment of
In anticipation of her retirement, I would like to extend my sincere gratitude to Charlotta for her dedicated service and incisive contributions during her tenure as Audit Committee Chair. Charlotta’s expertise, professionalism and commitment to upholding the highest standards of financial integrity and governance have been invaluable to the Board.
We adhere to good corporate governance principles that directors should not serve on the
The Annual General Meeting
As some shareholders will be aware, the Company is incorporated in
As well as the formal proceedings, there will be an opportunity for shareholders to meet the Board and the Portfolio Manager, and to receive an update on the Company’s performance and its key investments.
The meeting, including the Portfolio Manager’s presentation, will be live streamed by
I encourage all shareholders to exercise their right to vote at the AGM. The Board strongly encourages shareholders to register their votes online in advance. Registering your vote in advance will not restrict shareholders from attending and voting at the meeting in person should they wish to do so. The Board recommends that shareholders vote in favour of all the resolutions set out in the Notice of AGM, as the directors intend to do ourselves.
Outlook
It is always difficult, if not impossible, to predict the short-term future of a region as diverse as the
Chair
Investment Portfolio
as at
Value % Total
Company Country Sector
£’000 Investments
Mahindra & Mahindra India Consumer Discretionary 25,830 5.5%
Tube Investments of India India Consumer Discretionary 25,749 5.5%
CG Power & Industrial India Industrials 23,346 4.9%
Solutions
Oversea-Chinese Banking Singapore Financials 14,660 3.1%
Corporation
UniCharm Japan Consumer Staples 13,975 3.0%
Samsung Electronics South Korea Information Technology 13,471 2.9%
Marico India Consumer Staples 13,373 2.8%
Hoya Corporation Japan Health Care 13,370 2.8%
Voltronic Power Taiwan Industrials 13,039 2.8%
Technology
Midea Group China Consumer Discretionary 12,622 2.7%
Top 10 Investments 169,435 36.0%
Cholamandalam Financial India Financials 11,700 2.5%
Holdings
Shanthi Gears India Industrials 11,486 2.4%
Elgi Equipments India Industrials 10,644 2.3%
HDFC Bank India Financials 10,595 2.3%
Tata Consumer Products India Consumer Staples 10,064 2.1%
Taiwan Semiconductor Taiwan Information Technology 9,658 2.1%
Manufacturing
Shenzhen Inovance China Industrials 9,356 2.0%
Technology
Bank OCBC NISP Indonesia Financials 9,309 2.0%
Koh Young Technology South Korea Information Technology 7,770 1.7%
Tokyo Electron Japan Information Technology 7,714 1.6%
Top 20 Investments 267,731 57.0%
Selamat Sempurna Indonesia Consumer Discretionary 7,403 1.6%
Kotak Mahindra Bank India Financials 7,215 1.5%
Chroma ATE Taiwan Information Technology 7,144 1.5%
Sheng Siong Group Singapore Consumer Staples 6,902 1.5%
Humanica Thailand Industrials 6,900 1.5%
Tata Consultancy Services India Information Technology 6,650 1.4%
Triveni Turbine India Industrials 6,507 1.4%
Advantech Taiwan Information Technology 6,306 1.3%
Tech Mahindra India Information Technology 6,232 1.3%
Kalbe Farma Indonesia Health Care 6,004 1.3%
Top 30 Investments 334,994 71.3%
Value % Total
Company Country Sector
£’000 Investments
Delta Electronics Taiwan Information Technology 5,809 1.2%
Aavas Financiers India Financials 5,758 1.2%
Tata Communications India Communication Services 5,520 1.2%
Cyient India Information Technology 5,472 1.2%
Dr. Lal PathLabs India Health Care 4,969 1.1%
Vinda International China Consumer Staples 4,876 1.0%
Holdings
Godrej Consumer Products India Consumer Staples 4,813 1.0%
Advanced Energy Solution Taiwan Industrials 4,796 1.0%
Holding
Philippine Seven Philippines Consumer Staples 4,688 1.0%
Corporation
Vitrox Malaysia Information Technology 4,587 1.0%
Top 40 Investments 386,282 82.2%
Dr. Reddy’s Laboratories India Health Care 4,474 1.0%
Samsung Biologics South Korea Health Care 4,138 0.9%
Dabur India India Consumer Staples 4,016 0.9%
Tarsons Products India Health Care 3,967 0.8%
Amoy Diagnostics China Health Care 3,922 0.8%
UniCharm Indonesia Indonesia Consumer Staples 3,866 0.8%
Vitasoy International Hong Kong Consumer Staples 3,789 0.8%
RBL Bank India Financials 3,751 0.8%
Telkom Indonesia Indonesia Communication Services 3,730 0.8%
Zhejiang Supor China Consumer Discretionary 3,668 0.7%
Top 50 Investments 425,603 90.5%
Glodon China Information Technology 3,487 0.7%
Unilever Indonesia Indonesia Consumer Staples 3,461 0.7%
Indiamart Intermesh India Industrials 3,453 0.7%
Wuxi Biologics China Health Care 3,278 0.7%
Marico Bangladesh Bangladesh Consumer Staples 3,171 0.7%
Hangzhou Robam China Consumer Discretionary 3,152 0.7%
Airtac International Taiwan Industrials 2,898 0.6%
Yifeng Pharmacy Chain China Consumer Staples 2,798 0.6%
Industri Jamu dan Farmasi Indonesia Consumer Staples 2,716 0.6%
Sido Muncul
Pigeon Corporation Japan Consumer Staples 2,649 0.6%
Kasikornbank Thailand Financials 2,571 0.6%
Syngene International India Health Care 2,481 0.5%
Guangzhou Kingmed China Health Care 2,035 0.4%
Diagnostics
Silergy China Information Technology 1,973 0.4%
Centre Testing China Industrials 1,965 0.4%
International
Pentamaster International Malaysia Information Technology 1,231 0.3%
DBH Finance Bangladesh Financials 1,187 0.3%
Total Investments 470,109 100.0%
Portfolio Manager’s Review
Our Investment Philosophy in Action
Risk as loss of client Long term time horizon Quality and sustainability capital positioning Active share Average name turnover Holdings with stewards 89% 10% 80%Outperformance in down Average holding period of Holdings with net cash months top ten 75% 80% 10 years Carbon footprint relative to Downside capture Average age of holdings benchmark 63% 44 years -86%*
Source:
The table above highlights key outcomes of our philosophy; outcomes that have been consistent across the 14 years
We believe consistency in the application of this philosophy is critical in preserving the trust we are required to earn, and maintain, as stewards of this precious capital. We publish these outcomes so clients may “hold our feet to the fire” should any material changes in these metrics appear.
Over the short term we have very little control over our performance, but over the longer term, periods of over five years, we believe the characteristics presented above have been foundational to the returns, in good times and bad, that the Company has been able to deliver to its shareholders.
Risk as loss of client capital
In most industries there is a standard definition of risk. In the construction of a bridge, engineers would agree that risk is the prospect of the bridge collapsing and lives being lost. In surgery, surgeons see risk in terms of the potential negative health outcomes, including death, which may arise from the procedure. In contrast, the investment industry has failed to settle on such a fundamental concept.
At
Today, the Company continues to have a material weight invested in
Across
Valuations in
Value, for us, is the opportunity to generate attractive returns over the next ten years. This view does not confine us to a particular price/earnings ratio or valuation rule of thumb. We own companies in
Industry Company Market cap (USDbn)
Farm equipment Mahindra & Mahindra 25
John Deere 110
Industrial conglomerate Tube Investments 9
Danaher 177
Air compressors Elgi Equipments 2
Atlas Copco 76
Diagnostics Dr. Lal PathLabs 3
Quest Diagnostics 14
Business Supplies IndiaMART 2
WW Grainger 44
Companies held in the Company.
Source for market capitalisation: FactSet as at
In
Today, we have roughly 20 Chinese companies that we see as investible but for much of recent history they’ve not been attractively priced. Despite the MSCI China Index being valued on very low multiples, the types of companies we get excited about have traded on very high valuations while typically earning margins in excess of comparable companies overseas: we saw this combination as entailing too much risk to the Company’s capital. Things are beginning to change. Since the beginning of the year, Chinese stocks have come under extreme pressure with no real delineation being made between what companies do, what their balance sheets look like, who owns them or their valuation. All their share prices looked the same. This is the type of environment that excites us as bottom-up stockpickers!
As above, we have some of our
Industry Company Market cap (USDbn)
Third party verification Centre Testing International 2
SGS 17
Software for building industry Glodon 2
Autodesk 54
Industrial automation and Shenzhen Inovance Tech 18
electrification
Siemens 145
Pharmacy chains Yifeng Pharmacy Chain 5
CVS 94
Analog semiconductors Silergy Corp 5
Texas Instruments 146
Companies held in the Company.
Source for market capitalisation: FactSet as at
In each of these companies we are backing local entrepreneurs, supported by high quality management teams, often boasting multinational experience, to build businesses that will play a key role in China’s development while, vitally, allowing minority shareholders to benefit from their value creation. If the current environment endures, we expect the Company’s weighting in
Our focus on quality, long-term growth and absolute risk leads the Company to own companies that tend not to lose a lot of their value in times of stress.
Over the last 14 years, in over 75% of months when the market has lost value, the Company has outperformed. In value terms, the Company has tended to fall less than two-thirds of the comparable losses of the Index and has done so with less volatility. Protecting capital in such periods means our companies have less ground to make up before they can get back to long-term compounding: this has served as a vital foundation in the long-term protection and growth of the Company’s capital.
Notably, these outcomes are not the result of any successful predication on our part. We have failed to envision any of the major headline grabbing events over the last 14 years. And in
It is important to note that adhering to an investment philosophy that emphasises the minimisation of loss does not preclude the Company from owning companies whose share price can go up multiple fold: we care as much about capital growth as we do about capital protection. We have been fortunate to own numerous such companies across the region over the last 14 years and we hope there are many more in the portfolio today. Crucially, minimising losses in times of stress has allowed our winners to create a lot of value for the Company as their gains have not been diluted by substantial losses elsewhere in the portfolio.
We have always endeavoured to be the best long-term investors in
Time horizon
Like the companies we own, we feel very fortunate to be able to take a long-term view. This feels a very advantaged position to hold in a world where US corporate executives now enjoy an average tenure of less than four years and average holding periods of stocks in the US and
Our average holding period is ten years. With this time horizon, we are not forced to guess what our companies will earn next quarter or which way central banks will lean. As investors allocating capital over the long-term, our philosophy focuses on, and heavily weights, information that:
-- Is enduring and doesn’t change quarter to quarter.
-- Is heavily qualitative.
-- Has a material bearing on long-term outcomes.
This leads us to think about the quality of a business and how it is positioned relative to the many headwinds, tailwinds and evolving profit pools created by the shift to a more sustainable form of development. In our eyes, well positioned, high quality companies have the strongest stream of future cash flows: it is these cash flows that drive share prices over long term. This belief has been a foundational component of our philosophy for over thirty years, long before the advent of ESG or the
Our time horizon and view of risk leads to 80% of the companies in the portfolio having some form of economic steward, whether that be an entrepreneur, family or foundation. We feel very fortunate to be able to hand the Company’s precious capital to people who not only have their own money invested alongside us but their family’s legacy on the line. In some cases, they literally have the family’s name above the door and on the product! Simply, they too think about risk in absolutes. For the companies lacking in an economic steward, we are handing the Company’s capital to cultures that exhibit a similar owner’s mindset. These stewards are fanatical about building businesses that solve some of Asia’s deepest problems. Crucially, they do so with a time horizon measured in decades, not quarters. We believe this mindset creates one of the most enduring competitive advantages.
World-class stewards and quality, cash generative, businesses enable many companies in the portfolio to build, and hold, net cash balance sheets. These balance sheets provide enormous value when the inevitable unanticipated event comes along. Whether that be recession, political transition or pandemic. In investing, and in life, all time is not created equal. Some moments matter a lot more than others. Our companies, thanks to institutional memory, greatly appreciate this. On average they are over four decades old. They understand that being able to act independently, and not at the behest of creditors, in times of unavoidable extreme stress, allows them to continue to pay their staff; continue to act as partners with their suppliers, and continue to invest in future growth. Paranoia about surviving extreme events paired with passion for building something of extreme value over the long-term is a rare but vital foundation of great companies. It tends not to be too prevalent with professional management teams incentivised with lucrative short-term stock packages or sleepy state-owned cooperate executives.
We hope our companies continue to go into down-cycles stronger than peers and emerge in an even more advantageous position. This is one of the strongest and simplest examples of how a focus on “not losing” sets the foundation for extreme long-term outperformance. It also frees us of having to predict when the next cycle is coming. When it comes, we know our companies will be prepared.
Investment Returns
Over the year to 31 January, the net asset value of the Company was down 1.3%. As a reference, the MSCI AC Asia ex Japan Index (the “Index”) was down 10.5%.
Extending the time frame of performance to three, five and seven years – time periods more in-line with our investment horizon – the Company has delivered satisfactory levels of capital appreciation.
Cumulative Performance Since inception 7 years 5 years 3 years 1 year (% in GBP) to 31 January 2024 (01/07/2010) NAV 265.6 69.6 44.2 13.8 -1.3 Share Price 267.4 62.7 33.4 6.9 -1.9 CPI + 6% 230.6 97.1 66.3 44.3 10.4 MSCI AC Asia ex Japan Index (Net) 110.1 27.9 9.1 -20.5 -10.5
Source: Lipper IM/Bloomberg/Frostrow. The NAV performance data is calculated on a net basis after deducting all fees (e.g. investment management fee) and costs (e.g. transaction and custody costs) incurred by the Company. The NAV includes dividends reinvested on a net of tax basis. Source for comparator benchmark index: FactSet. Table data is shown versus the MSCI AC Asia ex Japan Index, calculated on an income reinvested net of tax basis. Source for Consumer Price Index (“CPI”) + 6% data: FactSet. CPI data is quoted on a one month lag. Performance calculated from when
Contribution by investment for the year ended
Top 10 contributors to and detractors from absolute performance (%)
Contributors
During the year under review, the Company’s material ownership of Indian companies, especially those with exposure to capital spending and industrial growth, was a key contributor to absolute performance.
CG Power & Industrial Solutions
(
Contribution: 2.4%
The Company acquired
Tube Investments of India
(
Contribution: 1.9%
The Company has owned Tube for close to ten years but materially increased its position in 2017 when a new CEO took over this fourth generation family company. His intention was to evolve Tube away from its existing businesses - parts for the auto and rail industries, as well as bicycles - to an industrial conglomerate with leadership positions across higher value industries. This was to be done in a manner similar to that achieved by the high performing conglomerates we have studied in the
1 Source: Tube Investments, 2021-22 Annual Report and FactSet
(
Contribution: 1.1%.
Chola Financial is a holding company that owns stakes in a non-banking financial company and a general insurance business.
In their 2022 financial year, the finance business entered into a new segment of consumer and small enterprise loans and micro, small and medium enterprise loans. Their small enterprise loans aim to reach an underpenetrated market and provide economic benefit by specialising in loans for manufacturing, trading and services sectors. During the reporting period the company saw strong growth in the incumbent vehicle financing business as well as new businesses.
Detractors
During the year under review the most significant detractors were companies with substantial business interests in
Vitasoy International Holdings
(
Contribution: -1.5%
The Company has owned Vitasoy since
2 https://www.stewartinvestors.com/uk/en/private-investor.htm l
Glodon
(
Contribution: -1.3%
Glodon designs products and software services for the entire product life cycle of buildings and large-scale construction projects. They provide customers with an enduring cost saving proposition – equivalent to a 1% margin and help to expedite project completion by a third, without compromising on safety. Gloomy headlines on the Chinese economy and the property sector in particular are commonplace. The share price has weakened as investor interest in the property related companies has ebbed. However, Glodon exhibits two important differences from the Chinese property developers making negative headlines. The first is the strength of the balance sheet. Glodon has around
Wuxi Biologics
(
Contribution: -0.9%
Wuxi is a contract research, development and manufacturing organisation offering end-to-end solutions that enable partners to discover, develop and manufacture biologic drugs – from concept to commercialisation. This benefits patients worldwide. Since purchasing Wuxi in the fourth quarter of 2023 the share price has been volatile, mostly weak, driven by speculation of increased political discord between the
Significant Transactions
Over the course of the year, the portfolio turnover 3 of the Company was 18.3%.
3 See Glossary for definition of portfolio turnover.
New investments
There was a slightly greater number of new initiations than in previous years partly because valuations were lower, particularly in
Additions
The comparative weakness in many Chinese company shares allowed us to further add to Midea. We also added to Samsung Electronics,
Reductions
To control country and company position size we reduced
Disposals
We identified deteriorating quality and sold out of BRAC Bank (
ESG Backlash
A quick perusal of financial headlines suggests a dramatic fall from grace for, so called, ‘environmental, social and governance’ investing. Sayings like ‘the darling of Wall Street’ 4 have been replaced by disapproving commentaries containing words like ‘backlash’, ‘unravelling’ or even ‘weaponised’. The latter highlights the peculiar and unhelpful conflation of partisan politics with investing, particularly in the US.
4
‘Anti-ESG’ articles often mention vogue and politicised topics such as ‘culture wars’ and the ‘woke’. Depending on the author there is often a hint of schadenfreude against ESG promoting fund groups or funds which have seen falling sales in recent times. Part of the cause for this dramatic shift in rhetoric rests with the investment industry and the worrying prioritisation of asset accumulation over a principled investment philosophy.
At
5 https://www.stewartinvestors.com/uk/en/private-investor/insights/challenging-the-greenwash.htm l
We define sustainability as human development with minimal resource depletion. This is a more encompassing concept than ESG because it considers the utility and purpose of a company’s product or services rather than just detailing the externalities of its operations. The example of a tobacco company may help to clarify the difference. The ESG report from a tobacco company is often very appealing but omits that the product is harmful for people’s health. This highlights the limitations of ESG as an analytical tool, its inadequacy as an investment strategy and its inappropriateness as the bedrock of a marketing campaign.
In the above-mentioned article, we urged savers to be aware of a cynical industry using ESG enthusiasm as a theme to drive asset growth. We raised the possibility of miss-selling. This was not prescience, just a consideration of the misaligned incentives in the investment industry that prioritises fund sales over investment discipline. It is these misaligned incentives which perpetuate cycles in fund sales that are inevitable but inconsequential to our investment philosophy and process.
Against this backdrop of greater scrutiny around greenwashing and wishing to provide shareholders with more transparency on how their capital is being deployed, in 2020 we developed an interactive online tool, now known as Portfolio Explorer 6 . For every investment held in the Company, users can learn about the investment rationale, stewardship and contribution the company makes to climate solutions and human development. Critically, it provides a balanced view of the companies, not only highlighting the positive contributions, but also the risks and areas to improve. We believe this goes some way to demonstrate the Company’s and Stewart Investors’ commitment to transparency and tells the stories of the investee companies rather than merely attributing quantitative ESG metrics as part of a broader marketing campaign.
6 https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html
A more comprehensive description of our investment philosophy and approach to sustainable investing is set out on pages 21 to 24 of the Annual Report.
Looking Forward
Views on investment opportunities in
Portfolio Manager
Sustainability and ESG
The Company’s Environmental, Social & Governance Policy
The Board believes that consideration of environmental, social and governance issues within the Company’s operations is of importance to shareholders and other stakeholders, not least because long-term returns are much more likely to be generated by companies that have embedded corporate governance strengths, and which respect the environment and the society in which they operate. The Board believes that this investment approach is readily applicable in the markets in
As the Company delegates the management of the portfolio to
Stewart Investors’ approach is described in detail in the following section. As part of this focus on sustainability, the Board expects sustainability and ESG concerns to be a key topic of engagement with investee companies. The Company expects to maintain, through its Portfolio Manager, a continuous constructive dialogue with the owners and the managers of the companies where it owns shares. Such a relationship is enhanced by the long-term nature of the investment inherent in the Portfolio Manager’s investment approach.
In the same way as the Board expects the Portfolio Manager to challenge investee companies on their sustainability and ESG credentials, the Board will also assess the Company’s principal service providers. The Board asks for assurances that a service provider has taken the necessary steps to mitigate any material negative environmental impact their operations might have, to ensure that their internal governance is compliant with expected high standards, and that they strive to avoid negative social impacts resulting from their activities.
Similarly, the Board itself strives to uphold the highest ESG standards. The Board’s operations mainly consist of governance-related matters, where it is important to the Directors to be at the forefront of best practice.
A corporate governance report for the year, beginning on page 38, forms part of the Annual Report. A description of how the Board has taken the interests of key stakeholders into account in their decision-making is included on pages 32 and 33 of the Annual Report.
As best practice, regulation and disclosure are constantly evolving in this area both for the Company and for the companies in which it invests, the Board regularly discusses sustainability, including ESG policy and practice, with the Portfolio Manager, encouraging where possible further enhancements in both the policy and in reporting to shareholders.
On behalf of the Board
Chair
Stewart Investors’ Approach to Sustainable Investing
Sustainability is core to Stewart Investors’ investment philosophy and integrated into our investment process. We do not have a separate team that looks at sustainability – every investment team member analyses the sustainability positioning of a business and is also responsible for engaging and voting activities.
We approach sustainability as a means to mitigate risks and as a driver of investment returns. Integrating sustainability into our analysis is a natural extension of having a long-term investment horizon; the sustainability headwinds and tailwinds that affect companies are different from the shorter-term risks that businesses face.
Our consideration of sustainability is holistic; it includes ESG but is more than ESG. We consider financial sustainability – conservatism around the balance sheet, for example – and stewardship by management – the treatment of all stakeholders through a crisis, for example – to be as essential to the sustainability positioning of a company as the product or service the company sells.
When assessing a company’s sustainability we ask ourselves the following questions:
-- Products and services– Do the products and services make a valuable
contribution to sustainable development?
-- Context– Can the company benefit from sustainability tailwinds and
navigate headwinds?
-- Company ethos– Do the culture and values embody sustainability and
continuous improvement?
-- Operational impact– Is the company trying to reduce impacts from its
operations?
In addition, we assess the contribution of the Company’s investments to positive social and environmental outcomes by reference to two frameworks described below.
Positive social outcomes – Human Development Pillars
-- Health and well-being– improved access to and affordability of
nutrition, healthcare and hygiene, water and sanitation
-- Physical infrastructure– improved access to and affordability of energy
and housing
-- Economic welfare– safe employment offering a living wage and
opportunities for advancement, access to finance and improved standards
of living
-- Opportunity and empowerment– improved access to and affordability of
education and information technology
Further information about how we use the human development pillars is available on our website 2
Positive environmental outcomes – Project Drawdown climate solutions
3 Any reference to
Project Drawdown
is to describe the publicly available materials utilised by
Below is a list of climate solutions together with corresponding examples we believe lead to positive environmental outcomes:
-- Food system– sustainable farming, food production and distribution of
food-related products and services
-- Energy– adoption of renewable energy and other clean energy and related
technologies
-- Circular economy and industries– improved efficiency, reduced waste, and
new business models for closing resource loops in linear value chains
and production processes
-- Human development– advancement of human rights and education that drive
environmental conservation and sustainable use of resources
-- Transport– efficient transport technologies and growth in fossil
fuel-free transportation options
-- Buildings– products and services which reduce the environmental
footprint of the built environment, including energy efficiency,
electrification, improved design, and use of alternative materials
-- Water– less energy-intensive methods for treating, transporting and
heating water
-- Conservation and restoration– supporting deforestation-free and
environmentally regenerative supply chains, operations and end-of-life
impacts
Further information about how we use the Project Drawdown climate solutions is available on our website 4
Assessment
In assessing whether a company “contributes to and benefits from” sustainable development, we will consider whether:
1. there is either a direct5 or enabling6 link between the activities of the
company and the achievement of a positive social or environmental outcome;
5 A direct link would arise where the goods an entity produces or the services it provides are the primary means through which the positive social or environmental outcome can be achieved (e.g. solar panel manufacturers or installers).
6 An enabling link would arise if the goods a company produces or services it provides enable other companies to contribute towards the achievement of the positive social or environmental outcome (e.g. manufacturers of critical components that are used as inputs in the manufacture of solar panels).
1. any contribution to positive social or environmental outcomes has resulted
from revenue or growth drivers inherent in the company’s business model,
strategic initiatives that are backed by research and development or
capital expenditure, or from the company’s strong culture and sense of
stewardship e.g. for equity and diversity; and
2. the company recognises potential negative social or environmental outcomes
associated with its product or services and works towards minimising such
outcomes, e.g. a company that sells affordable nutritious food products in
plastic packaging, but is investigating alternative packaging options.
We avoid companies that do not contribute to sustainable development and engage with companies to improve sustainability outcomes.
We have established a materiality threshold for harmful or controversial activities at 5% of revenues (0% for tobacco production and controversial weapons). We explicitly seek to invest in companies that are making a positive contribution to society. Full details of the activities and practices we find inconsistent with our investment philosophy are available on our website 7 .
Issues such as climate change, biodiversity and water, human rights and modern slavery, and diversity and inclusion are integrated into our investment selection and engagement and voting processes. Our approach to climate change is explained in detail in our climate statement 8 , climate report 9 and Annual Stewardship Review 10 . Our approach to biodiversity and water is reflected in our selection of companies that mitigate their impact on the natural environment or provide services/products that improve efficiencies. We have engaged on a number of related issues such as palm oil, deforestation, plastic waste and the use of harmful chemicals. Human rights and modern slavery are a risk throughout the supply chain of our investee companies. Our approach is to focus on quality companies that treat their employees well and manage the risks in their supply chain effectively. Where we identify problems, we engage. Our recent collaborative engagement on conflict minerals in the semi- conductor supply chain is a good example of this. Our approach to diversity is explained in our statement 11 and we provide an update on what we have done in our Annual Stewardship Review. We will provide updates on these issues, amongst others, in our quarterly shareholder updates.
8 https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
10 https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/regulations-and-reports.html
11 https://www.stewartinvestors.com/uk/en/private-investor/insights/diversity-statement.html
Transparency
As part of our focus on improved transparency, we have developed a Portfolio Explorer tool
12
which provides the contribution that each investee company makes to climate solutions and human development, as well as the investment rationale,
12 https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html?tabs-anchor=Pacific%20 Assets%25Trust&active-tab=Portfolio%20Explorer
Sustainable Finance Disclosure Regulation
Our report on how the Company has met its sustainable investment objective, in accordance with the requirements of the SFDR, begins on page 85 of the Annual Report.
Thematic Engagement Example – Conflict Minerals
The initiative is supported by 160 investors representing
-- As part of the engagement, we have engaged with industry and civil
bodies. We attended the Responsible Minerals Initiative (“RMI”) annual
conference in 2022, and understand we are the first known investor to
have done so. In 2023, we were the first investor to speak at the
Responsible Business Alliance (“RBA”) and RMI’s Annual Conference in
Santa Clara, California on the positive role of capital and we hosted a
closed-door workshop, endorsed by the RMI, with 16 leading electronic
companies. Stewart Investors commissioned Kumi Consulting Ltd (Kumi) to
deepen our knowledge, contacts and engagements with companies, trade
bodies and organisations like the OECD and with their help developed
engagement guidelines for initiative supporters, and other investors, to
improve their interactions with companies.
Finally, members of the RMI debated, over a number of months, whether they should allow investors to join their trade body. There were some initial reservations, however a number of company representatives and steering committee members of the RMI and RBA Board Liaison have been strong supporters. There is a growing feeling amongst RMI members that investors could bring a new and constructive perspective to help influence improvements along mineral supply chains. Representatives of the companies and other RMI members believe: “there is a big role for investors, they have a different point of leverage”.
We are delighted that the RMI has taken the significant step of allowing investors to become members of their trade body which was one of our main objectives in 2023. We became the inaugural investor member in 2024 and are now seeking to establish an investor working group.
Case Study – Godrej
Website: https://www.godrejcp.com/
Company profile: Leading emerging markets consumer goods company.
Stewardship:
Family. Founded by
What we like:
-- The company is a leading supplier of affordable soap and household
insecticides, helping millions of people in tropical climates curtail
the spread of waterborne diseases, malaria and other diseases.
-- The Godrej family provide long-term stewardship and continue to be
actively involved in the business, which is run by a capable and
professional management team.
-- The business culture is built on integrity and trust and the impressive
‘Godrej Good and Green’ strategy offers a vision for a more inclusive
and sustainable India .
-- The franchise is highly cash-generative, ambitious and innovative.
Revenues are split evenly between India and international markets, with
positive growth momentum in Asia , Africa and Latin America .
Risks: We believe that risks for the company include product quality/safety issues and succession challenges.
How the company is contributing to social outcomes:
Godrej Consumer Products is a consumer goods company which manufactures and markets personal care and household products in
How the company is contributing to environmental outcomes
As part of their strategic pillar for building an inclusive and greener world, Godrej has a goal of zero waste to landfill, which they aim to continue to achieve. As part of their extended producer responsibility commitment, Godrej collects 100% post-consumer plastic packaging waste. They have signed up to the India Plastics Pact and are a plastic neutral company which means they take back the equivalent amount of plastic (c. 20,000 metric tons) that they send to consumers. The company is also reducing plastic use by improving product packaging, developing new products and reducing waste. The Goodknight coil bags made from Post-Consumer Recycled plastic from their own solid waste had a successful trial and would replace 600 tonnes of virgin plastic when implemented more widely. Their ‘Magic’ hand and body wash ready-to-mix powders reduce plastic usage. The body wash uses 16% plastic by weight and the company plan to reduce this to 8% in the future.
Relevant
SDG No. 3 – Good health and well being
Godrej’s personal care products and household insecticides help curtail the spread of malaria and diarrheal diseases plus other waterborne diseases. They sell insecticide solutions for less than
SDG No. 12 – Responsible consumption and production
As a signatory of the Indian Plastics Pact, they have ambitious goals to reduce energy use, waste and address the issue of plastic packaging. They are already plastic neutral and by 2025 aim to reduce packaging consumption per unit of production by 20%; ensure that 100% of their packaging material is recyclable, reusable, recoverable or compostable and use at least 10% Post-Consumer Recycled content in their plastic packaging.
Portfolio Manager
Business Review
The Strategic Report, set out on pages 1 to 35 of the Annual Report, contains a review of the Company’s business model and strategy, an analysis of its performance during the financial year and its future developments as well as details of the principal risks and challenges it faces. Its purpose is to inform shareholders and help them to assess how the Directors have performed their duty to promote the success of the Company.
The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are listed on the premium segment of the Official List and traded on the main market of the
The purpose of the Company is to achieve long-term growth in its shareholders’ capital by providing a vehicle for investors to gain exposure to a portfolio of companies in the
The Company’s strategy is to create value for shareholders by addressing its investment objective.
As an externally managed investment trust, all of the Company’s day-to-day management and administrative functions are outsourced to service providers. As a result, the Company has no executive directors, employees or internal operations.
The Company employs
The Board remains responsible for all aspects of the Company’s affairs, including setting the parameters for monitoring the investment strategy and the review of investment performance and policy. It also has responsibility for all strategic policy issues, including share issuance and buybacks, share price and discount/ premium monitoring, corporate governance matters, dividends and gearing.
Further information on the Board’s role and the topics it discusses with the Portfolio Manager is provided in the Corporate Governance report.
Investment Objective and Policy
The Company aims to achieve long-term capital growth through investment in selected companies in the
The Company invests in companies which
The Company invests principally in listed equities although it is able to invest in other securities, including preference shares, debt instruments, convertible securities and warrants. In addition, the Company may invest in open and closed-ended investment funds and companies.
The Company is only able to invest in unlisted securities with the Board’s prior approval. It is the current intention that such investments are limited to those which are expected to be listed on a stock exchange or which cease to be listed and the Company decides to continue to hold or is required to do so.
Risk is diversified by investing in different countries, sectors and stocks within the
If the proportion of the Company’s total assets invested in a single jurisdiction exceeds 49% at any time, the AIFM and the Portfolio Manager should, as soon as reasonably practicable, seek to re-balance the Company’s portfolio below this threshold.
No single investment may exceed 7.5% of the Company’s total assets at the time of investment. This limit is reviewed from time to time by the Board and may be revised as appropriate.
No more than 10% of the Company’s total assets may be invested in other listed closed-ended investment companies unless such investment companies themselves have published investment policies to invest no more than 15% of their total assets in other closed-ended investment companies, in which case the limit is 15%.
When deemed appropriate, the Company may borrow for investment purposes up to the equivalent of 10% of the net asset value of the Company at the time of drawdown of such borrowing.
The use of derivatives is permitted with prior Board approval and within agreed limits. However,
Performance Measurement
The Board measures Stewart Investors’ performance against a performance objective, which is to provide shareholders with a net asset value total return in excess of the
Dividend Policy
It is the Company’s policy to pursue capital growth for shareholders with income being a secondary consideration. This reflects that the Portfolio Manager is frequently drawn to companies whose future growth profile is more important than the generation of dividend income for shareholders.
The Company complies with the United Kingdom’s investment trust rules which require investment trusts to retain no more than 15% of their distributable income each year. The Company’s dividend policy is that the Company will pay a dividend as a minimum to maintain investment trust status.
The Board
At the date of this report, the Board of the Company comprises
Further information on the Directors can be found on pages 36 and 37 of the Annual Report and information on the Board’s diversity can be found in the Corporate Governance Report.
Key Performance Indicators (“KPIs”)
The Board of Directors reviews performance against the following KPIs, which are unchanged from the prior year.
-- NAV total return against the Performance Objective*^
-- NAV per share total return against the peer group*^
-- Average discount/premium of share price to NAV per share over the year^
-- Ongoing charges ratio^
* Calculated on an annual basis and measured over three to five years
^ Alternative Performance Measure (see Glossary)
NAV per share total return – Performance Objective
The Directors regard the Company’s net asset value total return as being the overall measure of value generated by the Portfolio Manager over the long term. Total return reflects both the net asset value growth of the Company and the dividends paid to shareholders. The performance objective of the Company is inflation (represented by the Consumer Price Index) plus 6%, measured over three to five years. The 6% represents what the Board considers to be a reasonable premium on investors’ capital, which investing in the faster growing Asian economies ought to provide over time. The Performance Objective is designed to reflect that the Portfolio Manager’s approach does not consider index composition when building and monitoring the portfolio.
During the year under review, the NAV per share total return was (1.3)% underperforming the Performance Objective by 11.7% (2023: NAV per share total return of 5.7%, underperforming the Performance Objective by 11.6%). Over the past three years, the annualised NAV per share total return was 4.4%, underperforming the Performance Objective by 8.6%. Over five years, the annualised NAV per share total return was 7.6%, underperforming the Performance Objective by 3.2% per annum.
A full description of performance during the year under review is contained in the Portfolio Manager’s Review.
NAV total return – peer group
The Board also monitors the Company’s performance against its peer group of four other investment trusts with similar investment mandates and one exchange traded fund.
Over the one, three and five years ended
Average discount/premium of share price to NAV per share
The Board believes that the principal drivers of an investment trust’s share price discount or premium over the long term are investment performance and a proactive marketing strategy. However, there can be volatility in the discount or premium during the year. Therefore, the Board takes powers each year to buy back and issue shares with a view to limiting the volatility of the share price discount or premium, in normal market conditions.
During the year under review no new shares were issued or bought back by the Company. The Company’s share price discount to the NAV per share was narrower this year, in comparison with last year, and usually narrower than the peer group average. The Board keeps the level of the discount under close review.
Average discount of share price to NAV per share*^ during the year ended
6.4% 10.1%
Peer group average Peer group average
discount 9.3% discount 8.9%
Ongoing charges ratio
Ongoing charges represent the costs that the Company can reasonably expect to pay from one year to the next, under normal circumstances. The Board continues to be conscious of expenses and seeks to maintain a sensible balance between high quality service and costs.
The Board therefore considers the ongoing charges ratio to be a KPI and reviews the figure both in absolute terms and in relation to the Company’s peers.
Ongoing charges ratio^
1.1% 1.1%
Peer group average 0.9% Peer group average 0.9%
^ Alternative Performance Measure (see Glossary).
The Board believes that the Company’s relatively low turnover, and the absence of any costs associated with gearing, will mean that the Company’s overall running costs – should these costs be factored into the calculation – are not necessarily as high as some other investment vehicles. It should also be noted that the Company does not have a performance fee. Performance fees are not included in the peer group average ongoing charges ratio.
Risk Management
The Board is responsible for managing the risks faced by the Company. Through delegation to the Audit Committee, the Board has established procedures to manage risk, to review the Company’s internal control framework and to establish the level and nature of the principal risks the Company is prepared to accept in order to achieve its long-term strategic objective. The Board, meeting as the Audit Committee, has carried out a robust assessment of the principal and emerging risks facing the Company with the assistance of the AIFM. A process has been established to identify and assess risks, their likelihood and the possible severity of their impact.
These principal risks are set out below with a high-level summary of their management through mitigation and status arrows to indicate any change in assessment during the year. The risks faced by the Company have been categorised under three headings as follows:
-- Investment and financial risks
-- Strategic risks
-- Operational risks
* Source: Morningstar
^ Alternative Performance Measure (see Glossary)
A summary of these risks and their mitigation is set out below:
Change in
risk
assessment
Principal Risks and Uncertainties Mitigation over the
last
financial
year
Investment and Financial Risks
Market and Foreign Exchange Risk Unchanged
To an extent, this risk
is accepted as being
inherent to the
Company’s activities.
However, the Board has
set limits in the
investment policy which
ensure that the
portfolio is
diversified, reducing
the risks associated
with individual stocks
and markets. Compliance
with the investment
objective and policy
limits is monitored
daily by Frostrow and
Stewart Investors and
reported to the Board
monthly. Stewart
The Company’s portfolio is exposed to fluctuations in Investors report at
market prices (from both individual security prices and each Board meeting on
foreign exchange rates) in the regions and sectors in the performance of the
which it invests. Emerging markets in the Asia Pacific Company’s portfolio,
region, in which the portfolio companies operate, are including the impact of
expected to be more volatile than developed markets. wider market trends and
events.
As part of its review
of the viability of the
Company, the Board also
considers the
sensitivity of the
Company to changes in
market prices and
foreign exchange rates
(see note 14), how the
portfolio would perform
during a market crisis,
and the ability of the
Company to liquidate
its portfolio if the
need arose. Further
details are included in
the Going Concern and
Viability Statements.
Investment Performance Unchanged
To manage this risk,
the Board:
-- reviews and
challenges
reports from
Stewart
Investors,
which cover
portfolio
composition,
asset
allocation,
concentration
and performance
at each Board
meeting;
Investment performance may not achieve the Company’s -- reviews
investment objective. Stewart Investors’ investment investment
strategy and approach is expected to lead to performance
performance that will deviate from that of both market over the long
indices and other investment companies investing in the term against
Asia Pacific Region. the Company’s
performance
objective and
peer group;
-- monitors
Stewart
Investors’
performance
against set
KPIs;
-- formally
reviews Stewart
Investors’
appointment,
including their
performance,
service levels
and contractual
arrangements,
each year.
Change in
assessment
Principal Risks and Uncertainties Mitigation of risk over
the last
financial
year
Strategic Risks
Geopolitical Risk Unchanged
The Board regularly
discusses global
geopolitical issues and
general economic
conditions and
developments.
Political changes in
recent years,
particularly in the US
and Asia Pacific region
and more recently in the
Middle East, as well as
Ukraine and Eastern
Europe, have increased
uncertainty and
Geopolitical events may have an adverse impact on the volatility in financial
Company’s performance by causing exchange rate markets. The Board
volatility, changes in tax or regulatory environments, discusses such
a reduced investment universe and/or a fall in market developments and how
prices. they may impact decision
making with Stewart
Investors.
The Board’s discussions
with the Portfolio
Manager often focus on
geopolitical themes or
trends that affect
social and environmental
sustainability, in
particular e.g. conflict
minerals and water
scarcity. These are
often subjects on which
the Portfolio Manager
engages with investee
companies.
Climate Change Risk Unchanged
The Board regularly
reviews global
environmental,
geopolitical and
economic developments
with the Portfolio
Manager and the
The Board is cognisant of risks arising from climate implications of these
change and the impact climate change events could have risks and events on
on portfolio companies and their operations, as well as portfolio construction
on service providers to the Company. and the Company’s
operations. Given
Stewart Investors’ focus
on sustainability, the
Board considers the
portfolio to be
relatively well
positioned in this
regard.
Black Swan Risk Increased
The Board monitors
emerging risks and the
robustness of Stewart
Investors’ and other
service providers’
business continuity
plans.
Stewart Investors’
investment approach
includes a focus on
sustainability and
stewardship, which
emphasises quality
investments with strong
balance sheets, a proven
track record in previous
crises, and the
protection of
A significant unpredictable event (e.g. a shareholders’ funds,
pandemic/war/closure of a major shipping route) could leaving them relatively
lead to increased market volatility, and in a well positioned to deal
worst-case scenario, major global trade and supply with unforeseen events.
chain breakdown resulting in significant
volatility/declines in market prices. The Company’s All of the Company’s
service providers and their operational systems may service providers are
also be affected. required to have
business continuity /
disaster recovery
policies and test them
at least annually.
Service providers
provide updates on
contingency plans for
coping with major
disruption to their
operations.
In view of the number of
extraordinary and
unpredictable events in
recent years, the Board
considered that the
likelihood of a Black
Swan event had
increased.
Change in
assessment
Principal Risks and Uncertainties Mitigation of risk over
the last
financial
year
Strategic Risks
Portfolio Management Key Persons Risk Unchanged
The Board manages this
risk by:
-- receiving
regular reports
from the
Portfolio
Manager,
including any
significant
changes in the
make-up of the
portfolio
management team;
-- meeting the
wider team
supporting the
designated lead
There is a risk that the team responsible for managing manager, at both
the Company’s portfolio may leave their employment or Board meetings
may be prevented from undertaking their duties. and at the
Portfolio
Manager’s
offices; and
-- delegating to
the Engagement &
Remuneration
Committee
responsibility
to perform an
annual review of
the service
received from
the Portfolio
Manager,
including, inter
alia, the team
supporting the
lead manager and
their succession
planning.
Share Price Risk Unchanged
In managing this risk
the Board:
-- reviews the
Company’s
investment
objective and
policy, and
Stewart
Investors’
investment
approach, in
relation to
investment
performance,
market and
economic
conditions and
the performance
of the Company’s
peers;
-- regularly
discusses the
The Company is exposed to the risk, particularly if the Company’s future
investment strategy and approach are unsuccessful, that development and
the Company underperforms its peer group, fails to strategy;
achieve its Performance Objective and becomes -- undertakes a
unattractive to shareholders, resulting in a widening regular review
of the share price discount to the NAV per share. of the level of
the share price
discount/premium
to the NAV per
share and
considers ways
in which share
price
performance may
be enhanced,
including the
effectiveness of
marketing, share
issuance and
share buybacks,
where
appropriate; and
-- reviews an
analysis of the
shareholder
register at each
Board meeting
and is kept
informed of
shareholder
sentiment.
Change in risk assessment
Principal Risks and Uncertainties Mitigation
over the last financial year
Operational Risk
Operational Risk Unchanged
To manage these risks the Board:
-- periodically visits all key
service providers to gain a
better understanding of their
control environment, and the
processes in place to mitigate
any disruptive events;
-- receives a monthly report from
Frostrow, which includes, inter
alia, confirmation of compliance
with applicable laws and
regulations;
-- reviews internal control reports
and key policies of its service
providers, including disaster
recover procedures and business
continuity plans;
-- maintains a risk matrix with
details of the risks to which
As an externally managed investment the Company is exposed, the
trust, the Company is reliant on the approach to managing those
systems of its service providers for risks, the key controls relied
dealing, trade processing, upon and the frequency of the
administration, financial and other controls operation;
functions. If such systems were to fail -- receives updates on pending
or be disrupted (including, for changes to the regulatory and
example, as a result of cyber-crime or legal environment and progress
a pandemic) this could lead to a towards the Company’s compliance
failure to comply with applicable laws, with such changes;
regulations and governance requirements -- has considered the increased
and/or to a financial loss. risk of cyber-attacks and
received reports and assurance
Credit risk arising from the use of from its service providers
counterparties forms part of this risk. regarding the information
If a counterparty were to fail, the security controls in place;
Company could be adversely affected -- has reviewed the arrangements
through either delay in settlement or (including sub-custodial
loss of assets. arrangements) and services
provided by the Custodian to
ensure that the security of the
Company’s custodial assets is
maintained; and
-- reviews Stewart Investors’
approved list of counterparties,
the process for monitoring and
adding to the approved
counterparty list, and the
Company’s use of those
counterparties.
Under the terms of the contract with
J.P. Morgan Chase Bank , the Company’s
investments are required to be
segregated from J.P. Morgan Chase Bank’s
own assets.
Further information on credit risk and
other financial risks can be found in
note 14.
Emerging Risks
Emerging risks are discussed as part of the risk review process and also throughout the year to try to ensure that new (as well as known) risks are identified and, so far as practicable, mitigated. Current identified emerging risks are as follows:
1. Supply chain disruptions have increased uncertainty over corporate
investment plans and may damage the growth prospects of companies in the
Asia Pacific Region .
2. As well as offering investment opportunities, the development and
exploitation of technological breakthroughs, such as artificial
intelligence, may challenge and damage the addressable market, revenue and
operations of portfolio companies to the extent that they no longer offer
the promise of returns consistent with the Company’s investment objective.
1. The risk that increasing water scarcity will affect economic development,
potentially leading to mass migration and political conflict in the Asia
Pacific Region . This is a particular threat in India , where a high
proportion of the Company’s assets are invested, and which the UN
identifies as one of the most water-stressed countries in the world.
2. The rise of ‘post-truth’ politics is characterised by rising concerns about
the perceived decay of political and social norms, the diminishing role of
generally accepted truth and reason, and the rise of misinformation, much
of it online. This trend appears to be encouraging mistrust in democratic
institutions and public discourse and the rise in many countries of more
extreme political parties. Businesses and brands can be drawn into such
debates which may have uncertain direct or indirect consequences for
portfolio companies.
Going Concern
The Company’s portfolio, investment activity, the Company’s cash balances and revenue forecasts, and the trends and factors likely to affect the Company’s performance are reviewed and discussed at each Board meeting. The Board has considered a detailed assessment of the Company’s ability to meet its liabilities as they fall due, including stress tests which modelled the effects of substantial falls in portfolio valuations and liquidity constraints on the Company’s NAV, cash flows and expenses. Further details of the stress tests and scenarios considered can be found in the Audit Committee Report and Notes 1 and 14 to the financial statements. Based on the information available to the Directors at the date of this report, the conclusions drawn in the Viability Statement (including the results of the stress tests undertaken) below and the Company’s cash balances, the Directors are satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months from the date of signing this report and that, accordingly, it is appropriate to continue to adopt the going concern basis in preparing the financial statements.
Viability Statement
The Directors have carefully assessed the Company’s financial position and prospects as well as the principal risks facing the Company and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years. The Board has chosen a five year horizon in view of the long-term outlook adopted by the Portfolio Manager when making investment decisions.
To make this assessment and in reaching this conclusion, the Audit Committee has considered the Company’s financial position and its ability to liquidate its portfolio and meet its liabilities as they fall due and notes the following:
-- The portfolio is comprised of investments traded on major international
stock exchanges. Based on historic analysis, it is estimated that
approximately 84% of the current portfolio could be liquidated within
two weeks (based on current market volumes with 20% participation).
-- The Audit Committee has considered the viability of the Company under
various scenarios, including periods of acute stock market and economic
volatility. In view of the results of these tests, the Board has
concluded that it would expect to be able to ensure the financial
stability of the Company through the benefits of having a diversified
portfolio of listed and realisable assets. Further details of the stress
tests can be found in Note 1 to the financial statements;
-- With an ongoing charges ratio of 1.1%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no
capital commitments currently foreseen which would alter that position;
-- The Board has considered the Company’s average cash balance over the
past three years and noted that the Company has consistently retained
levels of cash that are significantly higher than its annual operating
expenses;
-- The Company has no employees, only non-executive Directors. Consequently
it does not have redundancy or other employment related liabilities or
responsibilities; and
-- The closed ended nature of the Company means that, unlike open ended
funds, it does not need to realise investments when shareholders wish to
sell their shares.
The Directors, as well as considering the potential impact of the principal risks and various severe but plausible downside scenarios, have also made the following assumptions in considering the Company’s longer-term viability:
-- There will continue to be demand for investment trusts;
-- The Board and the Portfolio Manager will continue to adopt a long-term
view when making investments, and anticipated holding periods will be at
least five years;
-- The Company invests in the securities of listed companies traded on
international stock exchanges to which investors will wish to continue
to have exposure;
-- Regulation will not increase to a level that makes running the Company
uneconomical; and
-- The performance of the Company will continue to be satisfactory.
Stakeholder Interests and Board Decision-Making (Section 172 of the Companies Act 2006)
The following disclosure, which is required by the Companies Act 2006 and the AIC Code of Corporate Governance, describes how the Directors have had regard to the views of the Company’s stakeholders in their decision-making.
STAKEHOLDER GROUP HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S STAKEHOLDERS
The Board’s key mechanisms of engagement with investors
include:
-- The Annual General Meeting
-- The Company’s website which hosts reports, articles
and insights, and monthly fact sheets
Investors -- One-to-one investor meetings
-- Group meetings with professional investors
-- The Annual and Half yearly Reports
The Portfolio Manager and the Company’s broker, on behalf of
the Board, completed a programme of investor relations
throughout the year, reporting to the Board on the feedback
received. In addition, the Chair was (and remains) available
to engage with the Company’s shareholders.
The Board met regularly with Stewart Investors (the Portfolio
Manager) throughout the year, both formally at quarterly Board
meetings and informally, as required. The Board engaged with
the portfolio management team, discussing the Company’s
overall performance and strategy, as well as developments in
individual portfolio companies and wider macroeconomic
developments.
Portfolio Manager The Board periodically visits different countries and investee
companies in Asia with the Portfolio Manager, to gain
first-hand insight into the Portfolio Manager’s investment
process and engagement with portfolio companies. The Board
considers these visits to be an important part of their
oversight of the Portfolio Manager. For environmental and cost
reasons, this year the Board held a conference in London with
the Portfolio Manager, engaging with representatives from
portfolio companies and potential investee companies in online
meetings.
The Board met regularly with Frostrow (the AIFM),
representatives of which attend every quarterly Board meeting
to provide updates on risk management, accounting,
administration, corporate governance and regulatory matters.
The Board, meeting as the Engagement and Remuneration
Committee , reviewed the performance of all the Company’s
service providers, receiving feedback from Frostrow in their
capacity as AIFM and Company Secretary. The AIFM, which is
Service Providers responsible for the day-to-day operational management of the
Company, meets and interacts with the other service providers
including the Depositary, Custodian and Registrar, on behalf
of the Board, on a daily basis. This can be through email,
one-to-one meetings and/or regular written reporting.
The Audit Committee met with BDO LLP to review the audit plan
for the year, agree their remuneration, review the outcome of
the annual audit and to assess the quality and effectiveness
of the audit process. Please refer to the Audit Committee
Report for further information.
As an externally managed investment trust, the Company has no employees, customers, operations or premises. Therefore, the Company’s key stakeholders (other than its shareholders) are considered to be its service providers, including its Portfolio Manager. The need to foster good business relationships with service providers and maintain a reputation for high standards of business conduct are central to the Directors’ decision-making as the Board of an externally managed investment trust.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
The Board and the Portfolio Manager
provided updates on performance via RNS,
the Company’s website and the usual
financial reports and monthly fact
sheets.
The Board continued to monitor share
price movements closely, both in
absolute terms and in relation to the
Investors Company’s peer group. As the discount
narrowed during the year, the Board did
-- Ongoing dialogue with not initiate any share buybacks. While
shareholders concerning the recognising that buybacks can generate
strategy of the Company, shareholder value in the short term, the
performance and the portfolio. Board decided that buybacks were not in
-- Share price performance. the long-term interests of shareholders,
-- The Portfolio Manager’s as they would reduce the size of the
approach to sustainable Company, increase the ongoing charges
development and investment. ratio and reduce the liquidity of the
Company’s shares.
Instead, the Board continued to take
steps to improve the visibility of the
Company and the Portfolio Manager’s
sustainability credentials, in
particular to retail investors. Further
information is provided in the Chair’s
Statement.
The Board agreed that high standards of
research and decision-making have been
maintained and the Portfolio Manager’s
strategy has been implemented
consistently, leading to good returns
over the past year and over longer
periods. The Board concluded that it was
in the interests of shareholders for
Stewart Investors to continue in their
role as Portfolio Manager on the same
terms and conditions.
Portfolio Manager
The Board continued its focus on
-- Portfolio composition, improving the marketing strategy of the
performance, outlook and Company, and established a new Sales,
business updates. Marketing and Communications Committee
-- Matters relating to to oversee this process. Further
sustainability, including the information is provided in the Chair’s
sustainability credentials of Statement.
the portfolio companies, and
regulatory developments The Board’s deliberations on the matter
affecting the Company itself. of new sustainability-related regulation
-- The promotion and marketing are described in the Chair’s Statement.
strategy of the Company.
The Board considered that the conference
in London was successful. While it will
not always be possible or practical to
engage with portfolio companies
remotely, in view of the environmental
and cost benefits associated with
reduced long-distance travel, the Board
agreed to alternate their due diligence
trips to Asia with future London -based
events.
Service Providers
The Board concluded that it was in the
-- Regulatory updates, in interests of shareholders for Frostrow
particular regarding the FCA’s to continue in their role as AIFM on the
Sustainability Disclosure same terms and conditions.
Rules.
-- The quality of service The Board approved the Audit Committee’s
provision and the terms and recommendation to propose to
conditions under which service shareholders that BDO LLP be
providers are engaged. re-appointed as the Company’s auditor
-- The assessment of the for a further year. Please refer to the
effectiveness of the audit and Audit Committee Report and the Notice of
the Auditor’s reappointment. AGM for further information.
-- The terms and conditions under
which the Auditor is engaged.
Social, Human Rights and Environmental Matters
As an externally managed investment trust, the Company does not have any employees or maintain any premises, nor does it undertake any manufacturing or other physical operations itself. All its operational functions are outsourced to third party service providers. Therefore the Company has no material, direct impact on the environment or any particular community and, as a result, the Company itself has no environmental, human rights, social or community policies.
The Portfolio Manager engages with the Company’s underlying investee companies in relation to their corporate governance practices and the development of their policies on social, community and environmental matters. The Portfolio Manager (under their parent, legal entity name,
Integrity and Business Ethics
The Board is committed to carrying out the Company’s business in an honest and fair manner with a zero-tolerance approach to bribery, tax evasion and corruption. As such, policies and procedures are in place to prevent this and can be found on the Company’s website. In carrying out the Company’s activities, the Board aims to conduct itself responsibly, ethically and fairly, including in relation to social and human rights issues.
The Company notes the TCFD recommendations on climate-related financial disclosures. The Company is an investment trust and, as such, it is exempt from the Listing Rules requirement to report against the TCFD framework.
10 https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
11 https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate- Report-2021.pdf
Climate reporting, at both the
Performance and Future Developments
A review of the Company’s performance over the year and the outlook for the Company can be found in the Chair’s Statement and in the Portfolio Manager’s Review.
The Company’s overall strategy remains unchanged.
By order of the Board
Company Secretary
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law they are required to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102 ‘The Financial Reporting Standard applicable in the
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and
prudent;
-- state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
-- prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
-- prepare a directors’ report, a strategic report and a directors’
remuneration report which comply with the requirements of the Companies
Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Annual Report and financial statements, taken as a whole, are fair, balanced, and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement which comply with that law and those regulations.
The Directors are responsible for ensuring the Annual Report and the financial statements are made available on the Company’s website, which is maintained by the Portfolio Manager. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he/she might reasonably be expected to have taken as a Director to make himself/ herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
Responsibility Statement of the Directors in respect of the Annual Financial Report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and the return of the Company for the
year ended 31 January 2024 ; and
-- the Annual Report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties
that they face.
We consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
On behalf of the Board
Chair
Income Statement
for the year ended
Year ended 31 January Year ended 31 January
2024 2023
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on 8 - (2,018) (2,018) - 27,434 27,434
investments
Exchange differences - (642) (642) - 1,787 1,787
Income 2 7,861 - 7,861 5,541 - 5,541
Portfolio management
and AIFM fees 3 (1,123) (3,369) (4,492) (1,095) (3,283) (4,378)
Other expenses 4 (795) - (795) (813) - (813)
Return/(loss) before 5,943 (6,029) (86) 3,633 25,938 29,571
taxation
Taxation 5 (772) (5,203) (5,975) (621) (3,656) (4,277)
Return/(loss) after 5,171 (11,232) (6,061) 3,012 22,282 25,294
taxation
Return/(loss) per share 7 4.3 (9.3) (5.0) 2.5 18.4 20.9
(p)
The Total column of this statement represents the Company’s Income Statement. The Revenue and Capital columns are supplementary to this and are prepared under guidance published by the
All revenue and capital items in the Income Statement derive from continuing operations.
The Company had no recognised gains or losses other than those shown above and therefore no separate Statement of Other Comprehensive Income has been presented.
The accompanying notes are an integral part of these statements.
Statement of Changes in Equity
for the year ended
Ordinary Capital
Share Share Redemption Special Capital Revenue
Capital premium reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 January 15,120 8,811 1,648 14,572 404,220 6,295 450,666
2022
Return after - - - - 22,282 3,012 25,294
taxation
Ordinary 6 - - - - - (2,298) (2,298)
dividends paid
At 31 January 15,120 8,811 1,648 14,572 426,502 7,009 473,662
2023
(Loss)/return - - - - (11,232) 5,171 (6,061)
after taxation
Ordinary 6 - - - - - (2,782) (2,782)
dividends paid
At 31 January 15,120 8,811 1,648 14,572 415,270 9,398 464,819
2024
The accompanying notes are an integral part of these statements.
Statement of Financial Position
as at
2024 2023
Notes £’000 £’000 £’000 £’000
Fixed assets
Investments 8 470,109 474,399
Current assets
Debtors 9 1,032 333
Cash 6,191 10,535
7,223 10,868
Creditors(amounts falling due within one 10 (1,307) (1,855)
year)
Net current assets 5,916 9,013
Total assets less current liabilities 476,025 483,412
Non-current liabilities
Provision for liabilities 11 (11,206) (9,750)
Net assets 464,819 473,662
Capital and reserves
Called up share capital 12 15,120 15,120
Share premium account 8,811 8,811
Capital redemption reserve 15 1,648 1,648
Special reserve 15 14,572 14,572
Capital reserve 15 415,270 426,502
Revenue reserve 15 9,398 7,009
Equity shareholders’ funds 464,819 473,662
Net asset value per Ordinary Share (p) 13 384.3p 391.6p
The financial statements were approved and authorised for issue by the Board of Directors on
Chair
The accompanying notes are an integral part of these statements.
Notes to the Financial Statements
1. Accounting Policies
A summary of the principal accounting policies adopted is set out below or as appropriate within the relevant note to the financial statements.
(a) Basis of Accounting
These financial statements have been prepared under
The Company has taken advantage of the exemption from preparing a Cash Flow Statement under FRS 102, as it is an investment fund whose investments are substantially highly liquid, carried at fair (market) value and provides a statement of changes in equity.
The Board is of the opinion that the Company is engaged in a single segment of business, namely investing in accordance with the Investment Objective, and consequently no segmental analysis is provided.
Going concern
The Directors are required to make an assessment of the Company’s ability to continue as a going concern and have concluded that the Company has adequate resources to continue in operational existence for at least 12 months from the date these financial statements were approved.
In making this assessment, the Directors have considered a wide variety of emerging and current risks to the Company, as well as the mitigation strategies that are in place. The Board has also reviewed stress-testing and scenario analyses prepared by the AIFM. The stress tests and scenario analyses considered the effect of various downturns, based on historic bear markets, on the asset value and expenses of the Company. The tests modelled the impact of decreases of up to and over 80% on the value of the investment portfolio and decreases in current market liquidity of up to 80%.
These tests are carried out as an arithmetic exercise, which can apply equally to any set of circumstances in which asset value and income are significantly impaired. It was concluded that even in an extreme downside scenario, the Company would be able to continue to meet its liabilities as they fell due. Whilst the economic future is uncertain, the opinion of the Directors is that there is no foreseeable downside scenario that would threaten the Company’s ability to continue to meet its liabilities as they fall due.
Based on the information available to the Directors at the time of this report, including the results of the stress tests and scenario analyses, and having taken account of the liquidity of the investment portfolio, the Company’s cash flow and borrowing position (the Company is not currently geared), the Directors are satisfied that the Company has adequate financial resources to continue in operation for at least 12 months from the date of signing these financial statements and that, accordingly, it is appropriate to adopt the going concern basis.
Significant Judgement
There is one significant judgement involved in the presentation of the Company’s accounts, being the judgement on the functional currency of the Company.
The Company’s investments are made in foreign currencies, however the Board considers the Company’s functional currency to be sterling. In arriving at this conclusion, the Board considered that the shares of the Company are listed on the
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue return is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the Corporation Tax Act 2010.
(b) Foreign Currencies
Transactions denominated in foreign currencies are translated into sterling at the exchange rates on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate ruling at the date of the Statement of Financial Position. Profits or losses on the translation of foreign currency balances, whether realised or unrealised, are taken to the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature.
(c) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand deposits readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
2. Income
2024 2023
£’000 £’000
Income from investments
Overseas dividends 7,701 5,504
Bank interest 160 37
7,861 5,541
Dividends receivable are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company’s right to receive payment is established. Foreign dividends are gross of withholding tax.
Where the Company has elected to receive its dividends in the form of additional shares rather than cash the amount of cash foregone is recognised in the revenue column with any excess above this recognised in the capital column.
3. Portfolio Management and AIFM Fees
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Portfolio management fee
– Stewart Investors 996 2,989 3,985 968 2,904 3,872
AIFM fee – Frostrow 127 380 507 127 379 506
1,123 3,369 4,492 1,095 3,283 4,378
Frostrow’s AIFM fee is for risk management, corporate management, company secretarial and administrative services. Further information regarding
All expenses and interest are accounted for on an accruals basis. Expenses and interest are charged to the Income Statement as revenue items except where incurred in connection with the maintenance or enhancement of the value of the Company’s assets and taking account of the expected long-term returns, when they are split as follows:
Portfolio Management and AIFM fees payable have been allocated 25% to revenue and 75% to capital.
Transaction costs incurred on the purchase and sale of investments are taken to the Income Statement as a capital item, within gains on investments held at fair value through profit or loss.
4. Other Expenses
2024 2023
£’000 £’000
Directors’ fees 189 183
Employers NIC on directors’ remuneration 15 14
Auditor’s remuneration for annual audit 46 44
Depository fees 57 56
Custody fees 175 190
Registrar fees 25 25
Broker retainer 38 32
Listing fees 24 36
Legal and professional fees 41 43
Other expenses 185 190
Total expenses 795 813
For accounting policy, see note 3.
5. Taxation
(a) Analysis of Charge in the Year
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas taxation 985 - 985 764 - 764
Indian capital gains tax charge (213) 5,203 4,990 (143) 3,656 3,513
772 5,203 5,975 621 3,656 4,277
Overseas tax arose as a result of irrecoverable withholding tax on overseas dividends and Indian capital gains tax.
As an investment trust, the Company is generally not subject to
(b) Reconciliation of Tax Charge
The
The differences are explained below:
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Total return on
ordinary
activities
before tax 5,943 (6,029) (86) 3,633 25,938 29,571
Corporation tax
charged at 24.0%
(2023: 19.0%) 1,428 (1,449) (21) 690 4,928 5,618
Effects of:
(Losses)/gains on
investment not
subject to UK
corporation tax - 485 485 - (5,212) (5,212)
Non-taxable
exchange - 154 154 - (340) (340)
differences
Unutilised
management 422 810 1,232 356 624 980
expenses
Income not
subject to (1,851) - (1,851) (1,046) - (1,046)
corporation tax
Indian capital
gains tax charge
(see note 5a) (213) 5,203 4,990 (143) 3,656 3,513
Overseas taxation 986 - 986 764 - 764
Tax charge for 772 5,203 5,975 621 3,656 4,277
the year
As at
In
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue as set out in this note. The standard rate of corporation tax is applied to taxable net revenue. Any adjustment resulting from relief for overseas tax is allocated to the revenue reserve.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date where transactions or events that result in an obligation to pay more, or right to pay less, tax in future have occurred at the Statement of Financial Position date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company’s taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Deferred tax is measured without discounting and based on enacted tax rates. Due to the Company’s status as an investment trust, and the intention to meet the conditions required to obtain approval under Section 1158 of the Corporation Tax Act 2010, the Company has not provided for deferred
Deferred tax has been provided for on capital gains arising on Indian securities as noted in 5(a) above.
6. Dividends
Amounts recognised as distributable to shareholders for the year ended
2024 2023
£’000 £’000
Final dividend paid for the year ended 31 January 2023 of 2.3p per 2,782 -
share
Final dividend paid for the year ended 31 January 2022 of 1.9p per - 2,298
share
In respect of the year ended
The Board’s current policy is to pay dividends only out of revenue reserves. Therefore the amount available for distribution as at
The dividends payable in respect of both the current and the previous financial year, which meet the requirements of Section 1158 CTA 2010, are set out below:
2024 2023
£’000 £’000
Revenue available for distribution by way of dividend for the 5,171 3,012
year
Final dividend of 4.0p per share (2023: final dividend of 2.3p) (4,838) (2,782)
Transfer to revenue reserves 333 230
Dividends paid by the Company on its shares are recognised in the financial statements in the year in which they are paid and are shown in the Statement of Changes in Equity.
7. Return per Share
The return per share is as follows:
2024 2023
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Basic 4.3p (9.3)p (5.0)p 2.5p 18.4p 20.9p
The total return per share is based on the total loss attributable to shareholders of £6,061,000 (2023: return of £25,294,000).
The revenue return per share is based on the net revenue return attributable to shareholders of £5,171,000 (2023: £3,012,000).
The capital loss per share is based on the net capital loss attributable to shareholders of £11,232,000 (2023: return of £22,282,000).
The total return, revenue return and the capital return per share are based on the weighted average number of shares in issue during the year of 120,958,386 (2023: 120,958,386).
The calculations of the returns per Ordinary Share have been carried out in accordance with IAS 33 Earnings per Share.
8. Investments
2024 2023
£’000 £’000
Investments
Cost at start of year 320,883 290,337
Investment holding gains at start of year 153,516 146,646
Valuation at start of year 474,399 436,983
Purchases at cost 84,889 77,305
Disposal proceeds (87,161) (67,323)
(Losses)/gains on investments (2,018) 27,434
Valuation at end of year 470,109 474,399
Cost at 31 January 352,944 320,883
Investment holding gains at 31 January 117,165 153,516
Valuation at 31 January 470,109 474,399
The Company received £87,161,000 (2023: £67,323,000) from investments sold in the year. The book cost of these investments when they were purchased was £52,828,000 (2023: £46,759,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
During the year the Company incurred transaction costs on purchases of £110,000 (2023: £87,000) and transaction costs on sales of £169,000 (2023: £142,000).
Valuation of Investments
Investments are measured initially and at subsequent reporting dates at fair value. Purchases and sales are recognised on the trade date when a contract exists whose terms require delivery within the time frame established by the market concerned. For quoted securities fair value is either bid price or last traded price, depending on the convention of the exchange on which the investment is listed. Changes in fair value and gains or losses on disposal are included in the Income Statement as a capital item.
In addition, for financial reporting purposes, fair value measurements are categorised into a fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1 – Quoted prices in active markets.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data), either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is unavailable).
All investments are in equity shares and have been classified as Level 1 (2023: All Level 1).
9. Debtors
2024 2023
£’000 £’000
Amounts due from brokers 746 -
Accrued income 279 323
Other debtors 7 10
1,032 333
10. Creditors: Amounts Falling Due Within One Year
2024 2023
£’000 £’000
Amounts due to brokers - 481
Portfolio management fee – Stewart Investors 1,002 1,002
AIFM fee – Frostrow 128 129
Other creditors 177 243
1,307 1,855
11. Provisions for Liabilities
2024 2023
£’000 £’000
Deferred taxation on unrealised capital gains on Indian securities 11,206 9,750
See note 5 for further details and accounting policy.
12. Share Capital
2024 2023
£’000 £’000
Allotted and fully paid:
120,958,386 Ordinary shares of 12.5p each (2023: 120,958,386) 15,120 15,120
During the current and prior year, no Ordinary shares were issued or bought back.
The capital of the Company is managed in accordance with its investment policy which is detailed in the Strategic Report.
The Company does not have any externally imposed capital requirements.
13. Net Asset Value Per Share
The net asset value per share of 384.3p (2023: 391.6p) is calculated on net assets of £464,819,000 (2023: £473,662,000) divided by 120,958,386 (2023: 120,958,386) shares, being the number of shares in issue at the year end.
14. Financial Instruments
The Company’s financial instruments comprise its investment portfolio, cash balances, and debtors and creditors that arise directly from its operations. As an investment trust, the Company holds an investment portfolio of financial assets in pursuit of its investment objective.
Fixed asset investments (see note 8) are valued at fair value in accordance with the Company’s accounting policies. The fair value of all other financial assets and liabilities is represented by their carrying value in the Statement of Financial Position.
The main risks that the Company faces arising from its financial instruments are:
(i) market risk, including:
other price risk, being the risk that the value of investments will fluctuate as a result of changes in market prices;
interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in interest rates;
foreign currency risk, being the risk that the value of financial assets and liabilities will fluctuate because of movements in currency rates;
(ii) credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company; and
(iii) liquidity risk, being the risk that the Company will not be able to meet its liabilities when they fall due. This may arise should the Company not be able to liquidate its investments. Under normal market trading volumes, the majority of the investment portfolio could be realised within a week.
Other price risk
The management of other price risk is part of the portfolio management process and is typical of equity investment. The investment portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Further information on how the investment portfolio is managed is set out on page 2 of the Annual Report. Although it is the Company’s current policy not to use derivatives they may be used from time to time, with prior Board approval, to hedge specific market risk or gain exposure to a specific market.
If the investment portfolio valuation rose or fell by 10% at 31 January, the impact on the net asset value would have been £46.3 million (2023: £46.7 million). The calculations are based on the investment portfolio valuation as at the respective Statement of Financial Position dates and are not necessarily representative of the year as a whole.
Interest rate risk
Floating rate
When the Company retains cash balances the majority of the cash is held in overnight call accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate for the relevant currency for each deposit.
Foreign currency risk
The Company invests in overseas securities and holds foreign currency cash balances which give rise to currency risks. Foreign currency risks are managed alongside other market risks as part of the management of the investment portfolio. It is currently not the Company’s policy to hedge this risk on a continuing basis but it can do so from time to time.
Foreign currency exposure:
2024 2023
Investments Cash Debtors Creditors/ Investments Cash Debtors Creditors/
Provisions Provisions
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Chinese 43,006 - - - 39,812 481 - (481)
renminbi
Indian 218,067 2,063 783 (11,206) 206,897 15 110 (9,750)
rupee
New
Taiwanese 51,623 5 - - 54,280 - 5 -
dollar
Hong Kong 13,173 - - - 33,134 - - -
dollar
Philippine 4,688 - - - 4,835 - - -
peso
Indonesian 36,489 - - - 36,718 - - -
rupiah
Japanese 37,707 - 106 - 36,161 - 120 -
yen
Bangladesh 4,358 - - - 6,106 - 1 -
taka
Thai baht 9,471 - - - 12,001 - - -
Malaysian 4,586 - - - 10,231 - - -
ringgit
Singapore 21,562 688 - - 23,085 2,898 - -
dollar
US dollar - 464 - - - 3,100 - -
Korean won 25,379 - 95 - 11,139 - 67 -
Euro - 2 - - - - - -
Total 470,109 3,222 984 (11,206) 474,399 6,494 303 (10,231)
At
During the year sterling strengthened by an average of 7.5% (2023: weakened by 1.6%) against all of the currencies in the investment portfolio (weighted for exposure at 31 January). If the value of sterling had strengthened against each of the currencies in the portfolio by 10%, the impact on the net asset value would have been negative £52.9 million (2023: negative £53.4 million). If the value of sterling had weakened against each of the currencies in the investment portfolio by 10%, the impact on the net asset value would have been positive £43.3 million (2023: positive £43.7 million). The calculations are based on the investment portfolio valuation and cash balances as at the year end and are not necessarily representative of the year as a whole.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Portfolio Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represents the maximum credit risk exposure at the Statement of Financial Position date, and the main exposure to credit risk is via the Custodian which is responsible for the safeguarding of the Company’s investments and cash balances.
At the reporting date, the Company’s financial assets exposed to credit risk amounted to the following:
2024 2023
£’000 £’000
Cash 6,191 10,535
Debtors 1,032 333
7,223 10,868
All the assets of the Company which are traded on a recognised exchange are held by
The credit risk on cash is controlled through the use of counterparties or banks with high credit ratings (rated AA or higher), assigned by international credit rating agencies. Cash is currently held at JP
Liquidity risk
The Company’s liquidity risk is managed on an ongoing basis by the Portfolio Manager. Substantially all of the Company’s portfolio would be realisable within one week, under normal market conditions. There may be circumstances where market liquidity is lower than normal. Stress tests have been performed to understand how long the portfolio would take to realise in such situations. The Board is comfortable that in such a situation the Company would be able to meet its liabilities as they fall due.
Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be able to continue as a going concern and to maximise the return to its equity shareholders.
The Company’s policy on gearing and leverage is set out on page 26 of the Annual Report. The Company had no gearing or leverage during the current or prior year.
The capital structure of the Company consists of the equity share capital, retained earnings and other reserves as shown in the Statement of Financial Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This includes a review of:
-- the need to buy back equity shares, either for cancellation or to hold
in treasury, in light of any share price discount to net asset value per
share in accordance with the Company’s share buy-back policy;
-- the need for new issues of equity shares, including issues from
treasury; and
-- the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company’s objectives, policies and processes for managing capital are unchanged from the prior year.
15. Reserves
Capital redemption reserve
This reserve arose when ordinary shares were redeemed by the Company and subsequently cancelled, at which point the amount equal to the par value of the ordinary share capital was transferred from the ordinary share capital to the Capital Redemption Reserve.
Special reserve
The Special Reserve arose following court approval in
Capital reserve
The following are accounted for in this reserve: gains and losses on the disposal of investments; changes in the fair value of investments; and expenses and finance costs, together with the related taxation effect, charged to capital in accordance with note 5. Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.
Revenue reserve
The Revenue Reserve reflects all income and expenses that are recognised in the revenue column of the Income Statement.
Distributable reserves
The Revenue, Special and Capital Reserves are distributable. It is the Board’s current policy to pay dividends only from the revenue reserve.
16. Related Party Transactions and Transactions with the Managers
The following are considered to be related parties:
-- Frostrow Capital LLP (under the Listing Rules only)
-- Stewart Investors (under the Listing Rules only)
-- The Directors of the Company
Details of the relationship between the Company and
The Company employs
All material related party transactions have been disclosed in notes 3 and 4. Details of the remuneration and the shareholdings of all Directors can be found on page 59 of the Annual Report.
The figures and financial information for 2023 are extracted from the published Annual Report for the year ended
The figures and financial information for 2024 are extracted from the Annual Report and financial statements for the year ended
Glossary of Terms and Alternative Performance Measures (unaudited)
Absolute Performance
Absolute performance is the percentage (%) rise or fall in the share price of the investment over the stated period. Relative performance, on the other hand, is the difference between the absolute return and the performance of the market (or other similar investments), which is gauged by a benchmark, or index such as the MSCI AC Asia ex Japan Index.
AIFMD
The Alternative Investment Fund Managers Directive (the ‘Directive’) is a European Union Directive that entered into force on
Where an entity falls within the scope of the Directive, it must appoint a single
Average Discount
The average share price for the period divided by the average net asset value for the period minus 1.
2024 2023
pence pence
Average share price for the year 363.1 335.9
Average net asset value for the year 388.0 373.8
Average Discount 6.4% 10.1%
Bottom-Up Approach
An investment approach that focuses on the analysis of individual stocks rather than the significance of macroeconomic factors.
Discount or Premium
A description of the difference between the share price and the net asset value per share. The size of the discount or premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.
Gearing
The term used to describe the process of borrowing money for investment purposes. The expectation is that the returns on the investments purchased will exceed the finance costs associated with those borrowings.
There are several methods of calculating gearing and the following has been selected:
Total assets less current liabilities (before deducting any prior charges) minus cash/cash equivalents divided by shareholders’ funds, expressed as a percentage.
Net Asset Value (“NAV”)
The value of the Company’s assets, principally investments made in other companies and cash being held, minus any liabilities. The NAV is also described as “shareholders’ funds” per share. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the relationship between the demand for and supply of the shares.
NAV Per Share Total Return
The total return on an investment over a specified period assuming dividends paid to shareholders were reinvested at net asset value per share at the time the shares were quoted ex-dividend. This is a way of measuring investment management performance of investment trusts which is not affected by movements in discounts or premiums.
31 January 31 January
2024 2023
NAV Total Return p p
Opening NAV 391.6 372.6
(Decrease)/increase in NAV (5.0) 20.9
Dividend paid (2.3) (1.9)
Closing NAV 384.3 391.6
(Decrease)/increase in NAV (1.3)% 5.6%
Impact of reinvested dividends 0.0% 0.1%
NAV Total Return (1.3)% 5.7%
Ongoing Charges
Ongoing charges are calculated by taking the Company’s annualised operating expenses as a proportion of the average daily net asset value of the Company over the year. The costs of buying and selling investments are excluded, as are interest costs, taxation, cost of buying back or issuing ordinary shares and other non - recurring costs.
31 January 31 January
2024 2023
£’000 £’000
Operating expenses1 5,287 5,190
Average net assets during the year 469,515 452,081
Ongoing charges 1.1% 1.1%
1 See notes 3 and 4.
Performance Objective
The Company’s performance objective, against which the Portfolio Manager’s performance is measured, is to provide shareholders with a net asset value total return in excess of the
Total Return (annualised)
Share Price NAV CPI + 6%
(%) (%) (%)
One year to 31 January 2024 (1.9) (1.3) 10.4
Three years to 31 January 2024 2.3 4.4 13.0
Five years to 31 January 2024 5.9 7.6 10.8
Portfolio Turnover
Portfolio turnover is a measure of how quickly securities in a fund are either bought or sold by the fund’s managers, over a given period of time. The rate of turnover is important for potential investors to consider, as funds that have a high rate will also have higher fees to reflect the turnover costs.
It is calculated as the average of the purchases and sales for the year divided by the average net assets for the year.
Revenue Return per Share
The revenue return per share is calculated by taking the return on ordinary activities after taxation and dividing it by the weighted average number of shares in issue during the year (see note 7 for further information).
Share Price Total Return
The total return on an investment over a specified period assuming dividends paid to shareholders were reinvested in the Company’s shares at the share price at the time the shares were quoted ex-dividend.
31 January 31 January
2024 2023
Share Price Total Return p p
Opening share price 358.0 340.0
(Decrease)/increase in share price (6.7) 19.9
Dividend paid (2.3) (1.9)
Closing share price 349.0 358.0
(Decrease)/increase in share price (1.9)% 5.8%
Impact of reinvested dividends 0.0% 0.1%
Share Price Total Return (1.9)% 5.9%
Volatility
A measure of the range of possible returns for a given security or market index.
Investment Philosophy
The graphic in the Portfolio Manager’s Review contains certain terms which are defined/explained below. Each measure is calculated for a representative Stewart Investors Asia Pacific sustainability account (managed by the same portfolio management team as the Company), unless otherwise stated.
-- Active shareis the percentage of stock holdings inthe portfolio that
differs from the MSCI AC Asia ex Japan Index, sterling adjusted with
income reinvested net of tax (the “Index”). A higher percentage reflects
a higher divergence from the Index.
-- Average age of holdingsrefers to the average age ofthe companies held in
the portfolio.
-- Holdings with net cashrefers to companies whosetotal cash is greater
than its total liabilities.
-- Holdings with stewardsrefers to companiesprimarily owned/controlled by
second or later generation of its founders, companies primarily
owned/controlled by its founder or founders and companies primarily
owned/controlled by an organisation, often established by an individual,
whose purpose is to support good causes.
-- For emissions (footprint)reporting the PortfolioManager has used the
Partnership for Carbon Accounting Financials (PCAF) methodology which
calculates a shareholder’s or lender’s share of scope 1 and 2 emissions
for each company it invests in. Scope 1 covers all direct greenhouse gas
(GHG) emissions from sources that are owned or controlled by the
reporting entity. Scope 2 covers indirect GHG emissions from the
consumption of purchased electricity, heat or steam. An investor’s share
is based on the amount invested over the Enterprise Value Including Cash
(EVIC). For example if a shareholder owns 10% of the company, it is
allocated 10% of the company’s emissions. For shareholders this is
sometimes called ‘financed’ or ‘equity share’ of emissions. To calculate
the benchmark comparisons for Stewart Investors’ strategies, they have
used the same approach by assuming benchmarks hold the same total value
of investments as comparable strategies. They provide the total
footprint, which is influenced by the size of the total value of the
investment strategy (shown in 1000s of tonnes of CO2-e) and on a ‘per $1
million invested’ basis, which is useful for comparison purposes.
-- Outperformance in down monthsshows theproportion of months where the
Composite portfolio outperformed the Index, expressed as a percentage of
the total number of months where the Index fell. An outperformance in
down months of 80% indicates that the portfolio outperformed in 8 out of
10 months where the Index fell. This measure is calculated using the
Composite.
Source for Index: FactSet
-- Downside captureis a measure of the Compositeportfolio’s overall
performance in a down market relative to the Index. A down-market is
defined as a period in which the market return is less than 0. Downside
capture reflects the portfolio’s cumulative return when the Index was
down, divided by the Index’s cumulative return when it was down. A value
of less than 100 indicates that the portfolio has lost less than the
Index during periods of negative returns for the Index. This measure is
calculated using the Composite.
-- Average name turnoveris a portfolio activitymeasure indicating how many
companies (stocks) have been sold and bought over a given period. This
is thus showing the turnover of the portfolio in terms of stock
mutation. Data shown is for the 10 years to 31 December 2023 .
-- Compositemeans the Stewart Investors Asiaex-Japan Sustainable Equity
composite, a weighted average group of accounts managed in a similar way
by the same portfolio management team that manages the Company’s
portfolio. The Composite portfolio performance is calculated on a net
basis by subtracting a model annual management fee of 0.85% from the
gross performance figures. No other expenses or costs have been taken
into account when calculating the net performance. Income is reinvested
and is included on a net of tax basis. Performance and measures are from
the Composite inception on 1 February 2006 to 31 December 2023 .
ANNOUNCEMENT ENDS
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
